SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-8899
Claire's Stores, Inc.
(Exact name of registrant as specified in its charter)
Delaware 59-0940416
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
3 S.W. 129th Avenue, Pembroke Pines, Florida 33027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 433-3900
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.05 par value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Class A Common Stock, $.05 par value
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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
At March 31, 1999, the aggregate market value of the 44,628,050 shares of
voting stock held by non-affiliates of the registrant was $1,344,420,006.
At March 31, 1999, there were outstanding 48,123,494 shares of
registrant's Common Stock, $.05 par value, and 2,887,761 shares of the
registrant's Class A Common Stock, $.05 par value, including Treasury Shares.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the 1999 Annual Meeting of Stockholders, to be
filed no later than 120 days after the end of the Registrant's Fiscal year
covered by this report, is incorporated by reference into Part III.
<PAGE>
TABLE OF CONTENTS
PART I
Item Page No.
1. Business................................................ 3
2. Properties.............................................. 6
3. Legal Proceedings....................................... 8
4. Submission of Matters to a Vote of Security Holders..... 8
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters..................................... 8
6. Selected Financial Data................................. 9
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 10-17
7A. Quantitative and Qualitative Disclosures About
Market Risks............................................ 17
8. Financial Statements and Supplementary Data............. 19-35
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 35
PART III
10. Directors and Executive Officers of the Registrant....... 35
11. Executive Compensation.................................. 35
12. Security Ownership of Certain Beneficial Owners
and Management.......................................... 35
13. Certain Relationships and Related Transactions.......... 35
PART IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K..................................... 35-37
<PAGE>
PART I
Item 1. Business
General
Claire's Stores, Inc. (the "Company"), operating through its wholly-owned
subsidiaries, Claire's Boutiques, Inc. ("Claire's"), Claire's Puerto Rico
Corp. ("CPRC"), Claire's Canada Corp. ("CCC"),Claire's Accessories UK Ltd.
("CUK"),Bijoux One Trading AG ("Bijoux"), Lux Corporation ("Lux") and its
50%-owned subsidiary Claire's Nippon Co., Ltd. ("Nippon"), is a leading
mall-based retailer of popular-priced fashion accessories and apparel
targeted towards teenagers. As of March 31, 1999, the Company operated a
total of 2,067 such stores in 50 states, Canada, the Caribbean, the United
Kingdom, Switzerland, Austria, Germany and Japan. The stores are operated
mainly under the trade names "Claire's Boutiques" or "Claire's Accessories",
"The Icing", "Claire's Etc.", "Bow Bangles" and "Bijoux One" (collectively
the "Fashion Accessory Stores")and "Mr. Rags"(the "Apparel Stores").
In January 1999, the Board of Directors authorized the discontinuance of Just
Nikki, Inc. ("Nikki"), a wholly-owned subsidiary of the Company selling
apparel and accessories targeted to female teenagers through catalogs
distributed under the "Just Nikki :)" trade name. Continued operating losses
made the discontinuance desirable despite the significant investment made by
the Company. The operations of Nikki have been accounted for as a
discontinued operation in the Company's Consolidated Financial Statements
dated as of January 30, 1999 ("Fiscal 1999") and therefore, the following
discussion does not include the operations of Nikki.
In April 1998, the Company completed its acquisition of Lux, a closely held
specialty apparel chain operating under the trade name of "Mr. Rags", in a
stock-for-stock merger. The stores specialize in selling clothing and
accessories to the male teen market. In connection with the merger, the
Company issued 2,070,286 shares of common stock in exchange for all the
outstanding common stock of Lux. The merger has been accounted for as a
pooling of interests business combination. Accordingly, all accompanying
consolidated financial information and the discussion below have been
restated to include the accounts of Lux as if the companies had combined at
the beginning of the first period presented.
In November 1998, the Company completed its acquisition of Bijoux, a
privately held 53-store fashion accessory chain. Bijoux, headquartered in
Zurich, Switzerland, became a wholly-owned subsidiary of the Company. The
transaction has been accounted for as a purchase. The purchase price was
comprised of cash and the issuance of 100,000 shares of the Company's Common
Stock. Excess purchase price over fair market value of the underlying assets
was allocated to goodwill, which will be amortized over twenty-five years.
The Fashion Accessory Stores specialize in selling popular-priced fashion
accessories designed to predominantly appeal to teenage females. Merchandise
in the Fashion Accessory Stores typically ranges in price between $2 and $20,
with the average product priced at about $4. The Fashion Accessory Stores
are similar in format and the different trade names give the Company the
ability to have multiple store locations in malls. Although the Company's
stores are operated under several different trademarks, the Company considers
that its registered trademark "Claire's" is the only one of material
significance to its business. Although the Company faces competition from a
number of small specialty store chains and others selling fashion
accessories, in addition to one chain of approximately 800 stores, the
Company believes that its Fashion Accessory Stores comprise the largest and
most successful chain of specialty retail stores in the World devoted to the
sale of popular-priced teens' fashion accessories.
Lux operates retail stores under the trade name "Mr. Rags". These stores
sell casual lifestyle, skater/urban fashion apparel and accessories for the
male teenage market. The market for Lux is highly competitive. There are
numerous specialty retail chains that target male teenagers, many of whom are
much larger than Lux. The Company believes Lux can successfully compete due
to its superior store design and merchandise focus.
The Company's operations are divided into three principal product categories.
Jewelry consists of costume jewelry, including earrings and ear piercing
services, while Accessories consists of other fashion accessories, hair
ornaments, totebags and novelty items. Apparel includes name-brand as well
as private label shirts and pants. The following table compares sales of
each product category of merchandise sold by the Company for the last three
fiscal years:
<TABLE>
<CAPTION>
Fiscal Year Ended
Jan. 30, Jan. 31, Feb. 1,
1999 1998 1997
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Jewelry $288,053 43.5% $241,955 45.1% $233,833 50.1%
Accessories 314,135 47.5 256,647 47.8 204,351 43.9
Apparel 59,668 9.0 38,152 7.1 28,116 6.0
$661,856 100.0% $536,754 100.0% $466,300 100.0%
</TABLE>
Sales of each category of merchandise vary from period to period depending on
current fashion trends. The Company experiences the traditional retail
pattern of peak sales during the Christmas, Easter and back-to-school
periods. Sales, as a percentage of total sales in each of the four quarters
of Fiscal 1999 were 20%, 22%, 24% and 34% in the first, second, third and
fourth quarters, respectively.
At March 31, 1999, the Company had approximately 11,350 employees, 57% of
whom were part-time. Part-time employees typically work up to 20 hours per
week. The Company has no collective bargaining agreements with any labor
unions and considers its employee relations to be good.
Fashion Accessory Stores
The stores operated in North America under the names Claire's Boutiques and
Claire's Accessories average approximately 960 square feet while those stores
operating under the names "The Icing" and "Claire's Etc." average 1,375
square feet and are located primarily in enclosed shopping malls. The stores
operated in the United Kingdom, Europe and Japan average 570 square feet and
are located in enclosed shopping malls and central business districts. Each
store uses Company-designed displays which permit the presentation of a wide
variety of items in a relatively small space.
<PAGE>
The stores are distinctively designed for customer identification, ease of
shopping and quantity of selection. Store hours are dictated by the mall
operators and the stores are typically open from 10:00 A.M. to 9:00 P.M.,
Monday through Saturday, and, where permitted by law, from Noon to 5:00 P.M.
on Sunday.
Virtually all sales are made in cash, although the stores also accept credit
cards. The Company permits, with restrictions on certain items, returns for
exchange or refund.
The Company purchases its merchandise from approximately 300 suppliers. The
Company is not dependent on an individual vendor for merchandise purchased.
Substantially all of the costume jewelry and fashion accessories sold are
purchased from importers or imported directly. All merchandise is shipped
from the suppliers to the Company's distribution facility in Hoffman Estates,
Illinois, a suburb of Chicago, which services the North American and Japanese
stores or the distribution facility in Birmingham, England, which services
the stores in the United Kingdom, or the distribution facilities in Zurich,
Switzerland or Vienna, Austria, which service the European stores. After
inspection, merchandise is shipped via common carrier to the individual
stores. Stores typically receive three to five shipments a week.
Except as stated below, responsibility for managing the Fashion Accessory
Stores in North America rests with the President and Chief Operating Officer
of Claire's, who reports to the President of the Company. The Company
currently employs a total of 205 District Managers, each of whom oversees
approximately ten stores in his or her respective geographic area and reports
to one of 21 Regional Managers. Each Regional Manager reports to one of five
Territorial Vice Presidents, who in turn report to the Senior Vice President
of store operations. Each store is staffed by a Manager, an Assistant
Manager and one or more part-time employees. A majority of the District
Managers have been promoted from within the organization, while a majority of
the Regional Managers were hired externally. All of the Territorial Vice
Presidents were promoted from within the organization. The reporting
structure for the Fashion Accessory Stores in the United Kingdom and Europe
are similar to the reporting structure in North America. The President of
CUK reports to the President of the Company. The President of the Bijoux
operations reports to the President of CUK.
In Fiscal 1999, the Company continued to expand its international operations
by opening 83 Fashion Accessory stores in the United Kingdom, bringing the
total number of stores operating there to 184, and by acquiring 31 stores in
Switzerland, 21 stores in Austria and one in Germany. The Company plans to
open approximately 100 stores in North America , 80 stores in the United
Kingdom and 10 to 15 stores in Canada in the fiscal year ending January 29,
2000 ("Fiscal 2000"). No store openings are planned for Continental Europe in
Fiscal 2000. Store expansion continued in Japan as the Company, with its
joint venture partner, Jusco Co., Ltd., a Japanese Company, opened a net 11
stores in Fiscal 1999, bringing the total number of stores operating in Japan
to 65. Current plans call for opening up to 38 additional stores in Japan in
Fiscal 2000.
<PAGE>
Apparel Stores
The Apparel stores are located in enclosed regional shopping malls. The
Apparel stores range in size from approximately 1,500 to 2,400 square feet
with an average size of 1,900 square feet.
The representative price range for merchandise is $2 to $217, with an average
sale of approximately $72. Cash and major credit cards are accepted for
payment.
The stores are distinctively designed and well lit, with merchandise
displayed in a manner to create visual excitement. Marketing is aimed at the
male teenager.
The Apparel stores conduct merchandise purchasing from offices in Seattle,
Washington. Distribution operations are conducted from the Company's
distribution facility in Hoffman Estates, Illinois. The merchandise is
shipped via common carrier to the stores, as required.
The President of Lux is responsible for managing the Apparel stores. The
President of Lux reports to the President of the Company. The field
organization of Lux is similar in structure to that of Claire's. Supervision
of the stores rests with the Senior Vice President of store operations who
reports to the President of Lux. The Vice President of store operations, who
reports to the Senior Vice President of store operations, supervises 12
district managers who, in turn, are responsible for overseeing approximately
7 stores in his or her geographic areas. Each store is staffed by a Manager,
Assistant Manager and part-time employees, as required.
Item 2. Properties
The Company's 2,067 stores operating as of March 31, 1999 are located in 50
states, Canada, the United Kingdom, Switzerland, Austria, Germany, the
Caribbean and Japan. The Company leases all of its store locations,
generally for terms of seven to ten years (up to 25 years in the United
Kingdom and Continental Europe). Under the leases, the Company pays a fixed
minimum rent and/or rentals based on gross sales in excess of specified
amounts. The Company also pays certain other expenses (e.g., common area
maintenance charges and real estate taxes) under the leases. The internal
layout and fixtures of each store are designed by management and constructed
under contracts with third parties.
Most of the Company's stores are located in enclosed shopping malls, while
some stores are located within central business districts and others are
located in "open-air" outlet malls. The Company actively seeks locations
that meet its criteria and opens new stores when opportunities are found
within its budget for expansion. Criteria include geographic location and
demographic aspects of communities surrounding the store site, acceptable
anchor tenants, suitable location within a mall, appropriate space
availability and proposed rental rates. In choosing new locations, the
Company generally attempts to cluster stores geographically, thus affording
economies of scale in supervision. The Company believes that sufficient
desirable locations are available to accommodate its expansion plans. The
Company refurbishes its existing stores on a regular basis.
<PAGE>
The Company has closed 148 stores in the last three fiscal years, primarily
due to not meeting Company established profit benchmarks or the unwillingness
of the landlord to renew the lease on terms acceptable to the Company. The
Company has not experienced any substantial difficulty in renewing desired
store leases and has no reason to expect any such difficulty in the future.
For each of the last three years, no individual store accounted for more than
one percent of total sales.
The Company opened or purchased, through acquisition, 286 stores during Fiscal
1999 and has opened, as of March 31, 1999, 37 stores in the first two months
of Fiscal 2000. The Company plans to continue opening stores when suitable
locations are found and satisfactory lease negotiations are concluded. The
Company's initial investment in new stores opened during the last fiscal year,
including leasehold improvements and fixtures, but excluding inventories,
averaged approximately $111,000 and $203,000 per store for a Fashion Accessory
Store and an Apparel Store, respectively.
The offices of Claire's and the distribution center for the Company's stores
in North America and Japan are located in Hoffman Estates, Illinois. This
Company-owned facility is located on 24.8 acres and consists of 520,000 total
square feet with 404,000 square feet devoted to receiving and distribution
and 116,000 square feet for office space.
The Company maintains a distribution facility and offices in Birmingham,
England which services those stores located in the United Kingdom. This
facility is leased and consists of 26,000 square feet of office and
distribution space. This lease expires on March 25, 2012. In March 1999,
CUK entered into a lease to relocate its distribution facility and office
space to accommodate the growth in the business in the United Kingdom. The
new lease commences in December 1999 and terminates in December 2024. CUK
has the right to assign or sublet this lease at any time during the term of
the lease. The new facility will consist of 25,000 square feet of office
space and 60,000 square feet of distribution space. CUK intends to assign or
sublet the old lease and does not anticipate any difficulties.
The Bijoux stores are serviced by distribution centers and offices in Zurich,
Switzerland and Vienna, Austria. The facility maintained in Zurich,
Switzerland consists of 11,600 square feet devoted to distribution and 5,400
square feet devoted to offices. The lease for this location expires on
December 31, 2001. In Vienna, Austria, the facility consists of 11,000
square feet devoted to distribution and 3,000 square feet devoted to offices.
The lease on this facility does not have an expiration date but can be
terminated by Bijoux with notice to the landlord at any time.
In August 1990, Claire's entered into a lease which expires on July 31, 2001
for 40,000 square feet of office space in Wood Dale, Illinois. Under the
terms of the lease, Claire's is required to pay taxes, utilities, insurance
costs and maintenance costs. Due to a downsizing of the corporate staff, it
was decided that the additional space would not be needed, and therefore the
space has been subleased to unrelated third parties. The subleases' terms
run parallel to the original lease.
The Company leases from Rowland Schaefer & Associates (formerly Two Centrum
Plaza Associates) approximately 33,000 square feet in Pembroke Pines, Florida,
where it maintains its executive, accounting and finance offices. Rowland
Schaefer & Associates is a general partnership of two corporate general
partners which are owned by immediate family members of the Chairman of the
Board and President of the Company, two of whom are Co-Vice Chairmen of the
Company. The lease provides for the payment by the Company of annual base
rent of approximately $573,600, which is subject to annual cost-of-living
increases, and a proportionate share of all taxes and operating expenses of
the building. The lease expires on July 31, 2000 and may be extended, at the
option of the Company, for an additional five-year term.
<PAGE>
The Company also owns 10,000 square feet of office/warehouse space in Miami,
Florida. The property is being utilized as a storage facility for the
Company. The Company also leases executive office space in New York City
under a month to month lease and is the beneficial owner of a cooperative
apartment in New York City.
Item 3. Legal Proceedings
There are no material legal proceedings pending to which the Company or any of
its subsidiaries is a party or of which any of their property is subject.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter of Fiscal 1999.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company has two classes of Common Stock, par value $.05 per share,
outstanding: Common Stock having one vote per share and Class A Common Stock
having ten votes per share. The Common Stock is traded on the New York Stock
Exchange, Inc. ("NYSE") under the symbol CLE. The Class A Common Stock has
only limited transferability and is not traded on any stock exchange or in any
organized market. However, the Class A Common Stock is convertible on a
share-for-share basis into Common Stock and may be sold, as Common Stock, in
open market transactions. The following table sets forth, for the fiscal
quarters indicated, the high and low closing prices of the Common Stock on the
NYSE Composite Tape and the per share dividends declared on the Common Stock
and the Class A Common Stock. At March 31, 1999, the approximate number of
record holders of shares of Common Stock and Class A Common Stock was 1,935
and 744, respectively.
<TABLE>
<CAPTION>
Closing Prices Dividends Dividends
of on on Class A
Common Stock Common Stock Common Stock
Year Ended January 30, 1999 High Low
<S> <C> <C> <C> <C>
First Quarter $24.13 $14.94 $.04 $.02
Second Quarter 23.50 16.94 .04 .02
Third Quarter 21.31 14.75 .04 .02
Fourth Quarter 22.75 16.19 .04 .02
Year Ended January 31, 1998
First Quarter $19.13 $13.38 $.03 $.015
Second Quarter 21.81 17.00 .03 .015
Third Quarter 24.00 19.00 .03 .015
Fourth Quarter 23.88 14.31 .03 .015
</TABLE>
<PAGE>
In 1985, the Board of Directors instituted a quarterly dividend on the Common
Stock of $.011 per share. In February 1994, the Board of Directors increased
the quarterly dividend to $.013 per share and in July 1994 declared a
quarterly dividend of $.007 per share on the Class A Common Stock. In
January 1996, the Board of Directors increased the quarterly dividend to $.02
per share on the Common Stock and $.01 per share on the Class A Common Stock.
In October 1996, the Board of Directors increased the quarterly dividend to
$.03 per share on the Common Stock and $.015 per share on the Class A Common
Stock. The Board of Directors again increased the quarterly dividend to $.04
per share on the Common Stock and $.02 per share on the Class A Common Stock
in April 1998. The Company expects to continue paying dividends; however,
there is no assurance in this regard since the declaration and payment of
dividends are within the discretion of the Board of Directors and are subject
to a variety of contingencies such as the earnings and the financial
condition of the Company.
<TABLE>
Item 6. Selected Financial Data
<CAPTION>
Fiscal Year Ended (4)
Jan. 30, Jan. 31, Feb. 1, Feb. 3, Jan. 28,
1999 1998 1997(2) 1996(1)(2) 1995(2)
(In thousands except per share amounts)
Operating Statement Data:
<S> <C> <C> <C> <C> <C>
Net sales $661,856 $536,754 $466,300 $364,347 $317,818
Income from continuing
operations 71,652 59,595 45,932 31,767 24,597
Net income 62,280 59,595 45,932 31,767 24,597
Income Per Share(3):
Basic:
From continuing
operations $ 1.41 $ 1.19 $ .92 $ .65 $ .51
Net income 1.23 1.19 .92 .65 .51
Diluted:
From continuing
operations $ 1.40 $ 1.17 $ .90 $ .64 $ .50
Net income 1.22 1.17 .90 .64 .50
Cash Dividends Per
Share:
Common stock $ .16 $ .12 $ .10 $ .053 $ .053
Class A Common stock .08 .06 .05 .027 .02
Balance Sheet Data:
Current assets $239,618 $204,198 $157,089 $108,315 $ 82,144
Current liabilities 69,091 51,264 45,906 32,196 31,267
Working capital 170,527 152,934 111,183 76,119 50,877
Total assets 394,272 317,067 252,237 194,780 164,277
Long-term obligations 10,963 8,545 5,787 4,325 6,464
Stockholders' equity 314,218 257,258 200,544 158,259 126,546
</TABLE>
<PAGE>
(1) Consists of 53 weeks.
(2) Adjusted to give effect to the three-for-two Stock splits effective
February 21, 1996 and August 29, 1996.
(3) In Fiscal 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share"
which established new guidelines for the calculation of earnings per
share. Basic earnings per share have been computed by dividing net income
by the weighted average number of shares outstanding during the year.
Diluted earnings per share have been computed assuming the exercise of
stock options, as well as their related income tax effects. Earnings per
share for all periods have been restated to reflect the provisions of this
Statement.
(4) In April 1998, the Company acquired Lux through the exchange of 2,070,286
shares of the Company's common stock for all of the outstanding common
stock of Lux. The acquisition was accounted for as a pooling of interests
and accordingly, the accompanying selected financial data has been
retroactively adjusted to include the operations of Lux for all periods
prior to the acquisition.
The Company adopted a plan to discontinue the operation of its Just Nikki
catalog segment in January 1999 (see Note 12 to the Consolidated Financial
Statements for additional details).
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following table sets forth, for the periods indicated, percentages which
certain items reflected in the financial data bear to net sales of the
Company:
<TABLE>
<CAPTION>
Fiscal Year Ended
January 30, January 31, February 1,
1999 1998 1997
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales, occupancy and
buying expenses 48.2 48.1 48.3
Gross profit 51.8 51.9 51.7
Other expenses:
Selling, general and administrative 31.5 32.1 33.1
Depreciation and amortization 3.3 3.4 3.5
Interest income, net (.9) (.9) (.6)
Loss (gain) on investments .7 (.4) -
34.6 34.1 36.0
Income from continuing operations
before income taxes 17.2 17.8 15.8
Income taxes 6.4 6.7 5.9
Income from continuing operations 10.8 11.1 9.9
Discontinued operations, net of income taxes:
Loss from discontinued operations .9 - -
Loss on disposal of discontinued
operations .5 - -
Net loss from discontinued operations 1.4 - -
Net income 9.4% 11.1% 9.9%
</TABLE>
<PAGE>
Results of Continuing Operations
From the fiscal year ended February 1, 1997("Fiscal 1997") to January 30, 1999
("Fiscal 1999"), the Company's net sales increased at a compounded annual rate
of 19%. Income from continuing operations increased from $45,932,000 in
Fiscal 1997 to $71,652,000 in Fiscal 1999. The operating results of Claire's
Nippon Co., Ltd., which are accounted for under the equity method, are not
part of the consolidated group of Claire's Stores, Inc. and therefore not
included in the following analysis. All prior year balances have been
restated to reflect the accounts of Lux as if the Companies had combined at
the beginning of the first period presented.
Fiscal 1999 Compared to Fiscal 1998
Net sales increased by $125,102,000, or 23%, to $661,856,000 in Fiscal 1999
compared to $536,754,000 for the year ended January 31, 1998 ("Fiscal 1998").
This increase resulted primarily from the net addition of 235 stores and same-
store sales increases of 7%. The same-store sales increases were mainly
attributable to an increase in the average unit retail price of merchandise
sold in Fiscal 1999 compared to Fiscal 1998 and an increase in the number of
overall transactions per store.
Cost of sales, occupancy and buying expenses increased by $60,954,000, or 24%,
to $319,067,000 in Fiscal 1999 compared to $258,113,000 in Fiscal 1998.
Principal reasons for this increase were the rise in the number of stores and
the volume of merchandise sold. As a percentage of net sales, these expenses
increased slightly to 48.2% for Fiscal 1999 compared to 48.1% for Fiscal 1998.
This increase of 10 basis points is the net result of decreased product
margins (60 basis points) due to changes in merchandise mix offset by
increased leverage of occupancy and buying expenses (50 basis points) which
are relatively fixed in nature.
Selling, general and administrative ("SG&A") expenses increased by
$36,343,000, or 21%, to $208,631,000 in Fiscal 1999 from the Fiscal 1998
level of $172,288,000. The increase noted was due to the increase in the cost
of operating the additional stores. As a percentage of net sales, these
expenses decreased to approximately 31.5% in Fiscal 1999 compared to 32.1% in
Fiscal 1998. The decrease in SG&A as a percentage of sales is primarily
attributable to the increase in same-store sales as previously discussed and
the leveraging of fixed corporate expenses with the addition of a net 235
stores.
Depreciation and amortization increased by $3,876,000, or 22%, to $21,878,000
in Fiscal 1999 from the Fiscal 1998 level of $18,002,000. The increase was
primarily due to the investment in 286 new and acquired stores, the remodeling
of approximately 100 stores and the completion of the Company's expansion of
its distribution facility in Hoffman Estates, Illinois in Fiscal 1999.
Due to the increase in cash and short-term investment levels and the absence
of long-term debt, interest income exceeded interest expense in Fiscal 1999.
As a percentage of sales, interest income, net was .9% for Fiscal 1999 which
was comparable to Fiscal 1998. The cash and cash equivalents, and short-term
investments balance during Fiscal 1999 averaged approximately $149,561,000
compared to approximately $103,117,000 in Fiscal 1998.
<PAGE>
Income taxes increased by $796,000 to $36,553,000 in Fiscal 1999 compared to
$35,757,000 in Fiscal 1998. The Company's effective tax rates declined
slightly as a result of increased profitable foreign operations which have
lower effective tax rates than the United States.
In Fiscal 1999, the Company recognized a loss on investments of $4,800,000
compared to a gain on investments of $2,099,000 in Fiscal 1998. The Fiscal
1999 loss did not result from the sale of investments but rather from the
write-down of investments, in accordance with Generally Accepted Accounting
Principles, to better reflect the current economic value of the investments.
Fiscal 1998 Compared to Fiscal 1997
Net sales increased by $70,454,000, or 15%, to $536,754,000 in Fiscal 1998
compared to $466,300,000 for Fiscal 1997. The increase for the period
resulted primarily from the addition of a net 178 stores and same-store sales
increases of approximately 3%. The same-store sales increases were mainly
attributable to an increase in the average retail value per transaction in
Fiscal 1998 compared to Fiscal 1997. This increase was realized due to an
increase in the average unit retail price in Fiscal 1998 compared to Fiscal
1997. The increase in the average unit retail was offset by a decrease in
the average units per transaction.
Cost of sales, occupancy and buying expenses increased by $33,118,000, or
15%, to $258,113,000 in Fiscal 1998 compared to $224,995,000 in Fiscal 1997.
Principal reasons for this increase were the rise in the number of stores and
the volume of merchandise sold. As a percentage of net sales, these expenses
decreased to 48.1% for Fiscal 1998 compared to 48.3% for Fiscal 1997. The
decrease as a percentage of sales was due to the Company increasing the total
merchandise purchased directly from manufacturers overseas and utilizing the
Company's ever increasing buying power to negotiate lower prices from vendors
which resulted in higher maintained markups. These efforts resulted in a
merchandise margin gain of approximately 30 basis points. This increase
would have been more acute except for the effects of the employee strike at
UPS, the Company's primary carrier used to ship merchandise from the
Company's distribution center in Hoffman Estates, Illinois to our stores in
the United States. Estimating the total cost of the strike to the Company is
not possible, as lost sales cannot be quantified. However, the Company
estimates the additional cost of transporting merchandise via other common
carriers was approximately $1,000,000. Rent, rent support and the cost of
the merchandising department, which are included in cost of sales and are
relatively fixed in nature, increased 10 basis points as a percentage of
sales from Fiscal 1998 compared to Fiscal 1997.
SG&A expenses increased by $17,778,000, or 12%, to $172,288,000 in Fiscal
1998 from the Fiscal 1997 level of $154,510,000. The increase noted was due
to the increase in the cost of operating the additional stores. As a
percentage of net sales, these expenses decreased to approximately 32.1% in
Fiscal 1998 compared to 33.1% in Fiscal 1997. The decrease in SG&A as a
percentage of sales is primarily attributable to the increase in same-store
sales as previously discussed and the leveraging of fixed corporate expenses
with the addition of 178 net stores.
Depreciation and amortization increased by $1,820,000, or 11%, to $18,002,000
in Fiscal 1998 from the Fiscal 1997 level of $16,182,000. The increase was
primarily due to the investment in 234 new stores, and the remodeling of
approximately 150 stores.
<PAGE>
Due to the increase in cash levels and the absence of long-term debt,
interest income exceeded interest expense in Fiscal 1998. As a percentage of
sales, interest income, net was .9% for Fiscal 1998 compared to .6% in Fiscal
1997. The Company had no long-term debt in Fiscal 1998 and Fiscal 1997. The
cash and cash equivalents, and short-term investments balance during Fiscal
1998 averaged approximately $103,117,000 compared to approximately
$67,000,000 in Fiscal 1997.
Income taxes increased by $8,122,000 to $35,757,000 in Fiscal 1998 compared
to $27,635,000 in Fiscal 1997. The Company's effective tax rates remained
relatively constant from fiscal year to fiscal year.
Discontinued Operations
In January 1999, the Company announced its decision to discontinue the
operations of Just Nikki, Inc. ("Nikki"), a wholly-owned subsidiary
representing its catalog segment. The operations of Nikki have been
accounted for as a discontinued operation in the Fiscal 1999 consolidated
financial statements. Nikki had no significant operations prior to Fiscal
1999. The Company is in the process of liquidating Nikki's inventory and
intends to sell or dispose of any remaining assets during the first half of
the fiscal year ending January 29, 2000 ("Fiscal 2000"). Included in accrued
expenses on the accompanying balance sheet, in connection therewith, is a
$1,160,000 reserve to fund future associated wind-down operations and costs.
Impact of Inflation
Inflation has not affected the Company, as it has generally been able to pass
along inflationary increases in its costs through increased sales prices.
Year 2000
In prior years, certain computer programs were written using two digits
rather than four to define the applicable year. These programs were written
without considering the impact of the upcoming change in the century and may
experience problems handling dates beyond the year 1999. This could cause
certain computer applications to fail or to create erroneous results unless
corrective measures are taken.
The Company has been executing a plan to identify and address any possible
deficiencies that the Year 2000 issue may have on its computer systems, which
include both proprietary and third party computer systems; related hardware,
software and data and telephone networks and information systems service
providers. This plan addresses the Year 2000 issue in multiple phases
including (i) identification of critical systems, vendors and third party
administrators that may be vulnerable to system failures or processing errors
as a result of Year 2000 issues, (ii) assessment and prioritization of
identified risks associated with the failure to be Year 2000 compliant, (iii)
testing of systems to determine Year 2000 compliance, (iv) remediation and
implementation of systems and equipment, and (v) contingency planning to
assess reasonably likely worst case scenarios. As of March 1999, the Company
has completed phases (i) and (ii), and is approximately 50% complete with
phases (iii) and (iv), referred to above. Phase (v) will be addressed in the
upcoming months. Project plans call for the completion of the solution
implementation phase and testing of those solutions by the end of 1999, prior
to any anticipated impact on the Company's systems.
<PAGE>
The Company is dependent on basic public infrastructure, such as
telecommunications and utilities, in order to function normally. Significant
long-term interruptions of this infrastructure could have an adverse effect
on the operations of the Company. Additionally, the Company must rely on
assurances from suppliers and vendors that their information systems and key
services will be Year 2000 compliant. The Company is in the process of
evaluating each major supplier, vendor and third party administrator to
assess their Year 2000 readiness and initiatives. As of March 1999, the
Company is approximately 35% complete with the process and anticipates
completion by the end of 1999. While the Company plans to validate
representations from these parties, it cannot be sure that their tests will
be adequate, or that, if problems are identified, they will be addressed in
a timely and satisfactory manner. Even if the Company, in a timely manner,
completes all of its assessments, implements and tests all remediation plans
it believes to be adequate, and develops contingency plans believed to be
adequate, some problems may not be identified or corrected in time to prevent
material adverse consequences or business interruptions to the Company.
Furthermore, there may be certain third parties such as utilities,
telecommunications companies, or vendors where alternative arrangements or
sources are limited or unavailable. The Company has not yet determined the
extent of contingency planning that may be required as this is dependent on
completion of these ongoing assessments of its vendors, suppliers and third
party administrators.
The extent and magnitude of the Year 2000 issue is difficult to predict or
quantify for a number of reasons including the lack of control over third
party systems and complexities associated with testing interconnected systems
networks and applications. The Company expects that the maximum external
cost which could be incurred in conjunction with the testing and remediation
of all hardware and software systems and applications is approximately
$350,000 through completion in 1999, of which, approximately $175,000 has
been incurred to date. Such costs have been and will be funded by the
Company's operating cash flows. This estimate of maximum costs does not
include the costs, if any, that might be incurred as a result of Year
2000-related failures that occur despite the Company's implementation of the
Year 2000 plan.
The cost of the Company's plan to address the Year 2000 issue and the
anticipated date on which the Company plans to complete the necessary Year
2000 conversion efforts are based on management's best estimates, which were
derived from numerous assumptions of future events, including the
availability of resources, vendor remediation plans, and other factors.
Although the Company is not currently aware of any material operational
issues associated with preparing its systems for the Year 2000, or material
issues with respect to the adequacy of major vendors', suppliers' or third
party administrators' systems, there can be no assurance, due to the overall
complexity of the Year 2000 issue, that the Company will not experience
material unanticipated negative consequences and/or material costs caused by
undetected errors or defects in such systems or by the Company's failure to
adequately prepare for the results of such errors or defects, including costs
or related litigation, if any. Such consequences could have a material
adverse effect on the Company's business, financial condition or results of
operations.
<PAGE>
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 ("the Act") provides a
safe harbor for forward-looking statements made by or on behalf of the
Company. The Company and its representatives may from time to time make
written or verbal forward-looking statements, including statements contained
in this and other Company filings with the Securities and Exchange Commission
and in our reports to shareholders. All statements which address operating
performance, events or developments that we expect or anticipate will occur
in the future, including statements relating to sales growth and earnings per
share growth or statements expressing general optimism about future operating
results, are forward-looking statements within the meaning of the Act. The
forward-looking statements are and will be based on management's then current
views and assumptions regarding future events and operating performance.
The following are some of the factors that could cause actual results to
differ materially from estimates contained in the Company's forward-looking
statements:
The ability to generate sufficient cash flows to support capital expansion
plans and general operating activities.
Competitive product and pricing pressures. While we believe our
opportunities for sustained, profitable growth are considerable,
unanticipated actions of competitors could impact our earnings and sales
growth.
Changes in laws and regulations, including changes in accounting standards,
taxation requirements (including tax rate changes, new tax laws and revised
tax law interpretation) and laws in domestic or foreign jurisdictions.
Fluctuations in the cost and availability of raw materials to the Company's
vendors and the ability to maintain favorable supplier arrangements and
relationships.
The ability to achieve earnings forecasts, which are generated based on
projected sales of many product types, some of which are more profitable
than others. There can be no assurance that we will achieve the projected
level or mix of product sales.
The ability to penetrate new markets, which also depends on economic and
political conditions.
The effectiveness of our marketing and promotional programs.
The uncertainties of litigation, as well as other risks and uncertainties
detailed from time to time in the Company's Securities and Exchange
Commission filings.
Adverse weather conditions, which could affect customer shopping patterns.
The ability of the Company and its suppliers to replace, modify or upgrade
computer programs in ways that adequately address the Year 2000 issue.
Changes in consumer preferences for teen apparel and fashion accessories.
The foregoing list of important factors is not exclusive.
Liquidity and Capital Resources
Company operations have historically provided a strong, positive cash flow
which, together with the Company's credit facilities, provides adequate
liquidity to meet the Company's operational needs. Cash and cash
equivalents, including short-term investments, totaled $153,304,000 at the
end of Fiscal 1999.
<PAGE>
Net cash provided by operating activities amounted to $85,816,000 in Fiscal
1999 compared to $76,954,000 in Fiscal 1998 and $59,548,000 in Fiscal 1997.
The Company's current ratio (current assets over current liabilities) was
3.5:1.0 for Fiscal 1999 and 4.0:1.0 for Fiscal 1998.
At the end of Fiscal 1999, the Company had credit lines available of
approximately $12 million with various banks to finance the Company's letters
of credit and working capital requirements. These facilities mature on
various dates in 1999. Although there is no assurance, the Company believes
that it will be able to renew these facilities on satisfactory terms and
conditions.
At the end of Fiscal 1999, the Company increased its investment in
inventories to $63,334,000, or 21%, from the Fiscal 1998 balance of
$52,437,000. During this period inventory turnover remained constant at
3.0x consistent with Fiscal 1998. The increase in inventories is due to the
Company operating 246 additional stores at the end of Fiscal 1999 compared to
Fiscal 1998 - a 14% increase. In addition, inventories on a per square foot
basis increased 5%. Management believes inventories are appropriate given
the increase in the number of stores and the level of sales currently being
achieved.
During Fiscal 1999, the Company continued to expand and remodel its store
base. Significant capital projects included the opening and purchase,
through acquisition, of 286 new stores, remodeling approximately 100 stores
and the expansion of its distribution facility located in Hoffman Estates,
Illinois to approximately 520,000 square feet from its previous size of
247,000 square feet. Funds expended for capital improvements in Fiscal 1999
totaled $45,211,000 compared to $36,306,000 in Fiscal 1998 and $20,558,000 in
Fiscal 1997. In Fiscal 2000, capital expenditures are expected to be
approximately $42,000,000 as the Company continues to invest in its store
base and technology.
The Company has significant cash balances, a consistent ability to generate
cash flow from operations and available funds under its credit lines. The
Company foresees no difficulty in maintaining its present financial condition
and liquidity and the ability to finance its capital expenditure plans and
other foreseeable future needs.
Recent Accounting Pronouncements
Effective February 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement established standards for reporting
and presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of foreign currency
translation adjustments and is presented in the consolidated statements of
income and stockholders' equity. The statement requires only additional
disclosures in the consolidated financial statements; it does not affect the
Company's financial position, results of operations or cash flows. Prior
year financial statements have been reclassified to conform to the
requirements of SFAS No. 130.
Effective February 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This statement
established standards for the way public business enterprises report
information about operating segments in their financial statements; it does
not affect the Company's consolidated financial position, results of
operations or cash flows.
<PAGE>
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5"), "Reporting of the Costs of Start-up
Activities." SOP 98-5 is effective for financial statements issued for years
beginning after December 15, 1998; therefore, the Company will be required to
implement its provisions in the first quarter of Fiscal 2000. SOP 98-5
requires that pre-opening costs be expensed as incurred. Adoption of this
statement will not have a material impact on the Company's financial
position, results of operations or cash flows.
The Company adopted SFAS No. 128, "Earning Per Share", in Fiscal 1998. In
accordance with SFAS No. 128, the Company has presented both basic net income
per share and diluted net income per share in the financial statements.
Earnings per share for all periods have been restated to reflect the
provisions of this statement.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
Foreign Currency
The Company is exposed to foreign currency exchange rate fluctuations on the
U.S. dollar value of foreign currency denominated transactions. Based on the
Company's average net currency positions in Fiscal 1999, the potential loss
due to a 10% adverse change on foreign currency exchange rates is immaterial.
Interest Rates
The Company's exposure to market risk for changes in interest rates is
limited to its cash, cash equivalents and short-term investment portfolio.
Based on the Company's average invested cash balances during Fiscal 1999, a
10% decrease in the average effective interest rate in Fiscal 1999 would not
materially impact the Company's annual interest income.
Item 8. Financial Statements and Supplementary Data Page No.
Independent Auditors' Report 18
Consolidated Balance Sheets as of January 30, 1999 and
January 31, 1998 19
Consolidated Statements of Income and Comprehensive Income
for the three fiscal years ended January 30, 1999 20
Consolidated Statements of Changes in Stockholders' Equity
for the three fiscal years ended January 30, 1999 21
Consolidated Statements of Cash Flows for
the three fiscal years ended January 30, 1999 22
Notes to Consolidated Financial Statements 23-33
Selected Quarterly Financial Data (Unaudited) 34
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Claire's Stores, Inc.
We have audited the accompanying consolidated balance sheets of Claire's
Stores, Inc. and subsidiaries as of January 30, 1999 and January 31, 1998,
and the related consolidated statements of income and comprehensive income,
changes in stockholders' equity and cash flows for each of the years in the
three-year period ended January 30, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Claire's
Stores, Inc. and subsidiaries as of January 30, 1999 and January 31, 1998,
and the results of their operations and their cash flows for each of the
years in the three-year period ended January 30, 1999 in conformity with
generally accepted accounting principles.
/S/KPMG LLP
Fort Lauderdale, Florida
March 26, 1999
<PAGE>
<TABLE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Jan. 30, Jan. 31,
1999 1998
(In thousands)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $117,546 $122,491
Short-term investments 35,758 10,215
Inventories 63,334 52,437
Prepaid expenses and other current
assets 22,980 19,055
Total current assets 239,618 204,198
Property and equipment:
Land and building 15,969 8,827
Furniture, fixtures and equipment 123,390 100,976
Leasehold improvements 94,421 80,575
233,780 190,378
Less accumulated depreciation
and amortization (118,272) (97,810)
115,508 92,568
Other assets 39,146 20,301
$394,272 $317,067
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable to bank $ 893 $ 1,600
Trade accounts payable 23,165 20,065
Income taxes payable 16,803 10,691
Accrued expenses 26,199 17,442
Dividends payable 2,031 1,466
Total current liabilities 69,091 51,264
Deferred credits 10,963 8,545
Stockholders' equity:
Preferred stock, par value $1.00 per
share; authorized 1,000,000 shares,
issued and outstanding 0 shares - -
Class A common stock, par value $.05 per
share; authorized 20,000,000 shares,
issued 2,891,074 shares and 2,904,745
shares 145 145
Common stock, par value $.05 per
share; authorized 150,000,000 shares,
issued 48,024,707 shares and 47,645,701
shares 2,401 2,382
Additional paid-in capital 25,398 22,053
Accumulated other comprehensive income (895) (558)
Retained earnings 287,621 233,688
314,670 257,710
Treasury stock, at cost (109,882 shares) (452) (452)
314,218 257,258
Commitments and contingencies
$394,272 $317,067
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<CAPTION>
Fiscal Year Ended
Jan. 30, Jan. 31, Feb. 1,
1999 1998 1997
(In thousands except per share amounts)
<S> <C> <C> <C>
Net sales $661,856 $536,754 $466,300
Cost of sales, occupancy and
buying expenses 319,067 258,113 224,995
Gross profit 342,789 278,641 241,305
Other expenses:
Selling, general and
administrative 208,631 172,288 154,510
Depreciation and amortization 21,878 18,002 16,182
Interest income, net (6,256) (4,902) (2,954)
Loss (gain) on investments 4,800 (2,099) -
229,053 183,289 167,738
Income from continuing operations
before income taxes 113,736 95,352 73,567
Income taxes 42,084 35,757 27,635
Income from continuing operations 71,652 59,595 45,932
Discontinued operations:
Loss from discontinued operations
(less applicable income taxes of
$3,718) 6,285 - -
Loss on disposal of discontinued
operations (less applicable income
taxes of $1,813) 3,087 - -
Net loss from discontinued operations 9,372 - -
Net income 62,280 59,595 45,932
Other comprehensive income:
Foreign currency translation
adjustments (337) (619) 83
Comprehensive income $ 61,943 $ 58,976 $ 46,015
Net income (loss) per share:
Basic:
From continuing operations $ 1.41 $ 1.19 $ .92
From discontinued operations (.18) - -
Net income $ 1.23 $ 1.19 $ .92
Diluted:
From continuing operations $ 1.40 $ 1.17 $ .90
From discontinued operations (.18) - -
Net income $ 1.22 $ 1.17 $ .90
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Accumulated
Class A Additional Other
Common Common Paid-In Comprehensive Retained Treasury
Stock Stock Capital Income Earnings Stock Total
(In thousands)
Balance,
<S> <C> <C> <C> <C> <C> <C> <C>
February 3, 1996 $ 96 $1,591 $ 16,288 $ (22) $141,958 $ (768) $159,143
Net income - - - - 45,932 - 45,932
Class A Common Stock
converted to Common
Stock 1 (1) - - - - -
Stock options exercised - 26 60 - - 4,558 4,644
Purchase of Treasury
Stock - - - - - (4,242) (4,242)
Cash dividends ($.10 per
Common share and $.05
per Class A Common
share) - - - - (4,639) - (4,639)
Three-for-two stock
split 49 748 - - (797) - -
Distributions to former
shareholders of pooled
entity - - - - (977) - (977)
Tax benefit from
exercised stock
options - - 600 - - - 600
Foreign currency
translation adjustment - - - 83 - - 83
Balance,
February 1, 1997 146 2,364 16,948 61 181,477 (452) 200,544
Net income - - - - 59,595 - 59,595
Class A Common Stock
converted to Common
Stock (1) 1 - - - - -
Stock options exercised - 17 1,705 - - - 1,722
Cash dividends ($.12 per
Common share and $.06
per Class A Common
share) - - - - (5,622) - (5,622)
Distributions to former
shareholders of pooled
entity - - - - (1,762) - (1,762)
Tax benefit from
exercised stock
options - - 3,400 - - - 3,400
Foreign currency
translation adjustment - - - (619) - - (619)
Balance,
January 31, 1998 145 2,382 22,053 (558) 233,688 (452) 257,258
Net income - - - - 62,280 - 62,280
Issued shares for
acquisition - 5 1,876 - - - 1,881
Stock options exercised - 14 419 - - - 433
Cash dividends ($.16 per
Common share and $.08
per Class A Common
share) - - - - (7,892) - (7,892)
Distributions to former
shareholders of pooled
entity - - - - (455) - (455)
Tax benefit from
exercised stock
options - - 1,050 - - - 1,050
Foreign currency
translation adjustment - - - (337) - - (337)
Balance,
January 30, 1999 $ 145 $2,401 $ 25,398 $ (895) $287,621 $(452) $314,218
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Fiscal Year Ended
Jan. 30, Jan. 31, Feb. 1,
1999 1998 1997
(In thousands)
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 62,280 $ 59,595 $ 45,932
Adjustments to reconcile net income to
net cash provided by operating activities:
Loss from discontinued operations, net of
tax benefit 6,285 - -
Loss on disposal of discontinued operations,
net of tax benefit 3,087 - -
Depreciation and amortization 21,878 18,002 16,182
Deferred income taxes (1,484) 213 (500)
Loss on retirement of property and
equipment 1,703 1,671 1,935
Loss on investments 4,800 - -
Change in assets and liabilities, net of
effects of companies purchased:
(Increase) in -
Inventories (9,711) (4,380) (10,766)
Prepaid expenses and other assets (12,719) (5,624) (6,863)
Increase in -
Trade accounts payable 2,441 1,448 6,147
Income taxes payable 6,103 860 3,631
Accrued expenses 6,578 2,411 2,702
Deferred credits 2,418 2,758 1,148
Net cash provided by continuing operations 93,659 76,954 59,548
Net cash used by discontinued operations (7,843) - -
Net cash provided by operating activities 85,816 76,954 59,548
Cash flows from investing activities:
Acquisition of property and equipment (45,211) (36,306) (20,558)
Purchases of short-term investments, net (28,842) (290) (9,925)
Capital expenditures of discontinued
operations (185) - -
Purchase of Bijoux One, net of cash
acquired (7,815) - -
Net cash used in investing activities (82,053) (36,596) (30,483)
Cash flows from financing activities:
Principal (payments) borrowings on debt (1,617) 1,600 -
Proceeds from stock options exercised 1,482 5,087 1,638
Dividends paid (7,781) (5,606) (4,174)
Distributions to former shareholders of
pooled entity (455) (2,739) -
Purchase of treasury stock - - (1,235)
Net cash used in financing activities (8,371) (1,658) ( 3,771)
Effect of foreign currency exchange rate
changes on cash and cash equivalents (337) (619) 83
Net increase (decrease) in cash and cash
equivalents (4,945) 38,081 25,377
Cash and cash equivalents at beginning of
year 122,491 84,410 59,033
Cash and cash equivalents at end of year $117,546 $122,491 $ 84,410
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Claire's Stores, Inc., a Delaware Corporation, and
subsidiaries (collectively the "Company"), is a leading retailer of popular
priced fashion accessories and apparel targeted towards teenagers. The
Company operates stores throughout the United States, Canada, the Caribbean,
United Kingdom, Switzerland, Austria, Germany and Japan.
Principles of Consolidation/Reclassifications - The consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. All material intercompany balances and transactions have been
eliminated in consolidation. In January 1999, the Company adopted a plan to
discontinue its Just Nikki Inc. ("Nikki") catalog segment. In April 1998,
the Company completed its acquisition of Lux Corporation ("Lux"), which was
accounted for as a pooling-of-interest business combination. As a result of
these two transactions, the consolidated financial statements and notes
thereto have been reclassified for all periods presented.
Fiscal Year - The Company's fiscal year ends on the Saturday closest to
January 31. Fiscal years 1999, 1998 and 1997 each consisted of 52 weeks.
Cash and Cash Equivalents - The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
Short-term Investments - These investments consist of highly liquid debt
instruments purchased with a maturity greater than three months but less than
one year and equity securities. At January 30, 1999, the Company classified
its debt and equity securities as available for sale. Available for sale
securities are recorded at fair value. Unrealized holding gains and losses,
net of the related tax effect, on available for sale securities are excluded
from earnings and are reported as a separate component of stockholders'
equity until realized. Realized gains and losses from the sale of available
for sale securities are determined on a specific identification basis.
A decline in the market value of any available for sale security below cost
that is deemed to be other than temporary results in a reduction in carrying
amount to fair value. The impairment is charged to earnings and a new cost
basis for the security is established. Dividend and interest income are
recognized when earned.
Inventories - Merchandise inventories are stated at the lower of cost or
market. Cost is determined by the first-in, first-out basis using the retail
method.
Property and Equipment - Property and equipment are recorded at cost.
Depreciation is computed on the straight-line method over the estimated
useful lives of the building and the furniture, fixtures and equipment, which
range from three to twenty-five years. Amortization of leasehold
improvements is computed on the straight-line method based upon the shorter
of the estimated useful lives of the assets or the terms of the respective
leases.
<PAGE>
Goodwill - Goodwill, which is included in "Other assets" in the accompanying
balance sheets, represents the excess of purchase price over the fair value
of net assets acquired. It is amortized on a straight-line basis over the
expected periods to be benefitted, generally twenty-five years. The Company
continually evaluates the recoverability of goodwill by assessing current
facts and circumstances and expectations of operating income and cash flow
for each acquired entity.
Net Income Per Share - Basic net income per share is based on the weighted
average number of shares of Class A Common Stock and Common Stock outstanding
during the period (50,649,000 shares in Fiscal 1999, 50,222,000 shares in
Fiscal 1998 and 49,661,000 shares in Fiscal 1997). Diluted net income per
share includes the dilutive effect of stock options (51,108,000 shares in
Fiscal 1999, 51,132,000 shares in Fiscal 1998 and 50,910,000 shares in Fiscal
1997). Options to purchase 161,000 and 124,000 shares of common stock, at
prices ranging from $19.73 to $22.88 per share and $19.73 to $22.38 per
share, respectively, were outstanding for the years ended January 30, 1999
and January 31, 1998, respectively, but were not included in the computation
of diluted earnings per share because the options' exercise prices were
greater than the average market price of the common shares for the respective
fiscal year.
Income Taxes - The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109 which generally
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statements and tax bases of assets and liabilities, using enacted tax rates
in effect for the year in which the differences are expected to reverse. In
addition, SFAS No. 109 requires the adjustment of previously deferred income
taxes for changes in tax rates under the liability method.
Foreign Currency Translation - The financial statements of the Company's
foreign operations are translated into U.S. dollars. Assets and liabilities
are translated at current exchange rates while income and expense accounts
are translated at the average rates in effect during the year. Resulting
translation adjustments are accumulated as a component of stockholders'
equity. Foreign currency gains and losses resulting from transactions
denominated in foreign currencies, including intercompany transactions,
except for intercompany loans of a long-term investment nature, are included
in results of operations.
Fair Value of Financial Instruments - The Company's financial instruments
consist primarily of current assets and current liabilities. Current assets
and liabilities are stated at fair market value.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE>
Impairment of Long-Lived Assets - The Company accounts for long-lived assets
in accordance with the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
Recent Accounting Pronouncements - Effective February 1, 1998, the Company
adopted SFAS No. 130, "Reporting Comprehensive Income." This statement
established standards for reporting and presentation of comprehensive income
and its components in a full set of financial statements. Comprehensive
income consists of foreign currency translation adjustments and is presented
in the consolidated statements of income and stockholders' equity. The
statement requires only additional disclosures in the consolidated financial
statements; it does not affect the Company's financial position, results of
operations or cash flows. Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.
Effective February 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This statement
established standards for the way public business enterprises report
information about operating segments in their financial statements; it does
not affect the Company's consolidated financial position, results of
operations or cash flows.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5"), "Reporting of the Costs of Start-up
Activities." SOP 98-5 is effective for financial statements issued for years
beginning after December 15, 1998; therefore, the Company will be required to
implement its provisions in the first quarter of Fiscal 2000. SOP 98-5
requires that pre-opening costs be expensed as incurred. Adoption of this
statement will not have a material impact on the Company's financial
position, results of operations or cash flows.
The Company adopted SFAS No. 128, "Earning Per Share", in Fiscal 1998. In
accordance with SFAS No. 128, the Company has presented both basic net income
per share and diluted net income per share in the financial statements.
Earnings per share for all periods have been restated to reflect the
provisions of this statement.
2. CREDIT FACILITIES
The Company has an unsecured revolving line of credit of $10 million with a
bank for letters of credit and working capital needs. Interest on the
outstanding balance is at the bank's prime rate. The credit agreement
matures on July 31, 1999. At January 30, 1999 and January 31, 1998, no
borrowings were outstanding under this line of credit.
<PAGE>
The Company's non-U.S. subsidiaries have credit facilities totaling
approximately $2,225,000 with a bank. The facilities are used for working
capital requirements, letters of credit and various guarantees. These credit
facilities have been arranged in accordance with customary lending practices
in their respective countries of operation. At January 30, 1999, the
borrowings totaled $893,000,bear interest at rates ranging from 3.5% to 3.38%
and mature within six months.
In Fiscal 1998, Lux had an unsecured revolving line of credit of $2 million
with a bank which was guaranteed by two former stockholders of Lux and which
required those stockholders to maintain liquid assets in the form of cash
and/or readily marketable securities in the minimum amount of $1,000,000.
Interest on the outstanding balance was at the bank's prime rate plus .75%
and there was a .25% facility fee. At January 31, 1998, $1,600,000 was
outstanding, representing the maximum borrowings during the fiscal year under
the line of credit. The credit agreement matured in April 1998, was paid in
full and was not renewed.
<TABLE>
3. INCOME TAXES
Income before income taxes from continuing operations is as follows:
<CAPTION>
Fiscal Year Ended
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
Domestic $ 91,461 $ 85,159 $ 70,832
Foreign 21,275 10,193 2,735
$113,736 $ 95,352 $ 73,567
The components of income tax expense (benefit) consist of the following:
Fiscal Year Ended
Jan. 30, Jan. 31, Feb. 1,
1999 1998 1997
(In thousands)
Federal:
Current $ 32,095 $ 28,385 $ 24,551
Deferred (1,266) 191 (448)
30,829 28,576 24,103
State:
Current 4,473 3,659 2,959
Deferred (218) 22 (52)
4,255 3,681 2,907
Foreign:
Current 7,000 3,500 625
Total income tax expense
from continuing operations 42,084 35,757 27,635
Tax benefit of discontinued
operations (5,531) - -
Total income tax expense $ 36,553 $ 35,757 $ 27,635
</TABLE>
<PAGE>
<TABLE>
The approximate tax effect on each type of significant components of the
Company's net deferred tax asset are as follows:
<CAPTION>
Fiscal Year Ended
Jan. 30, Jan. 31,
1999 1998
(In thousands)
<S> <C> <C>
Depreciation $ 3,151 $ 3,453
Accrued expenses 4,073 1,742
Deferred rent 2,009 1,619
Loss on investments 1,286 -
Operating leases (1,109) -
Inventory reserves 543 -
Other 547 304
</TABLE>
$10,500 $ 7,118
The Company believes that the realization of the deferred tax assets is more
likely than not, based on the expectation that the Company will generate the
necessary taxable income in future periods.
<TABLE>
The provision for income taxes from continuing operations differs from an
amount computed at the statutory rates as follows:
<CAPTION>
Jan. 30, Jan. 31, Feb. 1,
1999 1998 1997
<S> <C> <C> <C>
U.S. income taxes at
statutory rates 35% 35% 35%
Foreign income tax benefit
at less than domestic rates (1) - -
State and local income taxes,
net of federal tax benefit 3 3 3
37% 38% 38%
</TABLE>
As of January 30, 1999, there are accumulated unremitted earnings from the
Company's United Kingdom subsidiary on which deferred taxes have not been
provided as the undistributed earnings of the foreign subsidiary are
indefinitely reinvested. Based on the current United States and United
Kingdom income tax rates, it is estimated that United States taxes, net of
foreign tax credits, of approximately $650,000 would be due.
4. STOCKHOLDERS' EQUITY
Stock Splits - In January 1996 and August 1996, the Company's Board of
Directors declared 3-for-2 stock splits of its Common stock and Class A
common stock in the form of 50% stock dividend distributions.
On February 21, 1996 and September 12, 1996, 14,860,020 and 14,954,616
shares, respectively, of Common stock and 980,711 and 975,933 shares,
respectively, of Class A common stock were distributed to stockholders of
record as of February 7, 1996 and August 29, 1996. Stockholders' equity has
been adjusted to give recognition of the stock splits by reclassifying from
retained earnings to the Common stock and Class A common stock accounts the
par value of the additional shares arising from the splits. All references
in the financial statements to number of shares, per share amounts, stock
option data and market prices of the Company's stock have been restated.
<PAGE>
Preferred Stock - The Company has authorized 1,000,000 shares of $1 par value
preferred stock, none of which has been issued. The rights and preferences of
such stock may be designated in the future by the Board of Directors.
Class A Common Stock - The Class A common stock has only limited
transferability and is not traded on any stock exchange or any organized
market. However, the Class A common stock is convertible on a share-for-share
basis into Common stock and may be sold, as Common stock, in open market
transactions. The Class A common stock has ten votes per share. Dividends
declared on the Class A common stock are limited to 50% of the dividends
declared on the Common stock.
Treasury Stock - Treasury stock acquired is recorded at cost. Occasionally,
the Company uses treasury stock to fulfill its obligations under its stock
option plans. When stock is issued pursuant to the stock option plans, the
difference between the cost of treasury stock issued and the option price is
charged or credited to additional paid-in capital.
5. STOCK OPTIONS
In August 1996, the Board of Directors of the Company adopted, and on June
16, 1997 the Company's stockholders approved, the Claire's Stores, Inc. 1996
Stock Option Plan (the "1996 Plan"). The 1996 Plan replaced the Company's
1991 Stock Option Plan (the "1991 Plan"), which had replaced the Company's
1982 Incentive Stock Option Plan (the "1982 Plan") and the Company's 1985
Non-Qualified Stock Option Plan (the "1985 Plan"), although options granted
under the 1991 Plan remain outstanding. Under the 1996 Plan, the Company may
grant either incentive stock options or non-qualified stock options to
purchase up to 3,000,000 shares of Common Stock, plus any shares unused or
recaptured under the 1982 Plan, the 1985 Plan or the 1991 Plan. Incentive
stock options granted under the 1996 Plan are exercisable at prices equal to
the fair market value of shares at the date of grant, except that incentive
stock options granted to any person holding 10% or more of the total combined
voting power or value of all classes of capital stock of the Company, or any
subsidiary of the Company, carry an exercise price equal to 110% of the fair
market value at the date of grant. The aggregate number of shares granted to
any one person may not exceed 500,000, and no stock option may be exercised
less than one year after the date granted. Each incentive stock option or
non-qualified stock option will terminate ten years after the date of grant
(or such shorter period as specified in the grant) and may not be exercised
thereafter.
Incentive stock options currently outstanding are exercisable at various
rates beginning one year from the date of grant, and expire five to ten years
after the date of grant. Non-qualified stock options currently outstanding
are exercisable at prices equal to the fair market value of the shares, or
one dollar below the fair market value, at the date of grant and expire five
to ten years after the date of grant.
<PAGE>
At January 30, 1999, options to purchase 482,487 and 2,500 shares of Common
Stock were exercisable under the 1991 Plan and 1996 Plan, respectively. No
options were exercisable under the 1982 Plan or 1985 Plan as of January 30,
1999. Options to purchase an additional 359,351 and 377,950 shares were
outstanding, but not yet exercisable, at January 30, 1999 under the 1991 Plan
and 1996 Plan, respectively. There were 3,407,506 shares of Common stock
available for future option grants under the 1996 Plan at January 30, 1999.
The weighted average exercise price of options under the 1991 Plan and 1996
Plan as of January 30, 1999 was $10.96 and $19.74, respectively, compared to
$9.86 and $21.64 under the 1991 Plan and 1996 Plan, respectively as of
January 31, 1998. No options were outstanding under the 1982 and 1985 Plans
as of January 30, 1999.
The per share weighted average fair value of stock options granted during the
fiscal years ended January 30, 1999, January 31, 1998 and February 1, 1997
was $19.27, $21.64 and $8.74, respectively.
<TABLE>
Transactions and other information relating to the 1982 Plan, 1985 Plan, 1991
Plan and the 1996 Plan are summarized as follows:
<CAPTION>
1982 Plan 1985 Plan 1991 Plan 1996 Plan Range of
Number of Number of Number of Number of option price
shares shares shares shares per share
Outstanding,
<C> <C> <C> <C> <C> <C> <S><C>
February 3, 1996 154,688 78,750 1,794,487 - $2.89 - $8.72
Granted - - 600,000 - 10.17 - 21.25
Exercised (92,813) - (320,948) - 2.89 - 8.72
Canceled (5,625) - (1,125) - 5.22 - 5.22
Outstanding,
February 1, 1997 56,250 78,750 2,072,414 - 3.11 - 21.25
Granted - - - 65,000 17.75 - 22.38
Exercised - - (300,531) - 3.11 - 11.75
Canceled (6,250) (7,875) (491,614) - 5.11 - 21.25
Outstanding,
January 31, 1998 50,000 70,875 1,280,269 65,000 4.67 - 22.38
Granted - - - 455,000 16.44 - 22.88
Exercised (50,000) (70,875) (209,888) (550) 4.67 - 17.75
Canceled - - (228,540) (139,000) 5.11 - 22.38
Outstanding,
January 30, 1999 - - 841,841 380,450 5.11 - 22.88
</TABLE>
At January 30, 1999, the weighted-average remaining contractual life of
outstanding options was 5.79 years and 8.71 years for the 1991 Plan and 1996
Plan, respectively.
<PAGE>
<TABLE>
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation",
issued in October 1995. As permitted under the provisions of SFAS No. 123,
the Company applies APB Opinion 25 and related Interpretations in accounting
for its stock option plans and, accordingly, does not recognize compensation
cost. If the Company had elected to recognize compensation cost based on the
fair value of the options granted at grant date as prescribed by SFAS No.
123, net income and earnings per share would have been reduced to the pro
forma amounts indicated in the table below (in thousands except per share
amounts):
<CAPTION>
Fiscal Year Ended
1999 1998 1997
<S> <C> <C> <C>
Net income - as reported $62,280 $59,595 $45,932
Net income - pro forma 61,971 59,227 45,215
Diluted net income per share - as reported 1.22 1.17 .90
Diluted net income per share - pro forma 1.21 1.16 .89
</TABLE>
<TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Expected dividend yield .72% .62% .67%
Expected stock price volatility36.62% 36.21% 38.05%
Risk-Free interest rate 5.50% 6.00% 6.50%
Expected life of options 4.5 and 9.5 years 4.5 and 9.5 years 4.5 and 9.5 years
</TABLE>
6. EMPLOYEE BENEFIT PLANS
The Company has adopted a Profit Sharing Plan under Section 401(k) of the
Internal Revenue Code. This plan allows employees who serve more than 1,000
hours per year to defer up to 18% of their income through contributions to
the plan. In line with the provisions of the plan, for every dollar the
employee contributes the Company will contribute an additional $.50, up to 2%
of the employee's salary. In Fiscal 1999, Fiscal 1998 and Fiscal 1997, the
cost of Company matching contributions was $378,000, $381,000 and $378,000,
respectively.
Prior to the Lux merger (see Note 11), Lux had a profit sharing plan covering
all employees over 21 years old with over one year of service. Lux's
contributions to the plan were discretionary. The Company intends to
discontinue this plan during Fiscal 2000.
<PAGE>
7. COMMITMENTS
<TABLE>
The Company leases retail stores, offices and warehouse space and certain
equipment under operating leases which expire at various dates through the
year 2025 with options to renew certain of such leases for additional
periods. The lease agreements covering retail store space provide for
minimum rentals and/or rentals based on a percentage of net sales. Rental
expense for each of the three fiscal years ended January 30, 1999 was as
follows:
<CAPTION>
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
Minimum rentals $75,749 $62,362 $54,471
Rentals based on net sales 1,975 1,641 1,546
Other rental expense-equipment 13,565 10,534 9,286
Total rental expense $91,289 $74,537 $65,303
</TABLE>
<TABLE>
Minimum aggregate rental commitments under non-cancelable operating leases
are summarized by fiscal year ending as follows:
(In thousands)
<C> <C>
2000 $ 90,662
2001 83,869
2002 76,550
2003 69,566
2004 62,401
Thereafter 236,493
$619,541
</TABLE>
Certain leases provide for payment of real estate taxes, insurance and other
operating expenses of the properties. In other leases, some of these costs
are included in the basic contractual rental payments.
8. STATEMENTS OF CASH FLOWS
Payments of income taxes were $33,299,000 in Fiscal 1999, $30,441,000 in
Fiscal 1998 and $24,022,000 in Fiscal 1997. Payments of interest were
$67,000 in Fiscal 1999, $270,000 in Fiscal 1998 and $96,000 in Fiscal 1997.
9. RELATED PARTY TRANSACTIONS
The Company leases from Rowland Schaefer & Associates (formerly Two Centrum
Plaza Associates) approximately 33,000 square feet of office space in a
building where it maintains its executive and accounting and finance offices.
The lease for this space expires on July 31, 2000 and may be extended at the
option of the Company for an additional five-year term. Rowland Schaefer &
Associates is a general partnership of two corporate general partnerships
which are owned by immediate family members of the Chairman of the Board and
President of the Company, two of whom are Co-Vice Chairmen of the Company.
The lease provides for the payment by the Company of annual base rent of
approximately $573,600, which is subject to annual cost-of-living increases,
and a proportionate share of all taxes and operating expenses of the
building.
10. SEGMENT REPORTING
The Company is primarily organized based on the geographic markets in which
it operates. Under this organizational structure, the Company currently has
three reportable segments: North America, United Kingdom and Europe. The
Company's reportable segments are managed separately because each geographic
market requires different marketing strategies and maintains separate local
offices and distribution centers.
<PAGE>
<TABLE>
Information about the Company's operations by segment is as follows
(in thousands):
<CAPTION>
Fiscal Year Ending
1999 1998 1997
Net sales:
<S> <C> <C> <C>
North America $579,442 $503,202 $450,841
United Kingdom 76,900 33,552 15,459
Europe 5,514 - -
Total net sales $661,856 $536,754 $466,300
Operating income:
North America $113,831 $ 99,101 $ 85,950
United Kingdom 19,687 7,252 845
Europe 640 - -
Total operating income 134,158 106,353 86,795
Depreciation and amortization 21,878 18,002 16,182
Interest income, net (6,256) (4,902) (2,954)
Loss (gain)on investments 4,800 (2,099) -
Income from continuing
operations before income
taxes $113,736 $ 95,352 $ 73,567
Identifiable assets:
North America $205,423 $166,657 $147,603
United Kingdom 42,748 17,896 5,760
Europe 6,998 - -
Corporate 139,103 132,514 98,874
Total assets $394,272 $317,067 $252,237
Capital expenditures:
North America $ 34,632 $ 28,637 $ 19,228
United Kingdom 10,579 7,669 1,330
Europe - - -
$ 45,211 $ 36,306 $ 20,558
</TABLE>
Identifiable assets are those assets that are identified with the operations
of each segment. Corporate assets consist mainly of cash and cash
equivalents, investments in affiliated companies and other assets.
<PAGE>
11. ACQUISITIONS
<TABLE>
In April 1998, the Company completed its acquisition of Lux, a closely held
specialty apparel chain operating under the name of "Mr. Rags," in a
stock-for-stock merger. The stores specialize in selling clothing and
accessories to the male teen market. In connection with the merger, the
Company issued 2,070,286 shares of common stock in exchange for all the
outstanding common stock of Lux. The merger has been accounted for as a
pooling of interests business combination. Accordingly, the accompanying
consolidated financial statements have been restated to include the accounts
of Lux as if the companies had combined at the beginning of the first period
presented. Prior to the merger, Lux's fiscal year ended on November 30. In
recording the business combination, Lux's prior year financial statements
have been restated to conform with the Company's fiscal year end. Net
sales and net income of the separate entities for the periods preceding the
merger are as follows (in thousands):
<CAPTION>
Three Months
Ended Fiscal Year Ended
May 2, 1998 1998 1997
(unaudited)
Net sales:
<S> <C> <C> <C> <C>
Claire's Stores, Inc. and
subsidiaries $ 123,775 $500,152 $440,184
Lux Corporation 9,187 36,602 26,116
Combined $ 132,962 $536,754 $466,300
Net income:
Claire's Stores, Inc. and
subsidiaries $ 9,584 $ 58,189 $ 45,130
Lux Corporation 357 1,406 802
Combined $ 9,941 $ 59,595 $ 45,932
</TABLE>
In November 1998, the Company completed its acquisition of Bijoux One Trading
AG ("Bijoux"), a privately held 53-store fashion accessory chain. Bijoux,
headquartered in Zurich, Switzerland, became a wholly-owned subsidiary of the
Company. The transaction has been accounted for as a purchase and,
accordingly, Bijoux's operations have been consolidated with the Company as of
November 1, 1998. The $9.4 million purchase price was comprised of cash and
the issuance of 100,000 shares of the Company's stock, valued at $1.9
million. Excess purchase price over fair market value of the underlying
assets was allocated to goodwill, which will be amortized over twenty-five
years. Operating results on a pro forma basis, including Bijoux as if the
purchase had occurred at the beginning of the periods presented, are not
disclosed due to immateriality.
12. DISCONTINUED OPERATION
In January 1999, the Company announced its decision to discontinue the
operations of Nikki, a wholly-owned subsidiary representing its catalog
segment. The operations of Nikki have been accounted for as a discontinued
operation in the Fiscal 1999 consolidated financial statements. Nikki had no
significant operations prior to Fiscal 1999. The Company is in the process of
liquidating Nikki's inventory and intends to sell or dispose of any remaining
assets during the first half of Fiscal 2000. Included in accrued expenses on
the accompanying balance sheet, is a $1,160,000 reserve to fund future
associated wind-down operations and costs. Nikki's net sales during Fiscal
1999 were $14,717,000.
13. SUBSEQUENT EVENT
In May 1996, the Company entered into an agreement (the "agreement") with the
former sole shareholder of one of the Company's subsidiaries. The agreement
provided the individual with the right to purchase up to 20% of the
outstanding shares, (the "shares") of the subsidiary at a specified price. As
part of the agreement, the Company has the right to serve on the individual an
offer notice to purchase such shares. The offer notice shall constitute an
irrevocable offer to purchase such shares at market value.
In February 1999, the individual exercised the right to purchase the shares
pursuant to the agreement and the Company served the individual with an offer
notice. The individual accepted the offer notice and in February 1999, the
Company paid $18,000,000 to the individual for the shares and recorded this
amount as goodwill.
<PAGE>
<TABLE>
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
<CAPTION>
Fiscal Year Ended January 30, 1999 (2)
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $131,492 $148,482 $157,089 $224,793 $661,856
Gross profit 66,046 74,738 77,369 124,636 342,789
Income (loss) from:
Continuing operations 10,451 14,612 12,716 33,873 71,652
Discontinued operations (510) (1,881) (2,023) (4,958) (9,372)
Net income $ 9,941 $ 12,731 $ 10,693 $ 28,915 $ 62,280
Basic net income (loss)
per share from (1):
Continuing operations $ .21 $ .29 $ .25 $ .67 $ 1.41
Discontinued operations (.01) (.04) (.04) (.10) (.18)
Net income $ .20 $ .25 $ .21 $ .57 $ 1.23
Diluted net income (loss)
per share from (1):
Continuing operations $ .20 $ .29 $ .25 $ .66 $ 1.40
Discontinued operations (.01) (.04) (.04) (.10) (.18)
Net income $ .19 $ .25 $ .21 $ .57 $ 1.22
Fiscal Year Ended January 31, 1998 (2)
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
(In thousands except per share amounts)
Net sales $114,381 $124,242 $124,622 $173,509 $536,754
Gross profit 56,406 62,849 62,515 96,871 278,641
Net income 8,614 10,792 11,387 28,802 59,595
Basic net income
per share(1) $ .17 $ .22 $ .23 $ .57 $ 1.19
Diluted net income
per share(1) $ .17 $ .21 $ .22 $ .56 $ 1.17
</TABLE>
(1) In Fiscal 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share"
which established new guidelines for the calculation of earnings per
share. Basic earnings per share have been computed by dividing net
income by the weighted average number of shares outstanding during the
period. Diluted earnings per share have been computed assuming the
exercise of stock options, as well as their related income tax effects.
Earnings per share for all periods have been restated to reflect the
provisions of this Statement.
(2) Quarterly amounts for Fiscal 1999 and 1998 were adjusted to include the
operations of Lux for all periods prior to the acquisition.
Quarterly amounts for Fiscal 1999 were also reclassified to segregate
the effects of Nikki from continuing operations. Nikki had no
significant operations prior to Fiscal 1999.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Inapplicable.
PART III
Items 10,11,12 and 13. Directors and Executive Officers of the Registrant;
Executive Compensation ; Security Ownership of Certain Beneficial Owners and
Management; and Certain Relationships and Related Transactions.
The information called for by Items 10, 11, 12 and 13 will be contained in the
Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission no later
than 120 days after the end of the Company's fiscal year covered by this
report pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended, and incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) List of documents filed as part of this report.
Page No.
1. Financial Statements
Independent Auditors' Report 18
Consolidated Balance Sheets as of January 30, 1999 and
January 31, 1998 19
Consolidated Statements of Income and Comprehensive Income
for the three fiscal years ended January 30, 1999 20
Consolidated Statements of Changes in Stockholders'
Equity for the three fiscal years ended January 30, 1999 21
Consolidated Statements of Cash Flows
for the three fiscal years ended January 30, 1999 22
Notes to Consolidated Financial Statements 23-33
2. Financial Statement Schedules
All schedules have been omitted since the required information is
included in the consolidated financial statements or the notes thereto,
or the omitted schedules are not applicable.
3. Exhibits
(2)(a) Agreement and Plan of Merger dated as of March 9, 1998 among
the Company, CSI Acquisition Corp., Lux Corporation, and David
Shih, Eva Shih, Daniel Shih, Douglas Shih, the Shih
Irrevocable Trust and Crestwood Partners LLC, as amended by
letter amendment dated March 23, 1998 and addendum thereto
dated March 24, 1998.
<PAGE>
(2)(b) Stock Purchase Agreement dated as of November 11, 1998 between the
Company and Peter Bossert, an individual, for any and all
shares/Company contributions of: Bijoux One AG, Zurich, Switzerland,
Bijoux One Trading AG, Zurich, Switzerland, Bijoux One Trading
GesmbH, Brunn am Gebirge, Austria and Bosco GmbH, Stuttgart,
Germany (omitted schedules will be furnished supplementally to the
Commission upon request.
(3)(a) Restated Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3(a) to the Company's Annual
Report on form 10-K for the fiscal year ended February 1, 1992).
(3)(b) Certificate of Amendment of the Restated Certificate of
Incorporation of the Company (incorporated by reference to Exhibit
4.2 to the Company's Registration Statement on Form S-3
(Registration No. 333-58549 (the "Registration Statement")).
(3)(c) Certificate of Amendment of the Restated Certificate of
Incorporation of the Company (incorporated by reference to Exhibit
4.3 to the Registration Statement).
(3)(d) Amended By-laws of the Company (incorporated by reference to
Exhibit 3(b) to the Company's Annual Report on form 10-K for the
fiscal year ended January 28, 1995).
(4)(a) Revolving Credit Agreement dated as of August 19, 1996 between the
Company and its subsidiaries and Bank Leumi Trust Company.
(10)(a) Incentive Stock Option Plan of the Company, as amended (incorporated
by reference to Exhibit 10(a) to the Company's Annual Report on Form
10-K for the fiscal year ended February 1, 1986).
(10)(b) Non-Qualified Stock Option Plan of the Company, as amended
(incorporated by reference to Exhibit 10(e) to the Company's Annual
Report on Form 10-K for the fiscal year ended February 1, 1986).
(10)(c) 1991 Stock Option Plan of the Company (incorporated by reference to
Appendix A to the Company's Proxy Statement relating to the 1991
Annual Meeting of Stockholders, Commission File No. 1-8899).
(10)(d) 1996 Stock Option Plan of the Company (incorporated by reference to
Appendix A to the Company's Proxy Statement relating to the 1997
Annual meeting of stockholders, Commission File No. 1-8899).
(10)(e) 401(k) Profit Sharing Plan, as amended (incorporated by reference to
Exhibit 10(e) to the Company's Annual Report on Form 10-K for the
fiscal year ended February 1, 1992).
(10)(f) Office Lease Agreement dated September 8, 1989 between the Company
and Two Centrum Plaza Associates (incorporated by reference to
Exhibit 10(h) to the Company's Annual Report on Form 10-K for the
fiscal year ended February 2, 1991).
<PAGE>
(10)(g) Amendment of Office Lease Agreement dated July 31, 1990 between the
Company and Two Centrum Plaza Associates.
(10)(h) Addendum to Office Lease dated September 8, 1989 between the Company
and Two Centrum Plaza Associates (incorporated by reference to
Exhibit 10(j) to the Company's Annual Report on Form 10-K for the
fiscal year ended February 2, 1991).
(10)(i) Second addendum to office lease dated January 30, 1997 between the
Company and Two Centrum Plaza Associates (incorporated by reference
to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the
fiscal year ended February 1, 1997).
(10)(j) Lease between Chancellory Commons I Limited Partnership and Claire's
Boutiques, Inc. dated August 31, 1990 (incorporated by reference to
Exhibit 10(i) to the Company's Annual Report on form 10-K for the
fiscal year ended February 1, 1992).
(21) Subsidiaries of the Company.
(23) Consent of KPMG LLP relating to the Company's Registration
Statements on Form S-8 (registration No. 333-42027) and Form S-3
(registration No. 333-58549).
(27) Financial Data Schedule of the Company.
Each management contract or compensatory plan or arrangement to be
filed as an exhibit to this report pursuant to Item 14(c) is listed
in exhibits nos. 10(a), 10(b), 10(c), 10(d) and 10(e).
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) 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.
CLAIRE'S STORES, INC.
By /S/Rowland Schaefer
Rowland Schaefer
President and Chairman
of the Board of Directors
April 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on April 8, 1999.
/S/ Rowland Schaefer President and
Rowland Schaefer Chairman of the Board of Directors
(Principal Executive Officer)
/S/ Marla Schaefer Vice Chairman of the Board of Directors
Marla Schaefer
/S/ Eileen B. Schaefer Vice Chairman of the Board of Directors
Eileen B. Schaefer
/S/ Ira D. Kaplan Senior Vice President, Chief Financial
Ira D. Kaplan Officer and Treasurer
(Principal Financial and Accounting Officer)
/S/ Harold E. Berritt Director
Harold E. Berritt
/S/ Irwin Kellner Director
Irwin Kellner
/S/ Bruce G. Miller Director
Bruce G. Miller
/S/ Sylvia Schaefer Director
Sylvia Schaefer
/S/ Steven Tishman Director
Steven Tishman
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) 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.
CLAIRE'S STORES, INC.
By
Rowland Schaefer
President and Chairman
of the Board of Directors
April 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on April 8, 1999.
President and
Rowland Schaefer Chairman of the Board of Directors
(Principal Executive Officer)
Vice Chairman of the Board of Directors
Marla Schaefer
Vice Chairman of the Board of Directors
Eileen B. Schaefer
Senior Vice President, Chief Financial
Ira D. Kaplan Officer and Treasurer
(Principal Financial and Accounting Officer)
Director
Harold E. Berritt
Director
Irwin Kellner
Director
Bruce G. Miller
Director
Sylvia Schaefer
Director
Steven Tishman
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10K and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> JAN-30-1999 JAN-30-1999
<PERIOD-START> NOV-01-1998 FEB-01-1998
<PERIOD-END> JAN-30-1999 JAN-30-1999
<CASH> 117546 117546
<SECURITIES> 35758 35758
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 63334 63334
<CURRENT-ASSETS> 239618 239618
<PP&E> 233780 233780
<DEPRECIATION> 118272 118272
<TOTAL-ASSETS> 394272 394272
<CURRENT-LIABILITIES> 69091 69091
<BONDS> 0 0
0 0
0 0
<COMMON> 2546 2546
<OTHER-SE> 311672 311672
<TOTAL-LIABILITY-AND-EQUITY> 394272 394272
<SALES> 224793 661856
<TOTAL-REVENUES> 224793 661856
<CGS> 0 0
<TOTAL-COSTS> 100157 319067
<OTHER-EXPENSES> 70879 183289
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 53757 113736
<INCOME-TAX> 19884 42084
<INCOME-CONTINUING> 33691 71652
<DISCONTINUED> 4985 9372
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 28706 62280
<EPS-PRIMARY> .57 1.23
<EPS-DILUTED> .56 1.22
</TABLE>
Exhibit (2) (a)
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 9, 1998
AMONG
CLAIRE'S STORES, INC.,
CSI ACQUISITION CORP.,
LUX CORPORATION
AND
DAVID SHIH, EVA SHIH, DANIEL SHIH, DOUGLAS SHIH,
THE SHIH IRREVOCABLE TRUST
AND
CRESTWOOD PARTNERS LLC
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER Page No.
1.1 The Merger. . . . . . . . . . . . . . . . . . . . . .1
1.2 The Closing . . . . . . . . . . . . . . . . . . . . .2
1.3 Effective Time. . . . . . . . . . . . . . . . . . . .2
1.4 Conversion of Securities . . . . . . . 2
1.5 Intentionally deleted . . . . . . .2
1.6 Issuance of Claire's Common Stock; Delivery of
Certificates . . . . . . . .2
1.7 Effect of the Merger . . . . . . .3
1.8 Accounting and Tax Treatment . . . . . 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE CLAIRE'S COMPANIES
2.1 Corporate Status . . . . . . 3
2.2 Corporate Power and Authority. . . . . . . .4
2.3 Enforceability . . . . . . . 4
2.4 Claire's Common Stock. . . . . . .4
2.5 No Commissions . . . . . . . 4
2.6 Tax Matters. . . . . . .4
2.7 No Violation . . . . . .5
2.8 SEC Filings. . . . . . .5
2.9 Absence of Certain Changes or Events . . . . . . 6
2.10 Litigation . . . . . . .6
2.11 Capitalization . . . . . . . 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LUX, THE SHIHS AND THE
STOCKHOLDER
3.1 Corporate Status . . . . . . 7
3.2 Power and Authority. . . . . . . .7
3.3 Enforceability . . . . . . . 7
3.4 Capitalization; Changes in Equity Interests. . . . . .8
3.5 Ownership of Lux and the Stockholder . . . . . . 8
3.6 No Violation . . . . . .8
3.7 Records of Lux . . . . . . . 9
3.8 Subsidiaries . . . . . .9
3.9 Financial Statements . . . . . . .9
3.10 Changes Since the Current Balance Sheet Date . . . . . . . 9
3.11 Liabilities of Lux . . . . .10
3.12 Litigation . . . . . . 11
3.13 Environmental Matters. . . . . . 11
<PAGE>
3.14 Real Estate. . . . . . 15
3.15 Good Title to and Condition of Assets. . . . . .17
3.16 Compliance with Laws . . . . . . 17
3.17 Labor and Employment Matters . . . . .18
3.18 Employee Benefit Plans . . . . . 19
3.19 Tax Matters. . . . . . 21
3.20 Insurance. . . . . . . 22
3.21 Receivables. . . . . . 23
3.22 Licenses and Permits . . . . . . 23
3.23 Adequacy of the Assets; Relationships with Customers and
Suppliers; Affiliated Transactions. . . . . . . .23
3.24 Intellectual Property. . . . . . 23
3.25 Contracts. . . . . . . 24
3.26 Significant Customers. . . . . . 25
3.27 Accuracy of Information Furnished. . . . . 25
3.28 Investment Intent; Accredited Investor Status;
Securities Documents. . . . . .25
3.29 Bank Accounts; Business Locations. . . . . 25
3.30 Names; Prior Acquisitions. . . . . . .25
3.31 No Commissions . . . . . . .26
3.32 Certain Accounting Matters . . . . . .26
3.33 Inventory. . . . . . . 26
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
4.1 Conduct of Business by Lux, the Shihs and the Stockholder Pending the
Merger.. . . . . . . . . . . . . . . . . . . . . . . . . . . .26
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Further Assurances . . . . .29
5.2 Compliance with Covenants. . . . . . .29
5.3 Cooperation. . . . . . 29
5.4 HSR Act and Other Actions. . . . . . .29
5.5 Access to Information. . . . . . 29
5.6 Notification of Certain Matters. . . . . . 30
5.7 Tax and Accounting Treatment . . . . .30
5.8 Confidentiality; Publicity . . . . . .30
5.9 Non-Solicitation . . . . . .30
5.10 Exclusive Dealings; Failure to Consummate Without Cause. . . . . . .30
5.11 Claire's Due Diligence Review and Environmental Assessment . . . . .31
5.12 Lux's Due Diligence Review . . . . . .32
5.13 Trading in Claire's Common Stock . . . . . 32
<PAGE>
5.14 Intentionally deleted. . . . . . 32
5.15 Stockholder and Director Vote. . . . . . . 32
5.16 Additional Financial Statements. . . . . . 32
5.17 Intentionally deleted. . . . . . 32
5.18 Non-Competition. . . . . . .32
5.19 Lease Amendment. . . . . . .34
5.20 Consulting Agreement.. . . . . . 34
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE CLAIRE'S COMPANIES
6.1 Accuracy of Representations and Warranties and Compliance with
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . .34
6.2 No Material Adverse Change or Destruction of Property. . . . . 34
6.3 Corporate Certificate. . . . . . 35
6.4 Opinion of Counsel . . . . .35
6.5 Consents . . . . .35
6.6 Pooling Letters. . . . . . .36
6.7 Acknowledgment of Pooling Restrictions; Receipt of SEC Filings;
Completion of Due Diligence . . . . . . . . . . . . .36
6.8 Lux Common Stock . . . . . .36
6.9 Stock Powers . . . . . 36
6.10 No Adverse Litigation. . . . . . 36
6.11 Government Approvals . . . . . . 36
6.12 Due Diligence Review . . . . . . 36
6.13 Releases . . . . .36
6.14 Additional Financial Statements. . . . . . 37
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF LUX, THE SHIHS AND THE
STOCKHOLDER
7.1 Accuracy of Representations and Warranties and Compliance with
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . .37
7.2 Claire's Shares. . . . . . .37
7.3 No Adverse Litigation. . . . . . 37
7.4 HSR Act Waiting Period . . . . . 38
7.5 Opinion of Counsel . . . . .38
7.6 Release of Obligations . . . . . 38
7.7 No Material Adverse Change . . . . . .38
7.8 Due Diligence Review . . . . . . 38
7.9 Reorganization Letter. . . . . . 38
<PAGE>
ARTICLE VIII
REGISTRATION RIGHTS
8.1 Registration Rights for Claire's Shares; Filing of Registration
Statement. . . . . 39
8.2 Expenses of Registration . . . . . . .39
8.3 Furnishing of Documents. . . . . 39
8.4 Amendments and Supplements . . . . . .39
8.5 Duration . . . . .40
8.6 Further Information. . . . . . . 40
8.7 Indemnification. . . . . . .40
8.8 Publication of Financial Results . . . . . 42
ARTICLE IX
INDEMNIFICATION
9.1 Agreement by the Shihs and the Stockholder to Indemnify. . . . . . .42
9.2 Survival of Representations and Warranties . . . . . 43
9.3 Procedures for Defense of Third Party Actions. . . . . . .43
9.4 Security for the Indemnification Obligation. . . . . 44
9.5 Voting of and Dividends on the Held Back Shares. . . . . .45
9.6 Delivery of Held Back Shares and Cash Collateral . . . . .45
9.7 Adjustment to Merger Consideration . . . . . . .46
9.8 Indemnity for Environmental Claims.. . . . . . .46
9.9 Remedies Exclusive; Waiver . . . . . .46
ARTICLE X
SECURITIES LAW MATTERS
10.1 Disposition of Shares. . . . . . 47
10.2 Legend . . . . . .47
ARTICLE XI
DEFINITIONS
11.1 Defined Terms. . . . . 48
11.2 Other Definitional Provisions. . . . . . . 49
ARTICLE XII
TERMINATION
12.1 Termination. . . . . . 49
12.2 Effect of Termination. . . . . . 50
<PAGE>
ARTICLE XIII
GENERAL PROVISIONS
13.1 Notices. . . . . .50
13.2 Entire Agreement . . . . . .51
13.3 Expenses . . . . .51
13.4 Amendment; Waiver. . . . . .51
13.5 Binding Effect; Assignment . . . . . .52
13.6 Counterparts . . . . . 52
13.7 Interpretation . . . . . . .52
13.8 Governing Law; Interpretation. . . . . . . 52
13.9 Arm's Length Negotiations. . . . . . .52
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
Schedule 3.1 Fictitious Names
Schedule 3.4 Changes in Equity Interests
Schedule 3.6 Required Approvals
Schedule 3.8 Subsidiaries
Schedule 3.9 Financial Statements
Schedule 3.10 Dividends and Distributions
Schedule 3.12 Litigation
Schedule 3.13 Environmental Matters
Schedule 3.14(a) Owned Properties
Schedule 3.14(b) Leases and Leased Premises
Schedule 3.15 Assets
Schedule 3.17 Compensation of Employees
Schedule 3.18 Employee Benefit Plans
Schedule 3.24 Intellectual Property
Schedule 3.25 Contracts
Schedule 3.29 Bank Accounts
Schedule 4.1(f) Capital Expenditures
Exhibit 5.19 Lease Amendment
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
March 9, 1998, among Claire's Stores, Inc., a Delaware corporation
("Claire's"), CSI Acquisition Corp., a Washington corporation and a wholly
owned subsidiary of Claire's ("Merger Sub" and together with Claire's
sometimes hereinafter referred to as the "Claire's Companies"), Lux
Corporation, a Washington corporation ("Lux"), Crestwood Partners LLC, a
Washington limited liability company and the sole stockholder of Lux (the
"Stockholder"),and David Shih ("David"), Eva Shih ("Eva"), Daniel Shih
("Daniel"), Douglas Shih ("Douglas"), and the Shih Irrevocable Trust
(the "Trust"), all of whom constitute all of the members of the Stockholder
as of the date hereof (David, Eva, Daniel, Douglas and the Trust are
sometimes referred to herein individually as a "Shih" and collectively, as the
"Shihs"). Certain other capitalized terms used herein and not otherwise
defined shall have the meanings as set forth in Article XI hereof.
WHEREAS, the Boards of Directors of Claire's, Merger Sub and Lux each
have determined that it is in the best interests of their respective
companies and stockholders for Claire's to acquire all of the issued and
outstanding capital stock of Lux; and
WHEREAS, in order to effectuate the acquisition, Claire's has organized
Merger Sub as a wholly owned subsidiary, and the parties have agreed, subject
to the terms and conditions set forth in this Agreement, to merge Merger Sub
with and into Lux so that Lux will continue as the surviving corporation and
become a wholly owned subsidiary of Claire's, and in consideration thereof,
Claire's will issue to the Stockholder shares of its common stock, $.05 par
value per share; and
WHEREAS, it is intended that the Merger (as defined in Section 1.1 hereof)
provided for herein shall be treated for accounting purposes as a pooling of
interests business combination, and shall be treated for tax purposes as a
tax-free reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE I
THE MERGER
1. 1 The Merger. Subject to and upon the terms and conditions of this
Agreement and in accordance with the Washington Business Corporation Act of
the State of Washington (the "WBCA"), at the Effective Time (as defined in
Section 1.3 hereof), Merger Sub shall be merged with and into Lux
(the "Merger") and as a result thereof the separate corporate existence of
Merger Sub shall thereupon cease and Lux shall be the surviving corporation
and shall continue its corporate existence under the laws of the State of
Washington. Lux as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation".
<PAGE>
1. 2 The Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place at the offices of
Claire's legal counsel, Greenberg Traurig Hoffman Lipoff Rosen & Quentel,
P.A., 1221 Brickell Avenue, Miami, Florida 33131, at 12:30 p.m., local time,
on the third business day following satisfaction or waiver of the conditions
set forth in Articles VI and VII hereof, or such other time, date or place
as the parties hereto may agree in writing. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date".
1. 3 Effective Time. If all the conditions to the Merger set forth in
Articles VI and VII hereof shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated as provided in
Article XII hereof, the parties hereto shall cause Articles of Merger
(the "Articles of Merger") meeting the requirements of Section 23B.11.050 of
the WBCA to be properly executed and filed in accordance therewith
on the Closing Date. The Merger shall become effective at the time of filing
of the Articles of Merger with the Secretary of State of the State of
Washington in accordance with the WBCA, or at such later time which the
parties hereto shall have agreed upon and designated in such
filing as the effective time of the Merger (the "Effective Time").
1. 4 Conversion of Securities. At the Effective Time, by virtue of the Merger
and without any action on the part of Claire's, Merger Sub, Lux or the
Stockholder:
( a) Conversion of Lux Capital Stock. Each share of Class A
Common Stock, with no par value per share, of Lux and each share of Class B
common stock, with no par value per share, of Lux (collectively, the
"Lux Common Stock") issued and outstanding immediately prior to the Effective
Time, as the case may be, shall be converted into and exchanged for
1,071.5065 shares (the "Exchange Ratio") of validly issued, fully paid
and non-assessable unregistered shares of common stock, par value $0.05 per
share, of Claire's ("Claire's Common Stock"), that is, an aggregate 2,143,013
shares of Claire's Common Stock (the "Merger Consideration").
( b) Conversion of Capital Stock of Merger Sub. Each share of
common stock of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and non-assessable share of Class A common stock, without par value,
of the Surviving Corporation.
[1. 5 Intentionally deleted].
1. 6 Issuance of Claire's Common Stock; Delivery of Certificates. At the
Effective Time, Claire's shall issue to the Stockholder the number of shares of
Claire's Common Stock issuable pursuant to Section 1.4(a), registered in the
name of the Stockholder, equal to the product (rounded to the nearest whole
share) of (a) the number of shares of Lux Common Stock owned by the
Stockholder at the Effective Time and (b) the Exchange Ratio, and shall
deliver such shares in the following manner: (a) Claire's shall set aside
and hold in accordance with Article IX hereof Certificates for 214,000 shares
of Claire's Common Stock (the "Held Back Shares"); and (b) Claire's shall
deliver to the Stockholder one or more certificates evidencing the balance of
such shares of Claire's Common Stock. The shares of Claire's Common Stock,
including the Held Back Shares, issuable by Claire's in the Merger are
sometimes herein referred to as the "Claire's Shares". Subject to the terms
and conditions of Article VIII hereof, Claire's shall register the Claire's
Shares under the Securities Act for resale by the Holders (as defined in
Section 8.1 hereof) thereof.
<PAGE>
1. 7 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided under the WBCA. Without limiting the generality of the
foregoing, at the Effective Time:
( a) all property, rights, privileges, policies and franchises of Lux and
Merger Sub shall vest in the Surviving Corporation and all debts, liabilities
and duties of Lux and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
( b) the Articles of Incorporation and By-Laws of Lux, as amended
pursuant to the Certificate of Merger, shall be the Articles of Incorporation
and By-Laws of the Surviving Corporation thereafter, unless and until
thereafter changed or amended as provided therein or by applicable law.
( c) the directors and officers of Merger Sub immediately prior to the
Effective Time shall be the initial directors and officers of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation and until their
respective successors are duly elected and qualified.
1. 8 Accounting and Tax Treatment. The parties hereto acknowledge and
agree that the Merger contemplated hereby shall be treated as a pooling of
interests business combination for accounting purposes and as a tax-free
reorganization under Section 368(a) of the Code for tax purposes.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE CLAIRE'S COMPANIES
As a material inducement to Lux, the Shihs and the Stockholder to enter into
this Agreement and to consummate the transactions contemplated hereby, each
of the Claire's Companies hereby, jointly and severally, make the following
representations and warranties to Lux, the Shihs and the Stockholder:
2. 1 Corporate Status. Claire's is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
Merger Sub is a corporation duly organized and validly existing under the laws
of the State of Washington. The Claire's Companies are duly qualified or
licensed to conduct business as foreign corporations and are in good standing
in all jurisdictions that require such qualification or licensing, except for
the lack of qualification or licensing which, individually or in the
aggregate, would not have a Material Adverse Effect on Claire's .
2. 2 Corporate Power and Authority. Each of the Claire's Companies has
the corporate power and authority to execute and deliver this Agreement,
to perform its respective obligations hereunder and to consummate the
transactions contemplated hereby. Each of the Claire's Companies has taken
all action necessary to authorize its execution and delivery of this
Agreement, the performance of its respective obligations hereunder and the
consummation of the transactions contemplated hereby.
<PAGE>
2. 3 Enforceability. This Agreement has been duly executed and delivered
by each of the Claire's Companies and constitutes a legal, valid and binding
obligation of each of the Claire's Companies, enforceable against each of the
Claire's Companies in accordance with its terms, except as the same may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and
general equitable principles regardless of whether such enforceability is
considered in a proceeding at law or in equity.
2. 4 Claire's Common Stock. Upon consummation of the Merger and the
issuance and delivery of certificates representing the Claire's Shares to the
Stockholder, and except for any Liens imposed on such Claire's Shares by any
action or inaction of the Stockholder, the Stockholder shall have good and
marketable title to the Claire's Shares subject to the terms and conditions
of Article IX hereof, and the Claire's Shares will be validly issued, fully
paid and non-assessable shares of Claire's Common Stock.
2. 5 No Commissions. None of the Claire's Companies has incurred any
obligation for any finder's or broker's or agent's fees or commissions or
similar compensation in connection with the transactions contemplated hereby.
2. 6 Tax Matters. Claire's does not know of any circumstances relating to
Claire's or its Affiliates that would prevent the Merger from qualifying as a
reorganization within the meaning of Section 368 of the Code, provided that
(except as set forth in this Section 2.6) Claire's makes no affirmative
representations or warranties as to any circumstances relating to, or any
actions taken or agreed to be taken prior to the Effective Time by Lux, the
Shihs and/or the Stockholder that would prevent the Merger from
qualifying as a reorganization within the meaning of Section 368 of the Code.
Claire's presently has, and at Closing shall have, no plan or intention to
(a) cause Lux or any permitted transferee therefrom to sell or dispose of any of
the assets or properties of Lux, except for dispositions in the ordinary
course of business or transfers described in Section 368(a)(2)(c) of the
Code, (b) to liquidate Lux, (c) to merge Lux with or into another corporation
or corporations, (d) to sell or otherwise dispose of the stock of Lux except
for transfers of stock to a corporation or corporations "controlled" (within
the meaning of Section 368 of the Code) by Claire's, or (e) to cause Lux to
issue additional shares of stock that would result in Claire's losing
"control" (within the meaning of Section 368 of the Code) of Lux. Claire's
currently intends, and at Closing shall intend, to cause Lux to continue its
historical business or use a significant portion of its historical business
assets in a business following the Effective Time, and presently does not
intend to reacquire any of the Claire's Shares. Immediately prior to the
Merger, Claire's will own all of the outstanding capital stock of Merger Sub.
Further, the assets and liabilities of Merger Sub as of the time
immediately preceding the Closing will represent all of the assets and
liabilities ever held by Merger Sub.
<PAGE>
2. 7 No Violation. The execution and delivery of this Agreement by the
Claire's Companies, the performance by the Claire's Companies of their
obligations hereunder and the consummation by the Claire's Companies of the
transactions contemplated by this Agreement will not (i) contravene any
provision of the Certificate of Incorporation (or the equivalent thereof) or
By-laws (or the equivalent thereof) of the Claire's Companies or any
subsidiary thereof, (ii) violate or conflict with any law, statute, ordinance,
rule, regulation, decree, writ, injunction, judgment, filing or order of any
Governmental Authority or of any arbitration award which is either applicable
to, binding upon or enforceable against the Claire's Companies or any
subsidiary thereof, (iii) conflict with, result in any breach of, or
constitute a default (or an event which would, with the passage of time or
the giving of notice or both, constitute a default) under, or give rise to a
right to terminate, amend, modify, abandon or accelerate, any material
Contract which is applicable to, binding upon or enforceable against the
Claire's Companies or any subsidiary thereof, (iv) result in or require the
creation or imposition of any Lien upon or with respect to any of the
property or assets of the Claire's Companies or any subsidiary thereof, (v)
give to any individual or entity a right or claim against the Claire's
Companies or any subsidiary thereof, which would have a Material Adverse
Effect on the Claire's Companies or any subsidiary thereof, taken as a
whole, or (vi) require the consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Authority, any court or
tribunal or any other Person, except (a) pursuant to the Exchange Act and the
Securities Act and applicable NYSE rules and regulations, (b) filings
required under the securities and blue sky laws of the various states, (c)
filings required under the HSR Act, (d) any filings required to be made by
Lux and (e) any filings required to be made with respect to the consummation
of the Merger.
2. 8 SEC Filings. From January 1, 1997 through the date hereof, Claire's
has duly and timely filed with the SEC all quarterly and annual reports,
proxy statements and the information and documents and other reports required
to be filed pursuant to Sections 13, 14 or 15(d) of the Exchange Act
(collectively, the "SEC Filings"). Claire's has previously made available to
representatives of the Stockholder copies of all such SEC Filings, and with
respect to SEC Filings filed after the date of this Agreement until the
Effective Time, Claire's will promptly furnish to the Stockholder copies of
any such SEC Filings filed with the SEC during such period. As of their
respective dates (but taking into account any amendments filed prior to the
date of this Agreement), the SEC Filings complied, or, with respect to SEC
Filings filed after the date of this Agreement, will comply, in all material
respects with all of the rules and regulations promulgated by the SEC and did
not contain, or, with respect to SEC Filings filed after the date of this
Agreement, will not contain, any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The financial statements of Claire's included in
the SEC Filings comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with GAAP consistently
applied during the periods presented (except, in the case of the unaudited
statements, as permitted by Form 10-Q of the SEC) and fairly present (subject,
in the case of the unaudited statements, to normal audit adjustments) the
financial position of Claire's and its consolidated subsidiaries as of the
date thereof and the results of their operations and their cash flows for the
periods then ended. Except as set forth in the SEC Filings, Claire's has no
material liabilities or obligations of any nature required by GAAP to be set
forth on a consolidated balance sheet of Claire's and its consolidated
subsidiaries or in the notes thereto which individually or in the aggregate
would have a Material Adverse Effect on Claire's.
<PAGE>
2. 9 Absence of Certain Changes or Events. Except as disclosed in the SEC
Filings filed prior to the date of this Agreement, and except as expressly
contemplated by this Agreement, since the date of the most recently filed SEC
Filings, Claire's has conducted its business only in the ordinary course, and
there has not been: (i) any Material Adverse Change in Claire's business,
results of operations, or business prospects in the aggregate; (ii) any
damage, destruction or loss, whether or not covered by insurance, that has
had or is likely to have a Material Adverse Effect on Claire's in the
aggregate; or (iii) any change in accounting methods, principles or practices
by Claire's materially affecting its assets, liabilities or business, except
insofar as may have been required by a change in GAAP.
2. 10 Litigation. Except as disclosed in the SEC Filings prior to the
date of this Agreement and except for any such action which may be commenced
by or on behalf of Lux, the Shihs or the Stockholder, there is no suit,
action or proceeding pending or threatened against Claire's or any of its
subsidiaries challenging the acquisition by Claire's or Merger Sub of any
shares of Lux or any provision of this Agreement or seeking to restrain or
prohibit the consummation of the Merger, or that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on
Claire's, nor is there any judgment, decree, injunction, rule or order of any
Governmental Authority or arbitrator outstanding against Claire's or any of
its subsidiaries having, or which would reasonably be expected to have, any
such effect.
2. 11 Capitalization. The authorized capital stock of Claire's consists
of 50,000,000 shares of Claire's Common Stock, 20,000,000 shares of Class A
Common Stock, par value $.05 per share, and 1,000,000 shares of Preferred
Stock, par value $1.00 per share. As of January 30, 1998, (i) 45,575,415
shares of Claire's Common Stock were validly issued and outstanding, fully
paid and non-assessable, (ii) 2,904,745 shares of Class A Common Stock were
validly issued and outstanding, fully paid and non-assessable, and (iii) no
shares of Preferred Stock were issued and outstanding. The Claire's Shares
to be issued in the Merger will be "voting stock" within the meaning of
Section 368 of the Code.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LUX, THE SHIHS AND THE
STOCKHOLDER
As a material inducement to each of the Claire's Companies to enter into this
Agreement and to consummate the transactions contemplated hereby, each of
Lux, the Shihs and the Stockholder hereby, jointly and severally, make the
following representations and warranties to Claire's Companies:
3. 1 Corporate Status. Lux is a corporation duly organized and validly
existing under the laws of the State of Washington and has the requisite
power and authority to own or lease its properties and to carry on its business
as now being conducted. Lux is duly qualified and licensed to do business as
a foreign corporation and is in good standing or validly existing in all
jurisdictions that require such qualification or licensing, except for the
lack of qualification or licensing which, individually or in the aggregate,
would not have a Material Adverse Effect on Lux. All of the fictitious names
under which Lux operates its business are set forth on Schedule 3.1 attached
hereto. Lux has fully complied with all of the requirements of any statute
governing the use and registration of fictitious names, and has the
legal right to use the names under which it operates its business in all
jurisdictions where it does so. There is no pending or threatened proceeding
for the dissolution, liquidation, insolvency or rehabilitation of Lux.
<PAGE>
3. 2 Power and Authority. Each of Lux and the Stockholder has the power
and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
Each of Lux and the Stockholder has taken all action necessary to authorize
the execution and delivery of this Agreement, the performance of its
obligations hereunder and the consummation of the transactions contemplated
hereby. Each of David, Eva and Douglas is a Person residing in the State of
Washington, and Daniel is a Person residing in the State of Massachusetts,
and in each case such Person has the requisite competence and authority to
execute and deliver this Agreement, to perform its respective obligations
hereunder and to consummate the transactions contemplated hereby. The Trust
is a grantor trust formed under the laws of the State of Washington by David
and Eva and each of Daniel and Douglas, as the co-trustees of
the Trust, have the power and authority to execute and deliver this
Agreement, to cause the Trust to perform its respective obligations
hereunder, and to consummate the transactions contemplated hereby.
3. 3 Enforceability. This Agreement has been duly executed and delivered
by Lux, the Shihs and the Stockholder and constitutes the legal, valid and
binding obligation of each of them, enforceable against each of them in
accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
3. 4 Capitalization; Changes in Equity Interests. Lux has authorized 5,000
shares of Class A common stock (voting), with no par value per share, of
which 100 shares are issued and outstanding as of the date hereof, and no
shares of which are held in treasury. Lux has authorized 5,000 shares of
Class B common stock, with no par value per share, of which 1,900 shares are
issued and outstanding as of the date hereof, and no shares of which
are held in treasury. All of the issued and outstanding shares of capital
stock of Lux (i) have been duly authorized and validly issued and are fully
paid and non-assessable, (ii) were issued in compliance with all applicable
state and federal securities laws, and (iii) were not issued in violation of
any preemptive rights or rights of first refusal. No rights of first refusal
exist with respect to the shares of capital stock of Lux and no such rights
arise by virtue of or in connection with the transactions contemplated
hereby. There are no outstanding or authorized rights, options, warrants,
convertible securities, subscription rights, conversion rights, exchange
rights or other agreements or commitments of any kind that could require
Lux to issue or sell any shares of its capital stock (or securities
convertible into or exchangeable for shares of its capital stock). There are no
outstanding stock appreciation, phantom stock, profit participation or other
similar rights with respect to Lux. There are no proxies, voting rights or
other agreements or understandings with respect to the voting or
transfer of the capital stock of Lux. Lux is not obligated to redeem or
otherwise acquire any of its outstanding shares of capital stock. Except as
set forth in Schedule 3.4 attached hereto, there have been no changes in
equity interests of Lux during the past two (2) years.
<PAGE>
3. 5 Ownership of Lux and the Stockholder. The Stockholder is the holder
of all issued and outstanding shares of capital stock of Lux as of the date
hereof. The Stockholder owns the shares of Lux Common Stock as of the date
hereof, free and clear of all Liens, restrictions and claims of any kind. As
of the date hereof, the Shihs are the holders of all the membership interests
in the Stockholder, and own such membership interests free and clear of all
Liens, restrictions and claims of any kind.
3. 6 No Violation. The execution and delivery of this Agreement by Lux, the
Shihs and the Stockholder, the performance by them of their respective
obligations hereunder and the consummation by them of the transactions
contemplated by this Agreement will not:
(a) contravene any provision of the Articles of Incorporation or By-laws
of Lux; (b) violate or conflict with any law, statute, ordinance, rule,
regulation, decree, writ, injunction, judgment or order of any Governmental
Authority or of any arbitration award which is either applicable to, binding
upon or enforceable against Lux, the Shihs, the Stockholder or any of
their respective Affiliates; (c) conflict with, result in any breach of, or
constitute a default (or an event which would, with the passage of time or
the giving of notice or both, constitute a default) under, or give rise to a
right to terminate, amend, modify, abandon or accelerate, any Contract which
is applicable to, binding upon or enforceable against Lux, the Shihs or the
Stockholder or any of their respective Affiliates; (d) result in or require
the creation or imposition of any Lien upon or with respect to any of the
property or assets of Lux, the Shihs, the Stockholder or any of their
respective Affiliates; or (e) require the consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Authority, any
court or tribunal or any other Person, except any applicable filings required
under the HSR Act, and any SEC and other filings required to be made by
Claire's or as otherwise set forth on Schedule 3.6 attached hereto. No
statute, regulation, rule or other law related to "control share
acquisitions" or similar "antitakeover" legislation is applicable to the
transactions contemplated by this Agreement.
3. 7 Records of Lux. The copies of the Articles of Incorporation and By-laws
of Lux which have been provided to Claire's are true, accurate and complete
and reflect all amendments made through the date of this Agreement. The
minute books for Lux made available to Claire's for review were correct and
complete in all material respects as of the date of such review, no further
entries have been made through the date of this Agreement, such minute books
contain the true signatures of the persons purporting to have signed them.
All material corporate actions taken by Lux have been duly authorized or
ratified. The stock ledgers of Lux, as previously made available to
Claire's, contain accurate and complete records of all issuances, transfers
and cancellations of shares of the capital stock of Lux.
<PAGE>
3. 8 Subsidiaries. Except as set forth in Schedule 3.8 attached hereto, Lux
does not own, directly or indirectly, any outstanding voting securities of or
other interests in, or control, any other corporation, partnership, joint
venture or other business entity.
3. 9 Financial Statements. Schedule 3.9 attached hereto contains a copy of
the audited balance sheets of Lux and the related audited statements of
income, cash flow and stockholders' equity, together with the notes thereto as
at and for the fiscal years ended November 30, 1996 (the "1996 Financial
Statements"), and November 30, 1997 (the "1997 Financial Statements"). The
balance sheet of Lux included in the 1997 Financial Statements is referred to
herein as the "Current Balance Sheet," and the 1996 Financial Statements and
1997 Financial Statements are referred to herein as the "Financial
Statements." The Financial Statements fairly present the financial position
of Lux at each of the balance sheet dates and the results of operations and
cash flows for the periods covered thereby, and have been prepared in
accordance with GAAP consistently applied throughout the periods indicated.
The books and records of Lux are sufficient to permit an audit in accordance
withGAAP. There are no extraordinary items of income or expense during the
periods covered by the Financial Statements and the balance sheets included
in the Financial Statements do not reflect any write up or revaluation
increasing the book value of any assets.
3. 10 Changes Since the Current Balance Sheet Date. Since the date of the
Current Balance Sheet, Lux has not, except as set forth on Schedule 3.10
attached hereto: (a) issued any capital stock or other securities; (b) made
any distribution of or with respect to its capital stock or other securities
(which distributions are no greater than normal, are based on earnings and
past dividend policy and patterns, or are not greater than the amount
necessary to satisfy the current tax obligations (accrued or otherwise) of the
Shihs and the Stockholder relating to the fiscal year ended November 30, 1997
and the period through the Closing Date) or purchased or redeemed any of its
securities; (c) paid any bonus to or increased the rate of compensation of
any of its officers or salaried employees or amended any other terms of
employment of such persons, (d) sold, leased or transferred any of its
properties or assets other than in the ordinary course of business consistent
with past practice; (e) made or obligated itself to make capital expenditures
of more than $50,000 other than for tenant improvements and equipment for new
stores; (f) made any payment in respect of its liabilities other than in the
ordinary course of business consistent with past practice; (g) incurred any
obligations or liabilities (including any indebtedness) or entered into any
transaction out of the ordinary course of business, except for this Agreement
and the transactions contemplated hereby; (h) suffered any theft, damage,
destruction or casualty loss, not covered by insurance and for which a timely
claim was filed (i) suffered any extraordinary losses (whether or not covered
by insurance); (j) waived, canceled, compromised or released any rights having
a value in excess of $10,000 in the aggregate; (k) made or adopted any change
in its accounting practice or policies; (l) made any adjustment to its books
and records other than in respect of the conduct of its business activities
in the ordinary course consistent with past practice; (m) entered into any
transaction with any Affiliate; (n) entered into any written employment
agreement; (o) terminated, amended or modified any agreement out of the
ordinary course of business; (p) imposed any security interest or other Lien
on any of its assets other than in the ordinary course of business consistent
with past practice; (q) delayed paying any accounts payable which are due and
payable except to the extent being contested in good faith; (r) made or
pledged any charitable contribution other than in the ordinary course of
business consistent with past practice; (s) entered into any other
transaction or been subject to any event which has or is likely to have a
Material Adverse Effect on Lux; or (t) agreed to do or authorized any of the
foregoing.
<PAGE>
3. 11 Liabilities of Lux. Lux does not have any liabilities or obligations,
whether accrued, absolute, contingent or otherwise of a nature customarily
reflected in financial statements prepared in accordance with GAAP, except:
(a) to the extent reflected or taken into account in the Current Balance
Sheet and not heretofore paid or discharged; (b) to the extent specifically
set forth in or incorporated by express reference in any of the Schedules
attached hereto; (c) liabilities incurred in the ordinary course of business
consistent with past practice since the date of the Current Balance Sheet
(none of which relates to breach of contract, breach of warranty, tort,
infringement or violation of law, or which arose out of any action, suit,
claim, governmental investigation or arbitration proceeding); (d)normal
year-end accruals (including, without limitation, reasonable accruals for
workers' compensation claims), which would not be material in the aggregate,
reclassifications and audit adjustments and any other reserves and accruals
created with the approval of Claire's which would be reflected on an audited
financial statement; (e) liabilities incurred in the ordinary course of
business prior to the date of the Current Balance Sheet which, in
accordance with GAAP consistently applied, were not required to be recorded
thereon and (f) leases being treated as operating leases and expenses rather
than being treated as capital leases. As of the Effective Time, Lux will not
be liable for any indebtedness for borrowed money. As of the Effective Time,
the Adjusted Total Stockholders' Equity of Lux will be no less than
$9,000,000. As used herein, Adjusted Total Stockholders' Equity shall mean
the total stockholders' equity of Lux determined in accordance with GAAP,
consistently applied, but adjusted as follows (except to the extent such
adjustments have already been reflected in total stockholders' equity of Lux):
( a) The legal and accounting fees and costs and other costs, including,
without limitation, fees or commissions due to Alexander Hutton, Inc. ("AHI")
and HSR Act filing fees and attendant costs incurred by Lux in connection
with this Agreement and the transactions contemplated hereby (which shall not
exceed $630,000) shall be added back to Lux's total stockholders' equity; and
( b) The following shall be added back to the extent deducted in the
recorded stockholders' equity: (a) bonuses paid to the Shihs and related
taxes in an aggregate amount not to exceed $700,000; (b) the amount of any
distribution to the Shihs and the Stockholder as set forth on Schedule 3.10;
and (c) any deferred tax liability, including the deferred tax liability, if
any, created by termination of Lux's "S" election.
3. 12 Litigation. Except as set forth on Schedule 3.12 attached hereto,
there is no action, suit, or other legal or administrative proceeding or
governmental investigation pending, or to the knowledge of the Shihs, Lux or
the Stockholder threatened, anticipated or contemplated against, by or
affecting Lux, or any of its properties or assets, or affecting the Shihs,
Lux or the Stockholder, or which questions the validity or enforceability of
this Agreement or the transactions contemplated hereby, and to the knowledge
of the Shihs, Lux and the Stockholder, there is no basis for any of the
foregoing. There are no outstanding orders, decrees or stipulations issued by
any Governmental Authority in any proceeding to which Lux is or was a party
which have not been complied with in full or which continue to
impose any material obligations on Lux.
<PAGE>
3. 13 Environmental Matters.
( a) Except as set forth on Schedule 3.13 attached hereto, Lux (as
defined in clause (g) below) is and has at all times been in material
compliance with all Environmental Laws (as defined in clause (g) below)
governing its business, operations, properties and assets, including, without
limitation: (i) all requirements relating to the Discharge (as defined in
clause (g) below) and Handling (as defined in clause (g) below) of Hazardous
Substances (as defined in clause (g) below) or other Waste (as defined in
clause (g) below); (ii) all requirements relating to notice, record keeping and
reporting; (iii) all requirements relating to obtaining and maintaining
Licenses (as defined in clause (g) below) for the ownership of its properties
and assets and the operation of its business as presently conducted,
including Licenses relating to the Handling and Discharge of Hazardous
Substances and other Waste; and (iv) all applicable writs, orders, judgments,
injunctions, governmental communications, decrees, informational requests or
demands issued pursuant to, or arising under, any Environmental Laws.
( b) There are no (and to Lux's, the Shihs' and the Stockholder's
knowledge there is no reasonable basis for any) non-compliance orders,
warning letters, notices of violation (collectively "Notices"), claims,
suits, actions, judgments, penalties, fines, or administrative or judicial
investigations or proceedings (collectively "Proceedings") pending or
threatened against or involving Lux, or its business, operations, properties,
or assets, issued by any Governmental Authority or third party with respect
to any Environmental Laws or Licenses issued to Lux thereunder in connection
with, related to or arising out of the ownership by Lux of its properties or
assets or the operation of its business, which have not been resolved to the
satisfaction of the issuing Governmental Authority or third party in a manner
that would not impose any obligation, burden or continuing liability on
Claire's or the Surviving Corporation in the event that the transactions
contemplated by this Agreement are consummated, or which could have a
Material Adverse Effect on Lux, including, without limitation: (i) Notices
or Proceedings related to Lux being a potentially responsible party for a
federal or state environmental cleanup site or for corrective action
under any applicable Environmental Laws; (ii) Notices or Proceedings in
connection with any federal or state environmental cleanup site, or in
connection with any real property or premises where Lux has transported,
transferred or disposed of other Waste; (iii) Notices or Proceedings relating
to Lux being responsible to undertake any response or remedial actions
or clean-up actions of any kind; or (iv) Notices or Proceedings related to
Lux being liable under any Environmental Laws for personal injury, property
damage, natural resource damage, or clean up obligations.
( c) To Lux's, the Shihs' and the Stockholder's knowledge, except as
set forth on Schedule 3.13, Lux has not, in violation of any applicable
Environmental Handled or Discharged, nor has it allowed or arranged for any
third party to Handle or Discharge, Hazardous Substances or other Waste to,
at or upon: (i) any location other than a site lawfully permitted to receive
such Hazardous Substances or other Waste; (ii) any real property currently or
previously owned or leased by Lux; or (iii) any site which, pursuant to
any Environmental Laws, (x) has been placed on the National Priorities List
(as defined in clause (g) below) or its state equivalent; or (y) the
Environmental Protection Agency or the relevant state agency or other
Governmental Authority has notified Lux that such Governmental Authority has
proposed or is proposing to place on the National Priorities List (as defined
in clause (g) below) or its state equivalent. There has not occurred, nor is
there presently occurring, a Discharge, or threatened Discharge, of any
Hazardous Substance on, into or beneath the surface of, or adjacent to, any
real property currently or previously owned or leased by Lux in an amount
requiring a notice or report to be made to a Governmental Authority or in
violation of any applicable Environmental Laws.
<PAGE>
( d) Schedule 3.13 identifies the operations and activities, and
locations thereof, which have been conducted or are being conducted by Lux
on any real property currently or previously owned or leased by Lux which
have involved the Handling or Discharge of Hazardous Substances by Lux.
( e) Except as set forth on Schedule 3.13, Lux does not use, nor has it
used, any Aboveground Storage Tanks (as defined in clause (g) below) or
Underground Storage Tanks (as defined in clause (g) below), and to Lux's, the
Shihs' and the Stockholder's knowledge there are not now nor have there ever
been any Underground Storage Tanks beneath any real property currently or
previously owned or leased by Lux that are required to be registered under
applicable Environmental Laws.
( f) Schedule 3.13 identifies: (i) all environmental audits, assessments
or occupational health studies undertaken by Lux or its agents or, to the
knowledge of Lux, undertaken by any Governmental Authority, or any third
party, relating to or affecting Lux or any real property currently or
previously owned or leased by Lux; (ii) the results of any ground, water,
soil, air or asbestos monitoring undertaken by Lux or its agents or, to the
knowledge of Lux, undertaken by any Governmental Authority or any third
party, relating to or affecting Lux or any real property currently or
previously owned or leased by Lux which indicate the presence of Hazardous
Substances at levels requiring a notice or report to be made to a
Governmental Authority or in violation of any applicable Environmental Laws;
(iii) all material written communications between Lux and any Governmental
Authority arising under or related to Environmental Laws; and (iv) to Lux's,
the Shihs' and the Stockholder's knowledge all outstanding citations issued
under OSHA, or similar state or local statutes, laws, ordinances, codes,
rules, regulations, orders, rulings, or decrees, relating to or affecting
either Lux or any real property currently or previously owned or leased by
Lux.
<PAGE>
( g) For purposes of this Section 3.13, the following terms shall have
the meanings ascribed to them below:
"Aboveground Storage Tank" shall have the meaning ascribed to such term
in Section 6901 et seq., as amended, of RCRA, or any applicable state or
local statute, law, ordinance, code, rule, regulation, order ruling, or
decree governing Aboveground Storage Tanks.
"Lux" means Lux and any Affiliates.
"Discharge" means any manner of spilling, leaking, dumping, discharging,
releasing or emitting, as any of such terms may further be defined in any
Environmental Law, into any medium including, without limitation, ground
water, surface water, soil or air.
"Environmental Laws" means all federal, state, regional or local statutes,
laws, rules, regulations, codes, orders, plans, injunctions, decrees,
rulings, and changes or ordinances or judicial or administrative
interpretation thereof, or similar laws of foreign jurisdictions where
Lux conducts business, any of which govern (or purport to govern) or relate
to pollution, protection of the environment, public health and safety, air
emissions, water discharges, hazardous or toxic substances, solid or
hazardous waste or occupational health and safety, as any of these terms
are defined in such statutes, laws, rules, regulations, codes, orders,
plans, injunctions, decrees, rulings and changes or ordinances, or judicial
or administrative interpretations thereof, including, without limitation:
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendment and Reauthorization Act of
1986, 42 U.S.C. ss.9601, et seq. (collectively "CERCLA"); the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act of
1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C.
ss.6901 et seq. (collectively "RCRA"); the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. ss.1801, et seq.; the Clean Water
Act, as amended, 33 U.S.C. ss.1311, et seq.; the Clean Air Act, as amended
(42 U.S.C. ss.7401-7642); the Toxic Substances Control Act, as amended, 15
U.S.C. ss.2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide
Act as amended, 7 U.S.C. ss.136-136y ("FIFRA"); the Emergency Planning and
Community Right-to-Know Act of 1986 as amended, 42 U.S.C. ss.11001, et seq.
(Title III of SARA) ("EPCRA"); and the Occupational Safety and Health Act
of 1970, as amended, 29 U.S.C. ss.651, et seq. ("OSHA").
"Handle" means any manner of generating, accumulating, storing, treating,
disposing of, transporting, transferring, labeling, handling, manufacturing
or using, as any of such terms may further be defined in any Environmental
Law, of any Hazardous Substances or Waste.
"Hazardous Substances" shall be construed broadly to include any toxic or
hazardous substance, material, or waste, and any other contaminant,
pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge
and/or gaseous, including without limitation, chemicals, compounds, by-
products, pesticides, asbestos containing materials, petroleum or petroleum
products, and polychlorinated biphenyls, the presence of which requires
<PAGE>
investigation or remediation under any Environmental Laws or which are
regulated, listed or controlled by, under or pursuant to any Environmental
Laws, including, without limitation, RCRA, CERCLA, the Hazardous
Materials Transportation Act, the Toxic Substances Control Act, the Clean
Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA, or any similar
state statute, or regulations implementing such statutes, laws, ordinances,
codes, rules, regulations, orders, rulings, or decrees, or which has been
determined or interpreted at any time by any Governmental Authority to be
a hazardous or toxic substance regulated under any other statute, law,
regulation, order, code, rule, order, or decree.
"Licenses" means all licenses, certificates, permits, approvals and
registrations.
"National Priorities List" shall have the meaning ascribed to such term in
Section 105 of CERCLA.
"Underground Storage Tank" shall have the meaning ascribed to such term
in Section 6901 et seq., as amended, of RCRA, or any applicable state or
local statute, law, ordinance, code, rule, regulation, order ruling, or
decree governing Underground Storage Tanks.
"Waste" shall be construed broadly to include agricultural wastes,
biomedical wastes, biological wastes, bulky wastes, construction and
demolition debris, garbage, household wastes, industrial solid wastes,
liquid wastes, recyclable materials, sludge, solid wastes, special wastes,
used oils, white goods, and yard trash as those terms are defined under any
applicable Environmental Laws.
(h) Any matters contained in any reports or studies referenced in
Schedule 3.13 which have not been delivered to Claire's environmental counsel
prior to the date hereof shall not be deemed to be exceptions to the
representations and warranties contained in this Section 3.13. In addition,
any reserves or accruals for environmental liabilities that may have been, or
may be, created by Lux on its financial statements shall not reduce or affect
any indemnification obligation under Section 9.1 hereof of the Stockholders
with respect to such representations and warranties.
3. 14 Real Estate.
( a) Lux owns no real estate whatsoever. Schedule 3.14(a) attached
hereto sets forth the street address of each parcel of real estate owned by
any Affiliate of Lux as of the date hereof and utilized by Lux in its business
(collectively, the "Owned Properties"). With respect to each parcel of Owned
Properties:
<PAGE>
( i) Affiliates have good and marketable title to each parcel of
Owned Properties, free and clear of any Lien other than: (x) liens for real
estate taxes not yet delinquent; (y) recorded easements, covenants, and other
restrictions which do not materially impair the current use or occupancy of
the property subject thereto; and (z) encumbrances and restrictions, none of
which materially impair the current use or occupancy, which are described in
the title insurance policies relating to such properties which have been
delivered to Claire's, and are listed on Schedule 3.14(a), or which are
otherwise reflected in the Financial Statements and such other covenants,
conditions, easements and exceptions to title as Claire's may approve in
writing (collectively, the "Permitted Exceptions");
( ii) There are no pending or threatened condemnation
proceedings, suits or administrative actions relating to any of the Owned
Properties or other matters affecting adversely the current use or occupancy
thereof;
( iii) To Lux's, the Shihs' and the Stockholder's knowledge, the
legal descriptions for the parcels of Owned Properties contained in the deeds
thereof describe such parcels fully and adequately; the buildings and
improvements are located within the boundary lines of the described parcels
of land, are not in material violation of applicable setback requirements,
local comprehensive plan provisions, zoning laws and ordinances (and
none of the properties or buildings or improvements thereon are subject to
"permitted non-conforming use" or "permitted non-conforming structure"
classifications), building code requirements, permits, licenses or other
forms of approval by any Governmental Authority, and do not encroach on any
easement which may burden the land; the land does not serve any adjoining
property for any purpose inconsistent with the use of the land; and the Owned
Properties are not located within any flood plain (such that a mortgagee
would require a mortgagor to obtain flood insurance) or subject to any
similar type restriction for which any permits or licenses necessary to the
use thereof have not been obtained;
( iv) All facilities have received all approvals of Governmental
Authorities (including licenses and permits) required in connection with the
ownership or operation thereof and have been operated and maintained in
material compliance with applicable laws, ordinances, rules and regulations;
( v) There are no Contracts granting to any party or parties
(other than Lux) the right of use or occupancy of any portion of the parcels of
Owned Properties;
( vi) Except as set forth in Schedule 3.14(a), there are no
outstanding options or rights of first refusal to purchase the parcels of
Owned Properties, or any portion thereof or interest therein;
( vii) There are no parties (other than Lux) in possession of the
parcels of Owned Properties;
( viii) All facilities located on the parcels of Owned Properties
are supplied with utilities and other services necessary for the operation of
such facilities, including gas, electricity, water, telephone, sanitary sewer
and storm sewer, all of which services are adequate in accordance with all
applicable laws, ordinances, rules and regulations, and are provided via
public roads or via permanent, irrevocable, appurtenant easements benefiting
the parcels of Owned Properties;
<PAGE>
( ix) Each parcel of Owned Properties abuts on and has direct,
or indirect through another Owned Properties, vehicular access to a public
road, or has access to a public road via a permanent, irrevocable,
appurtenant easement benefiting the parcel of Owned Properties; access to the
property is provided by paved public right-of-way with adequate curb cuts
available; and there is no pending or threatened termination of the
foregoing access rights; and
( x) Neither Lux nor any Affiliate has received notice of: (a)
any condemnation proceeding with respect to any portion of any parcel of
Owned Properties or any access thereto, and (to the knowledge of Lux and its
Affiliates) no such proceeding is contemplated by any Governmental Authority;
or (b) any special assessment which may affect any parcel of Owned Properties,
and (to the knowledge of Lux and its Affiliates) no such special assessment
is contemplated by any Governmental Authority.
( b) Schedule 3.14(b) attached hereto sets forth a list of all leases,
licenses or similar agreements ("Leases") to which Lux is a party (copies of
which have previously been furnished to Claire's), in each case, setting
forth (A) the lessor and lessee thereof and the date and term of each of the
Leases, and (B) the location of each property covered thereby (the "Leased
Premises"), and (C) a brief description of the principal use of such property
by Lux, if such use is other than as a retail store. The Leases are in full
force and effect and have not been amended (except for amendments provided to
Claire's) and no party thereto is in material default or breach under any
such Lease. No event has occurred which, with the passage of time or the giving
of notice or both, would cause a material breach of or default under any of
such Leases. There is no material breach or anticipated breach by any other
party to such Leases. With respect to each such Leased Premises:
i) Lux has valid leasehold interests in the Leased
Premises, free and clear of any Liens, easements or title defects of any
nature whatsoever caused by Lux, and of any covenants except as set forth in
the Leases provided to Claire's.
ii) The Leased Premises that are used in the business
of Lux are in the aggregate sufficient to satisfy Lux's current normal
business activities as conducted thereat;
iii) Each of the Leased Premises: (a) is directly
accessible to the public during normal store business hours, such access
being sufficient to satisfy the current and reasonably anticipated normal
transportation requirements of Lux's business as presently conducted at such
premises; and (b) is served by all utilities in such quantity and quality as
are sufficient to satisfy the current normal business activities as conducted
thereat; and
<PAGE>
iv) Lux has not received notice of: (a) any
condemnation proceeding with respect to any portion of the Leased Premises or
any access thereto, and to Lux's, the Shihs' and the Stockholder's knowledge,
no such proceeding is contemplated by any Governmental Authority; or (b) any
special assessment which may affect any of the Leased Premises, and to Lux's,
the Shihs' and the Stockholder's knowledge, no such special assessment is
contemplated by any Governmental Authority.
3. 15 Good Title to and Condition of Assets.
( a) Lux has good and marketable title to all of its Assets (as
hereinafter defined), free and clear of any Liens or restrictions on use
except as set forth on Schedule 3.15 attached hereto or in the Leases. For
purposes of this Agreement, the term "Assets" means all of the properties and
assets of Lux, other than the Leased Premises, whether personal or mixed,
tangible or intangible, wherever located.
( b) The Fixed Assets (as hereinafter defined) taken as a whole
currently in use or necessary for the business and operations of Lux are in
reasonable working condition for operations of the business. For purposes of
this Agreement, the term "Fixed Assets" means all vehicles, machinery,
equipment, tools, supplies, leasehold improvements, furniture and fixtures
used by or located on the premises of Lux or set forth on the Financial
Statements or acquired by Lux since the date thereof. Schedule 3.15 lists
the vehicles owned, leased or used by Lux.
3. 16 Compliance with Laws.
( a) To Lux's, the Shihs' and the Stockholder's knowledge, Lux is and
has been in material compliance with all laws, regulations and orders
applicable to it, its business and operations (as conducted by it now and in
the past), the Assets and the Leased Premises and any other properties and
assets (in each case owned or used by it now or in the past). Except for
citations identified on Schedule 3.13, Lux has not been cited, fined or
otherwise notified of any asserted past or present failure to comply with any
laws, regulations or orders (except where such failure to comply has been
cured to the satisfaction of the relevant Governmental Authority), and no
proceeding with respect to any such violation is pending or, to the knowledge
of Lux or any of the Stockholders, threatened.
( b) Neither Lux, nor any of its employees or agents, has made any
payment of funds in connection with the business of Lux which is prohibited
by law, and no funds have been set aside to be used in connection with the
business of Lux for any payment prohibited by law.
( c) Lux is and at all times has been in material compliance with the
terms and provisions of the Immigration Reform and Control Act of 1986, as
amended (the "Immigration Act"). With respect to each Employee (as defined
in 8 C.F.R. 274a.1(f)) of Lux for whom compliance with the Immigration Act is
required, Lux has on file a true, accurate and complete copy of: (i) each
Employee's Form I-9 (Employment Eligibility Verification Form); and (ii) all
other records, documents or other papers prepared, procured and/or
retained by Lux pursuant to the Immigration Act. Lux has not been cited,
fined, served with a Notice of Intent to Fine or with a Cease and Desist Order,
nor has any action or administrative proceeding been initiated or, to the
knowledge of Lux or any of the Stockholder, threatened against Lux, by the
Immigration and Naturalization Service by reason of any actual or alleged
failure to comply with the Immigration Act.
<PAGE>
( d) Lux is not subject to any Contract, decree or injunction to which
Lux is a party which restricts the continued operation of any business of Lux
or the expansion thereof to other geographical areas, customers and suppliers
or lines of business, except as set forth in the Leases provided to Claire's.
3. 17 Labor and Employment Matters. Schedule 3.17 attached hereto sets
forth the name and current rate of compensation of the employees of Lux
having an annual base salary in excess of $50,000. Lux is not a party to or
bound by any collective bargaining agreement or any other agreement with a
labor union. To Lux's, the Shihs' and the Stockholder's knowledge, there has
been no effort by any labor union during the 24 months prior to the date
hereof to organize any employees of Lux into one or more collective
bargaining units. There is no pending or, to the knowledge of the Shihs, Lux
and the Stockholder, threatened labor dispute, strike or work stoppage which
affects or which may affect the business of Lux or which may interfere with its
continued operations. To Lux's, the Shihs' and the Stockholder's knowledge,
neither Lux nor any agent, representative or employee thereof has within the
last 24 months committed any unfair labor practice as defined in the National
Labor Relations Act, as amended, and there is no pending or threatened charge
or complaint against Lux by or with the National Labor Relations Board or any
representative thereof. There has been no strike, walkout or work stoppage
involving any of the employees of Lux during the 24 months prior to the date
hereof. Neither Lux, the Shihs nor the Stockholder are aware that any
executive or key employee or group of employees has any plans to terminate
his, her or their employment with Lux as a result of the Merger or otherwise;
provided, however, that a decision to move certain of Lux's operations
from Washington may result in termination of employment of certain employees
by Lux or by those employees. Schedule 3.17 identifies each contract,
agreement or plan of the following nature, whether formal or informal, and
whether or not in writing, to which Lux is a party or under which it has an
obligation: (a) employment agreements; (b) employee handbooks, policy
statements and similar plans; (c) non-competition agreements; and
(d) consulting agreements. To Lux's, the Shihs' and the Stockholder's
knowledge, Lux has complied in all material respects with applicable federal
and state laws, rules and regulations relating to employment, civil rights
and equal employment opportunities, including but not limited to,
the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, and
the Americans with Disabilities Act, as amended.
<PAGE>
3. 18 Employee Benefit Plans.
( a) Employee Benefit Plans. Schedule 3.18 attached hereto contains
a list setting forth each employee benefit plan or arrangement of Lux,
including but not limited to employee pension benefit plans, as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), multiemployer plans, as defined in Section 3(37) of ERISA,
employee welfare benefit plans, as defined in Section 3(1) of ERISA, deferred
compensation plans, stock option plans, bonus plans, stock purchase
plans, hospitalization, disability and other insurance plans, severance or
termination pay plans and policies, whether or not described in Section 3(3)
of ERISA, in which employees, their spouses or dependents, of Lux participate
(collectively, "Employee Benefit Plans") (true and accurate copies of which,
together with the most recent annual reports on Form 5500 and
summary plan descriptions with respect thereto, were furnished to Claire's).
( b) Compliance with Law. To Lux's, the Shihs' and the
Stockholder's knowledge, with respect to each Employee Benefit Plan:
(i) except for routine benefit claims, each has been administered in all
material respects in compliance with its terms and with all applicable laws,
including, but not limited to, ERISA and the Code; (ii) no
actions, suits, claims or disputes are pending, or, to the knowledge of Lux,
the Shihs or the Stockholder, threatened; (iii) no audits, inquiries, reviews,
proceedings, claims, or demands are pending with any governmental or
regulatory agency; (iv) except for routine benefit claims, there are no facts
which could give rise to any material liability in the event of any
such investigation, claim, action, suit, audit, review, or other proceeding;
(v) all material reports, returns, and similar documents required to be filed
with any governmental agency or distributed to any plan participant have been
duly or timely filed or distributed; and (vi) no non-exempt "prohibited
transaction" has occurred within the meaning of the applicable provisions of
ERISA or the Code.
( c) Qualified Plans. With respect to each Employee Benefit Plan
intended to qualify under Code Section 401(a), or 403(a) (i) the Internal
Revenue Service has issued a favorable determination letter, true and correct
copies of which have been furnished to Claire's, that such plans are
qualified and exempt from federal income taxes; (ii) no such determination
letter has been revoked nor has revocation been threatened, nor has any
amendment or other action or omission occurred with respect to any such plan
since the date of its most recent determination letter or application
therefor in any respect which would adversely affect its qualification or
materially increase its costs; (iii) no such plan has been amended in a
manner that would require security to be provided in accordance with Section
401(a)(29) of the Code; (iv) no reportable event (within the meaning of
Section 4043 of ERISA) has occurred, other than one for which the 30-day
notice requirement has been waived; (v) as of the Effective Time, the present
value of all liabilities that would be "benefit liabilities" under Section
4001(a)(16) of ERISA if benefits described in Code Section 411(d)(6)(B) were
included will not exceed the then current fair market value of the assets of
such plan (determined using the actuarial assumptions used for the most
recent actuarial valuation for such plan); (vi) all contributions to, and
payments from and with respect to such plans, which may have been required to
be made in accordance with such plans and, when applicable, Section 302 of
ERISA or Section 412 of the Code, have been timely made; and (vii) all such
contributions to the plans, and all payments under the plans (except those to
be made from a trust qualified under Section 401(a) of the Code) and all
payments with respect to the plans (including, without limitation, PBGC (as
defined below in clause (f)) insurance premiums) for any period ending before
the Effective Time that are not yet, but will be, required to be made are
properly accrued and reflected on the Current Balance Sheet.
( d) Multiemployer Plans. With respect to any multiemployer plan,
as described in Section 4001(a)(3) of ERISA ("MPPA Plan"): (i) all
contributions required to be made with respect to employees of Lux have been
timely paid; (ii) Lux has not incurred or is not expected to incur, directly
or indirectly, any withdrawal liability under ERISA with respect to any such
plan (whether by reason of the transactions contemplated by the
Agreement or otherwise); (iii) Schedule 3.18 sets forth (A) the withdrawal
liability under ERISA to each MPPA Plan, (B) the date as of which such amount
was calculated, and (C) the method for determining the withdrawal liability;
and (iv) no such plan is (or is expected to be) insolvent or in
reorganization and no accumulated funding deficiency (as defined in Section
302 of ERISA and Section 412 of the Code), whether or not waived, exists or
is expected to exist with respect to any such plan.
( e) Welfare Plans.
( i) Lux is not obligated under any employee welfare benefit
plan as described in Section 3(1) of ERISA ("Welfare Plan") to provide
medical or death benefits with respect to any employee or former employee of
Lux or its predecessors after termination of employment;
( ii) To Lux's, the Shihs' and the Stockholder's knowledge,
Lux has complied with the notice and continuation coverage requirements of
Section 4980B of the Code and the regulations thereunder with respect to each
Welfare Plan that is, or was during any taxable year for which the statute of
limitations on the assessment of federal income taxes remains open, by
consent or otherwise, a group health plan within the meaning of Section
5000(b)(1) of the Code; and
( iii) There are no reserves, assets, surplus or prepaid premiums
under any Welfare Plan which is an Employee Benefit Plan. Except for routine
benefit claims, the consummation of the transactions contemplated by this
Agreement will not entitle any individual to severance pay, and, will not
accelerate the time of payment or vesting, or increase the amount of
compensation, due to any individual.
( f) Controlled Group Liability. Neither Lux, nor any entity that
would be aggregated with it under Code Section 414(b), (c), (m) or (o): (i)
has ever terminated or withdrawn from any employee benefit plan under
circumstances resulting (or expected to result) in liability to the Pension
Benefit Guaranty Corporation ("PBGC"), the fund by which the employee benefit
plan is funded, or any employee or beneficiary for whose benefit the plan is
or was maintained (other than routine claims for benefits); (ii) has any
assets subject to (or expected to be subject to) a lien for unpaid
contributions to any employee benefit plan; (iii) has failed to pay premiums
to the PBGC when due; (iv) is subject to (or expected to be subject to) an
excise tax under Code Section 4971; (v) has engaged in any transaction which
would give rise to liability under Section 4069 or Section 4212(c) of ERISA;
or (vi) has violated Code Section 4980B or Section 601 through 608 of ERISA.
<PAGE>
( g) Other Liabilities.
( i) None of the Employee Benefit Plans obligates Lux to pay
separation, severance, termination or similar benefits solely as a result of
any transaction
contemplated by this Agreement or solely as a result of a "change of control"
(as such term is defined in Section 280G of the Code);
( ii) all required or discretionary (in accordance with historical
practices) payments, premiums, contributions, reimbursements, or accruals for
all periods ending prior to or as of the Effective Time shall have been made
or properly accrued on the Current Balance Sheet or will be properly accrued
on the books and records of Lux as of the Effective Time; and
( iii) none of the Employee Benefit Plans has any unfunded
liabilities which are not reflected on the Current Balance Sheet or the books
and records of Lux.
3. 19 Tax Matters. All Tax Returns required to be filed prior to the
date hereof with respect to Lux or any of its income, properties, franchises
or operations have been timely filed, each such Tax Return has been prepared
in compliance with all applicable laws and regulations, and all such Tax
Returns are true and accurate in all material respects. All Taxes due and
payable by or with respect to Lux have been paid and all taxes accrued, but
not due and payable, are accrued on the Current Balance Sheet or will be
accrued on its books and records as of the Closing. All Tax Returns required
to be filed with respect to Lux or any of its income, properties, franchises
or operations on or before the Effective Time shall be filed when due and all
taxes due thereon shall be paid when due. Except as set forth in Schedule
3.19 attached hereto: (i) no Tax Return has been audited by the relevant
taxing authority within the last four years; (ii) no deficiency or proposed
adjustment which has not been settled or otherwise resolved for any amount of
Taxes has been asserted or assessed by any taxing authority against Lux;
(iii) Lux has not consented to extend the time in which any Taxes may be
assessed or collected by any taxing authority; (iv) Lux has not requested or
been granted an extension of the time for filing any Tax Return to a date
later than the Effective Time; (v) there is no action, suit, taxing authority
proceeding, or audit or claim for refund now in progress, pending or
threatened against or with respect to Lux regarding Taxes; (vi) Lux has not
made an election or filed a consent under Section 341(f) of the Code
(or any corresponding provision of state, local or foreign law) on or prior
to the Effective Time; (vii) there are no Liens for Taxes (other than for
current Taxes not yet due and payable) upon the assets of Lux; (viii) Lux
will not be required (A) as a result of a change in method of accounting for
a taxable period ending on or prior to the Effective Time, to include
any adjustment under Section 481(c) of the Code (or any corresponding
provision of state, local or foreign law) in taxable income for any taxable
period (or portion thereof) beginning after the Effective Time or (B) as a
result of any "closing agreement," as described in Section 7121 of the Code
(or any corresponding provision of state, local or foreign law), to include
<PAGE>
any item of income or exclude any item of deduction from any taxable period
(or portion thereof) beginning after the Effective Time; (ix) after validly
filing its election in 1996 for "S" corporation status under the Code, Lux
has not been a member of an affiliated group (as defined in Section 1504 of
the Code) or filed or been included in a combined, consolidated or
unitary income Tax Return; (x) Lux is not a party to or bound by any tax
allocation or tax sharing agreement or has any current or potential
contractual obligation to indemnify any other Person with respect to Taxes;
(xi) to Lux's, the Shihs' and the Stockholder's knowledge, no taxing
authority will claim or assess any additional Taxes against Lux for any
period for which Tax Returns have been filed; (xii) Lux has not made any
payments, and will not become obligated (under any contract entered into on
or before the Effective Time) to make any payments, that will be non-
deductible under Section 280G of the Code (or any corresponding provision of
state, local or foreign law); (xiii) Lux has not been a United States
real property holding corporation within the meaning of Section 897(c)(2) of
the Code (or any corresponding provision of state, local or foreign law)
during the applicable period specified in Section 897(c)(1)(a)(ii) of the
Code (or any corresponding provision of state, local or foreign law); (xiv)
no claim has ever been made by a taxing authority in a jurisdiction where
Lux does not file Tax Returns that it is or may be subject to Taxes assessed
by such jurisdiction; and (xv) Lux does not have any permanent establishment
in any foreign country, as defined in the relevant tax treaty between the
United States of America and such foreign country; (xvi) true, correct and
complete copies of all income, payroll, property and sales Tax Returns filed
by or with respect to Lux for the past five years have been furnished or made
available to Claire's; (xvii) Lux will not be subject to any Taxes for the
period ending at the Effective Time for any period for which a Tax Return has
not been filed imposed pursuant to Section 1374 or Section 1375 of the Code
(or any corresponding provision of state, local or foreign law); and (xviii)
no sales or use tax, non-recurring intangibles tax, documentary stamp
tax or other excise tax (or comparable tax imposed by any governmental
entity) will be payable by Claire's by virtue of the transactions completed
in this Agreement.
3. 20 Insurance. Lux is covered by valid, outstanding and enforceable
policies of insurance covering its respective properties, assets and
businesses against risks of the nature normally insured against by
corporations in the same or similar lines of business and in coverage amounts
reasonable in light of Lux's historical claims experience (the "Insurance
Policies"). Such Insurance Policies are in full force and effect, and all
premiums due thereon have been paid. As of the Effective Time, each of the
Insurance Policies will be in full force and effect. None of the Insurance
Policies will lapse or terminate as a result of the transactions contemplated
by this Agreement. Lux has complied in all material respects with the
provisions of such Insurance Policies. Lux has not failed to give, in a
timely manner, any notice required under any of the Insurance Policies to
preserve its rights thereunder.
3. 21 Receivables. All of the Receivables (as hereinafter defined) are
valid and legally binding, represent bona fide transactions and arose in the
ordinary course of business of Lux. All of the Receivables are good and
collectible receivables, without setoff or counterclaims, subject to the
allowance for doubtful accounts, if any, set forth on the Current
Balance Sheet as reasonably adjusted since the date of the Current Balance
Sheet in the ordinary course of business consistent with past practice. For
<PAGE>
purposes of this Agreement, the term "Receivables" means all receivables of
Lux, including, without limitation, all trade account receivables arising
from the provision of services, sale of inventory, notes receivable,
and insurance proceeds receivable.
3. 22 Licenses and Permits. Lux possesses all material licenses and
required governmental or official approvals, permits or authorizations
(collectively, the "Permits") for its business and operations, including with
respect to the operation of each of the Leased Premises. All such Permits are
valid and in full force and effect, Lux is in full compliance with the
respective requirements thereof, and no proceeding is pending or, to the
knowledge of Lux or any of the Shihs or the Stockholder, threatened to revoke
or amend any of them. None of such Permits is or will be impaired or in any
way affected by the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
3. 23 Adequacy of the Assets; Relationships with Customers and Suppliers;
Affiliated Transactions. The Assets, Owned Properties and Leased Premises
constitute, in the aggregate, all of the assets and properties necessary for
the conduct of the business of Lux in the manner in which and to the extent
to which such business is currently being conducted. No current supplier to
Lux of items essential to the conduct of its business has threatened to
terminate its business relationship with it for any reason. Lux does not
have any direct or indirect interest in any customer, supplier or competitor
of Lux, or in any person from whom or to whom Lux leases real or personal
property as of the date hereof and, except for the Lease entered into by Lux
as lessee and the Shih Family Limited Partnership, as lessor, relating to the
warehouse and office property, no officer, director or stockholder of Lux,
nor any person related by blood or marriage to any such person, nor any
entity in which any such person owns any beneficial interest, is a party to
any Contract or transaction with Lux or has any interest in any property used
by Lux as of the date hereof.
3. 24 Intellectual Property. Schedule 3.24 attached hereto lists
(including registration numbers) all trademarks, service marks, trade names,
copyrights and patents which Lux has full legal right, title and interest in
and to, or the right to use. In addition to the items listed in Schedule
3.24, Lux has full legal right, title and interest in and to, or the
right to use all know-how, trade secrets, licenses (including licenses for
the use of computer software programs) as well as all other intellectual
property used in the conduct of its business (collectively, the "Intellectual
Property"). To Lux's, the Shihs' and the Stockholder's knowledge, the
conduct of the business of Lux as presently conducted, and such conduct and
such use and exploitation of the Intellectual Property, does not infringe or
misappropriate in any material respect any rights held or asserted by any
Person, and no Person is infringing on the Intellectual Property. No
payments are required for the continued use of the Intellectual Property.
None of the Intellectual Property has ever been declared invalid or
unenforceable, or is the subject of any pending or, to the knowledge of Lux,
the Shihs or the Stockholder, threatened action for opposition, cancellation,
declaration, infringement, or invalidity, unenforceability or
misappropriation or like claim, action or proceeding.
3. 25 Contracts. Schedule 3.25 attached hereto sets forth a list of each
Contract to which Lux is a party or by which it or its properties and assets
are bound and which is material to its business, assets, properties or
prospects (the "Designated Contracts"), true and correct copies of which have
been provided to Claire's. The copy of each Designated Contract furnished to
<PAGE>
Claire's is a true and complete copy of the document it purports to
represent and reflects all amendments thereto made through the date of this
Agreement. Lux has not violated any of the material terms or conditions of
any Designated Contract or any term or condition which would permit
termination or material modification of any Designated Contract, and all of
the material covenants to be performed by any other party thereto have been
performed in all material respects and there are no claims for breach or
indemnification or notice of default or termination under any Designated
Contract. No event has occurred which constitutes, or after notice or the
passage of time, or both, would constitute, a material default by Lux under
any Designated Contract, and to the knowledge of Lux, the Shihs and the
Stockholder, no such event has occurred which constitutes or would
constitute a material default by any other party. Except as set forth in
Schedule 3.14(b) with respect to certain leases identified therein, Lux is
not subject to any liability or payment resulting from renegotiation of
amounts paid it under any Designated Contract. As used in this Section,
Designated Contracts shall include, without limitation: (a) loan agreements,
indentures, mortgages, pledges, hypothecations, deeds of trust, conditional
sale or title retention agreements, security agreements, equipment financing
obligations or guaranties, or other sources of contingent liability in
respect of any indebtedness or obligations to any other Person, or letters of
intent or commitment letters with respect to same; (b) contracts obligating
Lux to provide products or services for a period of one year or more; (c)
leases of real property, and leases of personal property not cancelable
without penalty on notice of sixty (60) days or less or calling for payment
of an annual gross rental exceeding $30,000; (d) distribution, sales agency
or franchise or similar agreements, or agreements providing for an
independent contractor's services, or letters of intent with respect to same;
(e) employment agreements, management service agreements, consulting
agreements, confidentiality agreements, non-competition agreements and any
other agreements relating to any employee, officer or director of Lux; (f)
licenses, assignments or transfers of trademarks, trade names, service marks,
patents, copyrights, trade secrets or know how, or other agreements regarding
proprietary rights or intellectual property; (g) any Contract relating to
pending capital expenditures by Lux; and (h) other material Contracts or
understandings, irrespective of subject matter and whether or not in writing,
not entered into in the ordinary course of business by Lux and not otherwise
disclosed on the Schedules attached hereto.
3. 26 Significant Customers. No customer of Lux individually accounted
for more than 0.1% of Lux's annual revenue for the fiscal years ended
November 30, 1996 or November 30, 1997.
3. 27 Accuracy of Information Furnished. No representation, statement or
information made or furnished by Lux, the Shihs or the Stockholder to
Claire's or any of Claire's representatives in this Agreement and the various
Schedules attached hereto and the other information and statements referred
to herein and previously furnished by Lux, the Shihs and the Stockholder,
knowingly contains or shall knowingly contain any untrue statement of a
material fact or omits or shall omit any material fact necessary to make the
information contained therein not misleading. Lux, the Shihs or the
Stockholder have provided Claire's with true, accurate and complete copies of
all documents listed or described in the various Schedules attached hereto
(except for the items set forth on Schedule 3.13).
<PAGE>
3. 28 Investment Intent; Accredited Investor Status; Securities Documents.
The Stockholder is acquiring the Claire's Shares hereunder for its own account
for investment and not with a view to, or for sale in connection with, any
distribution of any of the Claire's Shares, except in compliance with
applicable state and federal securities laws. The Stockholder has not agreed
to act with any Person as a group within the meaning of Section 13(d)(3) of
the Exchange Act with respect to holding, voting or disposing of the
Claire's Shares. Each of the Shihs and the Stockholder has had the
opportunity to discuss the transactions contemplated hereby with Claire's and
has had the opportunity to obtain such public information pertaining to the
Claire's Companies as has been requested, including but not limited to SEC
filings. Each of the Shihs and the Stockholder is an "accredited investor"
within the meaning of Regulation D promulgated under the Securities Act, and
has such knowledge and experience in business or financial matters that it is
capable of evaluating the merits and risks of an investment in the Claire's
Shares.
3. 29 Bank Accounts; Business Locations. Schedule 3.29 attached hereto
sets forth all accounts of Lux with any bank, broker or other depository
institution, and the names of all persons authorized to withdraw funds from
each such account. As of the date hereof, Lux has no office or place of
business other than as identified on Schedules 3.14(a) and 3.14(b) and Lux's
principal places of business and principal executive offices are indicated on
Schedules 3.14(a) or 3.14(b) and all locations where the equipment,
inventory, chattel paper and books and records of Lux is located as of the
date hereof are fully identified on Schedules 3.14(a) and 3.14(b).
3. 30 Names; Prior Acquisitions. Lux has not changed its name or used any
assumed or fictitious name except as set forth on Schedule 3.1, nor has it
been the surviving entity in a merger, acquired any business or changed its
principal place of business or principal executive office, within the past
three years.
3. 31 No Commissions. Except for the obligation in favor of AHI, neither
Lux nor the Shihs nor the Stockholder have incurred any obligation for any
finder's or broker's or agent's fees or commissions or similar compensation
in connection with the transactions contemplated hereby. The obligation in
favor of AHI shall be paid by Lux.
3. 32 Certain Accounting Matters. Neither Lux nor the Stockholder, nor
any of their respective Affiliates, has knowingly taken or agreed to take any
action that (without regard to any action taken or agreed to be taken by
Claire's or any of its Affiliates) would prevent Claire's from accounting for
the transactions contemplated hereby as a pooling of interest business
combination.
3. 33 Inventory. All inventories (collectively referred to as
"inventory" or "inventories") of Lux reflected on the Current Balance Sheet
consist of items of quality and quantity and salable in the ordinary course
of business as of the date of the Current Balance Sheet except to the extent
that the Current Balance Sheet reflects adequate provisions or adjustments
for excess inventory, slow-moving inventory and inventory obsolescence and
shrinkage at the lower of cost or realizable or current market value in
accordance with GAAP, provided that such provisions or adjustments do not
exceed $350,000 in the aggregate. The values at which inventories are
carried on the Current Balance Sheet reflect the normal inventory valuation
<PAGE>
policy of Lux, as applicable, in accordance with GAAP and on a basis
consistent with that of preceding periods, of stating inventory at the lower
of cost or market value. To the knowledge of Lux, the Shihs and the
Stockholder, there is no reason to believe that Lux will experience in the
foreseeable future any difficulty in obtaining, in the desired
quantity and quality, the inventory necessary to conduct its business in the
manner now conducted, including, without limitation, inventory which
historically has been imported. All items included in the inventories are
the property of Lux and no items included in the inventories have been
pledged as collateral or are held by Lux on consignment from others.
The value of inventory reflected on the Current Balance Sheet was based upon
physical inventory counts conducted in connection with the preparation and
audit of the Current Balance Sheet. In connection with the preparation of
the Current Balance Sheet, individual items, and types or categories of
items, were or will be included in such inventory in a manner consistent with
Lux's past practice and are valued at the lower of cost or market value and
on a basis consistent with that of prior years. The reserves shown on the
Current Balance Sheet are adequate, appropriate and reasonable.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
4. 1 Conduct of Business by Lux, the Shihs and the Stockholder Pending the
Merger. Each of Lux, the Shihs and the Stockholder hereby, jointly and
severally, covenants and agrees that, between the date of this Agreement and
the Effective Time, Lux shall operate its business only in the ordinary
course consistent with past practice and will not enter into any
extraordinary agreements or transactions. Lux, the Shihs and the
Stockholder shall use their respective best efforts to preserve intact Lux's
business organization, to keep available the services of its current
officers, employees and consultants, and to preserve its present
relationships with customers, suppliers and other persons with which it has
significant business relations. By way of amplification and not limitation,
except as contemplated by this Agreement, Lux shall not, between the date of
this Agreement and the Effective Time, directly or indirectly, do or propose
or agree to do any of the following absent prior consultation with
Claire's and receipt of Claire's written consent (which written consent shall
be deemed to be automatically given if Claire's fails to respond to Lux within
five (5) business days of any such consultation):
( a) amend or otherwise change its Articles of Incorporation or By-
Laws;
( b) (i) issue, sell, pledge, dispose of, or encumber, or, authorize the
issuance, sale, pledge, disposition, or encumbrance of any shares of its
capital stock of any class, or any options, warrants, convertible securities or
other rights of any kind to acquire any shares of such capital stock, or any
other ownership interest, of it; or (ii) sell, pledge, dispose of, or
encumber, or authorize the sale, pledge, disposition or encumbrance of its
assets, tangible or intangible, except in the ordinary course of business
consistent with pastpractice;
<PAGE>
( c) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock (except to the extent that any such dividend or distribution is
no greater than normal, is based upon earnings and past dividend policy and
patterns of Lux, or is no greater than the amount necessary to satisfy the
current tax obligations (accrued or otherwise) of the Shihs and the
Stockholder relating to the fiscal year ended November 30, 1997 and the
period through the Closing Date) or pay any bonuses to the Shihs or the
Stockholder;
( d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
( e) (i) acquire (including, without limitation, for cash or shares of
stock, by merger, consolidation, or acquisition of stock or assets) any
interest in any corporation, partnership or other business organization or
division thereof or any assets, or make any investment either by purchase of
stock or securities, contributions of capital or property transfer, or,
except in the ordinary course of business, consistent with past practice,
purchase any property or assets of any other Person; (ii) incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse or otherwise as an accommodation become responsible for,
the obligations of any Person, or make any loans or advances; or (iii) enter
into any Contract other than in the ordinary course of business,
consistent with past practice;
( f) make any capital expenditures in excess of $50,000 in the
aggregate, other than for tenant improvements and equipment for new stores
(unless any such expenditures are set forth on Schedule 4.1(f) attached
hereto);
( g) increase the compensation payable or to become payable, or
make any bonus payments, to its executive officers or salaried employees, or,
except as presently bound to do, change the employment conditions of any
salaried employee, grant any severance or termination pay to, or enter into
any employment or severance agreement with, any of its directors, officers,
or salaried personnel or establish, adopt, enter into or amend or
take any action to accelerate any rights or benefits with regard to any
collective bargaining, bonus, profit sharing, trust, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust,
fund, policy or arrangement for the benefit of any directors, officers,
supervisory personnel oremployees;
( h) take any action other than in the ordinary course of business and
in a manner consistent with past practice with respect to accounting policies
or procedures;
( i) pay, discharge or satisfy any existing trade payables, accrued
expenses, claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of due and payable liabilities reflected or reserved against in the
Financial Statements, as appropriate, or liabilities incurred after the
date of the Current Balance Sheet in the ordinary course of business and
consistent with past practice;
<PAGE>
( j) collect accounts receivables and purchase or produce inventory
other than in the ordinary course of business and consistent with past
practice;
( k) increase or decrease prices charged to its customers, other than
in the ordinary course of business consistent with past practice, or take any
other action which might reasonably adversely affect the financial condition
and business prospects of Lux;
( l) enter into any transaction with an Affiliate, whether or not in the
ordinary course of business;
( m) change its existing accounting policies or procedures;
( n) undertake any unusual or long term contractual purchase
commitments;
( o) enter into any long term leases other than store leases, and then
only with terms not in excess of 10 lease years; or
( p) agree, in writing or otherwise, to take or authorize any of the
foregoing actions or any action which would make any representation or
warranty in Article III hereof untrue or incorrect.
ARTICLE V
ADDITIONAL AGREEMENTS
5. 1 Further Assurances. Each party shall execute and deliver such
additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and
comply with all of the terms of this Agreement and the transactions
contemplated hereby.
5. 2 Compliance with Covenants. The Shihs and the Stockholder shall cause
Lux to comply with all of the respective covenants of Lux under this
Agreement.
5. 3 Cooperation. Each of the parties hereto agrees to cooperate with the
other in the preparation and filing of all forms, notifications, reports and
information, if any, required or reasonably deemed advisable pursuant to any
law, rule or regulation, including the rules of the NYSE, the exchange on
which the Claire's Common Stock is listed, in connection with the
transactions contemplated by this Agreement and to use their respective
best efforts to agree jointly on a method to overcome any objections by any
Governmental Authority to any such transactions.
<PAGE>
5. 4 HSR Act and Other Actions. Each of the parties hereto shall: (a) make
promptly (and in no event later than five (5) business days following the date
hereof) its respective filings, and thereafter make any other required
submissions, under the HSR Act, with respect to the transactions contemplated
hereby; and (b) use its reasonable best efforts to take, or cause to be
taken, all appropriate actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated herein,
including, without limitation, using its best efforts to obtain all licenses,
permits, consents, approvals, authorizations, qualifications and orders of
any Governmental Authority and parties to Contracts with Lux as are
necessary for the consummation of the transactions contemplated hereby. Each
of parties shall make on a prompt and timely basis all governmental or
regulatory notifications and filings required to be made by it for the
consummation of the transactions contemplated hereby. The parties also agree
to use best efforts to defend all lawsuits or other legal proceedings
challenging this Agreement or the consummation of the transactions
contemplated hereby and to lift or rescind any injunction or restraining
order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby.
5. 5 Access to Information. From the date hereof to the Effective Time, Lux
shall (and shall cause its directors, officers, employees, auditors, counsel
and agents to) afford Claire's and Claire's officers, employees, auditors,
counsel and agents reasonable access during business hours to all assets,
properties, books, records, accounts, contracts and documents of or relating
to Lux and such other information as Claire's may reasonably request
concerning the businesses, finances and properties of Lux and its operations.
No information provided to or obtained by Claire's after the date of this
Agreement shall affect any representation or warranty in this Agreement.
5. 6 Notification of Certain Matters. Lux, the Shihs and the Stockholder
shall give prompt notice to Claire's of the occurrence or non-occurrence of
any event which would likely cause, or would have caused, any representation
or warranty contained herein to be untrue or inaccurate, or any covenant,
condition, or agreement contained herein not to be complied with or satisfied.
5. 7 Tax and Accounting Treatment. Claire's, Lux, the Shihs and the
Stockholder will use their respective best efforts to cause the Merger to
qualify as a reorganization under the provisions of Section 368(a) of the
Code and will not knowingly take any action before or after the Effective
Time to cause the Merger to lose its tax-free status. All parties hereto
agree to file the Agreement of Merger with its respective federal income tax
returns for the year in which the Merger is effective, if applicable, and to
comply with the reporting requirements of Treasury Regulation 1.368-3. In
addition, Lux, the Shihs and the Stockholder shall not knowingly take any
action after the date hereof to cause the Merger contemplated hereby not to
be accounted for as a pooling of interests business combination.
5. 8 Confidentiality; Publicity. Except as may be required by law or as
otherwise permitted or expressly contemplated herein, no party hereto or
their respective Affiliates, employees, agents and representatives shall
disclose to any third party this Agreement or the subject matter or terms
hereof, or use or disclose to any third party any information, documents or
materials disclosed or produced hereunder, without the prior consent of the
other parties hereto. No press release or other public announcement related
to this Agreement or the transactions contemplated hereby shall be issued by
any party hereto without the prior approval of the other parties, except that
Claire's may make such public disclosure which it believes in good faith to
be required by law or rule or regulation or the rules of the NYSE (in which
case Claire's will consult with an officer of Lux prior to making such
disclosure). In the event of termination of this Agreement, the parties
hereto shall promptly return all documents or materials produced hereunder,
including all copies thereof.
<PAGE>
5. 9 Non-Solicitation. In the event of termination of
this Agreement, Claire's agrees that, for a period of two years
following the date of such termination, it will not, directly or
indirectly, on behalf of itself or any business in which it may be
involved, initiate contact with any employee of Lux for the
purpose of encouraging such employee to leave his or her
employment, or encourage others to solicit and hire any person
employed by Lux, without the express written consent of Lux.
5. 10 Exclusive Dealings; Failure to Consummate
Without Cause.
( a) From the date hereof until the Effective Time, or earlier
termination of this Agreement as provided in Section 5.10 or Article XII
thereof, Lux, the Shihs, the Stockholder and their respective Affiliates,
employees, agents and representatives will not: (i) initiate, or encourage
the initiation by others of, discussions or negotiations with third parties
or respond to solicitations by third persons relating to any merger, sale or
other disposition of any substantial part of the assets, business or
properties of Lux (whether by merger, consolidation, sale of stock or
otherwise); or (ii) enter into any agreement or commitment (whether or not
binding) with respect to any of the foregoing transactions (collectively, a
"Transaction"). Lux, the Shihs and the Stockholder will immediately notify
Claire's if any third party attempts to initiate any solicitation, discussion
or negotiation with respect to any Transaction.
( b) In the event that Claire's fails to consummate the Merger
otherwise than by reason of failure of the conditions set forth in Article VI
hereof or Lux's violation of Section 5.10(a) hereof or as otherwise provided
in Article XII hereof, then Claire's will immediately pay to or at the
direction of Lux the sum of (x) the amount of all costs and expenses incurred
by or on behalf of Lux, the Shihs and the Stockholder prior to the date
hereof and such additional costs and expenses incurred after the date hereof
in connection with the investigation, negotiation and structuring of the
transaction contemplated hereby (including, without limitation, legal,
accounting, consulting and financial advisory fees) (collectively, the "Lux
Expenses"), plus One Million Dollars ($1,000,000). Notwithstanding
the foregoing, if the Merger contemplated hereby is not consummated due
solely to the failure of Lux, the Shihs and/or the Stockholder to fulfill on
a timely basis any condition or obligation imposed on them under this
Agreement which is required to be fulfilled by Lux, the Shihs and/or the
Stockholder, Claire's shall not be required to pay either the Lux Expenses or
the additional amount referred to in this Section 5.10(b).
<PAGE>
5. 11 Claire's Due Diligence Review and
Environmental Assessment. Claire's shall be entitled to conduct
prior to Closing a due diligence review of the assets, properties,
business, financial condition, books and records of Lux and an
environmental assessment of the Leased Premises (hereinafter
referred to as "Environmental Assessment"). The Environmental
Assessment may include, but not be limited to, a physical
examination of the Leased Premises, and any structures,
facilities, or equipment located thereon, soil samples, ground and
surface water samples, storage tank testing, review of pertinent
records (including, but not limited to, off-site disposal records
and manifests), documents, and Licenses of Lux. Lux, the
Stockholder and their respective Affiliates shall provide Claire's
or its designated agents or representatives with reasonable access
to such property which Claire's, its agents or representatives
require to conduct the Environmental Assessment, provided such
Environmental Assessment is conducted without material disruption
of Lux's business and operations. If the Environmental Assessment
identifies environmental conditions which requires remediation,
corrective action, or further evaluation under the Environmental
Laws or the modification of operational practices to come into
compliance with Environmental Laws or if the results of the
Environmental Assessment or due diligence review are otherwise not
reasonably satisfactory to Claire's in its sole discretion, then
Claire's may elect not to close the transactions contemplated by
this Agreement in which case this Agreement shall be terminated.
Claire's failure or decision not to conduct any such Environmental
Assessment shall not affect any representation or warranty of Lux
or the Stockholder under this Agreement.
5. 12 Lux's Due Diligence Review. Lux, the Shihs
and the Stockholder shall be entitled to conduct prior to Closing
a due diligence review of the assets, properties, businesses and
financial condition of Claire's based solely upon the SEC Filings
referred to in Section 2.8 hereof.
5. 13 Trading in Claire's Common Stock. Except as
otherwise expressly consented to by Claire's, from the date of
this Agreement until the Effective Time, neither Lux, the Shihs
nor the Stockholder (nor any Affiliates thereof) will directly or
indirectly purchase or sell (including short sales) any shares of
Claire's Common Stock (or any put, call, option or derivative
security or the like relating thereto) in any transactions
effected on the NYSE or otherwise.
[5. 14 Intentionally deleted]
5. 15 Stockholder and Director Vote. The
Stockholder, in executing this Agreement, consents as a
stockholder of Lux, and each of David and Eva, in executing this
Agreement, consents as a director of Lux, to the Merger and the
transactions contemplated hereby, and waives notice of any meeting
in connection therewith and hereby releases and waives all rights
with respect to the transactions contemplated hereby under any
agreements relating to the sale, purchase or voting of Lux Common
Stock other than this Agreement and the transactions and documents
contemplated hereby.
<PAGE>
5. 16 Additional Financial Statements. The Shihs and
the Stockholder shall cause Arthur Andersen LLP, at Claire's sole
expense, to assist KPMG Peat Marwick, LLP, Claire's independent
certified public accountants ("KPMG"), in connection with the
preparation of any and all additional financial statements that
KPMG deems to be necessary to satisfy Claire's obligations under
the federal securities laws (the "Additional Financial
Statements") including, without limitation, pro-forma financial
statements giving effect to the Merger, all of which financial
statements shall be in conformity with GAAP and Regulation S-X as
promulgated under the Securities Act.
[5. 17 Intentionally deleted]
5. 18 Non-Competition.
( a) General. In consideration of, and in order to induce Claire's to
enter into this Agreement and to consummate the transactions contemplated
hereby, each of the Shihs (other than the Trust), hereby covenants and
agrees that he or she shall not, without the prior written consent of
Claire's, for a period of three (3) years from and after the
Effective Time:
( i) directly or indirectly, for himself (or
herself) or for any other persons, firm, corporation, partnership,
association or other entity (including the Stockholder), employ or
attempt to employ any employee of Lux or Claire's or its
subsidiaries or Affiliates until at least six months after the
date such employee was not employed by Lux or Claire's or any of
its subsidiaries or Affiliates; or
( ii) (A) directly or indirectly acquire
or own in any manner any interest in any person, firm,
partnership, corporation, association or other entity which is
engaged in the retail apparel business (the "Business") or which
competes in the Business in any way with Lux or Claire's, or any
of its subsidiaries or Affiliates, within the States of Alaska,
Arizona, California, Colorado, Idaho, Illinois, Montana, Nevada,
New Mexico, Oregon, Utah and Washington or any other state in
which Lux shall hereafter operate while he or she is employed by
Lux or Claire's or any of its subsidiaries or Affiliates, or (B)
be employed by or serve as an employee, agent, officer, director
of, or as a consultant to, any person, firm, partnership,
corporation, association or other entity which is engaged in the
Business or which competes with Lux or Claire's, or any of its
subsidiaries or Affiliates, within the States of Alaska, Arizona,
California, Colorado, Idaho, Illinois, Montana, Nevada, New
Mexico, Oregon, Utah and Washington or any other state in which
Lux shall hereafter operate while he or she is employed by Lux or
Claire's or any of its subsidiaries or Affiliates.
( b) Ownership Exceptions. The provisions of Section 5.18(a)(ii)(A)
shall not apply to:
(i) publicly traded securities, including mutual funds, not to
exceed 1% of the outstanding shares of any single entity; or
<PAGE>
(ii) shares held in blind trusts.
( c) Employment Exceptions. The provisions of Section 5.18(a)(ii)(B)
shall not apply to Daniel Shih in his employment with Bain Capital of Boston,
MA or any other investment banking firms.
( d) Nondisclosure. Each of the Shihs hereby agrees that he or she
shall not at any time, disclose, directly or indirectly, to any person, firm,
corporation, partnership, association or other entity, any confidential
information relating to Lux or to Claire's, including without limitation,
sources of leads and methods of obtaining new business or the methods
generally of doing and operating their respective businesses, except to the
extent that such information is a matter of public knowledge or is required
to be disclosed by law or by judicial or administrative process.
( e) Notwithstanding any other provision of this Agreement, any
action to enforce the noncompetition or nondisclosure provisions of this
Section 5.18 shall be governed exclusively by the laws of the State of
Washington, without regard to any conflicts provisions. Further, and
notwithstanding any other provision of this Agreement, jurisdiction
and venue for such action shall lie in the United States District Court for
the Western District of Washington at Seattle.
5. 19 Lease Amendment. At the Closing, the Shihs
will cause Shih Family Limited Partnership, as lessor, and Lux, as
Lessee, to execute and deliver the lease amendment in the form of
Exhibit 5.19 attached hereto.
5. 20 Consulting Agreement. At the Closing, David
and Lux shall execute and deliver an agreement, in form and
substance satisfactory to David and Claire's, whereby Lux shall
retain David as a consultant for a period of one year at a
consulting fee of $100,000.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE CLAIRE'S COMPANIES
The obligations of the Claire's Companies to effect the
Merger and the other transactions contemplated hereunder shall be
subject to the fulfillment at or prior to the Effective Time of
the following conditions, any or all of which may be waived in
whole or in part by the Claire's Companies:
6. 1 Accuracy of Representations and Warranties and
Compliance with Obligations. The representations and warranties
of Lux, the Shihs and the Stockholder contained in this Agreement
shall be true and correct at and as of the Effective Time with the
same force and effect as though made at and as of that time
except: (a) for changes specifically permitted by or disclosed
pursuant to this Agreement; and (b) that those representations and
warranties which address matters only as of a particular date
shall remain true and correct as of such date. Lux, the Shihs and
the Stockholder shall have performed and complied with all of
their respective obligations required by this Agreement to be
<PAGE>
performed or complied with at or prior to the Effective Time. Lux,
the Shihs and the Stockholder shall have delivered to the Claire's
Companies a certificate, dated as of the Effective Time, duly
signed (in the case of Lux, by its President), certifying that
such representations and warranties are true and correct and that
all such obligations have been complied with and performed.
6. 2 No Material Adverse Change or Destruction of
Property. Between the date hereof and the Effective Time: (a)
there shall have been no Material Adverse Change to Lux in its
business, financial position or results of operations excluding
events which affected the teen apparel industry generally in a
like manner or which affected the economy or stock markets
generally; (b) there shall have been no adverse federal, state or
local legislative or regulatory change affecting in any material
respect the services, products or business of Lux; and (c) none of
the properties and assets of Lux shall have been damaged by fire,
flood, casualty, act of God or the public enemy or other cause
(regardless of insurance coverage for such damage) which damages
may have a Material Adverse Effect thereon, and there shall have
been delivered to the Claire's Companies a certificate to that
effect, dated the Effective Time and signed by or on behalf of Lux
and the Stockholder.
6. 3 Corporate Certificate. Lux and the Stockholder
shall have delivered to the Claire's Companies: (a) copies of the
Articles of Incorporation and By-laws of Lux as in effect
immediately prior to the Effective Time; (b) copies of resolutions
adopted by the Board of Directors and Stockholder of Lux
authorizing the transactions contemplated by this Agreement; and
(c) a certificate of good standing or corporate existence of Lux
issued by the Secretary of State of the State of Washington and
each other state in which Lux is qualified to do business as of a
date not more than thirty days prior to the Effective Time,
certified in the case of subsections (a) and (b) of this Section
6.3 as of the Effective Time by the President of Lux as being
true, correct and complete.
6. 4 Opinion of Counsel. Claire's shall have received
an opinion dated as of the Effective Time from counsel for Lux and
the Stockholder, in its typical format and subject to customary
qualifications and assumptions, and in form and substance
reasonably acceptable to Claire's, to the effect that:
( a) Lux is a corporation duly organized and validly existing under
the laws of the State of Washington and is authorized to own or lease its
properties and to carry on its business as now being conducted, and it is
duly qualified and licensed to do business as a foreign corporation and is in
good standing or validly existing in all jurisdictions that require such
qualification or licensing, except for the lack of qualification or licensing
which, individually or in the aggregate, would not have a Material Adverse
Effect on Lux.
( b) Lux has obtained all necessary authorizations and consents of its
Board of Directors and the Stockholder to effect the Merger;
( c) All issued and outstanding shares of capital stock of Lux are
owned by the Stockholder;
<PAGE>
( d) This Agreement is a valid and binding obligation of Lux, the
Shihs and the Stockholder, and enforceable against Lux, the Shihs and the
Stockholder in accordance with its terms, subject to customary limitations,
such as bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally or general equitable
principles.
6. 5 Consents. Lux shall have received and delivered
copies to Claire's of consents to the transactions contemplated
hereby (or, in the absence of consents, waivers of rights to
terminate or modify any material rights or obligations of Lux)
from any Person from whom such consent (or waiver) is required
under any Contract or instrument and no such consent (or waiver)
shall have been revoked.
6. 6 Pooling Letters. Claire's shall have received from
Arthur Andersen a letter dated the Effective Time, in form and
substance acceptable to Claire's, confirming that, to its
knowledge after due and diligent inquiry, neither Lux nor any of
the Shihs nor the Stockholder, nor any of their respective
Affiliates, has taken or agreed to take any action that would
prevent Claire's from accounting for the Merger as a pooling of
interests business combination in accordance with GAAP and the
criteria of Accounting Principles Board Opinion ("APB") No. 16 and
the regulations of the SEC. Claire's shall have received from
KPMG, a letter dated the Effective Time, confirming that the
Merger can properly be accounted for as a pooling of interests
combination in accordance with GAAP, APB No. 16 and the
regulations of the SEC.
6. 7 Acknowledgment of Pooling Restrictions; Receipt of
SEC Filings; Completion of Due Diligence. At or prior to the
Closing the Shihs and the Stockholder shall have delivered to
Claire's a letter agreement acknowledging their status as
Affiliates of Lux, their agreement to comply with the "pooling of
interests" restrictions, their receipt of the SEC Filings, and
satisfactory completion of their due diligence review of Claire's
pursuant to Section 5.12 in form and substance satisfactory to the
Claire's Companies.
6. 8 Lux Common Stock. At the Closing, the Stockholder
shall have delivered to Claire's all certificates evidencing the
shares of capital stock of Lux owned by it, free and clear of any
Liens or restrictions whatsoever.
6. 9 Stock Powers. At the Closing, the Stockholder
shall have delivered to Claire's, for use in connection with the
Held Back Shares, ten stock powers executed in blank, with
signatures guaranteed.
6. 10 No Adverse Litigation. There shall not be
pending or threatened any action or proceeding by or before any
court or other governmental body which shall seek to restrain,
prohibit, invalidate or collect damages arising out of the Merger
or any other transaction contemplated hereby, and which, in the
judgment of Claire's, makes it inadvisable to proceed with the
Merger and other transactions contemplated hereby.
6. 11 Government Approvals. Claire's shall have
obtained all approvals, authorizations and orders of any
Governmental Authority, including expiration or earlier
termination of any applicable HSR Act waiting period.
<PAGE>
6. 12 Due Diligence Review. Claire's shall be
satisfied with the results of its due diligence review and
Environmental Assessment pursuant to Section 5.11.
6. 13 Releases. Each of the Shihs and the
Stockholder shall deliver to Claire's a release (collectively, the
"Releases") in such form as is reasonably satisfactory to Claire's
releasing all claims of any nature against Lux, if any, and any
claims arising out of the Merger and the transactions contemplated
by this Agreement, provided that such Releases shall not cover any
rights of the Shihs and the Stockholder against Claire's under
this Agreement.
6. 14 Additional Financial Statements. The
Additional Financial Statements referred to in Section 5.16 shall
have been substantially completed in form and substance
satisfactory to Claire's and all disputes relating thereto have
been satisfactorily resolved.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF LUX, THE SHIHS AND THE
STOCKHOLDER
The obligations of Lux, the Shihs and the Stockholder
to effect the Merger shall be subject to the fulfillment at or
prior to the Effective Time of the following conditions, any or
all of which may be waived in whole or in part by Lux, the Shihs
and the Stockholder:
7. 1 Accuracy of Representations and Warranties and
Compliance with Obligations. The representations and warranties
of each of the Claire's Companies contained in this Agreement
shall be true and correct at and as of the Effective Time with the
same force and effect as though made at and as of that time
except: (a) for changes specifically permitted by or disclosed
pursuant to this Agreement; and (b) that those representations and
warranties which address matters only as of a particular date
shall remain true and correct as of such date. Each of the
Claire's Companies shall have performed and complied with all of
its obligations required by this Agreement to be performed or
complied with at or prior to the Effective Time. Each of the
Claire's Companies shall have delivered to Lux, the Shihs and the
Stockholder a certificate, dated as of the Effective Time, and
signed by an executive officer, certifying that such
representations and warranties are true and correct and that all
such obligations have been complied with and performed.
7. 2 Claire's Shares. At the Closing, Claire's shall
have issued all of the Claire's Shares and shall have delivered to
the Stockholder: (a) certificates representing the Claire's Shares
issued hereunder, other than the Held Back Shares; and (b) copies
of stock certificates representing the Held Back Shares.
<PAGE>
7. 3 No Adverse Litigation. There shall not be pending
or threatened any action or proceeding by or before any court or
other governmental body which shall seek to restrain, prohibit,
invalidate or collect damages arising out of the Merger or any
other transaction contemplated hereby, and which in the judgment
of Lux, the Shihs and the Stockholder makes it inadvisable to
proceed with the Merger and other transactions contemplated
hereby.
7. 4 HSR Act Waiting Period. Lux, the Shihs and the
Stockholder shall have obtained all authorizations and orders of
any Governmental Authority, including expiration or earlier
termination of any applicable HSR Act waiting period.
7. 5 Opinion of Counsel. Lux, the Shihs and the
Stockholder shall have received an opinion dated the Effective
Time from counsel to Claire's, in its typical format, and subject
to customary qualifications and assumptions, and in form and
substance reasonably acceptable to Lux, the Shihs and the
Stockholder, to the effect that:
( a) This Agreement is a valid and binding obligation of Claire's, and
enforceable against Claire's in accordance with its terms, subject to
customary limitations, such as bankruptcy, insolvency, reorganization,
moratorium or other laws affecting the enforcement of creditors' rights
generally or general equitable principles.
( b) The Claire's Shares have been validly issued, and are fully paid
and non-assessable.
7. 6 Release of Obligations. David and Eva shall have
been unconditionally released from their personal guarantees of
Lux's performance of those certain leases of real estate listed
and designated as such on Schedule 3.14(b).
7. 7 No Material Adverse Change. Since the date of this
Agreement, there shall not have occurred with respect to the
Claire's Companies, taken as a whole, any Material Adverse Change
in their business, financial position, or results of operations
excluding events which affected the women's fashion accessories
industry generally in a like manner or which affected the economy
or stock markets generally.
7. 8 Due Diligence Review. Lux and the Stockholder
shall be satisfied with the results of their due diligence review
pursuant to Section 5.12.
7. 9 Reorganization Letter. The Stockholder shall have
received from tax counsel a letter dated the Effective Time,
confirming that the Merger qualifies as a reorganization under the
provisions of Section 368(a) of the Code.
ARTICLE VIII
REGISTRATION RIGHTS
The Stockholder shall have the following registration
rights with respect to the Claire's Shares issued to it
hereunder:
<PAGE>
8. 1 Registration Rights for Claire's Shares; Filing of
Registration Statement. Claire's, at its own expense, will prepare
and file, within ten (10) business days after its publication of
financial results covering thirty (30) days of postmerger combined
operations of Claire's and Lux, a registration statement on such
appropriate form of the Securities and Exchange Commission (the
"Commission") as shall be selected by Claire's to effect the
registration of all the Claire's Shares for resale from time to
time by a Holder (as defined herein) thereof (the "Registration
Statement") and shall undertake to cause such Registration
Statement to become effective and remain effective so as to cause
the Claire's Shares to be registered under the Securities Act, and
registered, qualified or exempted under the state securities laws
of such jurisdictions as any Holder reasonably requests until such
time the Claire's Shares may be resold pursuant to Rule 144, as
promulgated under the Securities Act. For purposes of this
Article, a person is deemed to be a "Holder" of Claire's Shares
whenever such person is the record owner of Claire's Shares.
8. 2 Expenses of Registration. Claire's shall pay all
expenses in connection with the registration, qualification and/or
exemption of the Claire's Shares, including any SEC and state
securities or "blue-sky" laws registration and filing fees,
printing expenses, fees and disbursements of Claire's' counsel and
accountants, transfer agent's and registrar's fees, fees and
disbursements of experts used by Claire's in connection with such
registration, qualification and/or exemption, and expenses
incidental to any amendment or supplement to the Registration
Statement or prospectuses contained therein. Claire's shall not,
however, be liable for any sales, broker's or underwriting
commissions upon sale by any Holder of any of the Claire's Shares.
8. 3 Furnishing of Documents. Claire's shall furnish to
the Holders such reasonable number of copies of the Registration
Statement, such prospectuses as are contained in the Registration
Statement and such other documents as the Holders may reasonably
request in order to facilitate the offering of the Claire's
Shares.
8. 4 Amendments and Supplements. Claire's shall prepare
and promptly file with the SEC and promptly notify the Holders of
the filing of such amendments or supplements to the Registration
Statement or prospectuses contained therein as may be necessary to
correct any statements or omissions if, at the time when a
prospectus relating to the Claire's Shares is required to be
delivered under the Securities Act, any event shall have occurred
as a result of which any such prospectus or any other prospectus
as then in effect would include an untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading. Claire's shall also advise the
Holders promptly after it shall receive notice or obtain knowledge
thereof, of the issuance of any stop order by the SEC suspending
the effectiveness of the Registration Statement or the initiation
or threatening of any proceeding for that purpose and promptly use
its reasonable best efforts to prevent the issuance of any stop
order or to obtain its withdrawal if such stop order should be
issued. If, after a Registration Statement becomes effective,
Claire's advises the Holders that Claire's considers it
appropriate that the Registration Statement (and all other
registration statements of Claire's then effective and
outstanding) be amended, the Holders shall suspend any further
sales of the Claire's Shares until Claire's advises the Holders
that the Registration Statement has been amended, which amendment
shall be made promptly.
<PAGE>
8. 5 Duration. Claire's shall maintain the
effectiveness of the Registration Statement until such time as
Claire's reasonably determines, based on an opinion of counsel,
that the Holders will be eligible to sell all of the Shares then
owned by the Holders without the need for continued registration
of the shares, in the three month period immediately following the
termination of the effectiveness of the Registration Statement.
In no event, however, shall Claire's' obligations contained in
Sections 8.1, 8.3 and 8.4 continue beyond the second anniversary
of the Effective Time.
8. 6 Further Information. If Claire's Shares owned by a
Holder are included in any registration, such Holder shall furnish
Claire's such information regarding itself as Claire's may
reasonably request and as shall be required in connection with any
registration, qualification or compliance referred to in this
Agreement.
8. 7 Indemnification.
(a) Claire's will indemnify and hold harmless the
Holders and each person, if any, who controls a Holder within the
meaning of the Securities Act, from and against any and all
losses, damages, liabilities, costs and expenses to which the
Holders or any such controlling person may become subject under
the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement
or alleged untrue statement of any material fact contained in the
Registration Statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or based upon
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading; provided, however, that, Claire's will not
be liable in any such case to the extent that any such loss,
damage, liability, cost or expense arises out of or is based upon
an untrue statement or alleged untrue statement or omission or
alleged omission so made in reliance upon and strict conformity
with information furnished by or on behalf of any Holder or such
controlling person in writing specifically for use in the
preparation thereof.
(b) Each of the Holders, jointly and severally,
will indemnify and hold harmless Claire's and each person, if
any, who controls Claire's within the meaning of the Securities
Act, from and against any and all losses, damages, liabilities,
costs and expenses to which Claire's or any such controlling
person may become subject under the Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs or expenses
are caused by any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement, any
prospectus contained therein or any amendment or supplement
thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, to the extent that such untrue statement or alleged
untrue statement or omission or alleged omission was so made in
reliance upon and in strict conformity with written information
furnished by or on behalf of any Holder specifically for use in
the preparation thereof.
<PAGE>
(c) Promptly after receipt by an indemnified
party pursuant to the provisions of paragraph (a) or (b) of this
Section of notice of the commencement of any action involving the
subject matter of the foregoing indemnity provisions, such
indemnified party will, if a claim thereof is to be made against
the indemnifying party pursuant to the provisions of said
paragraph (a) or (b), promptly notify the indemnifying party of
the commencement thereof; but the omission to so notify the
indemnifying party will not relieve it from any liability which
it may have hereunder unless the indemnifying party has been
materially prejudiced thereby nor will such failure to so notify
the indemnifying party relieve it from any liability which it may
have to any indemnified party otherwise than hereunder. In case
such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and,
to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party;
provided, however, if the defendants in any action include both
the indemnified party and the indemnifying party and there is a
conflict of interest which would prevent counsel for the
indemnifying party from also representing the indemnified party,
the indemnified party or parties shall have the right to select
separate counsel to participate in the defense of such action on
behalf of such indemnified party or parties. After notice from
the indemnifying party to such indemnified party of its election
to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party pursuant to the provisions of
said paragraph (a) or (b) for any legal or other expense
subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of
investigation, unless: (i) the indemnified party shall have
employed counsel in accordance with the provisions of the
preceding sentence; (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after
the notice of the commencement of the action; or (iii) the
indemnifying party has authorized the employment of counsel for
the indemnified party at the expense of the indemnifying party.
Notwithstanding anything to the contrary set forth in this
Article VIII, no indemnifying party shall have the right to
settle or compromise any action for which it has assumed the
defense without the express written consent of the indemnified
party.
(d) In the event any of the Claire's Shares are
sold by any Holder or Holders in an underwritten public offering
consented to by Claire's, Claire's shall provide indemnification
to the underwriters of such offering and any person controlling
any such underwriter on behalf of the Holder or Holders making
the offering; provided, however, that Claire's shall not be
required to consent to any such underwriting or to provide such
indemnification in respect of the matters described in the
proviso to the first sentence of Section 8.7(a).
8. 8 Publication of Financial Results. As soon as
practicable following the completion of its first full fiscal
month after the Effective Time, Claire's shall publish, in a
manner that it deems to be consistent with GAAP, APB No. 16 and
the regulations of the SEC applicable to pooling of interests
business combinations, financial results covering at least thirty
(30) days of postmerger combined operations of Claire's and Lux.
<PAGE>
ARTICLE IX
INDEMNIFICATION
9. 1 Agreement by the Shihs and the Stockholder to
Indemnify. The Shihs and the Stockholder jointly and severally
agree to indemnify and hold Claire's harmless from and against the
aggregate of all expenses, losses, costs, deficiencies,
liabilities and damages (including, without limitation, related
counsel and paralegal fees and expenses) incurred or suffered by
Claire's arising out of or resulting from: (a) any breach of a
representation or warranty made by the Shihs, the Stockholder or
Lux in or pursuant to this Agreement; (b) any breach of the
covenants or agreements made by the Shihs, the Stockholder or Lux
in or pursuant to this Agreement; or (c) any inaccuracy in any
certificate delivered by the Shihs, the Stockholder or Lux
pursuant to this Agreement (collectively, "Indemnifiable
Damages"). With respect to the measurement of Indemnifiable
Damages, Claire's shall have the right to be put in the same
after-tax consolidated financial position as it would have been in
had each of such representations and warranties been true and
correct and had such covenants and agreements been performed in
full. Notwithstanding anything to the contrary contained herein
(other than the proviso at the end of this sentence), Claire's
shall not be entitled to any Indemnifiable Damages unless the
aggregate of all Indemnifiable Damages exceeds One Hundred Fifty
Thousand ($150,000) ("Indemnification Threshold"), in which case
Claire's shall be entitled to (i) the full amount of such
Indemnifiable Damages if such Indemnifiable Damages result from a
breach of Section 4.1(c) or the representations as to the carrying
values of assets and liabilities as reflected in the Financial
Statements, or (ii) the amount of such Indemnifiable Damages in
excess of One Hundred Fifty Thousand Dollars ($150,000) if the
Indemnifiable Damages result from anything other than a breach of
Section 4.1(c) or the representations of Section 3.11; provided
however, that the Indemnification Threshold shall not apply with
respect to, and Claire's shall be entitled to the full amount of
any Indemnifiable Damages resulting from any breach of
representations set forth in Section 3.5 hereof or any
representations set forth in any factual certificate delivered to
Claire's relating to the share ownership of Lux. In the case of
any claim for Indemnifiable Damages, Claire's agrees that it shall
satisfy such claim (other than a claim based on fraud) only out of
the following, and in the following order: (i) first, out of any
Proceeds (as defined herein) received by the Shihs and the
Stockholder on account of the sale of any of the Held Back Shares
(or any shares of Claire's Common Stock attributable to the Held
Back Shares issued in connection with any stock split or stock
dividend effected by Claire's after the Effective Time); (ii)
second, out of any Held Back Shares (or any Cash Collateral, as
defined in Section 9.5 below) still held by Claire's, and (iii)
third, out of any other shares of Claire's Common Stock
attributable to the Held Back Shares issued in connection with any
stock split or stock dividend effected by Claire's after the
Effective Time. After such amounts have been exhausted, the Shihs
and the Stockholder shall have no further liability for
Indemnifiable Damages (other than liability based on fraud). As
used in this Article IX, "Proceeds" shall mean in the case of the
sale of any of the Held Back Shares on the NYSE as provided in
Section 9.4(c) hereof, the net proceeds received on account of
<PAGE>
such sale, after deducting any commissions or other selling
expenses paid in connection with such sale The obligation of the
Shihs and the Stockholder to pay Claire's all Indemnifiable
Damages shall not be eliminated, diminished or impaired by the
existence of any insurance policies or other right to recover some
or all of the Indemnifiable Damages from third parties. Claire's
agrees to use its reasonable efforts to seek recovery under any
applicable insurance policies and from third parties. However,
Claire's' failure to seek recourse, including initiating a lawsuit
against any third party for some or all Indemnifiable Damages,
shall not relieve the Shihs or the Stockholder of their obligation
to pay Claire's any Indemnifiable Damages. The proceeds actually
received by Claire's, if any, net of all of Claire's unrecovered
costs and expenses (including attorneys' fees and expenses)
incurred in pursuing coverage under such insurance policies, shall
be paid by Claire's to the Stockholder but only to the extent that
the Shihs and/or the Stockholder have actually paid to Claire's
the Indemnifiable Damages relating to the matter for which such
insurance or third party proceeds were paid to Claire's.
<PAGE>
9. 2 Survival of Representations and Warranties. Each
of the representations and warranties made by the Shihs and the
Stockholder in this Agreement or pursuant hereto shall survive for
a period ending upon the issuance of the first independent audit
report on Claire's financial statements following the Effective
Time. No claim for the recovery of Indemnifiable Damages may be
asserted by Claire's against the Shihs or the Stockholder after
such representations and warranties shall thus expire; provided,
however, that claims for Indemnifiable Damages first asserted
within the applicable period shall not thereafter be barred. Each
representation, warranty, covenant and agreement of the parties
contained in this Agreement is independent of each other
representation, warranty, covenant and agreement. Each of the
representations and warranties of Merger Sub and of Lux shall
expire at the Effective Time. Each of the representations and
warranties of Claire's shall survive for a period ending upon
issuance of the first independent audit report on Claire's
financial statements following the Effective Time.
9. 3 Procedures for Defense of Third Party Actions.
Promptly after receipt by Claire's of notice of commencement of
any action by a third party (including service of a summons in
connection with the bringing of a lawsuit) which could give rise
to Indemnifiable Damages in excess of the Indemnification
Threshold (individually or in the aggregate with other claims for
Indemnifiable Damages) set forth in Section 9.1, or to
Indemnifiable Damages for which no Indemnification Threshold
applies, Claire's shall notify the Stockholder of the commencement
thereof to the extent that the Stockholder is otherwise not in
receipt of such notice of commencement themselves. The omission
to so notify the Stockholder will not relieve it or the Shihs from
any liability which they may have hereunder unless they have been
materially prejudiced thereby, nor will such failure to so notify
the Stockholder relieve them from any other liability which they
may have to Claire's otherwise than hereunder unless they have
been materially prejudiced thereby. With respect to any such
action commenced by a third party, the Shihs and the Stockholder
shall have the right to participate in, and, to the extent that
they may wish, jointly or individually, to assume the defense
thereof with counsel satisfactory to Claire's; provided, however,
if the defendants in any action include both Claire's (or any of
its Affiliates, including -- after Closing -- Lux) and any or all
of the Shihs or the Stockholder and there is a conflict of
interest which would prevent counsel for the Shihs or the
<PAGE>
Stockholder from also representing Claire's (or its Affiliates),
then Claire's shall have the right to select separate counsel to
participate in the defense of such action on behalf of Claire's
(or its Affiliates). After notice from the Shihs and the
Stockholder to Claire's of their election to so assume the defense
thereof, they will not be liable to Claire's pursuant to the
provisions of Section 9.1 for the related counsel and paralegal
fees and expenses subsequently incurred by Claire's (or its
Affiliates) in connection with the defense thereof other than
reasonable costs of investigation, unless (i) Claire's (or its
Affiliates) shall have employed counsel in accordance with the
provisions of the preceding sentence; (ii) the Stockholder shall
not have employed counsel satisfactory to Claire's to represent
Claire's (or its Affiliates) within a reasonable time after notice
of the commencement of the action, or (iii) the Stockholder have
authorized the employment of counsel for Claire's (or its
Affiliates) at the expense of the Shihs and the Stockholder.
Notwithstanding anything to the contrary in this Section 9.3, the
Shihs and the Stockholder shall have no right to settle or
compromise any action for which they have assumed the defense of
to the extent the settlement or compromise involves any injunctive
or other equitable relief or otherwise involves any continuing
obligations of any nature against Claire's or loss of rights of
Claire's (or any of its Affiliates), and nothing stated in this
Section 9.3 shall otherwise affect the Shihs' or the Stockholder's
obligation to pay Claire's all Indemnifiable Damages (other than
such related counsel and paralegal fees and expenses) pursuant to
Section 9.1.
9. 4 Security for the Indemnification Obligation. As
security for the agreement by the Shihs and the Stockholder to
indemnify and hold Claire's harmless as described in this Article
IX, at the Closing the Shihs and the Stockholder do hereby grant a
security interest in, pledge and instruct Claire's to set aside
and hold certificates representing the Held Back Shares issued
pursuant to this Agreement. Claire's may set off against the Held
Back Shares (or against any Cash Collateral (defined below)) any
Indemnifiable Damages for which the Shihs and/or the Stockholder
may be responsible pursuant to this Agreement, subject, however,
to the following terms and conditions:
(a) Claire's shall give written notice to the
Stockholder of any claim for Indemnifiable Damages or any other
damages hereunder, which notice shall set forth: (i) the amount
of Indemnifiable Damages or other loss, damage, cost or expense
which Claire's claims to have sustained by reason thereof; and
(ii) the basis of such claim;
(b) Such setoff shall be effected on the later to
occur of the expiration of 30 days from the date of such notice
or, if such claim is contested, the date the dispute is resolved,
and such set off shall be charged proportionally against the
shares set aside;
(c) After the Held Back Shares are registered and
any restrictions on sale imposed under the Securities Act or
otherwise are terminated, the Stockholder may, but not more than
once per calendar quarter, instruct Claire's in writing to sell
some or all of the Held Back Shares and Claire's shall then
utilize reasonable efforts to promptly sell such Held Back Shares
at prevailing market prices on the NYSE, and the Proceeds thereof
shall be substituted for such Held Back Shares in any set off to
be made by Claire's pursuant to any claim hereunder, subject to
continued compliance with any applicable SEC requirements dealing
with pooling of interests and other applicable regulations (any
<PAGE>
Proceeds shall be deposited with a financial institution in such
manner as Claire's shall reasonably determine necessary to retain
its rights to the Proceeds as security for any Indemnifiable
Damages; provided that any Proceeds shall be deposited in an
interest bearing account or invested in United States Government
or Agency obligations reasonably acceptable to the Stockholder);
and
(d) For purposes of this Article IX, each share
of Claire's Common Stock not sold as provided in clause (c) of
this Section shall be valued at a price equal to the closing
sales price of a share of Claire's Common Stock as reported on
the NYSE on the Closing Date.
9. 5 Voting of and Dividends on the Held Back Shares.
Except with respect to shares transferred pursuant to the
foregoing right of setoff (and in the case of such shares, until
the same are transferred), all Held Back Shares shall be deemed to
be owned by the Stockholder and the Stockholder shall be entitled
to vote the same; provided, however, that, there shall also be
deposited with Claire's subject to the terms of this Article IX,
all shares of Claire's Common Stock issued to the Stockholder as a
result of any stock dividend or stock split and all cash issuable
to the Stockholder as a result of any cash dividend, with respect
to the Held Back Shares (any such cash shall be deemed "Cash
Collateral" hereunder). All stock and cash issued or paid upon
Held Back Shares shall be distributed to the Stockholder, together
with such Held Back Shares, as provided in Section 9.6.
9. 6 Delivery of Held Back Shares and Cash Collateral.
Claire's agrees to deliver to the Stockholder no later than the
issuance of the first independent audit report on Claire's
financial statements following the Effective Time any Held Back
Shares, Proceeds and Cash Collateral then held by it unless there
then remains unresolved any claim for Indemnifiable Damages or
other damages hereunder as to which notice has been given, in
which event any Held Back Shares, Proceeds and Cash Collateral
remaining on deposit after such claim shall have been satisfied
shall be delivered to the Stockholder promptly after the time of
satisfaction.
9. 7 Adjustment to Merger Consideration. All payments
for Indemnifiable Damages made pursuant to this Article shall be
treated as adjustments to the Merger Consideration.
9. 8 Indemnity for Environmental Claims.
(a) In addition to the indemnities provided above in
this Article IX, the Shihs and the Stockholder jointly and
severally agree to indemnify and hold Lux and Claire's harmless
from and against the aggregate of all expenses, losses, costs,
deficiencies, liabilities and damages (including, without
limitation, related counsel and paralegal fees and expenses)
incurred or suffered by Lux or Claire's arising out of or
resulting from any Environmental Claims (as defined below) for the
environmental matters described in the Environmental Report (as
defined below) for the Property (as defined below); provided,
however, that the aggregate liability of the Shihs and the
Stockholder pursuant to this Article IX shall not exceed an amount
<PAGE>
equal in value to 25% of the Merger Consideration. All
indemnification payments made with respect to such Environmental
Claims shall be treated as adjustments to the Merger
Consideration. The indemnification obligations of the Shihs and
the Stockholder with respect to the Environmental Claims referred
to in the Environmental Report shall survive until the expiration
of the applicable statue of limitations.
(b) For purposes of this Section 9.8, the following
terms shall have the meanings indicated:
"Environmental Claims" means any enforcement, cleanup,
removal, remedial or other Governmental Authority actions
threatened, instituted or completed against or with respect to the
Property from time to time pursuant to any applicable
Environmental Laws, and any material claims threatened or made by
any non-governmental party against or with respect to the Property
relating to damage, contribution, cost recovery, compensation,
loss or injury resulting from any Hazardous Substance or any
violation of any applicable Environmental Laws.
"Environmental Report" means the Phase I Environmental
Assessment Report dated January 30, 1992 and as supplemented on
January 31, 1992 for the Property prepared by Earth Consultants
Inc.
"Property" means the parcel of the Owned Properties
comprising approximately 1.8 acres located at 1409-1431 Maple
Avenue Southwest in Renton, Washington.
9. 9 Remedies Exclusive; Waiver. The rights of the
parties hereto as set forth in this Agreement shall constitute
their sole remedy under this Agreement, except for all equitable
rights and remedies to seek specific performance, or to enjoin
violation, of covenants for which monetary damages may be an
inadequate remedy, and for remedies which any of the parties may
have as a result of a claim for fraud and except for all rights
and remedies provided by federal and state securities laws and
regulations. The Shihs and the Stockholder hereby waive any
rights to contribution or any other similar rights they may have
against Lux as a result of their agreement to indemnify in this
Article IX.
ARTICLE X
SECURITIES LAW MATTERS
The parties agree as follows with respect to the sale
or other disposition after the Effective Time of the Claire's
Shares:
10. 1 Disposition of Shares. The Shihs and the
Stockholder represent and warrant that the shares of Claire's
Common Stock being acquired by them hereunder are being acquired
and will be acquired for their own respective accounts and will
not be sold or otherwise disposed of, except pursuant to: (a) an
exemption from the registration requirements under the Securities
Act, which does not require the filing by Claire's with the SEC of
any registration statement, offering circular or other document,
in which case, the Shihs and the Stockholder shall first supply to
Claire's an opinion of counsel (which counsel and opinion shall be
<PAGE>
satisfactory to Claire's) that such exemption is available; or (b)
an effective registration statement filed by Claire's with the SEC
under the Securities Act.
10. 2 Legend. The certificates representing the
Claire's Shares shall bear the following legend until such time a
registration statement is in effect covering such shares:
THE SHARES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF BY
THE HOLDER EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED
UNDER THE ACT, AND IN COMPLIANCE WITH
APPLICABLE SECURITIES LAWS OF ANY STATE
WITH RESPECT THERETO, OR IN ACCORDANCE
WITH AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER
THAT AN EXEMPTION FROM SUCH REGISTRATION
IS AVAILABLE, AND ALSO MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF BY
THE HOLDER WITHOUT COMPLIANCE WITH THE
SECURITIES AND EXCHANGE COMMISSION'S
ACCOUNTING SERIES RELEASES 130 AND 135.
Claire's may, unless a registration statement is in effect
covering such shares, place stop transfer orders with its
transfer agent with respect to such certificates in accordance
with federal securities laws.
ARTICLE XI
DEFINITIONS
11. 1 Defined Terms. As used herein, the following
terms shall have the following meanings:
"Affiliate" shall have the meaning ascribed to it in
Rule 12b-2 of the General Rules and Regulations under
the Exchange Act, as in effect on the date hereof.
"Contract" means any agreement, contract, lease, note,
mortgage, indenture, loan agreement, franchise
agreement, covenant, employment agreement, license,
instrument, purchase and sales order, commitment,
undertaking, obligation, whether written or oral,
express or implied.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
<PAGE>
"GAAP" means generally accepted accounting principles
in effect in the United States of America from time to
time.
"Governmental Authority" means any nation or
government, any state, regional, local or other
political subdivision thereof, and any entity or
official exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining
to government.
"HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, but
not limited to, any conditional sale or other title
retention agreement, any lease in the nature thereof,
and the filing of or agreement to give any financing
statement under the Uniform Commercial Code or
comparable law or any jurisdiction in connection with
such mortgage, pledge, security interest, encumbrance,
lien or charge).
"Material Adverse Change (or Effect)" means a change in
(or effect on) the condition (financial or otherwise),
properties, assets, liabilities, rights, obligations,
operations, business or prospects which change (or
effect) individually or in the aggregate, is materially
adverse to such condition, properties, assets,
liabilities, rights, obligations, operations, business
or prospects.
"NYSE" means the New York Stock Exchange.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, estate, trust,
unincorporated association, joint venture, Governmental
Authority or other entity, of whatever nature.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended.
"Tax Return" means any tax return, filing, estimated
payment or information statement required to be filed
in connection with or with respect to any Taxes; and
"Taxes" means all taxes, fees or other assessments,
including, but not limited to, income, excise,
property, sales, franchise, intangible, withholding,
social security and unemployment taxes imposed by any
federal, state, local or foreign governmental agency,
and any interest or penalties related thereto.
<PAGE>
11. 2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall
have the defined meanings when used in any certificates, reports
or other documents made or delivered pursuant hereto or thereto,
unless the context otherwise requires.
(b) Terms defined in the singular shall have a
comparable meaning when used in the plural, and vice versa.
(c) Unless otherwise expressly indicated herein,
all matters of an accounting nature in connection with this
Agreement and the transactions contemplated hereby shall be
determined in accordance with GAAP applied on a basis consistent
with prior periods, where applicable.
(d) As used herein, the neuter gender shall also
denote the masculine and feminine, and the masculine gender shall
also denote the neuter and feminine, where the context so
permits.
ARTICLE XII
TERMINATION
12.1 Termination. This Agreement may be terminated at
any time prior to the Effective Time:
(a) by mutual written consent of all of the
parties hereto at any time prior to the Closing; or
(b) by Claire's upon delivery of written notice
to the Stockholder in accordance with Section 13.1 of this
Agreement in the event of a material breach by Lux or any of the
Shihs or the Stockholder of any provision of this Agreement; or
(c) by the Stockholder upon delivery of written
notice to Claire's in accordance with Section 13.1 of this
Agreement in the event of a material breach by Claire's of any
provision of this Agreement; or
(d) by either Claire's or the Stockholder if the
Closing shall not have occurred by September 30, 1998.
12.2 Effect of Termination. In the event of
termination of this Agreement pursuant to Section 12.1, this
Agreement shall forthwith become void and of no further force and
effect and the parties shall be released from any and all
obligations hereunder; provided, however, that the provisions of
Section 5.8 shall survive termination and continue in full force
and effect and that nothing herein shall relieve any party from
liability for damages resulting from the willful breach of any of
its representations, warranties, covenants or agreements set
forth in this Agreement.
<PAGE>
ARTICLE XIII
GENERAL PROVISIONS
13. 1 Notices. All notices, requests, demands,
claims, and other communications hereunder shall be in writing and
shall be delivered by certified or registered mail (first class
postage pre-paid), guaranteed overnight delivery, or facsimile
transmission if such transmission is confirmed by delivery by
certified or registered mail (first class postage pre-paid) or
guaranteed overnight delivery, to the following addresses and
telecopy numbers (or to such other addresses or telecopy numbers
which such party shall designate in writing to the other party):
(a) if to any of the Claire's Companies to:
Claire's Stores, Inc.
3 S.W. 129th Avenue
Pembroke Pines, Florida 33027
Attn: Rowland Schaefer, President
Telecopy: (305) 433-3999
with a copy to:
Greenberg Traurig Hoffman Lipoff Rosen &
Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attn: Harold E. Berritt, Esq.
Telecopy: (305) 579-0717
(b) if to Lux and/or any of the Shihs or the
Stockholder to:
Crestwood Partners LLC
P.O. Box 800
Mercer Island, Washington 98040
Attn: David Shih, Manager
Telecopy: (206) 232-4222
with a copy to:
Ellis, Li & McKinstry PLLC
999 Third Avenue, Suite 3700
Seattle, Washington 98104
Attn: Chi-Dooh Li, Esq.
Telecopy: (206) 625-1052
Notice shall be deemed given on the date sent if sent by
overnight delivery or facsimile transmission and on the date
delivered (or the date of refusal of delivery) if sent by
certified or registered mail.
<PAGE>
13. 2 Entire Agreement. This Agreement (including
the Exhibits and Schedules attached hereto) and other documents
delivered at the Closing pursuant hereto, contains the entire
understanding of the parties in respect of its subject matter and
supersede all prior agreements and understandings (oral or
written), and any drafts thereof, between or among the parties
with respect to such subject matter. The Exhibits and Schedules
constitute a part hereof as though set forth in full above.
13. 3 Expenses. Except as otherwise provided
herein, the parties shall pay their own fees and expenses,
including their own counsel fees, incurred in connection with this
Agreement or any transaction contemplated hereby.
13. 4 Amendment; Waiver. This Agreement (including
the Schedules and Exhibits attached hereto) may not be modified,
amended, supplemented, canceled or discharged, except by written
instrument executed by all parties. No failure to exercise, and no
delay in exercising, any right, power or privilege under this
Agreement shall operate as a waiver, nor shall any single or
partial exercise of any right, power or privilege hereunder
preclude the exercise of any other right, power or privilege. No
waiver of any breach of any provision shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any
other provision, nor shall any waiver be implied from any course
of dealing between the parties. No extension of time for
performance of any obligations or other acts hereunder or under
any other agreement shall be deemed to be an extension of the time
for performance of any other obligations or any other acts. The
rights and remedies of the parties under this Agreement are in
addition to all other rights and remedies, at law or equity, that
they may have against each other.
13. 5 Binding Effect; Assignment. The rights and
obligations of this Agreement shall bind and inure to the benefit
of the parties and their respective successors and assigns.
Nothing expressed or implied herein shall be construed to give
any other person any legal or equitable rights hereunder. Except
as expressly provided herein, the rights and obligations of this
Agreement may not be assigned by Lux or any of the Shihs or the
Stockholder without the prior written consent of Claire's.
Claire's may assign all or any portion of its rights hereunder to
any Affiliate thereof, provided that such assignment shall not in
any way affect the Stockholder's rights to the conversion of the
Lux Common Stock into the Claire's Shares.
13. 6 Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be an original
but all of which together shall constitute one and the same
instrument.
13. 7 Interpretation. When a reference is made in
this Agreement to an article, section, paragraph, clause,
schedule or exhibit, such reference shall be deemed to be to this
Agreement unless otherwise indicated. The headings contained
herein and on the schedules are for reference and convenience
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement or the schedules. Whenever the
words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words
"without limitation." Time shall be of the essence in this
Agreement.
<PAGE>
13. 8 Governing Law; Interpretation. Except with
respect to Section 5.18, this Agreement shall be construed in
accordance with and governed for all purposes by the laws of the
State of Florida applicable to contracts executed and to be
wholly performed within such State.
13. 9 Arm's Length Negotiations. Each party herein
expressly represents and warrants to all other parties hereto
that: (a) before executing this Agreement, said party has fully
informed itself of the terms, contents, conditions and effects of
this Agreement; (b) said party has relied solely and completely
upon its own judgment in executing this Agreement; (c) said party
has had the opportunity to seek and has obtained the advice of
counsel before executing this Agreement; (d) said party has acted
voluntarily and of its own free will in executing this Agreement;
(e) said party is not acting under duress, whether economic or
physical, in executing this Agreement; and (f) this Agreement is
the result of arm's length negotiations conducted by and among
the parties and their respective counsel.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and
year first above written.
CLAIRE'S STORES, INC.
By:
Name: Rowland Schaefer
Title: President and
Chief Executive
Officer
CSI ACQUISITION CORP.
By:
Name: Rowland Schaefer
Title: President and
Chief Executive
Officer
<PAGE>
LUX CORPORATION
By:
Name: David Shih
Title: President
CRESTWOOD PARTNERS LLC
By:
Name:
Title:
David Shih
Eva Shih
Daniel Shih
Douglas Shih
<PAGE>
SHIH IRREVOCABLE TRUST
By:
Co-Trustee: Daniel Shih
By:
Co-Trustee: Douglas Shih
March ___, 1998
Lux Corporation
David Shih
Eva Shih
Daniel Shih
Douglas Shih
The Shih Irrevocable Trust
Crestwood Partners LLC
P.O. Box 800
Mercer Island, Washington 98040
Attn: David Shih
Dear Mr. Shih:
This letter (this "Letter") amends and supplements the
Agreement and Plan of Merger (the "Agreement") dated as of March
9, 1998, among Claire's Stores, Inc., CSI Acquisition Corp., Lux
Corporation, Crestwood Partners LLC, and David Shih, Eva Shih,
Daniel Shih, Douglas Shih, and the Shih Irrevocable Trust. Except
as expressly set forth herein, all provisions of the Agreement,
including the Schedules and Exhibits thereto, shall remain in full
force and effect. This Letter shall be governed by and construed
in accordance with the laws of the State of Florida without giving
effect to conflict or choice of law provisions thereof. Unless
defined herein, all capitalized terms used herein shall have the
meanings ascribed to such terms in the Agreement.
<PAGE>
1. Schedules 3.1, 3.6, 3.8, 3.10, 3.12, 3.13, 3.14(b),
3.15, 3.17, 3.18, 3.19, 3.25 and 3.29 to the Agreement are each
hereby deleted and superseded by the Schedules attached hereto.
2. All references in the Agreement to the term "Exchange
Ratio" are hereby amended and deemed to mean 1,035.1430 shares of
Claire's Common Stock.
3. All references in the Agreement to the term "Merger
Consideration" are hereby amended and deemed to mean 2,070,286
shares of Claire's Common Stock.
4. All references in the Agreement to the term "Held Back
Shares" are hereby amended and deemed to mean 207,000 shares of
Claire's Common Stock.
5. Notwithstanding anything to the contrary set forth in
the Agreement, including, without limitation, Sections 3.11 and
4.1 thereof:
( a) At the Effective Time, Lux may be liable for
indebtedness for borrowed money not to exceed: (i)
$1,600,000, which amount is currently outstanding under its
existing line of credit with Seafirst Bank; and (ii) such
additional amount, the incurrence of which is necessary in
order to make the distributions to the Shihs referred to in
paragraph 3 of Schedule 3.10, as amended; provided that the
Shihs hereby, jointly and severally, agree to repay to Lux
all or any portion of such distributions to the extent that
such distributions exceed their tax liabilities in connection
with Lux's short S Corporation year, as finally determined.
Conversely, if such finally determined tax liabilities exceed
the amount of such distributions, Lux will immediately pay
such excess to the Shihs.
( b) Except as expressly set forth herein, Lux may not
incur any other indebtedness for borrowed money without the
express written consent of Claire's; and
(c) Lux may not pay any bonuses (accrued or otherwise)
to the Shihs or the Stockholder in 1998.
6. Notwithstanding Section 7.6 of the Agreement, if three
(3) business days prior to the Closing Date David and Eva shall
not have been unconditionally released from all of their personal
guarantees of Lux's indebtedness to Seafirst Bank referred to
above and of Lux's performance of those certain leases of real
estate listed and designated as such on Schedule 3.14(b) to the
Agreement, then Claire's shall execute and deliver an agreement,
<PAGE>
in form and substance satisfactory to Claire's and David and Eva,
whereby Claire's will indemnify and hold each of David and Eva
harmless from and against any and all losses, damages,
liabilities, costs and expenses to which each of David and Eva may
become subject under any such personal guarantee then still in
effect.
Please have Lux, the Shihs and the Stockholder sign and
return an original and one copy of this letter to the undersigned
to indicate their acceptance of the terms set forth herein,
whereupon this letter and your acceptance shall constitute a
binding agreement between us as of the date first above written.
CLAIRE'S STORES, INC.
By:
____________________________
Name: Rowland Schaefer
Title: President and Chief
Executive Officer
CSI ACQUISITION CORP.
By:
____________________________
Name: Rowland Schaefer
Title: President and Chief
Executive Officer
Agreed and Accepted:
<PAGE>
LUX CORPORATION
By:_________________
Name:_______________
Title:________________
CRESTWOOD PARNTERS LLC
By:____________________
Name:__________________
Title:___________________
______________________
David Shih
_____________________
Eva Shih
____________________
Daniel Shih
____________________
Douglas Shih
<PAGE>
SHIH IRREVOCABLE TRUST
By:________________________
Co-Trustee: Daniel Shih
By:________________________
Co-Trustee: Douglas Shih
MARCH 24, 1998 ADDENDUM TO LETTER AMENDMENT
DATED MARCH 23, 1998 ("LETTER AMENDMENT"):
2. In the event payments are made in the ordinary course of business on the
line of credit referred to in Paragraph 5(a) of the Letter Amendment, so that
the indebtedness at the Effective Time is less than $1,600,000, the Exchange
Ratio, Merger consideration, and Held Back Shares shall al be adjusted
proportionately to reflect the actual indebtedness at the Effective Time.
3. The representations and warranties in Section 3.7 are true, except for
the transfer of stock identified in Schedule 3.4.
4. Schedule 3.25 does not list under Designated Contracts those contracts
related to current Lux store expansions or remodeling. However, the
representations and warranties in Section 3.25 are equally true with respect
to such contracts. Copies of such contracts shall be provided to
Claire's upon request.
<PAGE>
5. Claire's consents to revising Eva Shih's annual salary to $250,000,
effective December 1, 1997.
6. The parties shall promptly make their HSR filings referred to in Section
5.4, which shall be filed not later than five business days after the date of
the Letter Amendment.
7. Immediately prior to the Effective Time, CSI Acquisition Corp. shall
have no negative net worth.
AGREED TO AND ACCEPTED BY:
CLAIRE'S STORES, INC.
By:
Name: Rowland Schaefer
Title: President and Chief Executive
Officer
CSI ACQUISITION CORP.
By:
Name: Rowland Schaefer
Title: President and Chief Executive
Officer
LUX CORPORATION
By:
Name:
Title:
<PAGE>
CRESTWOOD PARTNERS LLC
By:
Name:
Title:
David Shih
Eva Shih
Daniel Shih
Douglas Shih
SHIH IRREVOCABLE TRUST
By:
Co-Trustee: Daniel Shih
By:
Co-Trustee: Douglas Shih
<PAGE>
April ___, 1998
Lux Corporation
David Shih
Eva Shih
Daniel Shih
Douglas Shih
The Shih Irrevocable Trust
Crestwood Partners LLC
P.O. Box 800
Mercer Island, Washington 98040
Attn: David Shih
Dear Mr. Shih:
This letter (this "Letter") amends and supplements the Agreement and Plan of
Merger dated as of March 9, 1998 (as amended by the Letter Amendment dated
March 23, 1998 and the Addendum thereto dated March 24, 1998, the
"Agreement"), among Claire's Stores, Inc., CSI Acquisition Corp.,
Lux Corporation and Crestwood Partners LLC, and David Shih, Eva Shih, Daniel
Shih, Douglas Shih, and the Shih Irrevocable Trust. Except as expressly set
forth herein, all provisions of the Agreement, including the Schedules and
Exhibits thereto, shall remain in full force and effect. This Letter shall
be governed by and construed in accordance with the laws of the State
of Florida without giving effect to conflict or choice of law provisions
thereof. Unless defined herein, all capitalized terms used herein shall have
the meanings ascribed to such terms in the Agreement.
In addition to the indemnities provided for in Article IX of the Merger
Agreement, the Shihs and the Stockholder hereby jointly and severally agree
(notwithstanding anything to the contrary set forth in the Agreement or in
any certificate or other document relating to the Agreement and the
transactions contemplated thereby, including the Merger) to indemnify and
hold Lux and Claire's harmless from and against the aggregate of all
expenses, losses, costs, deficiencies, liabilities and damages (including,
without limitation, related counsel and paralegal fees and expenses) incurred or
suffered by Lux or Claire's arising out of or resulting from any Taubman
Claims (as defined below) with respect to the Taubman Leases (as defined
below); provided, however, that the aggregate liability of the Shihs and the
Stockholder pursuant to this Letter and Article IX of the Merger
Agreement shall not exceed an amount equal in value to 25% of the Merger
Consideration. All indemnification obligations of the Shihs and the
Stockholder with respect to the Taubman Claims shall survive until expiration
of the applicable statute of limitations.
<PAGE>
For purposes hereof, the following terms shall have the meanings indicated:
"Taubman Claims" means any material claim or action threatened, instituted or
completed by any landlord of any Taubman Lease against or with respect to any
of the Taubman Leases relating to default, damage, compensation, loss or
injury resulting from the actions and/or inactions of Lux, the Shih and/or the
Stockholder at or prior to the Effective Time, including without limitation,
consummation of the Merger.
"Taubman Leases" means the leases designated as numbers 44, 59, 60, 63, 68,
70, 71 and 72 on Schedule 3.14(b) of the Agreement.
Please have Lux, the Shihs and the Stockholder sign and return an original
and one copy of this letter to the undersigned to indicate their acceptance
of the terms set forth herein, whereupon this letter and your acceptance
shall constitute a binding agreement between us as of the date first
above written.
CLAIRE'S STORES, INC.
By: __________________________________
Name: Rowland Schaefer
Title: President and Chief Executive Officer
<PAGE>
CSI ACQUISITION CORP.
By: __________________________________
Name: Rowland Schaefer
Title: President and Chief Executive Officer
Agreed and Accepted:
LUX CORPORATION
By:_________________
Name:_______________
Title:________________
<PAGE>
CRESTWOOD PARTNERS LLC
By:____________________
Name:__________________
Title:___________________
______________________
David Shih
_____________________
Eva Shih
____________________
Daniel Shih
____________________
Douglas Shih
SHIH IRREVOCABLE TRUST
By:________________________
Co-Trustee: Daniel Shih
By:________________________
Co-Trustee: Douglas Shih
<PAGE>
Exhibit (2) (b)
STOCK PURCHASE AGREEMENT
between
Peter Bossert
Haselsteig 3
8180 Bulach
Switzerland (hereinafter
"Seller")
and
Claire's Stores, Inc.
3 S.W. 129th Avenue
Pembroke Pines FL 33027
USA (hereinafter
"Purchaser")
regarding
Acquisition of any and all Shares/Company Contributions of:
Bijoux One AG, Zurich, Switzerland
Bijoux One Trading AG, Zurich, Switzerland
Bijoux One Trading GesmbH, Brunn am Gebirge, Austria
Bosco GmbH, Stuttgart, Germany
<PAGE>
Table of Contents
1. Definitions.............................................. 5
2. Sale and Purchase of Shares/Company Contributions,
Purchase Price/Escrow ........ ........ . . 6
3. Closing ............................................... . 7
4. Representations and Warranties of Seller ................ 9
5. Representations and Warranties of Purchaser ............. 18
6. Duration of Representations and Warranties;
Consequences of Breach; General Exclusions .............. 20
7. Continuation of Certain Contracts ....................... 23
8. Miscellaneous . ............................... . . . 23
List of Annexes
1.1 Audited Financial Statement ofBijoux One AG
1.2 " Bijoux One Trading AG
1.3 " Bijoux One Trading GesmbH
1.4 Modewaren Femina
Handelsgesell
schaft m.b.H.
1.5 ModewarenFemina
Hanclelsgesell
schaft m.b.H. & Co. KG
1.6. Bosco GmbH
1.7 Interim Financial Statement ofBijoux One AG
1.8 " Bijoux One Trading AG
1.9 " Bijoux One Trading GesmbH
1.10 ModewarenFemina
Handelsgesell
schaft m.b.H.
1.11 ModewarenFemina
Handelsgesel
schaft m.b.H. & Co. KG
1.12 " Bosco GmbH
2.4.1 Escrow Agreement
3.1 (a)1 Bijoux One AG Shares
3.1 (a)2 Bijoux One Trading AG Shares
3.1 (a)3 Transfer Deed regarding Bijoux One Trading Gesmb
3.1 (a)4 Transfer Deed regarding Bosco GmbH
3.1 (b)1 Board Resolution of Bijoux One Trading AG
3.1 (c)1 Share Register of Bijoux One Trading AG
3.1 (d)1/2Letters of Resignation
3.1 (e)1 Releases
3.2 (b)1 Opinion of Counsel to Purchaser
3.3.1 Minutes of Bijoux One AG
3.3.2 Minutes of Bijoux One Trading AG
3.4.1 Loan Contract between Seller and Bijoux One Trading AG of
February 1, 1993
3.4.2 Loan Contract between Seller and Bijoux One Trading AG of
March 1, 1993
3.4.3 Assignment of Seller's Loans granted to Bijoux One
Trading AG
<PAGE>
3.4.4 Loan Contract between Seller and Minit Fashion GesmbH
(now: BijouxOne Trading GesmbH) of January 29, 1993
including Confirmation of December 31, 1995
3.4.5 Loan Contract between Seller and Bijoux One Trading
GesmbH of February 12, 1997
3.4.6 Loan Contract between Seller and Bijoux One Trading
GesmbH of August 12, 1997
3.4.7 Assignment of Seller's Loans granted to Bijoux One
Trading GesmbH
3.5.1 Employment Agreement
3.7.1 Loan Agreement between Purchaser and Bijoux One AG
3.7.2 Letter of Discharge from Credit Suisse
3.7.3 Credit Confirmation of Credit Suisse
3.7.4 CHF 750'000.-- Guaranty of Seller
3.7.5 Loan Agreement between Purchaser and Bijoux One Trading
GesmbH
3.7.6 Letter of Discharge from Creclitanstalt-Bankverein
3.7.7 Credit Confirmation of Creclitanstalt-Bankverein of July
7, 1997
3.7.8 Credit Confirmation of Creclitanstalt-Bankverein of
February 27, 1998
3.7.9 ATS 12'000'000.-- Guaranty of Seller
4.1.1 Articles of Incorporation of Bijoux One AG
4.1.2 Bijoux One Trading AG
4.1.3 Bijoux One Trading GesmbH
4.1.4 Modewaren Femina Handelsgesell-schaft m.b.H.
4.1.5 Modewaren Femina Handelsgesell-schaft m.b.H. & Co. KG
4.1.6 Bosco GmbH
4.1.7 Extract of Commercial Register re Bijoux One AG
4.1.8 Bijoux One Trading AG
4.1.9 Bijoux One Trading GesmbH
4.1.1 Modewaren Femina Handelsgesell-schaft m.b.H.
4.1.1 Modewaren Femina Handelsgesell-schaft m.b.H. & Co. KG
4.1.1 Bosco GmbH
4.4(a)1 Subsidiaries
4.7.1 Permits
4.8.1 Adverse Change
4.9.1 Claims and Litigation
4.10. Taxes
4.11.1 Arrangements with Companies/Subsidiaries
4.12.1 Intellectual Property
4.13.1 Effect of Execution
4.13.2 Rental Agreements excluded from liability under Article
4.14.1 Employee Matters
4.17 (a)1 Contracts
4.17 (c)1 Suppliers
4.21.1 Disclosed Information
7.1 Continuation of Certain Contracts
<PAGE>
WHEREAS Bijoux One AG a Swiss company with registered
office in Zurich has a share capital of CHF
300'000.-, divided into 300 bearer shares with
nominal value of CHF 1'000.- each;
WHEREAS Bijoux One Trading AG a Swiss company with
registered office in Zurich has a share capital. of
CHF 100'000.--, divided into 100 registered shares
with a nominal value of CHF 1'000.-- each;
WHEREAS Bijoux One Trading GesmbH, an Austrian limited
liability company with registered office in Brunn
am Gebirge, has a company capital of ATS
20'000'000.-, the only partner being Seller with
the company contribution of ATS 20'000'000. ;
WHEREAS Bosco GmbH, a German limited liability company with
registered office in Stuttgart, has a company
capital of DEM 100'000.-, the only partner being
Seller with a company contribution of DEM 100,00O. ;
WHEREAS the Seller owns 100% of the shares of Bijoux One'AG
and Bijoux One Trading AG and 100 % of the company
contributions of Bijoux One Trading GesmbH and
Bosco GmbH;
WHEREAS the Seller intends to sell the Shares/Company
Contributions to the Purchaser and the Purchaser
intends to purchase the Shares/ Company
Contributions from the Seller;
Now, THEREFORE, the parties have come to the following agreement:
1. DEFINITIONS
Agreement: this Agreement and its
Annexes;
Audited Financial
Statements 1997: the
Companies'/Subsidiaries'
audited financial
statements for the
business year ending
December 31, 1997 as
attached in Annexes 1.1 - 1.6
Closing: the consummation of the transaction
described in article 3 of this Agreement;
Company Contributions:the company contributions
in Bijoux One Trading
GesmbH and Bosco GmbH;
Companies: Bijoux One AG, Bijoux One
Trading AG, Bijoux One
Trading GesmbH and Bosco
GmbH collectively;
<PAGE>
Disclosed Information:certain written
information relating to the
Companies/Subsidiaries,
in particular their business, financial,
fiscal and legal condition which was made
available by Seller as
part of the due diligence
process from August 27,
1998 through the
Execution Date comprising
the information disclosed
or referred to in this
Agreement;
Execution Date: the date of the execution
of this Agreement, i.e.
November 11, 1998;
Financial Statements:collectively, the Audited
Financial Statements 1997
and the Interim Financial
Statements;
Interim Financial
Statements: the
Companies'/Subsidiaries'
unaudited interim
financial statements as
per August 31, 1998 as
attached in Annexes 1.7 -
1.12
Party: the Seller or the Purchaser;
Parties: the Seller and the Purchaser;
Person: an individual, partnership, corporation,
limited liability company or other entity
of whatever nature;
Purchase Price: the Purchase Price
defined in article 2.2 of
this Agreement;
Purchaser: Claire's Stores, Inc., 3
S.W. 129h Avenue,
Pembroke Pines, FL 33027
Purchaser's Group: the Purchaser its subsidiaries, any
direct or indirect holding company of the
Purchaser or its subsidiaries and any
subsidiary of such holding company;
Seller: Peter Bossert, Haselsteig 3, 8180 Bulach;
Shares: all the shares in Bijoux One AG and
Bijoux One Trading AG;
Stock: the Stock defined in article 2.2 of this
Agreement;
Subsidiaries: the Subsidiaries defined in article 4.4
of this Agreement.
<PAGE>
2. SALE AND PURCHASE OF SHARES/COMPANY CONTRIBUTIONS, PURCHASE
PRICE/ESCROW
2.1 Sale and Purchase of Shares/Company Contributions
Subject to the terms and conditions defined herein,
Seller hereby agrees to sell to Purchaser, and Purchaser
agrees to buy from Seller, effective as from November 1,
1998, the Shares/Company Contributions.
2.2 Purchase Price
The total purchase price (the "'Purchase Price") amounts
to USD 9 Mio. for all the Shares/Company Contributions
sold pursuant to article 2.1 of this Agreement. USD 7.2
Mio. of the Purchase Price shall be in the form of cash
and USD 1.8 Mio. of the Purchase Price shall be in the
form of 100'000 shares of common stock of the Purchaser
(the N Stock").
2.3 Initial Purchase Price
An initial purchase price in the amount of USD 5.4 Mio.
(but in no event less than CHF 7.83 Mio.) (the initial
Purchase Price") shall be paid by Purchaser on Execution
Date in cash to account no. 8563-73668,007.11.01 of
Seller with Clariden Bank, Claridenstrasse 26, 8002
Zurich, Switzerland.
2.4 Escrow
On Execution Date, Purchaser shall (a) pay the amount of
USD 1.8 Mio. and (b) submit the Stock to an escrow agent
pursuant to. the terms of an escrow agreement
substantially in the format of Annex 2.4.1 (the "Escrow
Agreements), such escrow to be decreased, except as
otherwise provided in the Escrow Agreement, as follows:
2.4.1 as to the USD 1.8 Mio.
a) on March 31, 1999 to USD 0.9 Mio.;
b) on March 31, 2000 to USD 0.0 Mio.
2.4.2 as to the Stock
a) on November 11, 1999 to 2/3 of the Stock (66667
shares)
b) on November 11, 2000 to 1/3 of the Stock (33'333
shares)
c) on November 11, 2001 to 0/3 of the Stock (0
shares).
<PAGE>
3. CLOSING
3.1 Transfer of Shares/Company Contributions and Documents
On the Execution Date, Seller shall deliver to Purchaser:
(a) all the shares in Bijoux One AG copies of which are
attached hereto as Annex 3.1 (a) 1;
all the shares in Bijoux One Trading AG, duly endorsed in
blank, copies of which are attached hereto as Annex 3.1
(a)2;
transfer deeds with respect to all of the Company
Contributions duly notarized under the relevant laws of
Austria and Germany, substantially in the format as per
Annexes 3.1 (a)3 and 3.1 (a)4;
2. unanimous resolution of the board of directors of Bijoux
One Trading AG consenting to the transfer of all the
shares/ in Bijoux One Trading AG to Purchaser, as
attached hereto as Annex 3.1(b)l;
3. the share register of Bijoux One Trading AG in which
Purchaser has been registered as shareholder of all the
shares in Bijoux One Trading AG, as attached hereto as
Annex 3.1 (c)1;
4. letters of resignation of the Companies' directors, as
attached hereto as Annexes 3.1 (d)1/2; and
5. a release or releases (collectively, the "Releases") in
the format of Annex 3.1(e)1 releasing all of Seller's
claims of any nature against the Companies/Subsidiaries,
subject to Seller's rights and duties under the
Employment Agreement, and any claims arising out of the
transactions contemplated by this Agreement, provided
that such Releases shall not cover any rights of Seller
against Purchaser under this Agreement.
3.2 Payment of the Initial Purchase Price I Opinion of
Counsel
At the Closing, Purchaser shall concurrently:
a) pay to Seller the Initial Purchase Price, such
payment to be madeby wire transfer to the account
set forth in article 2.3; and
f) deliver to Seller an opinion dated as of the
Execution Date from counsel to Purchaser in the
format of Annex 3.2(b)1.
<PAGE>
3.3 Shareholders' Meetings
Purchaser shall procure that (at the Execution Date,
after delivery of the Shares), extraordinary
shareholders' meetings be held which will elect new
members of the board of directors of Bijoux One AG and
Bijoux One Trading AG. Seller and Marcel M. Meier will
remain members of the board of directors of Bijoux One AG
and Bijoux One Trading AG for a term of at least three
years as from the Execution Date or until the earlier
termination of Seller's employment with Bijoux One
Trading AG. Purchaser shall vote its Shares in favor of
discharge of the duty of all the board members who have
resigned. Copies of the relevant minutes are attached
hereto as Annexes 3.3.1 and 3.3.2.
3.4 Repayment of the Shareholders' Loan
At the Closing, Purchaser shall pay to Seller the
shareholders' loans in the amounts of CHF 400'000.- and
CHF 300'000.- in accordance with the loan agreements as
attached hereto in Annexes 3.4.1 and 3.4.2 plus accrued
interest as per Execution Date and Seller shall
concurrently assign all his rights against Bijoux One
Trading AG in accordance with such loans to Purchaser and
for this purpose sign the assignment as attached hereto
as Annex 3.4.3.
At the Closing, Purchaser shall pay to Seller the
shareholders' loans in the amounts of CHF 300'000.-, CHF
100'000.- and CHF 300'000.- in accordance with the loan
agreements as attached hereto in Annexes 3.4.4. 3.4.5 and
3.4.6 plus accrued interest as per Execution Date and
Seller shall concurrently assign all his rights against
Bijoux One Trading GesmbH in accordance with such loans
to Purchaser and for this purpose sign the assignment as
attached hereto as Annex 3.4.7.
The payment shall be made by wire transfer to Seller's
account with UBS, Bahnhofstrasse 45, Nrich,
no.0230-671.654.01 K.
3.5 Employment Agreement
At the Closing, Bijoux One Trading AG shall concurrently
enter into a new employment agreement with Seller in the
format of Annex 3.5.1.
3.6 Escrow Agreement
At the Closing, Purchaser, Seller and Credit Suisse Trust
shall concurrently enter into the Escrow Agreement as per
article 2.4 hereof.
<PAGE>
3.7 Release from Guaranties
At the Execution Date, Purchaser shall enter into a loan
agreement with Bijoux One AG as per Annex 3.7.1 and repay
the fixed CHF 750'000.- loan of Credit Suisse ("CS")
granted to Bijoux One AG and guaranteed by Seller. Seller
shall concurrently receive from CS (a) such guaranty
("SolidarbCjrgschafto) and (b) a letter of discharge as
per Annex 3.7.2. Copies of the respective credit
confirmation and guaranty are attached hereto as Annexes
3.7.3 and 3.7.4.
At the Execution Date, Purchaser shall enter into a loan
agreement with Bijoux One Trading GesmbH as per Annex
3.7.5 and- repay the two ATS 6'000'000.loans of
Creclitanstalt-Bankverein ("CABV") granted to Bijoux One
Trading GesmbH and guaranteed by Seller. Seller shall
concurrently receive from CABV (a) such guaranty
("Garantie") and (b) a letter of discharge as per Annex
3.7.6. Copies of the respective credit confirmations and
guaranty are attached hereto as Annexes 3.7.7. 3.7.8 and
3.7.9.
4. REPRESENTATIONS AND WARRANTIES OF SELLER
Unless otherwise fairly disclosed in this Agreement,
Seller represents and warrants to Purchaser that on the
Execution Date the following shall be true and accurate:
4.1 Organization and Qualification
The Companies/Subsidiaries are duly organized and validly
existing under the laws under which they have been
incorporated/organized. Annexes 4.1.1 - 6. contain the
articles of incorporation (or other governing document)
and Annexes 4.1.7 - 12. contain the extracts of the
relevant commercial registers of the
Companies/Subsidiaries as they are currently in force.
All information to be filed with the competent commercial
register offices has in fact been filed and registered.
No resolutions, agreements or actions are pending for a
voluntary or involuntary dissolution of the Companies /
Subsidiaries or which would otherwise affect the
continued existence of the Companies/Subsidiaries or
their ability to carry on their business.
4.2 Capital Structure
The Companies/Subsidiaries have the capital set forth in
Annexes 4.1.1 12. No further capital, company
contributions, non-voting stock, option, convertible
securities or similar rights in the
Companies/Subsidiaries will be created or issued or
agreed to be issued. All the Shares/Company Contributions
are validly issued and fully paid in.
<PAGE>
4.3 Ownership
Seller is the sole owner of and has good and valid title
to the Shares/Company Contributions sold in accordance
with article 2.1 of this Agreement, free and clear of all
liens, encumbrances, options, charges and claims of
whatever nature. Seller has full right and capacity to
transfer and sell complete title to the Shares/Company
Contributions without any restrictions.
Upon delivery of the documents mentioned in article 3.1
of this Agreement, Purchaser will receive good and valid
title to the Shares/Company Contributions, free and clear
of all liens, encumbrances or other rights of third
parties.
Seller's liability in connection with the two preceding
paragraphs is not excluded by articles 6.4(a) and 6.4(d)
of this Agreement.
4.4 Subsidiaries
(a) Bijoux One Trading GesmbH owns, directly or
indirectly, such company contributions in Modewaren
Femina Handeisgesellschaft m.b.H. and Modewaren
Femina HandelsgeselIschaft m.b.H. & Co. KG
(collectively the "Subsidiaries 0) as are listed in
Annexes 4.1.10 and 4.1.11. The identity and company
contribution ownership of each partner of the
Subsidiaries other than Bijoux ne GesmbH is also
listed in Annexes 4.1.10 and 4.1.11.
Except as listed in Annex 4.4(a)l, Bijoux One
Trading GesmbH holds the company contributions or
interest in the Subsidiaries free of all pledges,
security interests, liens, charges, encumbrances,
claims and options of whatever nature. Bijoux One
Trading GesmbH has fully complied with the
trusteeship agreement entered into with Mrs.
Gerlinde Frischeis on April 3, 1990, a copy of
which is enclosed in Annex 4.4(a)l, in particular
without limitation by having paid to Mrs. Gerlinde
Frischeis on or before April 30, 1990 the amounts
referred to in section VI. of the trusteeship
agreement. Seller's liability in connection with
this clause (a) is not excluded by articles 6.4(a)
and 6.4(d) of this Agreement.
(b) Each Subsidiary is validly existing under the laws
under which it was incorporated and no resolutions,
agreements or actions are pending for a voluntary
or involuntary dissolution of any Subsidiary or
which would otherwise affect any Subsidiary's
existence or its ability to continue to do
business.
<PAGE>
4.5 Distributions
Neither any of the Companies nor any of the Subsidiaries
has or will declare, set aside or pay any dividend or
other distribution in respect of their capital
stock/company contributions, redeem, purchase or
otherwise acquire any of their capital stock/company
contributions or any security relating thereto, or make
any other payment to any of its shareholders/partners.
4.6 Financial Statements
The Financial Statements are, as a whole, and each of the
entries therein is, correct and complete in all material
respects. The Financial Statements are prepared in
accordance with the applicable legislation and generally
accepted accounting principles as applicable in
Switzerland, Germany and Austria ("GAAP"); the Financial
Statements fairly present the financial position and the
results of the operations of the Companies/Subsidiaries.
Neither any of the Companies nor any of the Subsidiaries
is subject to any liability or obligation (actual,
contingent or unasserted), except for liabilities and
obligations
recorded as a liability or a provision in the
Financial Statements; and/or
arising or incurred in the ordinary course of
business since the respective balance sheet dates
of the Financial Statements.
Both the Companies and the Subsidiaries hold good and
unencumbered title to the assets listed in the Financial
Statements and all relevant risks, deprecations and
losses are accounted for by sufficient writeoffs and
provisions.
Since the respective balance sheet crates of the
Financial Statements, there has not been any material
adverse change in the business, financial conditions or
operations of the Companies/Subsidiaries.
4.7 Permits and Authorizations
Both the Companies and the Subsidiaries have all the
consents, permits and authorizations which are necessary
to conduct their businesses as presently conducted, in
particular without limitation the permits set forth in
Annex 4.7.1. To the best knowledge of Seller, such
consents, permits and authorizations are in full force
and effect and no circumstance exists which indicates
that any such consent, permit or authorization could be
revoked or withdrawn or not renewed by the fact of the
occurrence of the transactions contemplated in this
Agreement or otherwise. Seller's liability in connection
with this article 4.7 is not excluded by articles 6.4(a)
and 6.4(d) of this Agreement.
<PAGE>
4.8 Adverse Change
In the period between December 31, 1997 and the Execution
Date save as disclosed in Annex 4.8.1 there has not been
any change in the nature of the business, results of
operations, financial condition, method of accounting or
accounting practices or manner of conducting the
businesses of the Companies/Subsidiaries.
4.9 Claims and Litigation
Except as set forth in Annex 4.9.1 there is no claim,
litigation, proceeding or investigation pending or
threatened by or against any of the
Companies/Subsidiaries involving an amount exceeding CHF
10'000.--. To the best knowledge of Seller there are no
facts or circumstances which could give rise to any
claim, litigation, proceeding or investigation with an
amount in dispute in excess of CHF 10'000.--(or multiple
cases of claims, litigation, proceeding or investigation
which in the aggregate exceed CHF 10'000.- and which have
the same cause of action) or which would materially
adversely affect the financial situation of any of the
Companies/Subsidiaries.
4.10 Taxes, Social Security and other Public Charges
All tax returns required to be filed by the
Companies/Subsidiaries with any competent tax authority
have been prepared in accordance with the relevant rules
of tax law and have been duly filed. All taxes invoiced,
due and/or assessed whether with respect to
such tax returns or otherwise have been paid
to the appropriate taxing authority and/or
accrued in the Financial Statements. The provisions for
taxes in the Financial Statements will be sufficient for
all unpaid taxes of any kind which are, will or might be
assessed in-respect of the business and any transactions
(including taxable profit distributions) of the
Companies/Subsidiaries until the Execution Date. There
are no open issues relating to any tax return that, if
determined adversely to the Companies/Subsidiaries, would
result in the assessment of additional taxes, interest or
penalties. Seller's liability with regard to (a) taxes,
in particular withholding taxes, (and associated
penalties and interest) to be paid in connection with
Seller's present or past loans to the Companies /
Subsidiaries, (b) taxes, in particular value added taxes,
(and associated penalties and interest) to be paid in
connection with the past and present rental agreements
entered into by the Companies / Subsidiaries and (c)
taxes, in particular value added taxes, (and associated
penalties and interest) to be paid in connection with the
franchise agreement with San Antonio Co. Ltd., Malta,
shall not be excluded by articles 6.4(a) and 6.4(d) of
this Agreement.
<PAGE>
Except as listed in Annex 4.10.1, none of the
Companies/Subsidiaries is a party to any dispute or legal
proceeding with any authority for assessment or
collection of taxes (including any indirect taxes or
levies) with an amount in dispute in excess of CHF
12'000.-- or DEM 15'000.-- nor has any claim for
assessment or collection of taxes been asserted or
threatened against any of the Companies/Subsidiaries and
there are no .outstanding or threatened issues relating
to taxes or to tax regulations which could have a
material adverse effect on any of the
Companies/Subsidiaries.
The Companies/Subsidiaries have fully provided for all
social security and other public charges, including
without limitation Old Age and Survivors' Insurance
(Alters- und Hinterlassenenversicherung), Disability
insurance (Invaliclenversicherung), Professional Old Age,
Survivors' and Disability Pension (Berufliche Alters-,
Hinterlassenen- und Invalidenversicherung), Unemployment
Insurance (Arbeitslosenversicherung) and Casualty
Insurance (Unfallversicherung).
4.11 Arrangements with the Companies/Subsidiaries
Except as listed in Annex 4.11.1, no indebtedness (actual
or contingent) and no contract or arrangement is
outstanding between any of the Companies/Subsidiaries, on
the one hand, and Seller, the board members or the
partners of the Companies/Subsidiaries, or any person who
is related or connected to Seller, the board members or
the partners, on the other hand, and none of the
Companies/Subsidiaries has provided for the transfer of
any assets of any of the Companies/Subsidiaries to any
such other member or person. All contracts or
arrangements between the persons pursuant to the
immediately preceding sentence were entered into and
conducted at arm's length. All directors' fees, salaries,
bonuses and any other benefits to shareholders, partners
and board members of the Companies/Subsidiaries or Seller
as well as all social security payments due thereon have
been duly paid.
4.12 Intellectual Property
All patents, trade marks, registered designs, logos,
copyrights, business names and other similar rights,
together with all applications for any of the foregoing
(together the *Intellectual Property') of the
Companies/Subsidiaries or otherwise used in connection
with their respective businesses are described in Annex
4.12.1, are owned by such Company/Subsidiary as specified
in Annex 4.12.1 and are not subject to any liens, charges
or encumbrances. Neither Seller nor any of the
Companies/Subsidiaries has received any notice of an
infringement of any Intellectual Property. All
registrations for registered Intellectual Property are in
force, with renewal fees paid up to date. All
applications for trade marks and logos fulfil all
requirements under the applicable laws and will result in
<PAGE>
the registration of the respective trade marks and logos
as applied for. Any costs (including registration and
lawyers' fees) arising in connection with such
applications shall be borne by Seller. Seller shall be
liable for all costs and expenses arising in connection
with Bijoux One Trading AG's pending trademark
registration application in Greece as set forth in Annex
4.12.1 and shall hold Seller and/or Bijoux One Trading AG
harmless from any damages and losses caused by the
non-registration of such trademark. Seller's liability
for costs and damages pursuant to this article 4.12 shall
not be excluded by articles 6.4(a) and 6.4(d) of this
Agreement.
4.13 Effect of Execution of Agreement
The execution and delivery of this Agreement by Seller do
not, and the consummation of all transactions
contemplated in this Agreement by Seller will not violate
any provision of the articles of incorporation of any of
the Companies/Subsidiaries or any rental agreement or any
material agreement (other than as contained in Annex
4.13.1) to which any of the Companies/Subsidiaries are a
party or cause any such rental agreement and/or material
agreement to terminate or gives any third party the right
to cause such termination. If a rental agreement, with
the exception of the rental agreements as listed in Annex
4.13.2 to which this article 4.13 shall not apply, is
terminated by the landlord as a result of the execution
and delivery of this Agreement and/or the consummation of
any transaction contemplated in this Agreement, then the
reduction in value of the Shares/Company Contributions in
accordance with article 6.2 shall be CHF 200'000.--,
provided however, that article 6.4(d) of this Agreement
shall not apply. Seller's liability pursuant to the
immediately preceding sentence is not excluded by article
6.4(a). Except as disclosed in Annex 4.13.1, Seller has
the power and authority and does not need any
governmental or other consent of any nature to enter into
this Agreement and to consummate any of the transactions
contemplated in this Agreement.
4.14 Employee Matters
Since December 31, 1997, there has been no material
change in the numbers of employees of the
Companies/Subsidiaries or in the terms and conditions of
their employment or remuneration other than in the
ordinary course of business. Except as set forth in Annex
4.14.1 no employees of the Com pan ies/Su bsidiaries are
entitled to claim against any of the
Companies/Subsidiaries with respect to any severance
payments or similar termination compensation, incentive
or bonus arrangement, option plan or life, health or
accident insurance plan or other benefit plan. Neither
any of the Companies nor any of the Subsidiaries is
liable to make any outstanding payment to any director,
officer or employee by way of damages or compensation for
loss of office or employment or for redundancy or unfair
or wrongful dismissal. The Companies/Subsidiaries are not
subject to any collective bargaining agreements.
<PAGE>
4.15 Employee Pension Plan
Seller has disclosed to Purchaser copies of the pension
plans as listed in Annex 4.17(a)l to which the
Companies'/Subsidiaries' employees are beneficiaries. The
Companies/Subsidiaries have complied with the ,minimum
funding requirements of, and the legal regulations for,
the pension plans of which the Companies'/Subsidiaries'
employees are beneficiaries. All outstanding employees,
and employers' contributions have been made or have been
properly reserved for in the Financial Statements in
accordance with the law and the statutes and regulations
governing such plans. There are no other pension plans,
schemes or pension commitments or arrangements for the
benefit of the Companies'/Subsidiaries' directors,
officers or employees.
4.16 Compliance with Laws
To the best knowledge of Seller
(a) Both the Companies and the Subsidiaries have been
and are in compliance with all applicable laws and
governmental regulations.
(b) Neither any of the Companies nor any of the
Subsidiaries has violated, or is in default with
respect to, any judgement, order, writ, injunction,
settlement agreement or decree of, or any permit,
license or other authority from, any court,
department, agency or instrumentality which in any
way concerns or may affect the
Companies/Subsidiaries or their businesses.
(c) None of the assets used by Companies/Subsidiaries
for their respective operations is likely to
constitute a risk to the environment or to human
health due, in particular, to the manufacture,
storage, transport, presence or use of toxic or
dangerous substances. There have been no such
conditions at any property owned, operated or
otherwise used by any Company/Subsidiary under
applicable laws and regulations related to the
environment, health and safety. The
Companies/Subsidiaries have complied with all
applicable laws and regulations related to the
environment, health and safety and have possessed
and complied with all permits required under such
laws and regulations.
<PAGE>
4.17 Contracts
(a) Annex 4.17(a)l attached hereto provides a true,
accurate and complete list of (a) all oral and
written employment agreements providing for annual
salaries in excess of CHF80'000.-- or the
equivalent in ATS or DEM as well as (b) all
material oral and written rental agreements (it
being understood that all rental agreements for
shops, offices and storage space are considered to
be material), lease agreements, credit agreements,
loan agreements, pledge agreements, guaranties,
suretyships, indemnities, franchise agreements,
license agreements, agency agreements, supply
agreements, and insurance agreements entered into
by the Companies/Subsidiaries (including without
limitation any of such agreements entered into
between the Companies/Subsidiaries) which are in
full force and effect and which are yet to be
performed in full or in part by either of the
contracting parties. To .the best knowledge of
Seller, no default exists under any..agreement
which is material for the ordinary course of
business of the Companies/Subsidiaries. Except for
the agreements listed in Annex 4.17(a)l, the
Companies/Subsidiaries have not entered into any
material agreements, it being understood that
agreements regarding the sale by the
Companies/Subsidiaries of their products in the
ordinary course of business are not considered to
be material. If any rental agreement is terminated
by the landlord as a result of the Companies' /
Subsidiaries' failure to have notified the landlord
of sub-rental agreements, then the reduction in
value of the Shares / Company Contributions in
accordance with article 6.2 shall be CHF 200'000.--
, provided however, that article 6.4(d) shall not
apply. Seller's liability pursuant to the
immediately preceding sentence is not excluded by
article 6.4(a).
(b) All open purchase orders, agreements or other
arrangements between the Companies/Subsidiaries and
third parties or affiliates regarding the
purchasing of inventory items and/or other supplies
exist as a result of the ordinary course of
business.
(c) Annex 4.17(c)l is a list of the ten main suppliers
of the Companies/Subsidiaries (taken on a
consolidated basis). None of these suppliers have
broken off or interrupted, nor have threatened to
break off or interrupt, relations with the
Companies/Subsidiaries.
4.18 Inventory
All inventories (collectively referred to as "inventory"
or "inventories") of the Companies/Subsidiaries consist
of items of quality and quantity saleable in the ordinary
course of business except that the value of such
<PAGE>
inventories at August 31, 1998, calculated at the lower
of cost or realizable or current market value in
accordance with GAAP, was not less than CHF 3.6 Mio. The
values at which inventories are carried on the Financial
Statements reflect the normal inventory valuation policy
of the Companies/Subsidiaries, as applicable, in
accordance with GAAP and on a basis consistent with that
of preceding periods, of stating inventory at the lower
of cost or market value. To the best knowledge of Seller,
there is no reason to believe that the
Companies/Subsidiaries will experience in the foreseeable
future any difficulty in obtaining, in the desired
quantity and quality, the inventory necessary to conduct
their business in the manner now conducted, including,
without limitation, inventory which historically has been
imported. All items included in the inventories are the
property of the Companies/Subsidiaries and no items
included in the inventories have been pledged as
collateral or are held by the Companies/Subsidiaries on
consignment from others. The value of inventory reflected
on the Audited Financial Statements 1997 was based upon
physical inventory counts conducted in connection with
the preparation and audit of the Audited Financial
Statements 1997.
4.19 Year 2000
All computer software used by the Companies/Subsidiaries
operates substantially as intended and no bug, defect or
flaw interferes in any material respect with the
operation thereof. All necessary and appropriate measures
have been taken that year 2000 compliance (that is, that
all computer applications used by the
Companies/Subsidiaries including those of their suppliers
and vendors that are material to the business and
operations of the Companies/Subsidiaries will, on a
timely basis, be able to properly perform date-sensitive
functions for all dates before and after December 31,
1999 as may reasonably be necessary in the ordinary
course of business) is ensured.
4.20 Euro
The necessary and appropriate measures have been taken
that settlement of transactions in Euro and the running
of bank accounts in Euro in addition to the currency
which is legal tender in the relevant jurisdiction where
the accounts of the Companies/Subsidiaries are maintained
and/or settled is ensured as from January 1, 1999.
4.21 Information
There is no fact or circumstance relating to the
Companies/Subsidiaries which has not been disclosed to
Purchaser and which, if so disclosed, would beyond a
doubt cause a reasonable buyer to abstain from entering
into this transaction. Notwithstanding the foregoing,
Annex 4.21.1 contains a list of information disclosed to
Purchaser and not otherwise disclosed or referred to in
this Agreement.
<PAGE>
4.22 Exceptions to Representations and Warranties
Seller is not aware of any material exceptions to any of
the representations and warranties contained in this
Agreement.
4.23 No further Representations and Warranties
Except as provided for in article 4, Seller makes no
representations and warranties.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Unless otherwise fairly disclosed in this Agreement,
Purchaser -represents and warrants to Seller that on the
Execution Date the following shall be true and accurate:
5.1 Organization and Standing
Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of Delaware.
5.2 Effect of Execution of Agreement
The execution and delivery of this Agreement by Purchaser
do not, and the consummation of the transactions
contemplated hereby by Purchaser will not violate any
provision of the articles of incorporation of Purchaser
or any agreement to which Purchaser is a part or any law
or order of any court or governmental authority binding
upon, or applicable to Purchaser. Purchaser has the full
corporate power, authority and the right and does not
need any governmental consent of any nature to enter into
this Agreement and to consummate the purchase
contemplated hereby. Purchaser's board of directors has
taken all necessary corporate action to duly authorize
the execution, delivery and performance of this
Agreement.
5.3 Actions and Proceedings
To the best of the knowledge of Purchaser, there are no
actions, claims or other proceedings or investigations
pending or threatened against or involving Purchaser or
any of its present directors, officers, properties or
assets, that individually or in the aggregate, prevent
Purchaser from consummating the transactions contemplated
hereby in accordance with the terms hereof, or affect the
validity of enforceability of this Agreement.
<PAGE>
5.4 Funding of Purchase Price
Purchaser has made available the necessary funds and
Stock to pay the Purchase Price at the Execution Date.
5.5 Approvals and Consents
Purchaser declares that there will to the best of its
knowledge be no obstacle to obtaining all approvals and
consents necessary for the Purchaser to consummate the
purchase pursuant to this Agreement.
5.6 Taxes
To avoid a requalification of the private capital gain
resulting from the sale of the Shares/Company
Contributions into taxable income to Seller (since these
actions and measures are considered to constitute an
Indirect Partial Liquidation ('Indirekte
Teilliquidation) or any other taxable event to the
Seller) Purchaser shall not, with respect to one, several
or all of the Companies, during five years after the
Execution Date, undertake any of the following actions
and measures unless there is a written confirmation of
the competent Swiss tax authorities stating that such
actions and measures will not trigger any income tax
consequences to Seller:
(a) Any distribution of retained earnings or reserves
of the Companies already existing on the Execution
Date;
(b) merger of the Companies with any entity of the
Purchaser's Group;
(c) lending funds of the Companies in order to directly
or indirectly finance the Purchase Price;
(d) pledging assets of the Companies in order to
directly or indirectly secure the Purchase Price
financing;
5.5.A The Purchaser covenants and agrees with die Seller
that so long as the Shares constitute "restricted
securities" within the meaning of Rule 144(a)(3) under
the Securities Act, the Purchaser will comply with the
information requirements of Rule 144(c).
5.5.B The Purchaser represents and covenants that upon
receipt from the Seller of a request to remove the
restrictive legend on the stock certificates representing
the Shares accompanied by a signed letter containing such
certifications, legal opinions or other information as
the Purchaser may reasonably require to confirm that a
transfer or sale is being made pursuant to an exemption
from, or in a transaction not subject to, the
registration requirements of the Securities Act, the
Purchaser (at the Purchaser's expense) will issue to the
<PAGE>
Seller stock certificates representing the Shares Without
any restrictive legend as soon as commercially
practicable.
(e) any other measure which could be considered as
direct or indirect financing or securing of the
Purchase Price by the Companies.
5.7 No further Representations and Warranties
Except as provided for in article 5, Purchaser makes no
representations and warranties.
6. DURATION OF REPRESENTATIONS AND WARRANTIES;
CONSEQUENCES OF BREACH; GENERAL EXCLUSIONS
6.1 Duration and Notice of Breach
The representations and warranties contained in articles
4 and 5 of this Agreement shall remain in force
(a) with respect to claims for misrepresentation or breaches
of warranties and representations under article 4.10 of
this Agreement, three months after the date when the
respective income tax assessments based on all business
years ending on or before December 31, 1997 and on all
business transactions executed on or before the Execution
Date have become final and through March 31, 2000 with
respect to other taxes and tax returns due on or before
the Execution-Date.
(b) with respect to claims for misrepresentation or breaches
of warranties and representations under article 5.6 of
this Agreement, five years and three months after the
Execution Date or - whatever period is longer -three
months after the date when all the personal tax
assessments of Seller up to and including the Tax Year
1999 issued by the competent authorities become final.
(c) with respect to Seller's obligation pursuant to the
second sentence of article 4.13, until September 31,
1999.
(d) with respect to claims for all other misrepresentations
or breaches of representations or warranties, until March
31, 2000.
Each Party shall notify the other Party in writing within
60 days after it has detected a misrepresentation or
breach of representations or warranties of the other
Party and knows about the relevant details, describing in
reasonable details as reasonably known by the respective
Party at the date of notification such misrepresentation
or breach (indicating the article or the articles of this
Agreement which are alleged to be violated) and any
losses suffered by any of the Companies/Subsidiaries (or
Seller as the case may be) as a consequence of such
<PAGE>
breach. The notified Party shall then have the
opportunity with the other Party's written consent (such
consent not being unreasonably withheld) to remedy such
breach within 60 days from receipt of the notification.
The Parties waive all notification and examination
requirements under article 201 of the Swiss Code of
Obligations. In particular, the Purchaser may assert
claims for misrepresentation or breaches of
representations or warranties in any written form and,
subject to the requirement that notice must be given in
writing within 60 days of the detection of the
misrepresentation or breach of representations or
warranties as set out above, at any time prior to the
lapse of the respective period set out in this article
6.1.
6.2 Consequences of Breach by Seller
Any misrepresentation or breach of representations or
warranties contained herein by Seller shall entitle
Purchaser to the following remedy:
Purchaser may claim a reduction of the Purchase Price by
an amount (the n Reduction Amount") which corresponds to
the reduction in value of the Shares/Company
Contributions caused by the breach, provided that such
reduction in value shall be deemed to be equal to the
aggregate amounts of losses, liabilities, damages, costs,
taxes, duties, penalties, expenditures and expenses which
Purchaser and/or the Companies/Subsidiaries as a whole
incur as a result of the breach. The Reduction Amount
shall be paid by Seller, at Purchaser's election, either
to Purchaser or to that Company/Subsidiary which was
directly affected by the breach in accordance with the
Escrow Agreement.
6.3 Limitation
The Seller's aggregate liability under this Agreement
shall, for all purposes (i.e. not only in case of a
breach of representation and warranty but in any case),
be limited to the amount in escrow under the Escrow
Agreement.
6.4 Exclusions
The liability of Seller shall be excluded
(a) if and to the extent the facts or circumstances giving
rise to the damage or loss have been fairly disclosed as
Disclosed Information; or
(b) if where such breach can be remedied, Seller has within
60 days following receipt of Purchaser's notice remedied
such breach by specific performance; or
<PAGE>
(c) if and to the extent Purchaser has received recovery for
such damage or loss (in particular under any insurance
policy), or, if nonrecovery is the result of Purchaser's
failure to exercise reasonable efforts to obtain
recovery, it being understood that under no circumstances
shall Purchaser be required to institute suit or other
legal proceeding to obtain recovery, but Purchaser, upon
obtaining recovery from Escrow or Seller, shall assign
its rights to institute suit or other legal proceeding to
Seller, or
(d) if such damages or losses are less than CHF 100'000.-- in
the aggregate provided that if the threshold of CHF
100'000.-- is exceeded, then Seller shall be liable for
the exceeding amount only, or
(e) if and to the extent such damage or loss arises or is
increased as a result of the passing of, or any change in
any legislation, including the tax legislation or any
change of court rulings with precedent nature, after the
Execution Date, or change in accounting practice after
the Execution Date.
6.5 Consequences of Breach by Purchaser
Any breach of representations or warranties contained in
article 5.6 of this Agreement by Purchaser shall entitle
Seller to an indemnification payment in the amount of the
personal income taxes plus late payment interest and
penalties to be paid by Seller as a result of the
re-qualification of the tax-free capital gain into
taxable income.
6.6 Third Party Claims and Governmental Notices
Should Purchaser wish to enforce claims for damages
against Seller arising from any legal proceeding
involving the Companies, it shall provide the Seller with
the necessary information and consult with Seller about
the procedure to the extent that such information and
consultation is legally permissible and deemed
appropriate by Purchaser. Failure to do so shall diminish
Purchaser's claims under this article 6 to the extent
Seller is prejudiced by such failure.
7. CONTINUATION OF CERTAIN CONTRACTS
Seller and Purchaser further undertake to continue, or
procure to be continued, the agreements listed in Annex
7.1 hereto for the term mentioned in this Annex.
Seller shall indemnify and hold harmless Purchaser for
all and any expenses, damages, claims and costs,
including one half of the minimum commission of USD
70'000.-- (i.e., USD 35'000.--) and damages or claims for
early termination, which may arise in connection with the
<PAGE>
termination of the agency agreement (including
amendments) between Bijoux One Trading AG and Amy Fashion
Accessory Co., Hong Kong, except for the balance of the
minimum commission of USD 70'000.-- (i.e., the remaining
USD 35'000.--) which will be borne by Bijoux One Trading
AG. Seller's liability in connection with the immediately
preceding sentence is not subject to the limitations and
exclusions applying to Seller's liability pursuant to
article 6.
8. MISCELLANEOUS
8.1 Press Releases
Any press releases or other disclosures to the public
regarding this Agreement and the transactions
contemplated hereby shall be mutually agreed upon by the
parties hereto, provided that neither Party shall
unreasonably withhold its agreement.
8.2 Expenses, Costs and Transfer Duties
The Parties shall pay their own costs and expenses
(including also legal, accounting, auditors' and other
fees) relating to this Agreement. Transfer expenses,
stamp duties as well as any transactional taxes payable
on the sale of the Shares/Company Contributions shall be
borne by the Purchaser.
8.3 Modifications
This Agreement shall not be amended or modified except by
a document in writing duly executed by all parties
hereto. This undertaking itself may only be modified by
an agreement in writing.
8.4 Previous Agreements Superseded
This Agreement supersedes all prior agreements,
negotiations, correspondence, undertakings and
communications of the parties, oral or written, with
respect to such subject matter.
8.5 Notices
All notices and other communications under this Agreement
shall be in writing and shall be considered duly given
when received, if delivered, mailed by registered mail or
telefaxed.
If to the Seller: Peter Bossert
Haselsteig 3
8180 Bulach
Fax no.: + 41-1 860 26 92
<PAGE>
If to the Purchaser:
3 S.W. 129th Avenue
Pembroke Pines, FL 33027
Attn.: Rowland Schaefer, President
Fax no.: 001 954-433-3999
or to such other address as may be hereafter communicated
in writing by Seller to Purchaser or vice versa.
8.6 Severabillity
If any provision of this Agreement is held to be invalid
or unenforceable for any reason it shall be adjusted
rather than voided, if possible, in order to achieve the
intent of the parties to this Agreement to the fullest
extent possible. In any event, all other provisions of
this Agreement shall be deemed valid and enforceable to
the fullest extent possible.
8.7 Non-Assignability
No Party shall assign, in whole or in part, or delegate
all or any part of its rights or obligations under this
Agreement without the prior written consent of the other
Party. Any assignment or delegation made without such
consent shall be void.
8.8 Governing Law
This Agreement shall be subject to and governed by
material Swiss law. The United Nations Convention on
Contracts for the International Sales of Goods of April
11, 1980, is not applicable.
8.9 Arbitration
All disputes arising out of or in connection with this
Agreement, including disputes on its conclusion, binding
effect, amendment and termination shall be judged by an
arbitration tribunal with seat in Zurich, Switzerland,
consisting of three (3) arbitrators and acting in
accordance with the rules of the Swiss Federal Code on
Conflicts of Law of December 18, 1987 (hereafter referred
to as *IPRG). As far as the IPRG does not contain
mandatory provisions, the arbitrators shall apply the
procedural laws of the Canton of Zurich then in force
(Art. 182 para. 2 IPRG). Upon written notice by the
claimant party, which notice must be accompanied by the
designation of one arbitrator, the defendant party shall
appoint an arbitrator within thirty (30) days from
receipt of such notice and, within a further period of
thirty (30) days, the two arbitrators shall appoint a
third arbitrator who shall act as chairman. Any
arbitrator not appointed as provided above, upon request
by one Party, shall be appointed by the Zurich Supreme
Court (239 para. 2 Zurich procedural laws applicable
pursuant to Art. 179 para. 2 IPRG). Eligible for
<PAGE>
appointment as arbitrators are persons who are familiar
with the English language and English shall be the
language governing the arbitration procedures.
Subject to a possible appeal to the Swiss Federal Supreme
Court in accordance with Art. 190 et seq. IPRG the
Parties undertake to recognize the award of the
arbitration tribunal as final, binding and enforceable.
Without prejudice to the right of either party to have
recourse to the arbitration tribunal for such relief,
either Party may seek preliminary or injunctive measures
or relief in any competent court having jurisdiction.
In witness whereof, the Parties have executed this Agreement
effective as of November 1, 1998.
Zurich, November 11, 1998
Seller: Purchaser:
Claire's Stores, Inc.
Peter Bossert by: Mr. Rowland Schaefer
Annexes
<PAGE>
Exhibit (4) (a)
REVOLVING CREDIT AGREEMENT
among
CLAIRE'S STORES, INC.,
CLAIRE'S BOUTIQUES, INC.,
CSL, INC.,
CBI DISTRIBUTING CORP.
CLAIRE'S CANADA CORP.
CLAIRE'S PUERTO RICO CORP.
and
BANK LEUMI TRUST COMPANY OF NEW YORK
Dated as of August 19, 1996
<PAGE>
TABLE OF CONTENTS
I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Accounting Terms . . . . . . . . . . . . . . .. . . . . . .1
1.2 General Terms . . . .. . . . . . . . . . . . . . . . . . . 1
1.3 Uniform Commercial Cod; Term; . . . . . . .. . . . . . . 10
II. ADVANCES; PAYMENTS . . . . . . . . . . . . . . . . . . . . . .10
2.1 Revolving Advances . . . . . . . . . . . . . . . . . . . .10
2.2 Notice of Borrowing . . . . . . . . . . . . . . .. . . . 10
2.3 Disbursement of Advance Proceeds . . . . . . . . . . . . .10
2.3A Conversions . . . . . . . . . . . . . . . . . . .. . . . 11
2.4 Maximum Advances; Clean-up Period . . . . . . . .. .. . . 11
2.5 Repayment of Advances . . . . . . . . . . . . . .. . . . 11
2.6 Repayment of Excess Advances . . . . . . . . . . . . . . .12
2.7 Statement of Account . . . . . . . . . . . . . . . . . . .12
2.8 Letters of Credit . . . . . . . . . . . . . . . .. . .. . 12
2.9 Issuance of Letters of Credit . . . . . . . . . .. . .. . 13
2.10 Requirements For Issuance of Letters of Credit . . . . . .13
2.11 Additional Payments . . . . . . . . . . . . . . .. . .. . 14
III. INTEREST AND FEES . . . . . . . . . . . . . . . . . . . . . . .14
3.1 Interest . . . . . . . . . . . . . . . . . . . . . .14
3.1A Interest Periods . . . . . . . . . . . . . . . . . . . . .15
3.2 Letter of Credit Fees . . . .. . . . . . . . . . . . . . .16
3.3 Facility Non-Use Fee . . . . . . . . . . . . . . . . . . .16
3.4 Operating Account . . . . . . . . .. . . . . . . . . . . .17
3.5 Computation of Interest and Fees . . . . . . . . . . . . .17
3.6 Maximum Charges . . . .. . . . . . . . . . . . . . . . . .17
3.7 Increased Costs .. . . . . . . . . . . . . . . . . . . . .17
3.7A Increased Costs, Illegality, etc. (Eurodollar
Advances) . . . .. . . . . . . . . . . . . . . . . . . . .18
3.7B Compensation . . . . . . . . . . . . . . . . . . . . . . .20
3.8 Capital Adequacy . . . . . . . . . . . . . . . . . . . . .20
3.9 Survival . . . . . . . . . . . . . . . . . . . . . . . . .21
IV. GENERAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . 21
4.1 Financial Disclosure . . . . . . . . . . . . . . . . . . .21
4.2 Compliance with Laws . . . . . . . . . . . . . . . . . . .22
4.3 Inspection of Premises . . . . . . . . . . . . . . . . . .22
4.4 Insurance . . . . . .. . . . . . . . . . . . . . . . . . .22
4.5 Failure to Pay Insurance . . . . . . . . . . . . . . . . .22
4.6 Payment of Taxes . . . . . . . . . . . . . . . . . . . . .23
4.7 Payment of Leasehold obligations . . . . . . . . . . . . .23
4.8 Maintenance of Equipment . . . . . . . . . . . . . . . . .23
4.9 Environmental Matters . . .. . . . . . . . . . . . . . . .23
<PAGE>
V. REPRESENTATIONS AND WARRANTIES . . . . . .. . . . . . . . . . .25
5.1 Authority . . . . . . . . . . . . . . . . .. . . . . . . .25
5.2 Formation and Qualification . . . . . . .. . . . . . . . .26
5.3 Survival of Representations and Warranties . . . . . . . .26
5.4 Tax Returns . . . .. . . . . . . . . . . . . . . . . . . .26
5.5 Financial Statements . . . . . . . . . . . . . . . . . . .26
5.6 O.S.H.A. and Environmental Compliance. . . . . . . . . . .27
5.7 Solvency; No Litigation, Violation, Indebtedness or
Default . . . . . . . . . . . . . . . . . . . . . . . . .27
5.8 Licenses and Permits . . . . . . . . . . . . . . . . . . .27
5.9 Default of Indebtedness. . . . . . . . . . . . . . . . . .29
5.10 No Default . . . . . . . . . . . . . . . . . . . . . . . .29
5.11 No Burdensome Restri tions No Labor Disputes . . . . . . .29
5.12 No Labor Disputes. . . . . . . . . . . . . . . . . . . . .30
5.13 Margin Regulations . . . . . . . . . . . . . . . . . . . .30
5.14 Investment Company Act . . . . . . . . . . . . . . . . . .30
5.15 Disclosure . . . . . . . . . . . . . . . . . . . . . . . .30
5.16 (Intentionally omitted). . . . . . . . . . . . . . . . . .30
5.17 Swaps. . . . . . . . . . . . . . . . . . . . . . . . . . .30
5.18 Conflicting Agreements . . . . . . . . . . . . . . . . . .30
5.19 Application of Certain laws and Regulations. . . . . . . .30
5.20 Suppliers and Customers. . . . . . . . . . . . . . . . . .31
VII AFFIRMATIVE COVENANTS . . . . . . . . .
6.1 Payment of Fees. . . . . . . . . .. . . . . . . . . . . . 31
6.2 Conduct of Business and Maintenance of Existence and
Assets . . . . . . . . . . . . . . . . . . . . . . . . . .31
6.3 Violations . . . . . . . . . . . . . . . . . . . . . . . .32
6.4 Tangible Net worth . . . . . . . . . . . . . . . . . . . .32
6.5 Interest Expense coverage Ratio. . . . . . . . . . . . . .32
6.6 Indebtedness to Tangible Net Worth . . . . . . . . . . . .32
6.7 Execution of Supplemental Instruments. . . . . . . . . . .32
6.8 Payment of Indebtedness . . . . .. . . . . . . . . . . . .32
6.9 Standards of Financial Statements. . . . . . . . . . . . .32
6.10 Current Ratio . . . . . . . . . .. . . . . . . . . . . . 32
6.11 Net Loss . . . . . . . . . . . . . . . . . . . . . . . . .32
6.12 Profit to Expense Ratio . . . . . . . . . . . . . . . . . 33
VII. NEGATIVE COVENANTS . . . . . . . . . . .
7.1 Merger, Consolidation, Acquisition and Sale of
Assets . . . . . . . . . . . . . . . . . . . . . . . . . .33
7.2 Creation of Liens. . . . . . . . . . . . . . . . . . . . .33
7.3 Guarantees . . . . . . . . . . . . . . . . . . . . . . . .33
7.4 Investments. . . . . . . . . . . . . . . . . . . . . . . .33
7.5 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . .33
7.6 [Intentionally omitted]. . . . . . . . . . . . . . . . . .34
7.7 [Intentionally omitted]. . . . . . . . . . . . . . . . . .34
7.8 [Intentionally omitted]. . . . . . . . . . . . . . . . . .34
7.9 Nature of Business . . . . . . . . . . . . . . . . . . . .34
7.10 Transactions with Affiliates . . . . . . . . . . . . . . .34
7.11 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . .34
7.12 Fiscal Year and Accounting Changes . . . . . . . . . . . .34
<PAGE>
7.13 Pledge of Credit . . . . . . . . . . . . . . . . . . . . .34
7.14 Amendment of Articles of Incorporation, By-Laws. . . . . .35
7.15 Compliance with ERISA. . . . . . . . . . . . . . . . . . .35
7.16 [Intentionally omitted]. . . . . . . . . . . . . . . . . .35
7.17 [Intentionally omitted]. . . . . . . . . . . . . . . . . .35
7.18 Sale and Leaseback Transactions. . . . . . . . . . . . . .35
VIII.CONDITIONS PRECEDENT
8.1 Conditions to Initial Advances . . . . . . . . . . . . . .36
(a) Note . . . . . . . . . . . . . . . . . . . . . . . . 36
(b) Corporate Proceedings of Borrowers . . . . . . . . .36
(c) Incumbency Certificates of Borrowers . . . . . . . . 36
(d) Certificates . . . . . . . . . . . . . . . . . . . .36
(e) Good Standing Certificates . . . . . . . . . . . . . 36
(f) Legal Opinion. .. . . . . . . . . . . . . . . . . . .36
(g) No Litigation . . . . . . . . . . . . . . . . . . . .37
(h) Fees............................................... .37
(i) (Intentionally omitted). . . . . . . . . . . . . . . 37
(j) Payment Instructions . . . . . . . . . . . . . . . . 37
(k) Consents . . . . . . . . . . . . . . . . . . . . . . 37
(l) No Adverse Material Change . . . . . . . . . . . . . 37
(m) Other . . . . . . . . . . . . . . . . . . . . . . . .37
8.2 Conditions to Each Advance
(a) Representations and Warranties . . . . . . . . . . . .37
(b) No Default . . . . . . . . . . . . . . . . . . . . . .38
(c) Maximum Advances . . . . . . . . . . . . . . . . . . 38
INFORMATION AS TO BORROWERS . . . . . . . . . . . . . . . .38
9.1 Environmental Records. . . . . . . . . . . . . . . . .38
9.2 Litigation . . . . . . . . . . . . . . . . . . . . . .38
9.3 Material Occurrences . . . . . . . . . . . . . . . . .38
9.4 Annual Financial Statements. . . . . . . . . . . . . .39
9.5 Monthly Financial Statements . . . . . . . . . . . . .39
9.6 [Intentionally omitted]. . . . . . . . . . . . . . . .40
9.7 Other Reports. . . . . . . . . . . . . . . . . . . . .40
9.8 Additional Information . . . . . . . . . . . . . . . .40
9.9 Projected Operating Budget . . . . . . . . . . . . . .40
9.10 [Intentionally omitted]. . . . . . . . . . . . . . . .40
9.11 Notice of Suits, Adverse Events. . . . . . . . . . . .40
9.12 ERISA Notices and Requests . . . . . . . . . . . . . .41
9.13 Additional Documents . . . . . . . . . . . . . . . . .42
X. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . .42
XI. LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT. . . . . . . . .44
11.1 Rights and Remedies. . . . . . . . . . . . . . . . . .44
11.2 Setoff . . . . . . . . . . . . . . . . . . . . . . . .44
11.3 Rights and Remedies not Exclusive. . . . . . . . . . .44
XII. WAIVERS AND JUDICIAL PROCEEDINGS. . . . . . . . . . . . . . 45
12.1 Waiver of Notice . . . . . . . . . . . . . . . . . . . 45
12.2 Delay. . . . . . . . . . . . . . . . . . . . . . . . . 45
12.3 Jury Waiver. . . . . . . . . . . . . . . . . . . . . ..45
<PAGE>
XIII. EFFECTIVE DATE AND TERMINATION. . . . . . . . . . . . . . . 45
13.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.2 Termination. . . . . . . . . . . . . . . . . . . . . . 45
XIV. BORROWING AGENCY PROVISIONS. . . . . . . . . . . . . . . . .46
14.1 Appointment. . . . . . . . . . . . . . . . . . . . . . 46
14.2 Joint and Several Obligations. . . . . . . . . . . .. .46
XV. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 Governing Law. . . . . . . . . . . . . . . . . . . . . 47
15.2 Entire Understanding . . . . . . . . . . . . . . . . . 47
15.3 Successors and Assigns; Participations; New Lenders . .48
15.4 Application of Payments. . . . . . . . . . . . . . . . 48
15.5 Indemnity. . . . . . . . . . . . . . . . . . . . . . . 48
15.6 Notice . . . . . . . . . . . . . . . . . . . . . . . . 49
15.7 Severability . . . . . . . . . . . . . . . . . . . . . 49
15.8 Expenses . . . . . . . . . . . . . . . . . . . . . . . 49
15.9 Injunctive Relief. . . . . . . . . . . . . . . . . . . 50
15.10 Consequential Damages . . . . . . . . . . . . . . . . 50
15.11 Captions. . . . . . . . . . . . . . . . . . . . . . . 50
15.12 Counterparts. . . . . . . . . . . . . . . . . . . . . 50
15.13 Construction. . . . . . . . . . . . . . . . . . . . . 50
<PAGE>
REVOLVING CREDIT AGREEMENT
Revolving Credit Agreement dated as of August 19, 1996 among
CLAIRE'S STORES, INC., CLAIRE'S BOUTIQUES, INC., CSL, INC., CBI
DISTRIBUTING CORP., CLAIRE'S CANADA CORP., CLAIRE'S PUERTO RICO
CORP. (each, a Borrower" and, jointly and severally, the
"Borrowers), and BANK LEUMI TRUST COMPANY OF NEW YORK ("Leumi"),
a banking corporation organized under the laws of the State of
New York.
IN CONSIDERATION of the mutual covenants and undertakings
herein contained, Borrowers and Lender hereby agree as follows:
I. DEFINITIONS.
1.1 Accounting Terms. As used in this Agreement, the Note
or any certificate, report or other document made or delivered
pursuant to this Agreement, accounting terms not defined in
Section 1.2 or elsewhere in this Agreement and accounting terms
partly defined in Section 1.2 to the extent not defined, shall
have the respective meanings given to them under GAAP.
1.2 General Terms. For purposes of this Agreement the
following terms shall have the following meanings:
"Advances" shall mean and include Revolving Advances
and Letters of Credit.
"Affiliate" of any Person shall mean (a) any Person
(other than a Subsidiary) which, directly or indirectly, is in
control of, is controlled by, or is under common control with
such Person, or (b) any Person who is a director or officer (i)
of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For purposes of this
definition, control of a Person shall mean the power, direct or
indirect, (x) to vote 5% or more of the securities having
ordinary voting power for the election of directors of such
Person, or (y) to direct or cause the direction of the management
and policies of such Person whether by contract or otherwise.
"Applicable Eurodollar Margin" shall mean with respect
to each Advance, a percentage per annum equal to, for the period
from the Closing Date to (but not including) the last day of the
Term with respect to such Advance, 1%.
"Authority" shall have the meaning set forth in Section
4.9(d
"Bank" shall mean Bank Leumi Trust Company of New York
and any successor thereto.
"Borrowers" shall mean, jointly and severally, Claire's
Stores , Inc. a Delaware corporation, Claire's Boutiques, Inc., a
Delaware corporation, CSL Inc., a Delaware corporation, CBI
Distributing Corp., a Delaware corporation, Claire's Canada
Corp., a Delaware corporation, Claire's Puerto Rico Corp., a
Delaware corporation, and all permitted successors and assigns of
each of them.
<PAGE>
"Borrowing Agent" shall mean CSI.
"Business Day" shall mean any day other than a day on
which commercial banks in New York are authorized or required by
law to close.
"CERCLA" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C.9601 et seq.
"Charges" shall mean all taxes, charges, fees, imposts,
levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, sales, use, ad valorem,
value added, transfer, franchise, profits, inventory, capital
stock, license, withholding, payroll, employment, social
security, unemployment, excise, severance, stamp, occupation and
property taxes, custom duties, fees, assessments, Liens, Claims and
charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts, imposed by
any taxing or other authority, domestic or foreign (including,
without limitation, the Pension Benefit Guaranty Corporation or
any environmental agency or superfund), upon the assets of any
Borrower.
"Claims" shall mean all security interests, Liens,
claims or encumbrances held or asserted by any Person against any
or all of the assets of any Borrower, other than (A) Charges and
(B) Permitted Encumbrances.
"Closing Date" shall mean as of August 19, 1996 or such
other date as may be agreed to by the parties hereto.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated
thereunder.
"Consents" shall mean all filings and all licenses,
permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities and other third parties,
domestic or foreign, necessary to carry on Borrowers' business,
including, without limitation, any Consents required under all
applicable federal, state or other applicable law.
"Controlled Group" shall mean all members of a
controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which,
together with any Borrower, are treated as a single employer
under Section 414 of the Code.
"CSI" shall mean Claire's Stores, Inc., a Delaware
corporation, and its successors and permitted assigns.
"Current Ratio" shall mean the ratio of consolidated
current assets to consolidated current liabilities as same are
treated in accordance with GAAP and consistent with those used in
the preparation of financial statements referred to in Section
IX.
"Default" shall mean an event which, with the giving of
notice or passage of time or both, would constitute an Event of
Default.
<PAGE>
"Default Rate" shall have the meaning set forth in
Section 3.1 hereof.
"Documents" shall have the meaning set forth in Section
8.1(b) hereof.
"Dollar" and the sign "$" shall mean lawful money of
the United States of America.
"Earnings Before Interest Expense Net of Interest
Income, Taxes, Depreciation and Amortization" shall mean, for any
fiscal period of Borrowers, Borrowers, earnings as shown on the
Borrowers' fiscal income statement before deducting interest
expense net of interest income, taxes, depreciation, and
amortization as determined in accordance with GAAP.
"Environmental Complaint" shall have the meaning set
forth.Section 4.9(d) hereof.
"Environmental Laws" shall mean all federal, state and
local environmental, land use, zoning, health, chemical use,
safety and sanitation laws, statutes, ordinances and codes
relating to the protection of the environment and/or governing
the use, storage, treatment, generation, transportation,
processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines,
interpretations, decisions, orders and directives of federal,
state and local governmental agencies and authorities with
respect thereto.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time and the rules
and regulations promulgated thereunder.
"Eurodollar Advances" shall mean each Advance bearing
interest at the rates provided in Section 3.1(b).
"Eurodollar Rate" shall mean with respect to each
Interest Period for a Eurodollar Advance, (i) the rate determined
by the Bank to be the arithmetic mean (rounded to the nearest
1/100 of 1%) of the offered quotation to first-class banks in the
interbank Eurodollar market for dollar deposits of amounts in
same day funds comparable to the outstanding principal amount of
the Eurodollar Advance for which an interest rate is then being
determined with maturities comparable to the Interest Period to
be applicable to such Eurodollar Advance, determined as of 10:00
A.M. (New York time) on the date which is two Business Days prior
to the commencement of such Interest Period divided (and rounded
upward to the next whole multiple of 1/16 of 1%) by (ii) a
percentage equal to 100% minus the then stated maximum rate of
all reserve requirements (including, without limitation, any marginal,
emergency, supplemental, special or other reserves) applicable to any member
bank of the Federal Reserve System in respect of Eurocurrency
liabilities as defined in Regulation D (or any successor category
of liabilities under Regulation D).
"Event of Default" shall mean the occurrence of any of
the events set forth in Article X hereof.
"GAAP" shall mean generally accepted accounting
principles in the United States of America in effect from time to
time.
"Governmental Body" shall mean any nation or
government, any state or other political subdivision thereof or
any entity exercising the legislative, judicial, regulatory or
administrative functions of or pertaining to a government.
<PAGE>
"Hazardous Discharge" shall have the meaning set forth
in Section 4.9(d) hereof.
"Hazardous Substance" shall mean, without limitation,
any flammable explosives, radon, radioactive materials, asbestos,
urea formaldehyde foam insulation, polychlorinated biphenyls,
petroleum and petroleum products, methane, hazardous materials,
hazardous wastes, hazardous or toxic substances or related
materials as defined in CERCLA, the Hazardous Materials
TransportatiOn Act, as amended (49 U.S.C. Sections 1801, et
seq.), RCRA, Articles 15 and 27 of the New York State
Environmental Conservation Law or any other applicable
Environmental Law and in the regulations adopted pursuant
thereto.
"Hazardous Wastes" includes all waste materials subject
to regulation under CERCLA, RCRA or applicable state law, and any
other applicable Federal and state laws now in force or hereafter
enacted relating to hazardous waste disposal.
"Indebtedness" of a Person at a particular date shall
mean all obligations of such Person which in accordance with GAAP
would be classified upon a balance sheet as liabilities (except
capital stock and surplus earned or otherwise) including, without
limitation by reason of enumeration, all indebtedness, debt and
other similar monetary obligations of such Person whether direct
or guaranteed, and all premiums, if any, due at the required
prepayment dates of such indebtedness, and all indebtedness
secured by a Lien on assets owned by such Person, whether or not
such indebtedness actually shall have been created, assumed or
incurred by such Person; provided, however, that Indebtedness
shall not include obligations under operating leases. Any
indebtedness of such Person resulting from the acquisition by
such Person of any assets subject to any Lien shall be deemed,
for the purposes hereof, to be the equivalent of the creation,
assumption and incurring of the indebtedness secured thereby,
whether or not actually so created, assumed or incurred.
"Interest Expense Coverage Ratio" shall mean, with
respect to any fiscal period of Borrowers, the ratio of (a)
Earnings Before Interest Expense Net of Interest Income, Taxes,
Depreciation and Amortization to (b) Interest Expense Net of
Interest Income.
"Interest Expense Net of Interest Income" shall mean,
for any fiscal period, the expense relating to existing
Indebtedness of the Borrowers less the interest income that the
Borrowers earned on a fiscal basis as determined in accordance
with GAAP.
"Interest Period" with respect to any Eurodollar
Advance shall mean the interest period applicable thereto, as
determined pursuant to Section 3.1A.
"Lender" shall mean Leumi and any successor or assign.
"Letters of Credit"- shall have the meaning set forth
in Section 2.8.
"Letter of Credit Fees" shall have the meaning set
forth in Section 3.2.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, security interest, lien, Charge, Claim
or encumbrance, or preference, priority or other security
agreement or preferential arrangement in respect of any asset of
any kind or nature whatsoever including, without limitation, any
conditional sale or other title retention agreement, any lease
having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing
statement under the Uniform Commercial Code or comparable law of
any jurisdiction; provided, however, that "Liens" shall not
include any lien on personal property located in any store of any
Borrower to the extent such lien secures such Borrower's
obligations to the landlord under the real property lease with
respect to such store.
<PAGE>
"Maximum Loan Amount" shall mean $10,000,000.
"Multiemplover Plan" shall mean a I'multiemployer plan"
as defined in Sections 3(37) and 4001(a)(3) of ERISA.
"Net Worth" at a particular date, shall mean all
amounts which would be included under shareholders, equity on a
consolidated balance sheet of Borrowers determined in accordance
with GAAP as at such date.
"Note" shall mean the Revolving Credit Note.
"Notice of Borrowing" shall have the meaning provided
in Section 2.2.
"Notice of Conversion" shall have the meaning provided
in Section 2.3A.
"Obligations" shall mean and include any and all of
Borrowers' Indebtedness and/or liabilities to Lender or any
corporation that directly or indirectly controls or is controlled
by or is under common control with Lender of every kind, nature
and description, direct or indirect, secured or unsecured, joint,
several, joint and several, absolute or contingent, due or to
become due, now existing or hereafter arising, contractual or
tortious, liquidated or unliquidated, regardless of how such
indebtedness or liabilities arise or by what agreement or
instrument they may be evidenced or whether evidenced by any
agreement or instrument, including, but not limited to, any and
all of Borrowers, Indebtedness and/or liabilities under this
Agreement or under any other agreement between Lender and any
Borrower and all obligations of Borrowers to Lender to perform
acts or refrain from taking any action.
"Other Documents" shall mean any and all other
agreements, instruments and documents, including, without
limitation, guaranties, pledges, powers of attorney, consents,
and all other writings heretofore, now or hereafter executed by
Borrowers and/or delivered to Lender in respect of the
transactions contemplated by this Agreement.
"Parent" of any Person shall mean a corporation or
other entity owning, directly or indirectly, at least 50% of the
shares of stock or other ownership interests having ordinary
voting power to elect a majority of the directors of the Person,
or other Persons performing similar functions for any such
Person.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation.
"Payment Office" shall mean initially 562 Fifth Avenue,
New York, New York 10036; thereafter, such other office of
Lender, if any, which it may designate by notice to Borrowing
Agent to be the Payment Office.
"Permitted Encumbrances" shall mean (a) Liens for
taxes, assessments or other governmental charges not delinquent,
<PAGE>
or, being contested in good faith and by appropriate proceedings
and with respect to which proper reserves have been taken; (b)
Liens disclosed in the financial statements referred to in
Section 5.5; (c) deposits or pledges to secure obligations under
worker's compensation, social security or similar laws, or under
unemployment insurance; (d) deposits or pledges to secure bids,
tenders, contracts (other than contracts for the payment of
money), leases, statutory obligations, surety and appeal bonds
and other obligations of like nature arising in the ordinary
course of Borrowers, business; (e) judgment Liens that have been
stayed or bonded and mechanics', worker's, materialmen's or other
like Liens arising in the ordinary course of Borrowers, business
with respect to obligations which are not due or which are being
contested in good faith; (f) Liens placed upon fixed assets
hereafter acquired to secure a portion of the purchase price
thereof, provided that (x) any such lien shall not encumber any
other property of Borrowers, and (y) Borrowers comply with the
notice requirement set forth in the proviso to Section 7.8; (g)
other Liens incidental to the conduct of Borrowers, business or
the ownership or leasing of their property and assets which were
not incurred in connection with the borrowing of money or the
obtaining of advances or credit, and which do not in the
aggregate materially detract from the value of such Borrower's
property or assets or which do not materially impair the use
thereof in the operation of such Borrower's business or otherwise
materially and adversely affect such Borrower's business, assets,
operations, condition (financial or otherwise) or prospects; and.
(i) Liens disclosed on Exhibit 1.2.
"Person" shall mean an individual, a partnership, a
corporation, a business trust, a joint stock company, a trust, an
unincorporated association, a joint venture, a governmental
authority or any other entity of whatever nature.
"Plan" shall mean any employee benefit plan within the
meaning of Section 3(3) of ERISA, maintained for employees
ofany.-- Borrower or any member of the Controlled Group or any
such Plan to which any Borrower or any member of the Controlled
Group is required to contribute on behalf of any of its
employees.
"Profit to Expense Ratio" shall mean the ratio of the
Borrowers' consolidated net profit for the fiscal year most
recently ended, depreciation for that year and 50% of cash on
hand for that fiscal year end (as same are treated in accordance
with GAAP and consistent with the preparation of financial
statements referred to in Section IX) to the expenditures for
fixed or capital assets (including capitalized leases) plus any
dividends or distributions on any shares of the common stock or
preferred stock of the Borrowers plus debt to the Lender which
matures in less than one year.
"RCRA" shall mean the Resource Conservation and
Recovery Act, 42 U.S.C. 6901 et seq., as same may be amended
from time to time.
"Reference Rate" shall mean the commercial lending rate
designated as such by the Bank and in effect from time to time,
such rate to be adjusted automatically, without notice, on the
effective date of any change in such rate. This rate of interest
is determined from time to time by the Bank as a means of pricing
some loans to its customers and is neither tied to any external
rate of interest or index nor does it necessarily reflect the
lowest rate of interest actually charged by the Bank to any
particular class or category of customers of the Bank.
"Related Person" shall mean as to any Person, any
trade, business or other entity, whether or not incorporated,
which, together with such Person, is treated as a single employer
under Section 414(c) of the Code.
<PAGE>
"Release" shall have the meaning set forth in Section
5.6(c)(i) hereof.
"Reportable Event" shall mean a reportable event
described in Section 4043(b) of ERISA or the regulations
promulgated thereunder.
"Revolving Advances" shall mean Advances made other
than Letters of Credit.
"Revolving Credit Note" shall mean the promissory note
referred to in Section 2.1 hereof.
"Revolving Interest Rate" shall mean an interest rate
per annum. equal to the Reference Rate or, at the Borrowers'
option, the Eurodollar Rate plus one percent (1.0%) per annum for
a one, two or three month period.
"Senior Debt Payments" shall mean and include all cash
actually expended by Borrowers to make (a) interest payments on
any Advances hereunder Plus (b) payments for all fees,
commissions and charges set forth herein and with respect to any
Advances.
"Subsidiary" of any Person shall mean a corporation or other
entity of whose shares of stock or other ownership interests
having ordinary voting power (other than stock or other ownership
interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for
such entity, are owned, directly or indirectly, by such Person.
"Tangible Net Worth" at a particular date shall mean an
amount equal to (a) Net Worth minus (b) the aggregate amount of
all assets of Borrowers on a consolidated basis as may properly
be classified as intangible assets in accordance with GAAP minus
(c) outstanding loans or advances by Borrowers to any Affiliate
but only to the extent that the aggregate amount of such loans
and advances is permitted hereunder and exceeds $1,500,000.
"Term" shall mean the Closing Date through July 31,
1999.
"Termination Event" shall mean (i) a Reportable Event
with respect to any Plan or Multiemployer Plan; (ii) the
withdrawal of any Borrower or any member of the Controlled Group
from a Plan or Multiemployer Plan during a plan year in which
such entity was a "substantial employer" as defined in Section
4001(a)(2) of ERISA (except that a withdrawal of a Subsidiary of
CSI from the Claire's Stores, Inc. 401(k) Savings and Retirement
Plan shall not constitute a Termination Event): (iii ) the
providing of notice of intent to terminate a Plan in a distress
termination described in Section 4041(c) of ERISA; (iv) the
institution by the PBGC of proceedings to terminate a Plan or
Multiemployer Plan; (v) any event or condition (a) which might
constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer,
any Plan or Multiemployer Plan, or (b) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of
ERISA; or (vi) the partial or complete withdrawal within the
meaning of Sections 4203 and 4205 of ERISA, of any Borrower or
any member of the Controlled Group from a Multiemployer Plan.
"Toxic Substance" shall mean and include any material
present on any real property owned or leased by any Borrower
which has been shown to have significant adverse effect on human
health or which is subject to regulation under the Toxic
Substances Control Act (TSCA), 15 U.S.C. SS 2601 et seq.,
applicable state law, or any other applicable Federal or state
<PAGE>
laws now in force or hereafter enacted relating to toxic
substances. "Toxic Substance" includes but is not limited to
asbestos, polychlorinated biphenyls (PCBs) and lead-based paints.
"Type" shall mean either a Reference Rate Advance or a
Eurodollar Advance.
1.3 Uniform Commercial Code Terms. All terms used herein
and defined in the uniform Commercial Code as adopted in the
State of New York shall have the meaning given therein unless
otherwise defined herein.
II. ADVANCES; PAYMENTS.
2.1 Revolving Advances. Subject to the terms and conditions
set forth in this Agreement, Lender will make Revolving Advances
to Borrowers in aggregate amounts outstanding at any time up to
the Maximum Loan Amount less the aggregate amount of outstanding
Letters of Credit.
The Revolving Advances shall be evidenced by a promissory
note ("Revolving Credit Note") substantially in the form attached
hereto as Exhibit 2.1.
2.2 Notice of Borrowing. Whenever the Borrowers desire to
obtain Advances, the Borrowing Agent shall give the Bank written
notice prior to 12:00 Noon (New York time) on the third Business
Day prior to each incurrence of Eurodollar Advances and on the
Business Day prior to each incurrence of Reference Rate Advances
to be made hereunder. Each such notice (each a "Notice of
Borrowing) shall be form of Exhibit 2.2 and shall be in the
irrevocable and shall specify (i) the aggregate principal amount
of the Advance to be made, (ii) the date of such Advance (which
shall be a Business Day), and (iii) whether the respective
Advance shall consist of a Reference Rate Advance or Eurodollar
Advance and, if a Eurodollar Advance, the Interest Period to be
initially applicable thereto.
Should any amount required to be paid as interest
hereunder, or as fees or other charges under this Agreement or
any other agreement with Lender, or with respect to any other
Obligation, become due, same shall be deemed a request for a
Reference Rate Advance as of the date same is due unless paid,
with interest, within five (5) Business Days of notice thereof to
Borrowing Agent from Lender, in the amount required to pay in
full such interest, fee, charge or Obligation under this
Agreement or any other agreement with Lender, together with all
interest relating thereto, and such request shall be irrevocable.
2.3 Disbursement of Advance Proceeds. All Advances shall be
disbursed from whichever office or other place Lender may
designate from time to time and, together with any and all other
Obligations of Borrowers to Lender, shall be charged to
Borrowers' account on Lender's books. During the Term, Borrowers
may use the Revolving Advances (subject to the provisions of
Sections _2.3A, 3.1, 3.1A and 3.7B) by borrowing, prepaying and
reborrowing, all in accordance with the terms and conditions
hereof. The proceeds of each Revolving Advance requested by
Borrowing Agent or deemed to have been requested by Borrowing
Agent under Section 2.2 hereof shall, with respect to requested
Reference Rate Advances to the extent Lender makes such Reference
Rate Advances, be made available to Borrowing Agent on the
Business day following the date of such request and with respect
to Eurodollar Advances, be made available to the Borrowing Agent
three Business Days after such request by way of credit to
<PAGE>
Borrowers' operating account at Bank established pursuant to
Section 3.4 hereof, or such other bank as Borrowing Agent may
designate following notification to Lender, in federal funds or
other immediately available funds or, with respect to Revolving
Advances deemed to have been requested, be disbursed to Lender to
be applied to the outstanding Obligations giving rise to such
deemed request.
2.3A Conversions. The Borrowers shall have the option to
convert on any Business Day (but subject to Section 3.7B) all or
a portion of the outstanding principal amount of the Advances
into another Type of Advance, Provided that (i) Reference Rate
Advances may only be converted into Eurodollar Advances if no
Default or Event of Default is in existence on the date of the
conversion and (ii) Eurodollar Advances resulting from this
Section 2.3A shall be in the minimum principal amount of
$1,000,000. Each such conversion shall be effected by the
Borrowing Agent giving the Bank notice prior to 12:00 Noon (New
York time), at least three Business Days' (or one Business Day's
in the case of a conversion into Reference Rate Advances) prior
written notice (each, a "Notice of Conversion") specifying the
Advances to be so converted, the Type of Advances to be converted
into and, if to be converted into Eurodollar Advances, the
Interest Period to be initially applicable thereto.
2.4 Maximum Advances; Clean-up Period. At no time shall the aggregate
balance of outstanding Advances exceed the Maximum Loan Amount. For a period
of thirty (30) consecutive days during each year of the Term,
Borrowers shall reduce the aggregate balance of outstanding
Revolving Advances to zero and shall maintain such zero balance
at all times during such period of thirty (30) consecutive days.
2.5 Repayment of Advances.
(a) The Advances shall be due and payable in full on the
last day of the Term and in the case of Eurodollar Advances at
maturity, subject to earlier prepayment as herein provided.
(b) All payments of principal, interest and other amounts
payable hereunder, or under any of the related agreements shall
be made to Lender at the Payment Office not later than 1:00 P.M.
(New York Time) on the due date therefor in lawful money of the
United States of America in federal funds or other funds
immediately available to Lender. Lender shall have the right to
effectuate payment on any and all Obligations due and owing
hereunder by charging Borrowers' account or by making Advances as
provided in Section 2.2 hereof.
(c) Borrowers shall pay principal, interest, and all other
amounts payable hereunder, or under any related agreement,
without any deduction whatsoever, including, but not limited to,
any deduction for any setoff or counterclaim.
2.6 Repayment of Excess Advances. The aggregate balance of
Advances outstanding at any time in excess of the maximum amount
of Advances permitted hereunder shall be immediately due and
payable without the necessity of any demand, at the Payment
Office, whether or not a Default or Event of Default has
occurred.
2.7 Statement of Account. Lender shall maintain, in
accordance with its customary procedures, a loan account in the
name of Borrowers in which shall be recorded the date, Type,
Interest Period (if applicable) and amount of each Advance made
by Lender and the date and amount of each payment in respect
thereof; provided, however, the failure by Lender to record the
<PAGE>
date, Type, Interest Period (if applicable) and amount of any
Advance shall not adversely affect Lender. For each month, Lender
shall send to Borrowing Agent a statement showing the accounting
for the Advances made, payments made or credited in respect
thereof, and other transactions between Lender and Borrowers,
during such month. The monthly statements shall be deemed correct
and binding upon Borrowers in the absence of manifest error and
shall constitute an account stated between Lender and Borrowers
unless Lender receives a written statement of Borrowers' specific
exceptions thereto within thirty (30) days after such statement
is received by Borrowing Agent. The records of Lender with
respect to the loan account shall be prima facie evidence of the
amounts of Advances and other charges-thereto and of payments
applicable thereto.
2.8 Letters of Credit. Subject to the terms and conditions
hereof, Lender shall issue sight Letters of Credit ("Letters of
Credit") provided, however, that Lender will not be. required to
issue any Letters of Credit to the extent that the face amount of
such Letters of Credit would then cause the sum of (i) the
outstanding Revolving Advances plus (ii) outstanding Letters of
Credit (with the requested Letter of Credit being deemed to be
outstanding for purposes of this calculation) to exceed the
Maximum Loan Amount. All disbursements or payments related to
Letters of Credit shall be deemed to be Revolving Advances and
shall bear interest at the Revolving Interest Rate; Letters of
Credit that have not been drawn upon shall not bear interest,
Letters of Credit shall be subject to the terms and conditions
set forth in the Documentary Commercial/Standby Letter of Credit
Application and Security Agreement attached hereto as Exhibit
2.8.
2.9 Issuance of Letters of Credit.
(a) Borrowing Agent may request Lender to issue a
Letter of Credit by delivering to Lender at the Payment Office,
Lender's standard form of Documentary Commercial/Standby Letter
of Credit Application and Security Agreement (the "Letter of
Credit Application"), completed to the satisfaction of Lender,
and such other certificates, documents and other papers and
information as Lender or Bank may reasonably request.
(b) Each Letter of Credit shall, among other things, (i) provide
for the payment of sight drafts when presented for honor thereunder in
accordance with the terms thereof and when accompanied by the
documents described therein and (ii) have an expiry date not
later than six months after such Letter of Credit's date of
issuance and in no event later than the last day of the Term.
Each Letter of Credit Application and each Letter of Credit shall
be subject to the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, and any amendments or revision thereof and,
to the extent not inconsistent therewith, the laws of the State
of New York.
2.10 Requirements For Issuance of Letters of Credit.
(a) In connection with the issuance of any Letter of
Credit, Borrowers shall indemnify, save and hold Lender harmless
from any 1099, cost, expense or liability, including, without
limitation, payments made by Lender, and expenses and reasonable
attorneys' fees incurred by Lender arising out of, or in
connection with, any Letter of Credit to be issued or created for
any Borrower. Borrowers shall be bound by Lender's or any issuing
or accepting bank's regulations and good faith interpretations of
any Letter of Credit issued or created for Borrowers' account,
although this interpretation may be different from Borrowers,
own; and, neither Lender, the bank which opened the Letter of
Credit, nor any of its correspondents shall be liable for any
error or mistakes, whether of omission or commission, in
following Borrowing Agent's instructions or those contained in
any Letter of Credit or of any modifications, amendments or
supplements thereto or in issuing or paying any Letter of Credit
except for Lender's or such correspondents, willful misconduct or
gross (not mere) negligence.
<PAGE>
(b) Borrowing Agent shall authorize and direct any bank
which issues a Letter of Credit to name Borrowers as the "Account
Party" therein and to deliver to Lender all instruments
documents, and other writings and property received by the bank
pursuant to the Letter of Credit and to accept and rely upon
Lender's instructions and agreements with respect to all matters
arising in connection with the Letter of Credit or the
application therefor.
(c) In connection with all Letters of Credit issued or
caused to be issued by Lender under this Agreement, Borrowers
hereby appoint Lender, or its designee, as their attorney, with
full power and authority (i) to sign and/or endorse any
Borrower's name upon any warehouse or other receipts, letter of
credit applications and acceptances; (ii) to sign any Borrower's
name on bills of lading; (iii) to clear Inventory through the
United States of America Customs Department ("Customs") in the
name of any Borrower or Lender or Lender's designee, and to sign
and delivery to Customs officials powers of attorney in the name
of any Borrower for such purpose; and (iv) to complete in any
Borrower's name or Lender's, or in the name of Lender's designee,
any order, sale or transaction, obtain the necessary documents in
connection therewith, and collect the proceeds thereof. Neither
Lender nor its attorneys will be liable for any acts or omissions
nor for any error of judgment or mistakes of fact or law, except
for Lender's or its attorney's willful misconduct or gross (not
mere) negligence. This power, being coupled with an interest, is
irrevocable as long as any Letters of Credit remain outstanding.
2.11 Additional Payments. Any sums expended by Lender due to
any Borrower's failure to perform or comply with its obligations
under this Agreement or any Other Document including, without
limitation, such Borrower's obligations under Sections 4.5, 4.6,
4.7 and 6.1 hereof, may be charged to Borrowers, account as a
Revolving Advance and added to the Obligations as provided in
Section 2.2 hereof.
III. INTEREST AND FEES.
3.1 Interest. (a) The unpaid principal amount of each
Reference Rate Advance shall bear interest from the date of the
borrowing thereof until the last day of the Term (whether by
acceleration or otherwise) at a rate per annum which shall at all
times be the Reference Rate in effect from time to time.
(b) The
unpaid principal amount of each Eurodollar Advance shall bear
interest from the date of the borrowing thereof until maturity
(whether by acceleration or otherwise) at
a rate per annum which shall at all times be the Eurodollar Rate
plus the relevant Applicable Eurodollar Margin.
(c) All
overdue principal and, to the extent permitted by law, overdue
interest in respect of each Advance and any other overdue amount
payable hereunder shall bear interest at a rate per annum equal
to 2% in excess of the rate otherwise applicable to Reference
Rate Advances, provided that each Eurodollar Advance shall bear
interest after maturity (whether by acceleration or otherwise)
until the end of the Interest Period applicable thereto at such
maturity at a rate per annum equal to 2% plus the rate of
interest applicable thereto at maturity, with such interest to be
payable on demand.
<PAGE>
(d) Interest shall accrue from and including the date of the making
of any Advance to but excluding the date of any repayment thereof
and shall be payable (i) in respect of each Reference Rate
Advance on the last Business Day of each month, (ii) in respect
of each Eurodollar Advance, on the last day of each Interest
Period applicable thereto and (iii) in respect of each Advance,
on any prepayment or conversion (on the amount prepaid or
converted), at maturity (whether by acceleration or otherwise)
and, after such maturity, on demand.
(e) The
Bank, upon determining the interest rate for any Eurodollar
Advances for any Interest Period, shall promptly notify the
Borrowing Agent thereof.
(f) Whenever, subsequent to the date of this Agreement, the Reference
Rate is increased or decreased, the interest on Reference Rate
Advances shall be similarly changed without notice or demand of
any kind by an amount equal to the amount of such change in the
Reference Rate during the time such change or changes remain in
effect.
3.1A Interest Periods. (a) (i) At the time the Borrowing
Agent gives a Notice of Borrowing or Notice of Conversion in
respect of the making of, or conversion into, Eurodollar Advances
(in the case of the initial Interest Period applicable thereto)
and (ii) prior to 12:00 Noon (New York time) on the third
Business Day prior to the expiration of an Interest Period
applicable to the making of a Eurodollar Advance, the Borrowing
Agent shall have the right to elect an Interest Period to be
applicable to such borrowing by giving the Bank written notice
thereof, which Interest Period shall, at the option of the
Borrowing Agent, be a one, two or three month period.
Notwithstanding anything to the contrary contained above:
(i) the initial Interest Period for any Eurodollar
Advances shall commence on the date of such Advance (including
the date of any-conversion from a Reference Rate Advance) and
each Interest Period occurring thereafter in respect of such
Borrowing shall commence on the day on which the next preceding
Interest Period expires;
(ii) if any Interest Period begins on a day for
which there is no numerically corresponding day in the calendar
month at the end of such Interest Period, such Interest Period
shall end on the last Business Day of such calendar month;
(iii) if any Interest Period would otherwise expire
on a day which is not a Business Day, such Interest-Period shall
expire on the next succeeding Business Day, provided that if any
Interest Period would otherwise expire on a day which is not a
Business Day but is a day of the month after which no further
Business Day occurs in such month, such Interest Period shall
expire on the next preceding Business Day;
(iv) no Interest Period in respect of any Advances
shall extend beyond the last day of the Term with respect to such
Advances;
(v) no Interest Period may be elected with respect
to Eurodollar Advances at any time when a Default or Event of
Default is then in existence; and
(vi) all Eurodollar Advances made on the same date
shall at all times have the same Interest Period.
<PAGE>
(b) If upon the expiration of any Interest Period, the
Borrowing Agent has failed to (or may not) elect a new Interest
Period to be applicable to the respective Eurodollar Advances as
provided above, the Borrowing Agent shall be deemed to have
elected to convert such borrowing into Reference Rate Advances
effective as of the expiration date of such current Interest
Period.
3.2 Letter of Credit Fees.
(a) Borrowers shall pay Lender for issuing a Letter of
Credit (i) an opening fee equal to the greater of (a) a rate per
annum. of three tenths of one percent (0.3%) of the face amount
thereof or (b) $75 for each Letter of Credit opened, (ii) a fee
equal to that which is then being charged by Bank to customers in
connection with comparable-letters of credit and (iii) Bank's
other customary charges payable in connection with Letters of
Credit as in effect from time to time (which charges shall be
furnished to Borrowing Agent by Lender upon request) (the fees
set forth in (i), (ii) and (iii) are referred to as the "Letter
of Credit Fees"). Such fees and charges shall be payable, in the
case of any Letter of Credit, (i) on its opening, (ii) at the
time of each increase in face amount thereof and (iii) at such
other times as Bank customarily imposes fees with respect to
letters of credit. Any such charge in effect at the time of a
particular transaction shall be the charge for that transaction,
notwithstanding any subsequent change in Bank's prevailing
charges for that type of transaction. All Letter of Credit Fees
payable hereunder shall be deemed earned in full on the date when
the same are due and payable hereunder and shall not be subject
to rebate or proration upon the termination of this Agreement for
any reason.
3.3 Facility Non-Use Fee. If, for any month during the
term of this Agreement, the average daily unpaid balance of the
Revolving Advances for each day of such month does not equal the
Maximum Loan Amount, then Borrowers shall pay to Lender a fee at
a rate equal to two tenths of one percent (.20%) per annum. on
the amount by which the Maximum Loan Amount exceeds such average
daily unpaid balance. Such fee shall be payable to Lender in
arrears on the last day of each month.
3.4 Operating Account. Borrowers shall maintain a
separate demand deposit operating account with Bank to facilitate
the operating activity for Revolving Advances and Letters of
Credit.
3.5 Computation of Interest and Fees. Interest and fees
hereunder shall be computed on the basis of a year of 360 days
and for the actual number of days elapsed. If any payment to be
made hereunder becomes due and payable on a day other than a
Business Day, the due date thereof shall be extended to the next
succeeding Business Day and interest thereon shall be payable at
the Revolving Interest Rate during such extension.
3.6 Maximum Charges. In no event whatsoever shall interest
and other charges charged hereunder exceed the highest rate
permissible under law which a court of competent jurisdiction
shall, in a final determination, deem applicable hereto. In the
event that a court determines that Lender has received interest
and other charges hereunder in excess of the highest rate
applicable hereto, such excess interest shall be first applied to
any unpaid principal balance owed by Borrowers, and if the then
remaining excess interest is greater than the previously unpaid
principal balance, Lender shall promptly refund such excess
amount to Borrowers and the provisions hereof shall be deemed
amended to provide for such permissible rate.
<PAGE>
3.7 Increased Costs. In the event that any applicable law,
treaty or governmental regulation, or any change therein or in
the interpretation or application thereof, or compliance by
Lender (for purposes of this Section 3.7, the term "Lender" shall
include Lender and any corporation or bank controlling Lender)
with any request or directive (whether or not having the force of
law) from any central bank or other financial, monetary or other
authority, shall:
(a) subject Lender to any tax of any kind
whatsoever with respect to this Agreement or change the basis of
taxation of payments to Lender of principal, fees, interest or
any other amount payable hereunder or under any Other Documents
(except for changes in the rate of tax on the overall net income
of Lender by the Federal government or the jurisdiction in which
it maintains its principal office);
(b) impose, modify or hold applicable any reserve,
special deposit, assessment or similar requirement other than
those in effect on date of this Agreement against assets held by,
or deposits in or for the account of, advances or loans by, or
other credit extended by, any office of Lender, including
(without limitation) pursuant to Regulation D of the Board of
Governors of the Federal Reserve System; or
(c) impose on Lender any other condition with
respect to this Agreement or any Other Documents; and the result
of any of the foregoing is to increase the cost to Lender of
making, renewing or maintaining its Advances hereunder by an
amount that Lender deems to be material or to reduce the amount
of any payment (whether of principal, interest or otherwise) in
respect of any of the Advances by an amount that Lender deems to
be material, then, in any case Borrowers shall promptly pay
Lender, upon its demand, such additional amount as will
compensate Lender for such additional cost or such reduction, as
the case may be. Lender shall certify the amount of such
additional cost or reduced amount to Borrowing Agent, and such
certification shall be conclusive absent manifest error.
3.7A Increased Costs, Illegality, etc. (Eurodollar
Advances). (a) In the event that the Bank shall have determined
(which determination shall, absent manifest error, be final and
conclusive and binding upon all parties hereto):
(i) on
any date for determining the Eurodollar Rate for any Interest
Period that, by reason of any changes arising after the date of
this Agreement affecting the interbank Eurodollar market,
adequate and fair means do not exist for ascertaining the
applicable interest rate on the basis provided for in the
definition of Eurodollar Rate; or
(ii) at
any time, that the Bank shall incur increased costs or reductions
in the amounts received or receivable hereunder with respect to
any Eurodollar Advances (other than any increased cost or
reduction in the amount received or receivable resulting from the
imposition of or a change in the rate of income taxes or similar
charges) because of (x) any change since the Closing Date in any
applicable law, governmental rule, regulation, guideline, order
or request (whether or not having the force of law), or in the
interpretation or administration thereof and including the
introduction of any new law or governmental rule, regulation,
guideline, order or request (such as, for example, but not
limited to, a change in official reserve requirements, but, in
all events, excluding reserves required under Regulation D to the
extent included in the computation of the Eurodollar Rate) and/or
(y) other circumstances affecting the interbank Eurodollar
market; or
<PAGE>
(iii) at
any time, that the making or continuance of any Eurodollar
Advance has become unlawful by compliance by the Bank in good
faith with any law, governmental rule, regulation, guideline or
order (or would conflict with any such governmental rule,
regulation, guideline or order not having the force of law but
with which the Bank customarily complies even though the failure
to comply therewith would not be unlawful), or has become
impracticable as a result of a contingency occurring after the
Closing Date which materially and adversely affects the interbank
Eurodollar market; then, and in any such event, the Bank shall on
such date give notice (by telephone confirmed in writing) to the
Borrowing Agent. Thereafter (x) in the case of clause (i) above,
Eurodollar Advances shall no longer be available until such time
as the Bank notifies the Borrowing Agent that the circumstances
giving rise to such notice by the Bank no longer exist, and any
Notice of Borrowing or Notice of Conversion given by the
Borrowing Agent with respect to Eurodollar Advances which have
not yet been incurred shall be deemed rescinded by the Borrowing
Agent, (y) in the case of clause (ii) above, the Borrowers shall
pay to such Bank, upon written demand therefor, such additional
amounts (in the form of an increased rate of, or a different
method of calculating, interest or otherwise as the Bank in its
sole discretion shall determine) as shall be required to
compensate such Bank for such increased costs or reductions in
amounts received or receivable hereunder (a written notice as to
the additional amounts owed to the Bank, showing the basis for
the calculation thereof, submitted to the Borrowing Agent by the
Bank shall, absent manifest error, be final and conclusive and
binding upon all parties hereto) and (z) in the case of clause
(iii) above, the Borrowers shall take one of the actions
specified in Section 3.7A(b) as promptly as possible and, in any
event, within the time period required by law.
(b) At any time that any Eurodollar Loan is affected. by
the circumstances described in Section 3.7A(a)(ii) or (iii), the
Borrowing Agent may (and in the case of a Eurodollar Advance
affected pursuant to Section 3.7A(a)(ii) or (iii), the Borrowing
Agent shall) either (i) if the affected Eurodollar Advance is
then being made, cancel said Advance by giving the Bank
telephonic notice (confirmed promptly in writing) thereof on the
same date that the Borrowing Agent was notified by the Bank
pursuant to Section 3.7A(a)(ii) or (iii), or (ii) if the affected
Eurodollar Advance is then outstanding, upon at least three
Business Days' notice to the Bank, require the Bank to convert
each such Eurodollar Advance into a Reference Rate Advance (which
conversion, in the case of the circumstances described in Section
3.7A(a)(iii) shall occur no later than the last day of the
Interest Period then applicable to such Eurodollar Advance (or
such earlier date as shall be required by applicable law)).
(c) If the Bank shall have determined that after the
Closing Date, the adoption or effectiveness of any applicable
law, rule or regulation regarding capital adequacy, or any change
therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof,
or compliance by the Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) of any
such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on the Bank's
capital or assets as a consequence of its commitments or
obligations hereunder to a level below that which the Bank could
have achieved but for such adoption, effectiveness, change or
compliance (taking into consideration the Bank's policies with
respect to capital adequacy), then from time to time, upon
written demand by the Bank, the Borrowers shall pay to the Bank
such additional amount or amounts as will compensate the Bank for
such reduction. The Bank, upon determining in good faith that any
additional amounts will be payable pursuant to this Section
3.7A(c), will give prompt written notice thereof to the Borrowing
Agent, which notice shall set forth the basis of the calculation
of such additional amounts, although the failure to give any such
notice shall not release or diminish any of the Borrowers,
obligations to pay additional amounts pursuant to this Section
3.7A(c) upon the subsequent receipt of such notice.
<PAGE>
3.7B Compensation. The Borrowers shall compensate the
Bank, upon its written request (which request shall set forth the
basis for requesting such compensation), for all reasonable
losses, expenses and liabilities (including, without limitation,
any loss, expense or liability incurred by reason of the
liquidation or reemployment of deposits or other funds required
by the Bank to fund its Eurodollar Advances) which the Bank may
sustain: (i) if for any reason (other than a default by the Bank)
the making of Eurodollar Advances does not occur on a date
specified therefor in a Notice of Borrowing or Notice of
Conversion (whether or not withdrawn by the Borrowing Agent or
deemed withdrawn pursuant to Section 3.7A(a)); (ii) if any
repayment, prepayment or conversion of any of its Eurodollar
Advances occurs on a date which is not the last day of an
Interest Period applicable thereto; (iii) if any prepayment or
conversion of any of its Eurodollar Advances is not made on any
date specified in a notice of prepayment or conversion given by
the Borrowing Agent; or (iv) as a consequence of (x) any other
def ault by the Borrowers to repay its Advances when required by
the terms of this Agreement or (y) an election made pursuant to
Section 3.7A(b).
3.8 Capital Adequacy.
(a) In the event that Lender shall have determined that any
applicable law, rule, regulation or guideline regarding capital
adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Lender
(for purposes of this Section 3.8, the term "Lender" shall
include Lender and any corporation or bank controlling Lender)
with any request or directive regarding capital adequacy (whether
or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of
reducing the rate of return on Lender's capital as a consequence
of its obligations hereunder to a level below that which Lender
could have achieved but for such adoption, change or compliance
(taking into consideration Lender's policies with respect to
capital adequacy) by an amount deemed by Lender to be material,
then, from time to time, Borrowers shall pay upon demand to
Lender such additional amount or amounts as will compensate
Lender for such reduction. In determining such amount or amounts,
Lender may use any reasonable averaging or attribution methods.
The protection of this Section 3.8 shall be available to Lender
regardless of any possible contention of invalidity or
inapplicability with respect to the applicable law, regulation or
condition.
(b) A certificate of Lender setting forth such
amount or amounts as shall be necessary to compensate Lender with
respect to Section 3.8(a) hereof when delivered to Borrowing
Agent shall be conclusive absent manifest error.
3.9 Survival. The obligations of Borrowers under Sections
3.7 and 3.8 shall survive termination of this Agreement and the
Other Documents and payment in full of the Obligations.
IV. GENERAL TERMS
4.1 Financial Disclosure. Borrowers hereby irrevocably
authorize and direct all accountants and auditors employed by
Borrowers at any time during the term of this Agreement to
exhibit and deliver to Lender copies of any of Borrowers,
<PAGE>
financial statements or other accounting records of any sort in
the accountant's or auditor's possession, and to disclose to
Lender any information such accountants may have concerning
Borrowers' financial status and business operations; however
Lender will give two (2) Business Days' notice to Borrowers in
order to afford to Borrowers the opportunity to furnish such
information or materials during such two (2) Business Day period
prior to obtaining such information or materials from such
accountants. Borrowers hereby authorize all federal, state and
municipal authorities to furnish to Lender copies of reports or
examinations relating to Borrowers, whether made by Borrowers or
otherwise; however, Lender will give two (2) Business Days'
notice to Borrowers in order to afford to Borrowers the
opportunity to furnish such information or materials during such
two (2) Business Day period prior to obtaining such information
or materials from such governmental authorities. Lender hereby
agrees to maintain the confidentiality of the financial
information that it receives pursuant to this section; however,
nothing herein shall be understood to prohibit Lender from using
or disseminating such information to its employees, attorneys,
accountants and agents, as necessary, for the proper
administration of Lender's rights and obligations under this
Agreement.
4.2 Compliance with Laws. Borrowers shall comply with all
acts, rules, regulations and orders of any legislative,
administrative or judicial body or official applicable to the
operation of Borrowers, business the non-compliance with which
would have a material adverse effect on the operations, business
or condition (financial or otherwise) of the Borrowers taken as a
whole.
4.3 Inspection of Premises. At all reasonable times, but,
unless there shall have occurred an Event of Default, not more
than twice annually and only following reasonable notice to
Borrowers, Lender shall have full access to and the right to
audit, check, inspect and make abstracts and copies from
Borrowers' books, records, audits, correspondence and all other
papers relating to the operation of Borrowers I business. Lender
and its agents may enter upon any of Borrowers, premises at any
time during business hours and at any other reasonable time, and
from time to time, but, unless there shall have occurred an Event
of Default, not more than twice annually, for the purpose of
inspecting any and all records pertaining to the operation of
Borrowers' business.
4.4 Insurance. At Borrowers, own cost and expense, in
amounts and with carriers reasonably acceptable to Lender,
Borrowers shall (a), except to the extent that Borrowers have, as
of the date hereof, established a self-insurance program,
reasonably acceptable to the Lender, for such insurable
properties and properties in which Borrowers have an interest,
keep all its insurable properties and properties in which
Borrowers have an interest (except automobiles (with respect to
property damage only) and all store assets, including inventory,
equipment, leasehold improvements and store fixtures, located in
any of Borrowers' stores] insured against the hazards of fire, f
lood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts,
as is customary in the case of companies engaged in businesses
similar to Borrowers, including, without limitation, business
interruption insurance; (b) maintain public and product liability
insurance against claims for personal injury, death or property
damage suffered by others; (c) maintain all such workmen's
compensation or similar insurance as may be required under the
laws of any state or jurisdiction in which any Borrower is
engaged in business; (d) furnish Lender with an opportunity, at
any time, to review and, at Lender's own expense, copy all
policies and evidence of the maintenance of such policies.
4.5 Failure to Pay Insurance. If any Borrower fails to
obtain insurance as hereinabove provided, or to keep the same in
<PAGE>
force, Lender, if Lender so elects, may obtain such insurance and
pay the premium therefor for Borrowers, account, and charge
Borrowers' account therefor, and such expenses so paid shall be
part of the Obligations.
4.6 Payment of Taxes. Each Borrower will pay when due all
taxes, assessments and other Charges or Claims lawfully levied or
assessed upon such Borrower or any of its assets including,
without limitation, real and personal property taxes, assessments
and charges and all franchise, income, employment, social
security benefits, withholding, and sales taxes, except for such
amounts being contested in good faith by such Borrower provided
that adequate reserves therefor are made in accordance with GAAP.
If any tax by any governmental authority is or may be imposed on
or as a result of any transaction between Borrowers and Lender
which Lender may be required to withhold or pay, or if any taxes,
assessments, or other Charges remain unpaid after the date fixed
for their payment, Lender may, with notice to Borrowers, pay the
taxes, assessments, Liens, Charges or Claims and Borrowers hereby
indemnify and hold Lender harmless in respect thereof. The amount
of any payment by Lender under this Section 4.6 shall be charged
to Borrowers' account as a Revolving Advance and added to the
Obligations and, until Borrowers shall furnish Lender with an
indemnity therefor (or supply Lender with evidence satisfactory
to Lender that due provision for the payment thereof has been
made), Lender may hold without interest any balance standing to
any Borrower's credit.
4.7 Payment of Leasehold Obligations. Each Borrower shall
at all times pay, when and as due, its rental obligations under
all leases under which it is a tenant, except for such amounts
being contested in good faith by-such Borrower provided that
adequate reserves therefor are made in accordance with GAAP, and
shall otherwise comply, in all material respects, with all other
terms of such leases and keep them in full force and effect and,
at Lender's request, will provide evidence of having done SO.
4.8 Maintenance of Equipment. All of Borrowers,
equipment shall be maintained in good operating condition and
repair (reasonable wear and tear excepted) and all necessary
replacements of and repairs thereto shall be made 90 that the
value and operating efficiency of the equipment shall be
maintained and preserved. Borrowers shall not use or operate
equipment in violation of any law, statutes, ordinances, codes,
rules or regulations.
4.9 Environmental Matters.
(a) Each Borrower will ensure that all of its owned and
leased real property remains in compliance with all Environmental
Laws and will not place or permit to be placed any Hazardous
Substances thereon except as not prohibited by applicable law or
appropriate governmental authorities, except in any case where
the failure to do so would not have a material adverse effect on
the business, assets, operations, condition (financial or
otherwise) or prospects of the Borrowers, taken as a whole.
(b) Borrowers will establish and maintain a system to
assure and monitor continued compliance with all applicable
Environmental Laws which system shall include periodic reviews of
such compliance, except where the failure to do so would not have
a material adverse effect on the business, assets, operations,
condition (financial or otherwise) or prospects of the Borrowers,
taken as a whole.
(c) Each Borrower will (i) employ in connection with its
use of all of its owned and leased real property appropriate
technology necessary to maintain compliance with any applicable
<PAGE>
Environmental Laws, (ii) dispose of any and all Hazardous Waste
generated thereat only at facilities and with carriers that
maintain valid permits under RCRA and any other applicable
Environmental Laws and (iii) use its best efforts to obtain
certificates of disposal, such as hazardous waste manifest
receipts, from all treatment, transport, storage or disposal
facilities or operators employed by such Borrower in connection
with the transport or disposal of any such Hazardous Waste,
except in any case, where the failure to do so would not have a
material adverse effect on the business, assets, operations,
condition (financial or otherwise) or prospects of the Borrowers,
taken as a whole.
(d) In the event any Borrower obtains, gives or receives
notice of any Release or threat of Release of a reportable
quantity of any Hazardous Substances at any of its owned and
leased real property (any such event being hereinafter referred
to as a "Hazardous Discharge") or receives any notice of
violation, request for information or notification that it is
potentially responsible for investigation or cleanup of
environmental conditions at any of its owned and leased real
property, demand letter or complaint, order, citation, or other
written notice with regard to any Hazardous Discharge or
violation of Environmental Laws affecting such real property or
such Borrower's interest therein (any of the foregoing is
referred to herein as an "Environmental Complaint") from any
Person or entity, including any state agency responsible in whole
or in part for environmental matters in the state in which such
real property is located or the United States Environmental
Protection Agency (any such person or entity hereinafter the
"Authority"), then such Borrower shall, within five (5) Business
Days, give written notice of same to Lender detailing facts and
circumstances of which such Borrower is aware giving rise to the
Hazardous Discharge or Environmental Complaint Such information
is not intended to create nor shall it create any obligation upon
Lender with respect thereto.
(e) Each Borrower shall promptly forward to Lender copies
of any request for information, notification of potential
liability, demand letter relating to potential responsibility
with respect to the investigation or cleanup of Hazardous
Substances at any other site owned, operated or used by such
Borrower to dispose of Hazardous Substances and shall continue to
forward copies of correspondence between such Borrower and the
Authority regarding such claims to Lender until the claim is
settled. Each Borrower shall promptly forward to Lender
copies of all documents and reports concerning a Hazardous
Discharge that such Borrower is required to file under any
Environmental Laws.
(f) Each Borrower shall respond promptly to any Hazardous
Discharge or Environmental Complaint and take all necessary
action in order to safeguard the health of any Person. If any
Borrower shall fail to respond promptly to any Hazardous
Discharge or Environmental Complaint or any Borrower shall fail
to comply with any of the requirements of any Environmental Laws,
Lender may, but without the obligation to do so: (A) give such
notices or (B.) enter onto the real property (or authorize third
parties to enter onto the real property) and take such actions as
Lender (or such third parties as directed by Lender) deem
reasonably necessary or advisable, to clean up, remove, mitigate
or otherwise deal with any such Hazardous Discharge or
Environmental Complaint. All reasonable costs and expenses
incurred by Lender (or such third parties) in the exercise of any
such rights, including any sums paid in connection with any
judicial or administrative investigation or proceedings, fines
and penalties, together with interest thereon from the date
expended at the Default Rate for Revolving Advances shall be paid
by Borrowers upon demand, and until paid shall be added to and
become a part of the Obligations.
<PAGE>
V. REPRESENTATIONS AND WARRANTIES.
Borrowers represent and warrant as follows:
5.1 Authority. Each Borrower has full power, authority and
legal right to enter into this Agreement and the other Documents
and perform all obligations hereunder and thereunder. The
execution, delivery and performance hereof and of the Other
Documents (a) are within each Borrower's corporate powers, have
been duly authorized, are not in contravention of law or the
terms of such Borrower's by-laws, certificate of incorporation or
other applicable documents relating to such Borrower's formation
or to the conduct of such Borrower's business or of any material
agreement or undertaking to which such Borrower is a party or by
which such Borrower is bound, and (b) will not conflict with nor
result in any breach in any of the provisions of or constitute a
default under or result in the creation of any Lien except
Permitted Encumbrances upon any asset of such Borrower under the
provisions of any agreement, charter document, instrument, bylaw,
of other instrument to which such Borrower is a party or by which
it may be bound.
5.2 Formation and Oualification.
(a) Each Borrower is duly incorporated and in good
standing under the laws of the state of its incorporation and is
qualified to do business and is in good standing in all states
where the failure to maintain good standing would have a material
adverse affect on its ability to conduct its business and own its
property and where the failure to so qualify would have a
material adverse effect on all of the Borrowers, taken as a
whole, or their businesses, taken as a whole. Each Borrower has
delivered to Lender true and complete copies of its certificate
of incorporation and by-laws and will promptly notify Lender of
any amendment or changes thereto.
(b) The only Subsidiaries of CSI are listed on
Schedule 5.2.
5.3 Survival of Representations and Warranties. All
representations and warranties of Borrowers contained in this
Agreement and the Other Documents shall be true at the time of
Borrowers' execution of this Agreement and the Other Documents,
and shall survive the execution, delivery and acceptance thereof
by Lender and the parties thereto and the closing of the
transactions described therein or related thereto.
5.4 Tax Returns. Each Borrower has filed all federal, state
and local tax returns and other reports it is required by law to
file and has paid all taxes, assessments, fees and other
governmental charges that are due and payable. To the best of
Borrowers' knowledge, the provision for taxes on the books of
Borrowers are adequate for all years not closed by applicable
statutes, and for their current fiscal year, and Borrowers have
no knowledge of any deficiency or additional assessment in
connection therewith not provided for on their books.
5.5 Financial Statements.
The consolidated and consolidating balance sheets of CSI,
its Subsidiaries and such other Persons described therein
(including the accounts of all Subsidiaries for the respective
periods during which a subsidiary relationship existed) as of
February 3, 1996 and the related statements of income, changes in
stockholder's equity, and changes in cash flow for the period
ended on such date, all accompanied by reports thereon containing
opinions without qualification by independent certified public
<PAGE>
accountants, copies of which have been delivered to Lender, have
been prepared in accordance with GAAP, consistently applied
(except for changes in application in which such accountants
concur and present fairly the financial position of CSI and its
subsidiaries at such date and the results of their operations f
or such period. Since February 3, 1996 there has been no change
in the condition, financial or otherwise, of CSI or its
Subsidiaries as shown on the consolidated balance sheet as of
such date and no change in the aggregate value of machinery,
equipment and real property owned by CSI and its Subsidiaries,
except changes in the ordinary course of business, none of which
individually or in the aggregate has been materially adverse to
all of the Borrowers, taken as a whole.
5.6 O.S.H.A. and Environmental Compliance.
(a) Each Borrower has duly complied in all material
respects with, and its facilities, business, assets, property,
leaseholds and equipment are in compliance in all material
respects with, the provisions of the Federal Occupational Safety
and Health Act, the Environmental Protection Act, RCRA and all
other Environmental Laws, and there are no outstanding citations,
notices or orders of non-compliance issued to any Borrower or
relating to its business, assets, property, leaseholds or
equipment under any such laws, rules or regulations, which, in
any case, could materially and adversely affect the operations,
business, assets, condition (financial or otherwise) or prospects
of the Borrowers, taken as a whole.
(b) Each Borrower has been issued all required federal,
state and local licenses, certificates or permits relating to all
applicable Environmental Laws, the absence of which could
materially and adversely affect the operations, business, assets,
condition (financial or otherwise) or prospects of the Borrowers,
taken as a whole.
(c) (i) There are no visible signs of releases, spills,
discharges, leaks or disposal (collectively referred to as
"Releases") of Hazardous Substances at, upon, under or within any
real property owned or leased by any Borrower; (ii) there are no
underground storage tanks or polychlorinated biphenyls on any
real property owned or leased by any Borrower; (iii) no real
property owned or leased by any Borrower has ever been used as a
treatment, storage or disposal facility of Hazardous Waste; and
(iv) no Hazardous Substances are present on such real property,
excepting such quantities as are handled in accordance with all
applicable manufacturer's instructions and governmental
regulations and in proper storage containers and as are necessary
for the operation of the commercial business of Borrowers or of
their tenants.
5.7 Solvency; No Litigation, violation, Indebtedness or
Default.
(a) The Borrowers, taken as a whole, are solvent, able to
pay their debts as they mature, have capital sufficient to carry
on their business and all businesses in which they are about to
engage, and (i) as of the Closing Date, the fair present saleable
value of their assets (calculated on a going concern basis) is in
excess of the amount of their liabilities and (ii) subsequent to
the Closing Date, the fair saleable value of their assets
(calculated on a going concern basis) will be in excess of the
amount of their liabilities.
(b) Except as disclosed in Schedule 5.7(b), no Borrower has
(i) any pending or threatened litigation, actions or proceedings
which involve the possibility of materially and
<PAGE>
adversely affecting the business, assets, operations, condition
or prospects, financial or otherwise of the Borrowers, taken as a
whole, or the ability of any Borrower to perform this Agreement,
nor (ii) any Indebtedness for money borrowed other than the
obligations.
(c) No Borrower is in violation of any applicable statute,
regulation or ordinance in any respect materially and adversely
affecting its business, assets, operations or condition
(financial or otherwise), or prospects, nor is in violation of
any order of any court, governmental authority or arbitration
board or tribunal.
(d) No Borrower nor any member of the Controlled Group
maintains or contributes to any Plan other than those listed on
Schedule 5.7(d) hereto. Except as set forth in Schedule 5.7(d),
(i) no Plan has incurred any "accumulated funding deficiency," as
defined in Section 302(a)(2) of ERISA and Section 412(a) of the
Code, whether or not waived, and each Borrower and each member of
the Controlled Group has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of each Plan,
(ii) each Plan which is intended to be a qualified plan under
Section 401(a) of the Code as currently in effect has been
determined by the Internal Revenue Service to be qualified under
Section 401(a) of the Code and the trust related thereto is
exempt from federal income tax under Section 501(a) of the Code,
(iii) no Borrower nor any member of the Controlled Group has
incurred any liability to the PBGC other than for the payment of
premiums, and there are no premium payments which have become due
which are unpaid, (iv) no Plan has been terminated by the plan
administrator thereof or by the PBGC, and there is no occurrence
which would cause the PBGC to institute proceedings under Title
IV of ERISA to terminate any Plan, (v) at this time, the current
value of the assets of each Plan is equal to or exceeds the
present value of the accrued benefits and other liabilities of
such Plan and no Borrower nor any member of the Controlled Group
knows of any facts or circumstances which would materially change
the value of such assets and accrued benefits and other
liabilities, (vi) to the best of such Borrower's knowledge no
Borrower nor any member of the Controlled Group has breached any
of the responsibilities, obligations or duties imposed on it by
ERISA with respect to any Plan which would result in a material
loss or liability to such Borrower (vii) no Borrower nor any
member of a Controlled Group has-incurred any liability for any
excise tax arising under Section 4972 or 49808 of the Code, and
no fact exists which could give rise to any such liability,
(viii) to the best of such Borrower's knowledge no Borrower nor
any member of the Controlled Group nor any fiduciary of, nor any
trustee to, any Plan, has engaged in a "prohibited transaction"
described in Section 406 of the ERISA or Section 4975 of the Code
which would result in a material loss or liability to such
Borrower nor taken any action which would constitute or result in
a Termination Event with with respect to any such Plan which is
subject to ERISA, (ix) each Borrower and each member of the
Controlled Group has made all contributions due and payable with
respect to each Plan subject to the jurisdiction of the PBGC, (x)
there exists no event described in Section 4043(b) of ERISA, for
which the thirty (30) day notice period contained in 29 CFR
2615.3 has not been waived, (xi) no Borrower nor any member of
the Controlled Group has any fiduciary responsibility for
investments with respect to any Plan subject to the jurisdiction
of the PBGC existing for the benefit of persons other than
employees or former employees of such Borrower and any member of
the Controlled Group, and (xii) no Borrower nor any member of the
Controlled Group has withdrawn, completely or partially, from any
Multiemployer Plan so as to incur liability under the
Multiemployer Pension Plan Amendments Act of 1980.
5.8 Licenses and Permits. Except as set forth in Schedule
5.8, each Borrower (a) is in compliance with and (b) has procured
and is now in possession of, all material licenses or permits
required by any applicable federal, state, or local law or
regulation for the operation of its business in each jurisdiction
<PAGE>
wherein it is now conducting or proposes to conduct business and
where the failure to procure such licenses or permits would have
a material adverse effect on the business, properties, condition
(financial or otherwise) or operations, present or prospective of
such Borrower.
5.9 Default of Indebtedness. No Borrower is in default in
the payment of the principal of or interest on any Indebtedness
or under any instrument or agreement under or subject to which
any Indebtedness has been issued, and no event has occurred under
the provisions of any such instrument or agreement which with or
without the lapse of time or the giving of notice, or both,
constitutes or would constitute an event of default thereunder.
5.10 No Default. No Borrower is in default in the
payment or performance of any ofits contractual obligations which
would be likely to adversely effect the business, assets,
operations or condition ( financial or otherwise) or prospects
of the Borrowers, taken as a whole, and no Default has occurred.
5.11 No Burdensome Restrictions. No Borrower is party to any
contract or agreement the performance of which would adversely
affect the business, assets, operations, condition (financial or
otherwise) or prospects of the Borrowers, taken as a whole.
5.12 No Labor Disputes. No Borrower is involved in any labor
dispute; there are no strikes or walkouts or union organization
of any of Borrowers' employees threatened or in existence and no
labor contract is scheduled to expire during the Term other than
as Set forth on Schedule 5.12 hereto.
5.13 Margin Regulations. No Borrower is engaged, nor
will any engage, principally or as one of its important
activities, in the business of extending credit for the purpose
of "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation
U or Regulation G of the Board of Governors of the Federal
Reserve System as now and from time to time hereafter in effect.
No part of the proceeds of any Advance will be used for
"purchasing" or "carrying" "margin stock" as defined in
Regulation U of such Board of Governors.
5.14 Investment Company Act. No Borrower is an "investment
company" registered or required to be registered under the
Investment Company Act of 1940, as amended, nor is it controlled
by such a company.
5.15 Disclosure. No representation or warranty made by any
Borrower in this Agreement or in any financial statement, report,
certificate or any other document furnished in connection
herewith contains any untrue statement of fact or omits to state
any fact necessary to make the statements herein or therein not
misleading. There is no fact known to any Borrower or which
reasonably should be known to any Borrower which such Borrower
has not disclosed to Lender in writing with respect to the
transactions contemplated by this Agreement which adversely
affects the condition (financial or otherwise), results of
operations, business, assets or prospects of such Borrower.
5.16 [Intentionally omitted].
<PAGE>
5.17 Swaps. No Borrower is a party to, nor will any be a
party to, any swap agreement whereby such Borrower has agreed or
will agree to swap interest rates or currencies unless same
provides that damages upon termination following an event of
default thereunder are payable on an unlimited "two-way basis"
without regard to fault on the part of either party.
5.18 Conflicting Agreements. No material provision of any
mortgage, indenture, contract, agreement, judgment, decree or
order binding on any Borrower conflicts with, or requires any
Consent which has not already been obtained to, or would in any
way prevent the execution, delivery or performance of, the terms
of this Agreement or the Other Documents.
5.19 Application of Certain Laws and Regulations. Neither
any-Borrower nor any Affiliate of any Borrower is subject to any
statute, rule or regulation which regulates the incurrence of any
Indebtedness, including without limitation, statutes or
regulations relative to common or interstate carriers or to the
sale of electricity, gas, steam, water, telephone, telegraph or
other public utility services.
5.20 Suppliers and Customers.
(a) Each of the Botrowers and each Subsidiary has
adequate sources of supply for its business as currently
conducted and as proposed to be conducted. Each has good
relationships with all of its material sources of supply of goods
and services and each does not anticipate any material problem
with any such material sources of supply.
(b) No Borrower has any knowledge that the customer
base of any Borrower might materially decrease.
VI. AFFIRMATIVE COVENANTS.
Each Borrower shall, until payment in full of the
Obligations and termination of this Agreement:
6.1 Payment of Fees. Pay to Lender on demand all usual and
customary fees and expenses which Lender incurs in connection
with the forwarding of Advance proceeds. Lender may, without
making demand, charge the account of Borrowers for all such fees
and expenses.
6.2 Conduct of Business and Maintenance of Existence and
Assets. (a) Conduct continuously and operate actively its
business according to good business practices and maintain all
of. its properties useful or necessary in its business in good
working order and condition (reasonable wear and tear excepted),
including, without limitation, all licenses, patents, copyrights,
tradenames, trade secrets and trademarks and take all actions
necessary to enforce and protect the validity of any intellectual
property right; (b) keep in full force and effect its existence
and comply in all material respects with the laws and regulations
governing the conduct of its business where the failure to do so
would have a material adverse effect on such Borrower or its
busin ess; and (c) make all such reports and pay all such
franchise and other taxes and license fees and do all such other
acts and things as may be lawfully required to maintain its
rights, licenses, leases, powers and franchises under the laws of
the United States or any political subdivision thereof where the
failure to do so would have a material adverse effect on such
Borrower or its business.
<PAGE>
6.3 Violations. Promptly notify Lender in writing of
any violation of any law, statute, regulation or ordinance of any
governmental entity, or of any agency thereof, applicable to any
Borrower which could materially and adversely affect the
business, assets, operations, condition (financial or otherwise)
or prospects of the Borrowers, taken as a whole.
6.4 Tangible Net Worth. Cause to be maintained as at the
end of each fiscal quarter, commencing as of August 1, 1996, a
Tangible Net Worth in an amount not less than $125,000,000.
6.5 Interest Expense Coverage Ratio. Cause to be maintained
at the end of each fiscal year an Interest Expense Coverage Ratio
of not less than 2:1.
6.6 Indebtedness to Tangible Net Worth. Cause to be
maintained as of the end of each fiscal quarter a ratio of total
Indebtedness of Borrowers on a consolidated basis to Tangible Net
Worth of not greater than 1:1.
6.7 Execution of Supplemental Instruments. Execute and
deliver to Lender from time to time, upon demand, such
supplemental agreements, statements, instruments or documents as
Lender may request in order that the full intent of this
Agreement may be carried into effect.
6.8 Payment of Indebtedness. Pay, discharge or otherwise
satisfy at or before maturity (subject, where applicable, to
specified grace periods and, in the case of the trade payables,
to normal payment practices) all its obligations and liabilities
of whatever nature, except when the amount or validity thereof is
currently being contested in good faith by appropriate
proceedings and Borrowers shall have provided for such reserves
as Lender may reasonably deem proper and necessary, subject at
all times to any applicable subordination arrangement in favor of
Lender.
6.9 Standards of Financial Statements. Cause all financial
statements and notices referred to in Sections 9.4, 9.5, 9.7,
9.8, 9.9, 9.11, 9.12 and 9.13 to be complete and correct in all
material respects (subject, in the case of interim financial
statements, to normal year-end audit adjustments) and to be
prepared in reasonable detail and, as applicable, in accordance
with GAAP applied consistently throughout the periods reflected
therein (except as concurred in by such reporting accountants or
officer, as the case may be, and disclosed therein).
6.10 Current Ratio. Cause to be maintained a Current Ratio,
as at the end of each fiscal quarter, of not less than 1.5:1.
6.11 Net Loss. Not permit a consolidated net loss, as same
is treated in accordance with GAAP and consistent with the
financial statements delivered to the Bank per Section IX, in
excess of $10,000,000 for any two consecutive fiscal quarters of
Borrowers.
6.12 Profit to Expense Ratio. As at the end of each fiscal
year, cause to be maintained, a Profit to Expense Ratio of not
less than 1:1.
<PAGE>
VII. NEGATIVE COVENANTS.
No Borrower shall, until satisfaction in full of the
obligations and termination of this Agreement:
7.1 Merger, Consolidation, Acquisition and Sale of Assets.
(a) Enter into any merger, consolidation or other
reorganization with or into any other Person or business division
or acquire all or a substantial portion of the assets or stock of
any Person or business division or permit any other Person to
consolidate with or merge with it unless, with respect to any
merger,. consolidation, reorganization or acquisition of assets
or stock, (i) Lender receives prior written notice thereof and
(ii) after giving effect to such merger, consolidation,
reorganization or acquisition of assets or stock no Default or
Event of Default shall exist.
(b) Sell, lease, transfer or otherwise dispose of
all, or substantially all, of its properties or assets.
7.2 Creation of Liens. Create or suffer to exist any Lien,
Charge or Claim upon or against any of its property or assets now
owned or hereafter acquired other than Permitted Encumbrances.
7.3 Guarantees. Become liable upon the obligations of any
person, firm or corporation by assumption, endorsement or
guaranty thereof or otherwise (other than to Lender) except (a)
the endorsement of checks in the ordinary course of business and
(b) guarantees of any other Borrower's obligations.
7.4 Investments. Purchase or acquire obligations or stock
of, or any other interest in, any Person, except (a) obligations
issued or guaranteed by the United States of America or any
agency thereof, (b) commercial paper with maturities of not more
than 180 days and a published rating of not less than A-2 or P-2
(or the equivalent rating), (c) certificates of time deposit and
bankers' acceptances having maturities of not more than 180 days
and repurchase agreements backed by United States government
securities of a commercial bank if such bank has a combined
capital and surplus of at least $100,000,000, (d) U.S. money
market funds that invest solely in obligations issued or
guaranteed by the United States of America or an agency thereof
and (e) shares, assets or obligations of a company or division,
for purposes of acquisition, whose business purpose is similar to
that of the Borrowers.
7.5 Loans. Make advances, loans or extensions of credit to
any Person, including without limitation, any Parent, Subsidiary
or Affiliate, except as expressly permitted in Section 7.10
hereof.
7.6 [Intentionally omitted].
7.7 [Intentionally omitted].
7.8 [Intentionally omitted].
<PAGE>
7.9 Nature of Business. Substantially change the nature of
the business in which it is presently engaged, nor except as
specifically permitted hereby purchase or invest, directly or
indirectly, in any assets or property other than in the ordinary
course of business for assets or property which are useful in,
necessary for and are to be used in its business as presently
conducted.
7.10 Transactions with Affiliates. Directly or indirectly,
purchase, acquire or lease any property from, or sell, transfer
or lease any property to, or otherwise deal with, any Affiliate,
except transactions disclosed to Lender, in the ordinary course
of business, and on an arm's-length basis on terms no less
favorable than terms which would have been obtainable from a
Person other than an Affiliate; except that (i) any Borrower may
make loans or advances to any other Borrower provided that at the
end of each fiscal quarter of Borrowers the net balance of all
such inter-Borrower loans or advances on a consolidated basis
shall be zero and (ii) any Borrower may make loans or advances to
employees of any Borrower in an aggregate amount which, together
with all other loans or advances to employees of any Borrower
from all other Borrowers, is not at any time in excess of
$1,500,000, so long as prior to and after giving effect to any
such loans or advances there shall not exist any Event of Default
or Default.
7.11 Subsidiaries. Form or acquire any Subsidiary, with
assets in excess of $10,000,000, unless (i) such Subsidiary
expressly joins in this Agreement as a borrower and becomes
jointly and severally liable for the obligations of Borrowers
hereunder, under the Note, and under any other agreement between
Borrowers and Lender and (ii) Lender shall have received all
documents, including legal opinions, it may reasonably require to
establish compliance with each of the foregoing conditions.
7.12 Fiscal Year and Accounting Changes. Change its fiscal
year end from the Saturday closest to January 31 of each calendar
year or make any change (i) in accounting treatment and reporting
practices except as required by GAAP or (a) in tax reporting
treatment except as required by law.
7.13 Pledge of Credit. Now or hereafter pledge Lenders
credit on any purchases or for any purpose whatsoever or, except
as otherwise specifically permitted herein, use any portion of
any Advance in or for any business other than Borrowers, business
as conducted on the date of this Agreement.
7.14 Amendment of Articles of Incorporation, By-Laws.
Amend, modify or waive any material term or material provision of
its Articles of Incorporation or By-Laws, which impacts the
ability of the Borrowers to repay the obligations.
7.15 Compliance with ERISA. (i) (x) Maintain, or permit any
member of the Controlled Group to maintain, or (y) become
obligated to contribute, or permit any member of the Controlled
Group to become obligated to contribute, to any Plan, other than
those Plans disclosed on Schedule 5.7(d) if such contribution
would result in a material increase in costs to such Plan or in a
material loss or liability to Borrower, (ii) engage, or permit
any member of the Controlled Group to engage, in any nonexempt
"prohibited transaction", as that term is defined in section 406
of ERISA and Section 4975 of the Code which would result in a
material 1099 or liability to such Borrower, (iii) incur, or
permit any member of the Controlled Group to incur, any
"accumulated funding deficiency", as that term is defined in
Section 302 of ERISA or Section 412 of the Code, (iv) terminate,
or permit any member of the Controlled Group to terminate, any
Plan where such event could result in any liability of Borrowers
<PAGE>
or any member of the Controlled Group or the imposition of a lien
on the property of any Borrower or any member of the Controlled
Group pursuant to Section 4068 of ERISA, (v) assume, or permit
any member of the Controlled Group to assume, any obligation to
contribute to any Multiemployer Plan not disclosed on Schedule
5.7(d), (vi) incur, or permit any member of the Controlled Group
to incur, any withdrawal liability to any Multiemployer Plan;
(vii) fail promptly to notify the Lender of the occurrence of any
Termination Event, (viii) fail to comply in all material
respects, or permit a member of the Controlled Group to fail to
comply in all material respects, with the requirements of ERISA
or the Code or other applicable laws in respect of any Plan if
any such failure could result in a material adverse effect on the
business, assets, operations, condition (financial or otherwise)'
or prospects of the Borrowers, taken as a whole, (ix) fail to
meet, or permit any member of the Controlled Group to fail to
meet, all minimum funding requirements under ERISA or the Code or
postpone or delay or allow any member of the Controlled Group to
postpone or delay any funding requirement with respect of any
Plan.
7.16 [Intentionally omitted].
7.17 [Intentionally omitted].
7.18 Sale and Leaseback Transactions. At any time, directly
or indirectly, without the express prior written consent of
Lender, enter into any sale and leaseback transaction, in an
aggregate amount in excess of $15,000,000, with respect to any of
the assets of any Borrower.
VIII. CONDITIONS PRECEDENT.
8.1 Conditions to Initial Advances. The agreement of Lender
to make the initial Advances requested to be made on the Closing
Date is subject to the satisfaction, or waiver by Lender,
immediately prior to or concurrently with the making of such
Advances, of the following conditions precedent:
(a) Note. Lender shall have received the Note duly
executed and delivered by an authorized officer of each Borrower;
(b) Corporate Proceedings of Borrowers. Lender
shall have received a copy of the resolutions in form and
substance reasonably satisfactory to Lender, of the Board of
Directors of each Borrower authorizing the execution, delivery
and performance of this Agreement, the Notes and any Other
Documents (collectively the "Documents"), in each case certified
by the Secretary or an Assistant Secretary of such Borrower as of
the Closing Date; and, each such certificate shall state that the
resolutions thereby certified have not been amended, modified,
revoked or rescinded as of the date of such certificate;
(c) Incumbency Certificates of Borrowers. Lender
shall have received a certificate of the Secretary or an
Assistant Secretary of each Borrower, dated the Closing Date, as
to the incumbency and signature of the officers of such Borrower
executing this Agreement, any certificate or other documents to
be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary;
<PAGE>
(d) Certificates. Lender shall have received a copy
of the Articles or Certificate of Incorporation of each Borrower,
and all amendments thereto, together with copies of the By-Laws
of each Borrower and all agreements of such Borrower's
shareholders, if any, certified as accurate and complete by the
Secretary of such Borrower;
(e) Good Standing Certificates. Lender shall have
received good standing certificates for each Borrower dated not
more than 10 days prior to the Closing Date, issued by the
Secretary of State or other appropriate official of such
Borrowers jurisdiction of incorporation and the jurisdiction(s)
where Borrowers maintain their principal place of business;
(f) Legal Opinion. Lender shall have received the
executed legal opinion of Rubin, Baum, Levin, Constant, Friedman
& Bilzin in form and substance satisfactory to Lender which shall
cover such matters incident to the transactions contemplated by
the Documents, as Lender may reasonably require;
(g) No Litigation. (i) No litigation, investigation
or proceeding before or by any arbitrator or governmental
authority shall be continuing or threatened against any Borrower
or against the officers or directors of any Borrower (A) in
connection with the Documents or any of the transactions
contemplated thereby and which, in the reasonable opinion of
Lender, is deemed material or (B.) which if adversely determined,
would, in the reasonable opinion of Lender, have a material
adverse effect on the business, assets, operations or condition
(financial or otherwise) of any Borrower; and (ii) no injunction,
writ, restraining order or other order of any nature materially
adverse to any Borrower or the conduct of its business or
inconsistent with the due consummation of this Agreement shall
have been issued by any governmental authority;
(h) Fees. Lender shall have received all fees
payable to Lender on or prior to the Closing Date pursuant to
Article III hereof;
(i) [Intentionally omitted].
(j) Payment Instructions. Lender shall have
received written instructions from Borrowing Agent directing the
application of proceeds of the initial Advances made pursuant to
this Agreement;
(k) Consents. Lender shall have received any and
all Consents necessary to permit the effectuation of the
transactions contemplated by this Agreement and the Other
Documents;
(l) No Adverse Material Change. Since February 3,
1996, there shall not have occurred (i) any material adverse
change in the business, financial condition, prospects or results
of operations of the Borrowers, taken as a whole; or (ii) any
event, condition or state of facts which would reasonably be
expected materially and adversely to affect the business,
financial condition or results of operations of the Borrowers,
taken as a whole; and
(m) Other. All corporate and other proceedings, and
all documents, instruments and other legal matters in connection
with the transactions herein contemplated shall be satisfactory
in form and substance to Lender and its counsel.
8.2 Conditions to Each Advance. The agreement of Lender to
make any Advance requested to be made on any date (including,
without limitation, the initial Advance), is subject to the
satisfaction of the following conditions precedent as of the ate
such Advance is made:
<PAGE>
(a) Representations and Warranties. Each of the
representations and warranties made by Borrowers in or pursuant
to this Agreement and any related agreements to which it is a
party, and each of the representations and warranties contained
in any certificate, document or financial or other statement
furnished at any time under or in connection with this Agreement
or any related agreement shall be true and correct in all
material respects on and as of such date as if made on and as of
such date;
(b) No Default. No Event of Default or Default
shall have occurred and be continuing on such date, or would
exist after giving effect to the Advances requested to be made,
on such date; provided, however that Lender, in its sole
discretion, may continue to make Advances notwithstanding the
existence of an Event of Default or Default and that any Advances
so made shall not be deemed a waiver of any such Event of Default
or Default; and
(c) Maximum Advances. In the case of any Advances
requested to be made, after giving effect thereto, the aggregate
Advances shall not exceed the maximum Advances permitted under
Section 2.1 hereof. Each request for an Advance by Borrowing
Agent hereunder shall constitute a representation and warranty by
each Borrower as of the date of such Advance that the conditions
contained in this subsection shall have been satisfied.
IX. INFORMATION AS TO BORROWERS.
Each Borrower shall, until satisfaction in full of the
Obligations and the termination of this Agreement:
9.1 Environmental Records. Furnish Lender, concurrently
with the delivery of the financial statements referred to in
Sections 9.4 and 9.5, with a certificate of Borrowers signed by
the President of Borrowing Agent stating, to the best of his
knowledge, that Borrowers are in compliance in all material
respects with all federal, state and local laws relating to
environmental protection and control and occupational safety and
health. To the extent any Borrower is not in compliance with the
foregoing laws in any material respect, the certificate shall set
forth with specificity all areas of non-compliance and the
proposed action such Borrower will implement in order to achieve
full compliance.
9.2 Litigation. Promptly notify Lender in writing of any
litigation, suit or administrative proceeding affecting
Borrowers, whether or not the claim is covered by insurance,
which could materially and adversely affect the business, assets,
operations, condition or prospects (financial or otherwise) of
the Borrowers, taken as a whole.
9.3 Material occurrences. Promptly notify Lender in writing
upon the occurrence of (a) any Event of Default or Default; (b)
any event, development or circumstance whereby any financial
statements or other reports furnished to Lender fail in any
material respect to present fairly, in accordance with GAAP
consistently applied, the financial condition or operating
results of Borrowers as of the date of such statements; (c) any
accumulated retirement plan funding deficiency which, if such
deficiency continued for two plan years and was not corrected as
provided in Section 4971 of the Internal Revenue Code, could
subject any Borrower to a tax imposed by Section 4971 of the
Internal Revenue Code; (d) each and every default by any Borrower
which might reasonably be expected to result in the acceleration
of the maturity of any Indebtedness in excess of $1,000,000,
including the names and addresses of the holders of such
Indebtedness with respect to which there is a default existing or
with respect to which the maturity has been or could be
accelerated, and the amount of such Indebtedness; and (e) any
other development in the business or affairs of any Borrower
which might reasonably be expected to be materially adverse to
the Borrowers, taken as a whole; in each case describing the
nature thereof and the action such Borrower proposes to take with
respect thereto.
<PAGE>
9.4 Annual Financial Statements. Furnish Lender within
ninety (90) days after the end of each fiscal year of Borrowers,
audited financial statements of Borrowers on a consolidated basis
and unaudited financial statements of Borrowers on a
consolidating basis including, but not limited to, statements of
income and stockholders, equity and cash flow from the beginning
of the current fiscal year to the end of such fiscal year and the
balance sheet as at the end of such fiscal year, all prepared in
accordance with GAAP applied on a basis consistent with prior
practices, and in reasonable detail and, with respect to the
consolidated financial statements, reported upon without
qualification by an independent certified public accounting firm
selected by Borrowers and satisfactory to Lender. The report of
such accounting firm shall be accompanied by a statement of such
accounting firm certifying that in making the examination upon
which such report was based either no information came to their
attention which to their knowledge constituted an Event of
Default or a Default under this Agreement or the related
Documentary Commercial/Standby Letter of Credit Application and
Security Agreement or, if such information came to their
attention, specifying any such default, and such report shall
contain or have appended thereto calculations which set forth
Borrowers' compliance with the requirements or restrictions
imposed by Sections 6.4, 6.5, 6.6, 6.10, 6.11 and 6.12.
9.5 Monthly Financial Statements. Furnish Lender within
thirty (3-0) days after the end of each month an unaudited
balance sheet of Borrowers and unaudited statements of income and
stockholders, equity and cash flow of Borrowers on a consolidated
and consolidating basis reflecting results of operations from the
beginning of the fiscal year to the end of such month and for
such month, prepared on a basis consistent with prior practices
and complete and correct in all material respects, subject to
normal year end adjustments.
9.6 [Intentionally omitted].
9.7 Other Reports. Furnish Lender as soon as available, but
in any event within ten (10) days after the issuance thereof,
with (i) copies of such financial statements, reports and returns
as CSI shall send to its stockholders, (ii) copies of all
financial statements, proxy materials or reports sent to any
Borrower's stockholders, (iii) copies of any annual, special or
interim audit reports or management or comment letters with
respect to any Borrower or its operations submitted to any
Borrower by independent financial accountants, (iv) copies of all
press releases, and (v) copies of all reports or registration
statements filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933 or the Securities Exchange
Act of 1934, each as amended, or the rules or regulations
promulgated thereunder.
9.8 Additional Information. Furnish Lender with such
additional information as Lender shall reasonably request in
order to enable Lender to determine whether the terms, covenants,
provisions and conditions of this Agreement and the Note have
been complied with by Borrowers including, without limitation and
without the necessity of any request by Lender, (a) copies of all
environmental audits and reviews, (b) at least thirty (30) days
prior thereto, notice of any change in location of any Borrower I
s. principal executive offices, and (c) promptly upon any
Borrower's learning thereof, notice of any labor dispute to which
any Borrower may become a party, any strikes or walkouts relating
to any of its plants or other facilities, and the expiration of
any labor contract to which any Borrower is a party or by which
any Borrower is bound.
<PAGE>
9.9 Projected Operating Budget. Furnish Lender, no less
than thirty (30) days prior to the beginning of each of
Borrowers' fiscal years commencing with fiscal year ending
February 1, 1997, a month by month projected operating budget and
cash flow of Borrowers for such fiscal year (including an income
statement for each month and a balance sheet as at the end of the
last month in each fiscal quarter), such projections to be
accompanied by a certificate signed by CSI's President or
Treasurer to the effect that such projections have been prepared
on the basis of sound financial planning practice consistent with
past budgets and financial statements and that such officer has
no reason to question the reasonableness of any material
assumptions on which such projections were prepared.
9.10 [Intentionally omitted].
9.11 Notice of Suits, Adverse Events. Furnish Lender
with prompt notice of (i) any lapse or other termination of any
Consent issued to any Borrower by any Governmental Body or any
other Person that is material to the operation of such Borrower's
business, (ii) any refusal by any Governmental Body or any other
Person to renew or extend any such Consent; and (iii) copies of
any periodic or special reports filed by any Borrower with any
Governmental Body or Person, if such reports indicate any
material adverse change in the business, operations, affairs or
condition of such Borrower, or if copies thereof are requested by
Lender, and (iv) copies of any notices and other communications
from any Governmental Body or Person which specifically relate to
any Borrower and could have a material adverse effect on the
business, assets, operations, condition (financial or otherwise)
or prospects of the Borrowers, taken as a whole.
9.12 ERISA Notices and Requests. Furnish Lender with
immediate written notice in the event that (i) any Borrower or
any member of the Controlled Group knows or has reason to know
that a Termination Event has occurred, together with a written
Event and the action, if the Controlled Group has with respect
thereto and action taken or threatened by the Internal Controlled
Group knows or has that a Termination Event has occurred,
statement describing such Termination any, which such Borrower or
member of taken, is taking, or proposes to take when known, any
Revenue Service, Department of Labor or PBGC with respect
thereto, (ii) any Borrower or any member of the Controlled Group
knows that a prohibited transaction (as defined in Sections 406
of ERISA and 4975 of the Internal Revenue Code) has occurred
together with a written statement describing such transaction and
the action which such Borrower or any member of the Controlled
Group has taken, is taking or proposes to take with respect
thereto, (iii) a funding waiver request has been filed with
respect to any Plan together with all communications received by
any Borrower or any member of the Controlled Group with respect
to such request, (iv) any increase in the benefits of any
existing Plan or the establishment of any new Plan or the
commencement of contributions to any Plan to which any Borrower
or any member of the Controlled Group was not previously
contributing shall occur if such event results in a material
increase in costs or liability to such Borrower, (v) any Borrower
or any member of the Controlled Group shall receive from the PBGC
a notice of intention to terminate a Plan or to have a trustee
appointed to administer a Plan, together with copies of each such
notice, (vi) any Borrower or any member of the Controlled Group
shall receive any favorable or unfavorable determination letter
from the Internal Revenue Service regarding the qualification of
a Plan under Section 401(a) of the Internal Revenue Code,
together with copies of each such letter; (vii) any Borrower or
any member of the Controlled Group shall receive a notice
regarding the imposition of withdrawal liability, together with
copies of each such notice; (viii) any Borrower or any member of
the Controlled Group shall fail to make a required installment or
any other required payment under Section 412 of the Internal
Revenue Code on or before the due date for such installment or
payment; (ix) any Borrower or any member of the Controlled Group
knows that (a) a Multiemployer Plan has been terminated, (b) the
administrator or plan sponsor of a Multiemployer Plan intends to
terminate a Multiemployer Plan, or (c) the PBGC has instituted or
will institute proceedings under Section 4042 of ERISA to
terminate a Multiemployer Plan.
<PAGE>
9.13 Additional Documents. Execute and deliver to
Lender, upon request, such documents and agreements as Lender
may, from time to time, reasonably request to carry out the
purposes, terms or conditions of this Agreement.
X. EVENTS OF DEFAULT.
The occurrence of any one or more of the following
events shall constitute an "Event of Default":
(a) failure by Borrowers to pay any principal or
interest on the Obligations when due, whether at maturity or by
reason of acceleration pursuant to the terms of this Agreement or
by notice of intention to prepay, or by required prepayment or
failure to pay any other liabilities or make any other payment,
fee or charge provided for herein within five (5) Business Days
of the date that same is due;
(b) any representation or warranty made or deemed
made by Borrowers in this Agreement or any related agreement or
in any certificate, document or financial or other statement
furnished at any time in connection herewith or therewith shall
prove to have been misleading in any material respect on the date
when made or deemed to have been made;
(c) failure by Borrowers to (i) furnish financial
information required by Sections 9.3, 9.4 or 9.6 within five (5)
Business Days of the date when due or, with respect to any other
financial information requested pursuant to Section 9.8 which can
reasonably be furnished within five (5) Business Days, furnish
such information within five (5) Business Days of the date same
is requested, or (ii) permit the inspection of its books or
records;
(d) issuance of a notice of Lien, Charge, Claim,
levy, assessment, injunction or attachment (other than Permitted
Encumbrances) against a material portion of the Borrowers,
property (taken as a whole) which is not stayed or lifted within
thirty (30) days;
(e) failure or neglect of any Borrower to perform,
keep or observe any term, provision, condition, covenant herein
contained, or contained in any other agreement or arrangement,
now or hereafter entered into between such Borrower and Lender
and, except with respect to any term, provision, condition or
covenant contained in Section 6.2, 6.3, 6.4, 6.5, 6.6, 6.8, 6.10,
6.11, 6.12, 7.1, 7.2, 7.3, 7.4, 7.5, 7.9, 7.10, 7.11, 7.13, 7.14,
7.15, 7.18, 9.2, 9.3, 9.6, 9.11 or 9.12 of this Agreement, same
continues for a period of five (5) Business Days following notice
thereof from Lender to Borrowers;
(f) any judgment is rendered or judgment liens
filed against any Borrower for an amount in excess of $1,000,000,
in the aggregate, which within thirty (30) days of such rendering
or filing is not either satisfied, stayed or discharged of
record;
<PAGE>
(g) any Borrower shall (i) apply for or consent to
the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) make a general assignment
for the benefit of creditors, (iii) commence a voluntary case
under any state or federal bankruptcy laws (as now or hereafter
in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file
a petition seeking to take advantage of any other law providing
for the relief of debtors, (vi) acquiesce to, or fail to have
dismissed, within thirty (30) days, any petition filed against it
in any involuntary case under such bankruptcy laws, or (vii) take
any action for the purpose of effecting any of the foregoing;
(h) any Borrower shall admit in writing its
inability, or be generally unable, to pay its debts as they
become due or cease operations of its present business;
(i) any change in any Borrower's condition or
affairs (financial or otherwise) which in Lender's reasonable
judgment impairs the ability of such Borrower to perform its
Obligations under this Agreement;
(j) [Intentionally omitted].
(k) a default of the obligations of any Borrower
under any other agreement to which it is a party shall occur
which materially and adversely affects the condition, affairs or
prospects (financial or otherwise) of the Borrowers, taken as a
whole, which default is not cured within any applicable grace
period;
(1) [Intentionally omitted].
(m) any material provision of this Agreement shall,
for any reason, cease to be valid and binding on Borrowers, or
any Borrower shall so claim in writing to Lender;
(n) (i) any Governmental Body shall (A) revoke,
terminate, suspend or adversely modify any license, permit,
patent trademark or tradename of any Borrower, the continuation
of which is material to the continuation of the Borrowers'
business (taken as a whole), or (B) commence proceedings to
suspend, revoke, terminate or adversely modify any such license,
permit, trademark, tradename or patent, and such proceedings
shall not be dismissed or discharged within sixty (60) days, or
(C) schedule or conduct a hearing on the renewal of any license,
permit, trademark, trade name or patent necessary for the
continuation of any Borrower's business and the staff of such
Governmental Body issues a report recommending the termination
revocation, suspension or material, adverse modification of
license, permit, trademark, trade name or patent; (a) any
agreement which is necessary or material to the operation of any
Borrower's business shall be revoked or terminated and not
replaced by a substitute acceptable to Lender within thirty (30)
days after the date of such revocation or termination, and such
revocation or termination and non-replacement would have a
material adverse effect on the business or financial condition of
the Borrowers, taken as a whole;
(o) an event or condition specified in Sections
7.15 or 9.12 hereof shall occur or exist with respect to any Plan
and, as a result of such event or condition, together with all
other such events or conditions, any Borrower or any member of
the Controlled Group shall incur, or in the reasonable judgment
of Lender be reasonably likely to incur, a liability to a Plan or
the PBGC (or both) which, in the reasonable judgment of Lender,
would have a material adverse effect upon the ability of the
Borrowers, taken as a whole, to perform their Obligations under
this Agreement; or
<PAGE>
(p) [Intentionally omitted].
XI. LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT.
11.1 Rights and Remedies. Upon the occurrence of an Event of
Default pursuant to Article X(g) all obligations shall be
immediately due and payable and this Agreement and the obligation
of Lender to make Advances shall be deemed terminated; and, upon
the occurrence of any of the other Events of Default and at any
time thereafter (such default not having previously been cured),
at the option of Lender all Obligations shall be immediately due
and payable and Lender shall have the right to terminate this
Agreement and to terminate the obligation of Lender to make
Advances. Upon the occurrence of any Event of Default, Lender
shall have the right to exercise any and all other rights and
remedies provided for herein, at law or equity generally.
11.2 Setoff. In addition to any other rights which Lender
may have under applicable law, upon the occurrence of an Event of
Default hereunder, Lender shall have a right to apply any of
Borrowers' property held by Lender or by the Bank to reduce the
Obligations.
11.3 Rights and Remedies not Exclusive. The enumeration of
the foregoing rights and remedies is not intended to be
exhaustive -and the exercise of any right or remedy shall not
preclude the exercise of any other right or remedies, all of
which shall be cumulative and not alternative.
XII. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1 Waiver of Notice. Each Borrower hereby waives notice of
non-payment
of any of the Advances, demand, presentment, protest and notice
thereof with
respect to any and all instruments, notice of acceptance hereof,
notice of loans
or advances made, credit extended, or any other action taken in
reliance hereon,
and all other demands and notices of any description, except such
as are
expressly provided for herein.
12.2 Delay. No delay or omission on Lender's part in
exercising any right, remedy or option shall operate as a waiver
of such or any other right, remedy or option or of any default.
12.3 Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED
OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF
THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HEREBY
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEM RIGHT TO
TRIAL BY JURY.
<PAGE>
XIII. EFFECTIVE DATE AND TERMINATION.
13.1 Term. This Agreement, which shall inure to the benefit
of and shall be binding upon the respective successors and
permitted assigns of each Borrower and Lender, shall become
effective on the date hereof and shall continue in full force and
effect until July 31, 1999 (the "Term") unless sooner terminated
as herein provided.
13.2 Termination. The termination of the Agreement shall not
affect any of Borrowers' or Lender's rights, or any of the
Obligations having their inception prior to the effective date of
such termination, and the provisions hereof shall continue to be
fully operative until all transactions entered into, rights or
interests created or Obligations have been fully disposed of,
concluded or liquidated. All representations, warranties,
covenants, waivers and agreements contained herein shall survive
termination hereof until all Obligations are repaid or performed
in full.
XIV. BORROWING AGENCY PROVISIONS.
14.1 Appointment. (a) Each Borrower hereby irrevocably
designates Borrowing Agent as its attorney and agent to borrow,
sign and endorse notes, and execute and deliver all instruments,
documents, writings and further assurances now or hereafter
required hereunder, on behalf of each Borrower, and does hereby
authorize Lender to pay over or credit all loan proceeds
hereunder in accordance with the advance request made by
Borrowing Agent.
(b) It is understood and agreed by each Borrower
that the handling of this credit facility in the manner set forth
in this Agreement is solely as an accommodation to Borrowers and
at their request, and that Lender shall incur no liability to
Borrowers as a result thereof. To induce Lender to do so and in
consideration thereof, each Borrower hereby agrees to indemnify
Lender and to hold Lender harmless from and against any and all
liabilities, expenses, losses, damages and claims of damage or
injury asserted against Lender by any Person arising from or
incurred by
reason of Lender's handling of the financing arrangements of the
Borrowers as provided herein, reliance by Lender on any request
or instruction from Borrowing Agent or any other action taken by
Lender with respect to this Section 14.1 except due to the gross
(not mere) negligence or willful misconduct by Lender.
(c) Each Borrower represents and warrants to Lender
that (i) the Borrowers have one or more common shareholders
(other than CSI whose stock is publicly held), directors and
officers, (ii) the businesses and corporate activities of the
other Borrowers are closely related to, and substantially
benefit, the business and corporate activities of such Borrower,
(iii) the financial and other operations of the Borrowers are
performed on a combined basis as if the Borrowers constituted a
consolidated corporate group, (iv) such Borrower has received
substantial economic benefit from entering into this Agreement
and shall receive substantial economic benefit from the
application of each Advance hereunder, in each case whether or
not such amount is used directly by such Borrower, and (v) all
borrowings hereunder by the Borrowing Agent are for the exclusive
and indivisible benefit of all Borrowers as though, for
purposes of this Agreement and the Other Documents the Borrowers
constituted a single entity.
<PAGE>
14.2 Joint and Several Obligations. Each Borrower further
agrees that all Obligations shall be joint and several, and that
each Borrower shall make payment upon any of the Obligations upon
their maturity by acceleration or otherwise, and that such
obligation and liability on the
part of each Borrower shall in no way be affected by any
extensions, renewals and forbearances granted by Lender to any
Borrower, failure of Lender to give any Borrower notice of
borrowing or any other notice, any failure of Lender to pursue or
preserve its rights against the other Borrowers, and that such
agreement by each Borrower to pay upon any notice issued pursuant
hereto is unconditional and unaffected by prior recourse by
Lender to the other Borrowers for such Borrowers, Obligations or
the lack thereof.
XV. MISCELLANEOUS.
15.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York
applied to contracts to be performed wholly within the State of
New York. Any judicial proceeding brought by or against Borrowers
with respect to any of the Obligations, this Agreement or any
related agreement may be brought in
any court of competent jurisdiction in the State of New York,
United States of America, and, by execution and delivery of this
Agreement, Borrowers accept for themselves and in connection with
their properties, generally and unconditionally, the
non-exclusive jurisdiction of the
aforesaid courts, and irrevocably agree to be bound by any
judgment rendered thereby in connection with this Agreement.
Nothing herein shall affect the right to serve process in any
manner permitted by law or shall limit the right of Lender to
bring proceedings against Borrowers in the courts of any other
jurisdiction. Borrowers waive any objection to jurisdiction and
venue of any action instituted hereunder and shall not assert
any. defense based on lack of jurisdiction or venue or based upon
forum non conveniens. Any judicial proceeding by Borrowers
against Lender
involving, directly or indirectly, any matter or claim in any way
arising out of, related to or connected with this Agreement or
any related agreement, shall be brought only in a federal or
state court located in the City of New York, State of New York.
15.2 Entire Understanding. This Agreement and the documents
executed concurrently herewith contain the entire understanding
between Borrowers and Lender and supersede all prior agreements
and understandings, if any, relating to the subject matter
hereof. Any promises, representations, warranties or guarantees
not herein contained and hereinafter made shall have no force and
effect unless in writing, signed by Borrowers' and Lender's
respective officers. Neither this Agreement nor any portion or
provisions hereof may be changed, modified, amended, waived,
supplemented, discharged, canceled or terminated orally or by any
course of dealing, or in any manner other than by an agreement in
writing, signed by the party to be charged. Borrowers acknowledge
that they have advised by counsel in connection with the
execution of this
Agreement and Other Documents and are not relying upon oral
representations or statements inconsistent with the terms and
provisions of this Agreement.
<PAGE>
15.3 Successors and Assigns; Participations; New Lenders.
(a) This Agreement shall be binding upon and inure
to the benefit of Borrowers, Lender, all future holders of the
Note and their respective successors and assigns, except that
Borrowers may not assign or transfer any of their rights or
obligations under this Agreement without the prior written
consent of Lender.
(b) Lender may sell, assign or transfer all or any
part of its rights under this Agreement and the Note and all
related agreements, instruments and documents provided Borrowing
Agent gives its consent, which consent will not be unreasonably
withheld, to such sale and the transferee agrees to perform the
obligations of the transferor; in addition to the foregoing,
Borrowers acknowledge that in the regular course of commercial
banking business Lender may
at any time and from time to time sell participating interests in
the Advances to other financial institutions (each such
transferee or purchaser of a participating interest, a
"Transferee"). Each Transferee may exercise all rights of payment
(including without limitation rights of set-off) with respect to
the portion of such Advances held by it or other Obligations
payable hereunder as
fully as if such Transferee were the direct holder thereof.
Borrowers hereby grant to any Transferee a continuing security
interest in any deposits, moneys or other property actually or
constructively held by such Transferee as security for the
Transferee's interest in the Advances.
15.4 Application of Payments. Lender shall have the
continuing and exclusive right to apply or reverse and re-apply
any payment to any portion of the Obligations. To the extent that
Borrowers make a payment or Lender receives any payment for
Borrowers' benefit which is subsequently invalidated, declared to
be fraudulent or preferential, set aside or required to be repaid
to a trustee, debtor in possession, receiver, custodian or any
other party under any bankruptcy law, common law or equitable
cause, then, to such extent, the Obligations or part
thereof intended to be satisfied shall be revived and continue as
if such payment or proceeds had not been received by Lender.
15.5 Indemnity. Borrowers shall indemnify Lender from and
against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and
disbursements of any kind or nature whatsoever (including,
without limitation, fees and disbursements of counsel) which may
be imposed on, incurred by, or asserted against Lender in any
litigation, proceeding or investigation instituted or conducted
by any governmental agency or
instrumentality or any other Person with respect to any aspect
of, or any transaction contemplated by, or referred to in, or any
matter related to, this Agreementr whether or not Lender is a
party thereto, except to the extent that any of the foregoing
arises out of the gross negligence or willful misconduct of
Lender.
15.6 Notice. Any notice or request hereunder may be
given to Borrowers or to Lender at their respective addresses set
forth below or at such other address as may hereafter be
specified in a notice designated as a notice of change of address
under this Section. Any notice or request hereunder shall be
given by (a) hand delivery, (b) overnight courier, (c) registered
or certified mail, return receipt requested, (d) telex or
telegram, subsequently confirmed by registered or
certified mail, or (e) telecopy to the number set out below (or
such other number as may hereafter be specified in a notice
designated as a notice of change of address) with telephone
communication to a duly authorized officer of the recipient
confirming its receipt as subsequently confirmed by registered or
certified mail. Notices and requests shall, in the case of those
by overnight courier or telegram, be deemed to have been given
when delivered to the overnight
courier or delivered to the telegraph office addressed as
provided in this Section.
<PAGE>
(A) If to Lender, at: Bank Leumi Trust Company of New York
562 Fifth Avenue
New York, New York 10036
Attention: John Koenigsberg,
Vice President
Telephone: (212) 626-1376
Telecopier:(212) 626-1329
(B) If to Borrowers or to Claire's Stores, Inc.
Borrowing Agent, at: 3 S.W. 129th Avenue
Pembroke Pines, Florida 33027
Attention: Ira Kaplan
Telephone: (305) 433-3900
Telecopier: (305) 433-3999
with a copy to: Rubin, Baum, Levin, Constant,
Friedman & Bilzin
2500 First Union Financial Center
Miami, Florida 33131-2336
Attention: Harold E. Berritt, Esq.
Telephone: (305) 374-7580
Telecopier: (305) 374-7593
15.7 Severability. If any part of this Agreement is
contrary to, prohibited by, or deemed invalid under applicable
laws or regulations, such provision shall be inapplicable and
deemed omitted to the extent so contrary, prohibited or invalid,
but the remainder hereof shall not be invalidated thereby and
shall be given effect so far as possible.
15.8 Expenses. All costs and expenses including, without
limitation, reasonable attorneys' fees and disbursements incurred
by Lender (a) in all efforts made to enforce payment of any
Obligation, or (b) in connection with the entering into,
modification, amendment, administration and enforcement of this
Agreement or any consents or waivers hereunder and all related
agreements, documents and instruments, or (c) in defending or
prosecuting any actions or proceedings arising out of or relating
to Lender's transactions with Borrowers, or (d) in connection
with any advice given to Lender with respect to its rights and
obligations under this Agreement and all related agreements, may
be charged to Borrowers' account and shall be part of the
Obligations.
15.9 Injunctive Relief. Borrowers recognize that, in the
event Borrowers fail to perform, observe or discharge any of
their obligations or liabilities under this Agreement, any remedy
at law may prove to be inadequate relief to Lender; therefore,
Lender, if Lender 90 requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the
necessity of proving actual damages.
<PAGE>
15.10 Consequential Damages. Neither Lender nor any
agent or attorney for Lender shall be liable to any Borrower for
consequential damages arising from any breach of contract, tort
or other wrong relating to the establishment, administration or
collection of the Obligations.
15.11 Captions. The captions at various places in this
Agreement are intended for convenience only and do not constitute
and shall not be interpreted as part of this Agreement.
15.12 Counterparts. This Agreement may be executed in one
or more counterparts, each of which taken together shall
constitute one and the same instrument.
15.13 Construction. The parties acknowledge that each
party and its counsel have reviewed this Agreement and that the
normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement or any
amendments, schedules or exhibits thereto.
<PAGE>
Each of the parties has signed this Agreement as of the 19th day
of August, 1996.
CLAIRE'S STORES, INC.
By:
Name: IRA D. KAPLAN
Title: Treasurer
CLAIRE'S BOUTIQUES, INC.
By:
Name: IRA D. KAPLAN
Title: Treasurer
CLAIRE'S CANADA, CORP.
By:
Name:, IRA D. KAPLAN
Title: Treasurer
CLAIRE'S PUERTO RICO, CORP.
By:
Name: IRA D. KAPLAN
Title: Treasurer
CSL, INC.
By:
Name: IRA D. KAPLAN
Title: Treasurer
CBI DISTRIBUTING CORP.
By:
Name: IRA D. KAPLAN
Title: Treasurer
BANK LEUMI TRUST COMPANY OF NEW YORK
By:
Name: Richard Silverstein
Title: First Vice President
By:
John Koenigsberg
Title: Vice President
<PAGE>
STATE OF NEW YORK} ss.:
COUNTY OF NEW YORK}
On this 19th day of August, 1996, before me personally came
Richard Silverstein, to me known, who, being by me duly sworn,
did depose and say that he is a First Vice President of Bank
Leumi Trust Company of New York, the corporation described in and
which executed the foregoing instrument and that he signed his
name thereto by order of the board of directors of said
corporation.
NOTARY PUBLIC
STATE OF NEW YORK} ss.:
COUNTY OF NEW YORK}
On this 19th day of August, 1996, before me personally came
John Koenigsberg, to me known, who, being by me duly sworn, did
depose and say that he is a vice President of Bank Leumi Trust
Company of New York, the corporation described in and which
executed the foregoing instrument and that he signed his name
thereto by order of the board of directors of said corporation.
NOTARY PUBLIC
STATE OF NEW YORK} ss.
COUNTY OF NEW YORK}
On this 19th day of August, 1996, before me personally came
Ira D. Kaplan, to me known, who, being by me duly sworn, did
depose and say that he is the Treasurer of Claire's Stores, Inc.,
the corporation described in and which executed the foregoing
instrument and that he signed his name thereto.
NOTARY PUBLIC
<PAGE>
STATE OF NEW YORK} ss.:
COUNTY OF NEW YORK}
On this 19th day of August, 1996, before me personally came
Ira D. Kaplan, to me known, who, being by me duly sworn, did
depose and say that he is the Treasurer of Claire's Boutiques,
Inc., the corporation described in and which executed the
foregoing instrument and that he signed his name thereto.
NOTARY PUBLIC
STATE OF NEW YORK} ss.
COUNTY OF NEW YORK}
On this 19th day of August, 1996, before me personally came
Ira D. Kaplan, to me known, who, being by me duly sworn, did
depose and say that he is the Treasurer of CSL, Inc., the
corporation described in and which executed the foregoing
instrument and that he signed his name thereto.
NOTARY PUBLIC
STATE OF NEW YORK} ss.:
COUNTY OF NEW YORK}
On this 19th day of August, 1996, before me personally came
Ira D. Kaplan, to me known, who, being by me duly sworn, did
depose and say that he is the Treasurer of CBI Distributing
Corp., the corporation described in and which executed the
foregoing instrument and that he signed his name thereto.
NOTARY PUBLIC
<PAGE>
STATE OF NEW YORK} ss.:
COUNTY OF NEW YORK}
On this 19th day of August, 1996, before me personally came
Ira D. Kaplan, to me known, who, being by me duly sworn, did
depose and say that he is the Treasurer of Claire's Canada Corp.,
the corporation described in and which executed the foregoing
instrument and that he signed his name thereto.
NOTARY PUBLIC
STATE OF NEW YORK} ss.
COUNTY OF NEW YORK}
On this 19th day of August, 1996, before me personally came
Ira D. Kaplan, to me known, who, being by me duly sworn, did
depose and say that he is the Treasurer of Claire's Puerto Rico
Corp., the corporation described in and which executed the
foregoing instrument and that he signed his name thereto.
NOTARY PUBLIC
<PAGE>
SCHEDULE 5.2
CLAIRE'S BOUTIQUES, INC.
CBI DISTRIBUTING CORP.
CSL, INC.
CLAIRE'S PUERTO RICO CORP.
CLAIRE'S CANADA CORP.
READING GLASSES WORLD, INC.
RSI INTERNATIONAL, LTD.
RS PRODUCTS CORP.
CLAIRE'S ACCESSORIES U.K., LTD.
<PAGE>
SCHEDULE5.7(b)
NONE
<PAGE>
SCHEDULE 5.7(d)
CLAIRE'S STORES, INC. 401(K)
SAVINGS AND RETIREMENT PLAN
<PAGE>
SCHEDULE 5.8
NONE
<PAGE>
SCHEDULE 5.12
NONE
<PAGE>
Exhibit 1. 2
NONE
<PAGE>
EXHIBIT 2.1
REVOLVING-CREDIT NOTE
$10,000,000.00 New York, New York
August 19, 1996
FOR VALUE RECEIVED, the undersigned corporations, jointly
and severally, hereby promise to pay to the order of Bank Leumi
Trust Company of New York ("Lender"), at its offices at 562 Fifth
Avenue, New York, New York 10036 or at such other place as the
holder may from time to time designate:
(i) the principal sum of TEN MILLION and 00/100
($10,000,000.00) DOLLARS, or such lesser amount of Advances as
may otherwise be due and payable under the Credit Agreement dated
this date among the undersigned and Lender ("Credit Agreement")
payable in full no later than July 31, 1999.
(ii) interest on the principal amount of this
Revolving Credit Note from time to time outstanding, in like
money at said office from the date hereof until paid at the rates
and at the times provided in Section 3.1 of the Credit Agreement.
In no event, however, shall interest exceed the maximum interest
rate permitted by law. During such time as an Event of Default
has occurred, interest shall be payable at the Default Rate.
This Revolving Credit Note is entitled to the benefits of
the Credit Agreement and is subject to all of the agreements,
terms and conditions therein contained. All terms not otherwise
defined herein shall have the meaning ascribed thereto in the
Credit Agreement.
This Revolving Credit Note may be prepaid, in full, on the
terms and conditions set forth in the Credit Agreement.
If an Event of Default under Article X(g) of the Credit
Agreement shall occur, then this Revolving Credit Note shall
immediately become due and payable, without notice, together with
reasonable attorneys, fees if the collection hereof is placed in
the hands of an attorney to obtain or enforce payment hereof. If
any other Event of Default shall occur under the Credit Agreement
or any other agreement between Lender and the undersigned which
is not cured within any
applicable grace period, then this Revolving Credit Note shall,
at the option of the holder, immediately become due and payable,
without notice, together with reasonable attorneys, fees, if the
collection hereof is placed in the hands of an attorney to obtain
or enforce payment hereof.
This Revolving Credit Note is being delivered in the State
of New York, and shall be construed and enforced in accordance
with the laws of such State.
<PAGE>
The undersigned expressly waives any presentment, demand,
protest, notice of protest, or notice of any kind except as
expressly provided in the Credit Agreement.
CLAIRE'S STORES, INC.
Witnessed By:
Name: Ira D. Kaplan
Title: Treasurer
CLAIRE'S BOUTIQUES, INC.
Witnessed By:
Name: Ira D. Kaplan
Title: Treasurer
CSL, INC.
Witnessed By:
Name: Ira D. Kaplan
Title: Treasurer
CBI DISTRIBUTING CORP.
Witnessed By:
Name: Ira D. Kaplan
Title: Treasurer
CLAIRE'S CANADA CORP.
Witnessed By:
Name: Ira D. Kaplan
Title: Treasurer
CLAIRE'S PUERTO RICO CORP.
Witnessed By:
Name: Ira D. Kaplan
Title: Treasurer
<PAGE>
STATE OF NEW YORK} ss.
COUNTY OF NEW YORK}
On this 19th day of August, 1996, before me personally came
Ira D. Kaplan, to me known, who, being by me duly sworn, did
depose and say that he is the Treasurer of Claire's Stores, Inc.,
the corporation described in and which executed the foregoing
instrument and that he signed his name thereto.
NOTARY PUBLIC
STATE OF NEW YORK} ss.:
COUNTY OF NEW YORK}
On this 19th day of August, 1996, before me personally came
Ira D. Kaplan, to me known, who, being by me duly sworn, did
depose and say that he is the Treasurer of Claire's Boutiques,
Inc., the corporation described in and which executed the
foregoing instrument and that he signed his name thereto.
NOTARY PUBLIC
STATE OF NEW YORK} ss.
COUNTY OF NEW YORK}
On this 19th day of August, 1996, before me personally came
Ira D. Kaplan, to me known, who, being by me duly sworn, did
depose and say that he is the Treasurer of CSL, Inc., the
corporation described in and which executed the foregoing
instrument and that he signed his name thereto.
NOTARY PUBLIC
<PAGE>
STATE OF NEW YORK} ss.:
COUNTY OF NEW YORK}
On this 19th day of August, 1996, before me personally came
Ira D. Kaplan, to me known, who, being by me duly sworn, did
depose and say that he is the Treasurer of CBI Distributing
Corp., the corporation described in and which executed the
foregoing instrument and that he signed his name thereto.
NOTARY PUBLIC
STATE OF NEW YORK} ss.:
COUNTY OF NEW YORK}
On this 19th day of August, 1996, before me personally came
Ira D. Kaplan, to me known, who, being by me duly sworn, did
depose and say that he is the Treasurer of Claire's Canada Corp.,
the corporation described in and which executed the foregoing
instrument and that he signed his name thereto.
NOTARY PUBLIC
STATE OF NEW YORK} ss.:
COUNTY OF NEW YORK}
On this 19th day of August, 1996, before me personally came
Ira D. Kaplan, to me known, who, being by me duly sworn, did
depose and say that he is the Treasurer of Claire's Puerto Rico
Corp., the corporation described in and which executed the
foregoing instrument and that he signed his name thereto.
NOTARY PUBLIC
<PAGE>
EXHIBIT 2.2
FORM OF NOTICE OF BORROWING
Bank Leumi Trust Company of New York
562 Fifth Avenue
New York, New York 10036
Attention:
Ladies and Gentlemen:
The undersigned refers to the Revolving Credit Agreement,
dated as of , 1996 (the "Credit Agreement") (the terms defined
therein being used herein as therein defined), among CLAIRE'S
STORES, INC., CLAIRE'S BOUTIQUES, INC., CSL, INC., CBI
DISTRIBUTING CORP., CLAIRE'S CANADA CORP., and CLAIRE'S PUERTO
RICO CORP. (collectively the "Borrower"), and hereby gives you
notice, irrevocably, pursuant to Section 2.2 of the Credit
Agreement, that the undersigned hereby requests an Advance under
the Credit Agreement, and in that connection sets forth below the
information relating to such Advance (the "Proposed Borrowing")
as required by Section 2.2 of the Credit Agreement:
(i) The aggregate principal amount of the Proposed
Borrowing is $ .
(ii) The Business Day of the Proposed Borrowing is
, .(1)
(iii) The Proposed Borrowing is to be initially
maintained as a (Reference Rate Advance] (Eurodollar Advance with
an initial Interest Period of ((one) (two] (three] month(s)].
The undersigned hereby certifies that the following
statements are true on the date hereof and will be true on the
date of the Proposed Borrowing:
(1) Written notice prior to 12:00 Noon (New York time) is
required at least three Business Days prior to each incurrence of
Eurodollar Advances and on the Business Day prior to each
incurrence of Reference Rate Advances.
<PAGE>
EXHIBIT 2.2
Page 2
(A) the representations and warranties of the Borrower
contained in the Credit Agreement or in the Other Documents are
and will be true and correct in all material respects, both
before and after giving effect to the Proposed Borrowing and to
the application of the proceeds thereof, with the same effect as
though such representations and warranties had been made on and
as of the date of such Proposed Borrowing (it being understood
that any representation or warranty which by its terms is made as
of a specified date shall be required to be true and correct in
all material respects only as of such specified date); and
(B) no Default or Event of Default has occurred and is
continuing, or would result from such Proposed Borrowing or from
the application of the proceeds thereof.
Very truly yours,
CLAIRE'S STORES, INC., as
Borrowing Agent
By:
Name:
Title:
<PAGE>
EXHIBIT 2.8
Page 2 of 6
Letter of Credit Application
1. As to drafts payable in United States currency drawn or
purporting to be drawn under the Credit. the undersigned agrees (a)
in case of each sight draft to pay to you at your office at 564
Fifth Avenue. New York, New York 10036 (hereinafter called the
"Office'") in United States currency the amount payable thereon
immediately upon receipt of notice of payment thereof, with
interest from the time of such payment at the rate of four (4%)
percent above the rate of interest & designated by you , said in
effect from time to time as your "Reference Rate", adjusted when
said Reference Rate changes or at such other rate as is agreed upon
in writing between us (but if such interest rate shall not be
lawful with respect to the undersigned. then such rate shall be the
highest lawful rate permitted to be charged by you on a loan to the
undersigned) or, if so demanded by you, to so pay to you the amount
of such draft in advance at a time to be determined by you: and (b)
in case of each time draft, to pay to you the amount thereof at
your Office in United States currency not later than two (2)
business days prior to its maturity, or, if the draft is payable
elsewhere, then to make such payment at your Office in sufficient
time to reach the place or payment in the usual course of the
regular mails, not later than two (2) business days prior to
maturity. Interest payable hereunder shall be computed on the basis
of a 360 day year. The charging of interest on the basis of a
360-day year results in the payment of more interest than would be
required if interest were charged on the basis of the actual number
of days in the year. The undersigned acknowledges that the
Reference Rate may not necessarily represent the lowest rate
charged by you to customers.
2. As to drafts payable in currency other than United States
currency drawn or purporting to be drawn under the Credit, the
undersigned agrees (a) in case of each sight draft. to pay to you
immediately upon receipt of notice or payment thereof at your
office in United States currency the equivalent of the amount
payable on each draft at your then selling rate for cable transfers
to the place where. and in the currency in which, such draft is
payable, with interest at the legal rate or at such other rate as
is agreed upon in writing from the time of such payment, or if so
demanded by you to pay the same to you in advance at any other time
to be determined by you, and (b) in case of each time draft to
furnish you at said Office sufficiently in advance to reach the
place of payment in the usual course of the regular mails not later
than two (2) business days prior to maturity, with first class
banker's demand bills of exchange to be approved by you for the
amount and in the currency of such draft and bearing the
unqualified endorsement of the undersigned, or if you so request to
pay to you on demand at said office in United States currency the
equivalent or the amount of such draft at your then selling rate
for demand drafts on, or cable transfers to, the place where, and
in the currency in which, such draft is payable. If at the time
payment is to be made by the undersigned as aforesaid. there exists
no rate of exchange generally current in New York City for cable
transfers or demand drafts as hereinbefore provided. the
undersigned agrees to pay to you on demand in United States
currency the actual cost to you of settlement of your obligation to
the payee or the draft or to any holder thereof as the case may be
and however and whenever such settlement shall be made by you.
including interest on the dollar amount payable by the undersigned
from the date or payment of such draft to the date of the
undersigned's payment to you. The undersigned shall pay you on
demand in United States currency such amount as you may be required
to expend in order to comply with all governments exchange,
currency control or other laws. orders and regulations or any
country now or hereafter applicable to the purchase or sale of
and/or dealings in foreign currency.
3. The undersigned shall pay to you on demand a commission at such
rate as you determine to be proper and any and all expenses,
obligations, charges will liabilities paid or Incurred by you in
connection with the Credit and the within agreement, together with
interests wherever applicable. The undersigned shall pay to you on
demand from time to time any additional amounts necessary (in your
sole determination) to indemnify you against any increase in your
direct or indirect costs of issuing or maintaining, or any
reduction in the net amount to be received by you with respect to,
the Credit. whether due to this, imposition or modification of any
reserve special deposit or similar requirement (including any
assessment for insurance of deposits or of letters of credit), any
requirement to pay, or withhold or deduct from any amount payable,
any taxes, fees or similar charges, or for any other reason.
4. Except as written instructions expressly to the contrary have
been received by you from the undersigned in the foregoing
application or prior to the opening of the Credit and incorporated
in the Credit, the undersigned agrees (a) that you and any of your
correspondents may receive and accept as a "bill of lading" under
the Credit any document issued or purporting to be issued by or on
behalf of any carrier which acknowledges receipt of property for
transportation, whatever the specific provisions of such document
may be (b) that part shipments may be made under the Credit and
that you may honor the relative drafts without inquiry, regardless
of any apparent disproportion between the quantity shipped and the
amount o f the relative draft, and the total amount of the Credit
and the total quantity to be shipped under the Credit: (c) if
shipment in installments within stated periods is specified, and
there is a failure to ship in any designated period, shipments of
subsequent installments. made in their respective designated
periods, may be drawn against and drafts accepted and paid: (d)
that you may accept or pay, as complying with the terms of the
Credit, any drafts or other documents otherwise in order which may
be signed or issued by an administrator, executor, trustee in
bankruptcy, debtor in possession, assignee for benefit of
creditors, liquidator, receiver or other legal representative of
the party who is authorized under the Credit to draw or issue any
drafts or other documents without being required to inquire as to
his authority or appointment; (e) that without limiting any other
provisions of this agreement, you and any of your correspondents
may accept documents of any character which comply with the
provisions, definitions, Interpretations and practices contained in
"The Uniform Customs and Practice for Documentary Credits," The
International Chamber of Commerce Publications as amended from time
to time, or which comply with the laws or regulations in force in
customs and usages of the piece of negotiation; in that in the
event of any extension of the maturity, or time for negotiation or
presentation of drafts, acceptances or documents or any other
modifications of the terms or provisions of the Credit at the
request or with the consent of any of the undersigned with or
without notification to the others or in the event of any increase
in the amount of the Credit at the request of the undersigned, this
Agreement shall be binding upon the undersigned with regard to (i)
the Credit so increased or otherwise modified, (ii) drafts,
documents and property covered thereby, and (iii) any action taken
by you or any of your correspondents in accordance with such
extension. increase or other modification: (g) due you of your
correspondents may accept or pay any draft dated on or before the
estimation, of any time limit expressed in the Credit regardless of
when drawn and when or whether negotiated provided the other
required documents are dated prior to the expiration date of the
Credit.
5. Neither you nor any of your correspondents, agents,
representatives or designees shall be liable or responsible in any
manner including, without limitation, for any damages. losses or
other consequences resulting by reason of, and the undersigned's
obligations to you shall not be affected by (a) the existence,
character, quality, quantity, condition, packing, value, delivery
or any other aspect or the property purporting to be represented by
the documents: (b) any difference in character, quality, quantity,
condition or value of the property from that expressed in the
documents: (c) the validity, sufficiency or genuineness of
documents or of any endorsements thereon. even if such documents
should in fact prove to be in any and all respects invalid,
insufficient, fraudulent or forged: (d) the time, place, manner or
order in which shipment or delivery is made: (e) the character
adequacy, validity or genuineness of any insurance or any policies
or documents connected with insurance: (f) any deviation from
instructions delay, default or fraud by the shipper and/or anyone
else in connection with the property or the shipping or delivery
thereof: (g) the solvency, responsibility or relationship to the
property of any party issuing any documents in connection with the
property; (h) delay in arrival or failure to arrive of either the
property or any of the documents relating thereto: (i) delay in
giving, or failure to give notice or arrival or any other notice;
(j) any breach of contract between the shipper or vendor and the
consignee or buyer or the undersigned or any of them; (k) failure
of any draft to bear any reference or adequate reference to the
Credit or failure of documents to accompany any draft in
negotiation or failure of any person to note the amount or any
draft on the reverse side of the Credit or to surrender or take up
the Credit or to send forward documents apart from drafts as
required by the terms of the Credit, each of which provisions, if
contained in the Credit itself, it is agreed
<PAGE>
Exhibit 2.8
Page 3 of 6
may he waived by you: (l) errors, omissions, interruptions or
delays in transmission or delivery of any message by mail, cable,
telegram, wireless telex or, other wise, whether or not they be in
cipher: (m) or errors in translation or errors in interpretation of
technical term. You shall not be responsible for any act, error,
neglect or default, omission, insolvency or failure in business or
any correspondence or for any consequence arising from causes
beyond your control. In furtherance and extension of the specific
provisions hereinbefore set forth the undersigned agrees that any
action taken or omitted by you or any of your correspondents under
or in connection with the Credit , the relative drafts. documents
or property if done in good faith, shall be, binding on the
undersigned and shall not put you or your correspondents under any
resulting liability to the undersigned and the undersigned shall
indemnity and hold you and your correspondents agents and
representatives harmless any claim, loss or liability arising from
or in connection with the Credit or, the related drafts, documents
or property.
6. In case the undersigned consents lit any overdrafts under any
Credit or authorizes payment or acceptance of drafts drawn
thereunder with irregular documents attached thereto, or
authorizes or consents to any departure from or modification of the
terms of this agreement or the credit hereunder. this agreement
shall be fully binding upon the undersigned in respect thereto and
notwithstanding such overdrafts, irregularities or variances this
agreement and your title to the property and documents shall be,
subsist and remain as though all matters had been done in strict
compliance with this agreement and with the Credit. In case of any
variation between the documents called for by the Credit or
instructions (if the undersigned and the documents accepted by you
or your correspondents, the undersigned shall be conclusively
deemed to have waived any right to object to such variation with
respect to any action of yours or your correspondents relating to
such documents and to have ratified and approved such action as
having been taken on the direction of the undersigned, unless the
undersigned immediately upon receipt of such documents or
acquisition of knowledge of such variation files objection with you
in writing. You and your correspondents shall not be liable for any
failure by you or anyone else to pay or accept any draft or
acceptance under this Credit or for any loss or damage resulting
from any censorship law, control or restriction rightfully or
wrongfully exercised by any de facto or de jure domestic or foreign
government or agency thereof, declared or undeclared war, or from
any other cause of whatsoever nature beyond your control or the
control of your correspondents agents or representatives, and the
undersigned agrees to indemnify and hold you harmless from any
claim, loss, liability or expense arising by reason thereof.
7. The undersigned hereby grants you a security interest in, and
recognizes and confirms and admits your unqualified right to the
title, possession and right of disposition of all property shipped
under or pursuant to or in connection with the Credit or in any way
relative thereto or to the drafts drawn thereunder, and in and to
all shipping documents, warehouse receipts, policies or
certificates of insurance and other documents or instruments
accompanying or relative to drafts drawn under the Credit and in
and to the proceeds of each and all of the foregoing, all to be
held by you subject to all the terms of this agreement as
collateral security for the prompt and unconditional payment of any
and every indebtedness. obligation and liability of the undersigned
to you and your claims of every nature and description against the
undersigned. whether or not represented by negotiable instruments
or other writings, whether arising under this instruments. the
Credit or by mason of any other agreement or transaction, whether
now existing or hereafter incurred, originally constructed with you
and/or with another or others and now or hereafter owing to or
acquired in any manner by you, whether contracted by the
undersigned alone or jointly or severally with another or others,
direct or indirect, absolute or contingent, secured or not secured.
matured or not matured, all of the foregoing hereinafter called
"Obligation:'
8. In the event that any property and/or documents held by you or
for your account is released by you to or upon the order of the
undersigned in trust, the undersigned will sign and deliver to you
trust receipts, security agreements and/or statements of trust
receipt financing and financing statements and will pay all
required filing fees and upon the undersigned's failure to do so
you are authorized as the agent of the undersigned to sign any such
receipts and/or statements. Upon any transfer, delivery, surrender
or endorsement to the undersigned, or its designee, of any bill of
lading, warehouse receipt or other documents at any time held by
you or held for your accounts by any of your correspondents
relative to any drafts drawn hereunder, the undersigned will
indemnify and hold you harmless from and against claims, demands or
actions which may arise against you or any such correspondent by
reason thereof.
9. In order to further secure the payment of the Obligations, the
undersigned hereby grants you a security interest in any and all
property of the undersigned in your actual or constructive
possession or in transit to you or your correspondents, agents or
representatives from or for the undersigned and the proceeds
thereof, whether for safekeeping, custody, pledge, transmission,
collection or otherwise or coming into your possession in any other
manner for any other reason, and the undersigned agrees to pledge,
transfer and deposit with you and grant to you a security interest
in such other property as you shall reasonably request to secure
payment of the Obligations and to make such payments as you request
on account of the Obligations. You are also hereby given a
continuing lien and/or right of set-off for the amount of the
Obligations, upon or with respect to any and all deposits, general
or special and credits of the undersigned with and any and all
claims of the undersigned against you at any time existing: and you
are hereby authorized at any time or times, without prior notice,
to apply such deposits or credits or any part thereof to payment of
the Obligations in such amounts as you may select, although
contingent or matured and whether the Collateral is deemed
adequate or not. All of the foregoing, together with the property
enumerated in this agreement as security for the Obligations, as
well as any property in which you may now or hereafter be granted
a security interest or which may be deposited with you or your
agents by the undersigned to secure the obligations is herein
collectively call "Collateral" and you are hereby authorized to
deal therewith in the same manner as if you had sole title thereto.
If the undersigned, as registered holder to the Collateral, shall
become entitled to receive or does receive any stock certificate,
option or right, whether as an addition to, in substitution of, or
in exchange for such Collateral, or otherwise, the undersigned
agrees to accept same as you agent and to hold same in trust for
you, to forthwith deliver the same to you in the exact form
received, with the undersigned's endorsement when necessary, to be
held by you as Collateral.
10. (a) The undersigned agrees to procure promptly any necessary
import, export or other license for the importing, exporting,
shipping, or warehousing of any property shipped under, pursuant to
or in connection with the Credit or covered by any documents held
by you or any of your correspondents relative to any drafts
accepted by you or included in the Collateral, and to comply with
all foreign and domestic laws and governmental regulations in
regard to the shipment and/or warehousing and/or financing thereof,
and to furnish such documents in that respect as you may at any
time require.
(b) Unless the Credit provides for presentation of insurance
policies or certificates in negotiable form covering property
shipped under, pursuant to or in connection with the Credit, the
undersigned agrees to keep such property, and , in any event, to
keep all property covered by documents released by you to the
undersigned in trust, or included in Collateral, and your interest
therein, fully insured against loss by fire, theft, damage or any
other risk to which the said property may be subject, by policies
or certificates of insurance which shall provide that the loss, if
any, shall be payable to you or your order as your interest may
appear and to deposit the insurance certificates or policies with
you upon your demand. If any of said policies or certificates
procured by the undersigned fail to provide for payment of the loss
thereunder, as hereinbefore provided, the undersigned hereby makes
the loss payable to you under any of said policies or certificates,
and assigned to you all the avails and proceeds of any and all of
said policies or certificates, and agrees to accept the avails and
proceeds of all insurance policies and certificates as your agent
and to hold same in trust for you, and to forthwith deliver the
same to you in the exact form received with the undersigned's
endorsement where necessary, and you hereby irrevocably empowered,
with full power of substitution and revocation, to endorse any
check in the name of the undersigned received in payment of any
loss or adjustment. Notwithstanding the foregoing provisions, you
may,
<PAGE>
Exhibit 2.8
Page 4 of 6
but shall not be obligated to, insure all or any part of the
property shipped under, or pursuant to, the Credit issued hereunder
and all or any Collateral held by you hereunder against all risks
of any kind and the premium thereon shall be paid to you by the
undersigned within five days after the demand for the same and you
shall have the rights to debit the amount of such premium to any
balances of the undersigned without notice. If the undersigned
fails to pay the premium upon any policy of insurance pledged
hereunder or upon any policy of insurance covering any property of
Collateral within five days of the due date (without benefit of the
grace period), you may, but shall not be obligated to pay the same
without notice to the undersigned and said premium shall be repaid
to, or may be debited by you, as above provided.
(c) The undersigned agrees to reimburse you upon demand in the
event you or any of your correspondents, agents or representatives
pay for or incur any expense or liability in connection with the
Credit or an6y draft accepted by you pursuant to this instrument or
in relation to any of the matters set forth or referred to herein,
including, but not limited to all correspondents' charges and
expenses and charges for or incidental to the care, the safekeeping
or otherwise of any of the property shipped under, pursuant to, or
in connection with the Credit.
11. The undersigned will at any and all times at your request,
sign financing statements, trust receipts, security agreements or
other documents with respect to the Collateral as you may
reasonably request. The right is expressly granted to you, at your
discretion, to file one or more financing statements without the
signature of the undersigned under the Uniform Commercial Code
naming the undersigned as debtor and you as secured party and
indicating therein the types or describing the items of Collateral
herein referred to. The undersigned hereby agrees to pay on
demand, and authorized you to charge its account with the cost of
any and all filing fees and costs which you deem necessary to incur
to protect your interest in the Collateral.
12. The undersigned consents that, without the necessity for any
reservation of rights against the undersigned and without notice to
or further assent by the undersigned, the liability of any party
for or upon Obligations or Collateral may from time to time, in
whole or in part, be renewed, extended, modified, prematured,
compromised, settled for cash, credit or otherwise and upon any
terms or conditions you may deem advisable and that you may
discharge or release any party from such liabilities and that
collateral security for any of the obligations may from time to
time, in whole or in part, be exchanged, sold or surrendered by you
all without in any way affecting or releasing the liability of the
undersigned upon the Obligations. You shall not be liable for any
failure to collect or demand payment of or protest or give any
notice of non-payment of any of the Collateral of for any delay in
so doing, nor shall you be under any obligation to take any action
whatsoever with respect to the Collateral or any part thereof. You
shall use reasonable care in the custody and preservation of
Collateral in your possession but need not take any steps to
preserve rights against prior parties or keep the Collateral
identifiable. You shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral in your
possession if you take such action as the undersigned shall
reasonably request in writing but, in no event shall an omission to
do any act which the undersigned fails to request in writing be
deemed a failure to exercise such reasonable care and no omission
to comply with any request of the undersigned shall be deemed a
failure in exercise such reasonable care . Any right of set-off
exercised by you shall be deemed to have been exercised immediately
upon the occurrence of any event referred to in Paragraph 13
hereof, even though such set-off is made or entered on your books
subsequent thereto. You shall have no obligation to comply with
any recording, re-recording, filing, re-filing or other legal
requirement necessary to establish or maintain the validity,
priority or enforceability of, or your rights in and to
Collateral, or any part thereof. You may exercise any right of the
undersigned with respect to any Collateral. In any statutory or
non-statutory proceeding affecting the undersigned or Collateral,
you or you nominee may, whether or not a default exists and
regardless of the amount of Obligations, tile a proof of claim for
the full amount of any Collateral and vote such claim for the full
amount thereof: (a) for or against any proposal or resolution: (b)
for a Trustee or Trustees o for a Committee of Creditors: (c) for
the acceptance or rejection of any proposed arrangement, plan of
reorganization, wage earners' plan, composition or extension and
you or your nominee may receive any payment or distribution and
give acquital therefor and may exchange or release Collateral. Any
Collateral held by you hereunder, may without notice and whether or
not a default exists, be registered and held in your or your
nominee's name. You are hereby granted a power of attorney to
endorse the undersigned's name on any and all notes, checks,
drafts, bills of exchange, money orders or commercial paper
included in the Collateral or representing the proceeds thereof.
13. All monies due or owing to you from the undersigned under
this agreement or any other Obligations shall, at your option,
become immediately due and payable, without notice or demand and
notwithstanding any time or credit otherwise allowed or given to
you under this or any other agreement or instrument and the
undersigned and all guarantors shall be deemed in default hereunder
upon the occurrence of any one of the following events with respect
to any one of the undersigned or any guarantor or endorser of any
Obligations of any of the undersigned to you: (a) failure to pay
any sum upon the due date thereof: (b) if any statement,
representation or warranty made in any application, financial
statement or other agreement made with, or document delivered to
you, shall be false or untrue in any material respect: (c) default
in the performance of any condition or provision of this agreement
of any other agreement with, or any Obligations to you: (d) death,
and if a partnership, death of a partner: (e) insolvency, howsoever
evidenced: (f) the making of a general assignment for the benefit
of creditors: (g) the filing of any petition or the commencement of
any proceedings by or against any of the undersigned or any
guarantor of any Obligations, for any relief under any bankruptcy
or insolvency laws or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganization, compositions or
extensions: (h) the appointment of a temporary or permanent
receiver or trustee or similar legal representative of, or the
issuance or making of a writ or order of attachment against any
property or assets: (i) entry of a judgment: (j) the commencement
of any proceeding for enforcement of a judgment under Article 52 of
the New York Civil Practice Law and Rules or under provisions of
any other law: (k) the adoption of any resolution for dissolution
or liquidation or the taking of any action for the purpose of such
dissolution or liquidation: (l) the suspension of usual business:
(m) the failure to deposit any additional collateral security with
you upon demand: (n) the failure to pay any premium on any
insurance policy pledged, or any insurance policy covering any
property pledged with you, or in which you are granted a security
interest within five days after such premium becomes due without
benefit of any period of grace: (o) failure forthwith upon demand
to furnish any financial information or to permit inspection of
books, documents or records of account: (p) failure to pay any tax
when due: (q) if at any time in your sole judgment the financial
responsibility of any of the undersigned, or of any guarantor of
any Obligations of the undersigned shall become impaired or
unsatisfactory to you.
14. Upon the happening of any of the events set forth in
Paragraph 13, and at any time thereafter, you shall have, in
addition to all other rights and remedies, the remedies of a
secured party under the New York Uniform Commercial Cods. The
undersigned shall, upon your request, assemble the Collateral and
make it available to you at a place to be designated by you which
is reasonably convenient to you and the undersigned. You will give
the undersigned notice of the time and place of any public sale of
the Collateral or of the time after which any private sale of any
other intended disposition thereof is to be made by sending notice,
as provided below, at least five days before the time of the sale
or disposition, which provisions for notice you and the undersigned
agree are reasonable. No such notice need be given by you with
respect to Collateral which is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized
market. You may apply the net proceeds of any sale, lease or other
disposition of Collateral after deducting all costs and expenses of
every kind incurred therein or incidental to the retaking, holding,
preparing for sale, selling, leasing or the like of said
Collateral, or in any way relating to the rights of the undersigned
thereunder, including attorneys' fees hereinafter provided for and
legal expenses, to the payment, in whole or in part, in such order
as you may elect, of one or more of said obligations, whether due
or not due, absolute or contingent, and if contingent, you may
retain sufficient of such proceeds to cover the largest aggregate
sum which may be due or owing thereunder to you with prospective
interest costs, expenses and counsel fees and you shall not be
charged with any interest with respect thereto, and only after so
applying such net proceeds
<PAGE>
Exhibit 2.8
Page 5 of 6
and after the payment by you of any other amounts required by law
need you account for the surplus, if any. The undersigned shall
remain liable to you for the payment of any deficiency with legal
interest, and coes hereby waive any and all rights of redemption
with relation to the Collateral, to the extent permitted by law.
15. Any notice to you shall be deemed effective only if sent to
and received at your office, division or department conducting the
transaction or transactions hereunder. Any notice to or demand on
and of the undersigned shall be binding on the undersigned and
shall be deemed effective if not first otherwise made or given when
forwarded by mail, telegraph, cable, radio, telephone or otherwise
to the last address or telephone number of any of the undersigned
appearing on your books with the same effect as if the same were
actually delivered to and received by the undersigned in person.
You shall not by any act , delay, omission or otherwise be deemed
to have waived any of your rights or remedies hereunder and no
waiver whatsoever shall be valid unless in writing, signed by one
of your duly authorized officers, and then only to the extent
therein set forth. A waiver whatsoever by you of any right or
remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which you would otherwise have on any
future occasion. No term or provision of this agreement can be
changed orally and no executory agreement shall be effective to
change or modify or to discharge in whole or in part this agreement
unless such executory agreement is in writing and signed by one of
your duly authorized officers. All you rights and remedies
hereunder shall be cumulative and may be exercised singly or
concurrently, and your rights specified herein are in addition to
those otherwise created. No delay on you part in exercising any
power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any power or right
hereunder preclude other or further exercise thereof or the
exercise of any other power or right, nor shall you be liable for
exercising or failing to exercise any such power or right. The
undersigned hereby waives demand, presentment, protest notice of
protest and notice of dishonor of any and all drafts, notes, bills
of exchange, checks and other instruments deposited or pledged as
Collateral hereunder whether upon inception, maturity, acceleration
of maturity or due date, or at any other time, and any and all
other notices and demands whatsoever, whether or not relating to
such instruments.
16. In the event that you or any of your correspondents, at the
request of the undersigned, extend, renew or refinance any of the
obligations of the undersigned to you arising by means of (a)
Bankers Acceptances created by the acceptance of drafts drawn by
the undersigned to you, arising under Paragraphs 1 and 2 hereof:
(b) Drafts drawn by the beneficiary of the Credit accepted by you
or any of your correspondents: (c) notes made by the undersigned:
or (d) otherwise or in the event that you further extend, renew or
refinance, from time to time, any such Bankers Acceptances, draft
or note, then, and in consideration thereof, the undersigned agrees
to pay to you the amount of each Bankers Acceptance or draft in the
manner provided in Paragraphs 1 and 2 hereof for the payment of
time drafts drawn under the Credit, or, if a note is involved, then
in the manner provided in the note. The undersigned further agrees
that with respect to any such extension, renewal or refinancing,
all of the terms, conditions, agreements and obligations contained
in this agreement shall apply thereto and that you shall have all
the rights and remedies set forth in this agreement as well as
those set forth in any other document signed by or on behalf of the
undersigned. Should the beneficiary under the Credit, upon receipt
of advice by cable or otherwise of the issuance of the Credit, but
prior to its actual receipt, negotiate drafts by virtue of such
advise, such negotiation shall be considered a proper one and shall
be included under the terms and subject to all conditions hereof
and in addition thereto the undersigned assumes all the risk of the
misuse of the Credit.
17. You may, but shall not be obligated to, contest, pay and/or
discharge all liens, encumbrances, taxes or assessments on, or
claims, actions or demands against, any of the Collateral deposited
hereunder without notice to, or the consent of, the undersigned and
you may, but shall not be obligated to, take all actions and
proceedings in your own name or in the name of the undersigned or
of any other appropriate person to remove or contest such liens,
encumbrances, claims, actions, demands, taxes or assessments and
all sums advance or paid by you and all costs, attorneys' fees and
expenses relating thereto shall be paid by, and chargeable to, the
undersigned.
18. The word "property" as used in this agreement, includes
goods, merchandise, instruments, documents, securities, funds,
choices in action and any and all other forms of property, whether
real, personal or mixed, and any right or interest therein and the
proceeds thereof. Property in your possession shall include
property in possession of any person holding same for you in any
manner whatsoever.
19. If any of the undersigned is a partnership, the members
thereof shall be individually bound and liable hereunder. If this
agreement is signed by two or more parties, it shall be the joint
and several agreement of such parties.
20. If the Credit issued by you will provide that it will be
available by presentation, to you or to any of your correspondents,
of the documents described in the application, unaccompanied by
drafts, the undersigned agrees that all reference herein to drafts,
documents relative to drafts, and the presentation, acceptance for
payment or payment of drafts shall refer to documents presented for
payment without drafts, the presentation and acceptance thereof,
and payment upon such presentation, and that the undersigned's
obligation and your rights, privileges and remedies hereunder shall
be the same as though payments had been made upon presentation of
drafts drawn under the Credit accompanies by the said documents.
21. The undersigned will bear and pay all expenses of every kind
for the enforcement of any of your rights herein mentioned or of
any claim or demand by you against the undersigned and/or
guarantors and/or any other person, firm or corporation and of any
Collateral held by you, and the undersigned will pay to you upon
demand any such expenses incurred by you. If an attorney is used
to collect or enforce the Obligations or to enforce, declare or
adjudicate
any rights or obligations under this agreement, or with respect to
the Obligations or Collateral, whether by suit, or my other means
whatsoever attorneys'
fees incurred by you shall be payable by the undersigned. The
undersigned in any litigation (whether or no( arising mg of or
relating to this agreement or
to any Obligations) in which you and any of the undersigned shall
be adverse parties, waives trial by jury and the right to interpose
any defense based
on any Statute of Limitations or any claim of Inches. set-off. or
counterclaim of any nature or description. Notwithstanding anything
to the contrary contained herein. the undersigned hereby
indemnifies and holds you harmless from and against any and all
claims actions (including, without limitation.
legal proceedings relating to any court order, injunction or other
process or decree restraining or seeking to restrain you from
paying any amount under
the Credit or relating to any attachment or execution in connection
with the Credit. any Obligations or Collateral). losses, judgments,
amounts and expenses including, without limitation. attorneys'
fees. and court costs, (such claims, actions, losses. etc..
hereinafter called collectively "Liabilities" suffered or incurred
by you in connection with or arising out of this agreement, any
Obligations or the Collateral and regardless of whether such
Liabilities relate to claims or actions brought by the undersigned
or any third party.
22. The term "you" as used throughout this agreement shall he
deemed to include the Bank Leumi Trust Company of New York and all
its branches
or departments; wherever located,. and any individuals,
partnerships or corporation acting as nominee for or in behalf of
the Bank Leumi Trust Company of New York and any subsidiary or
entity controlled by the Bank Leumi Trust Company of New York and
any other subsidiary or entity which is controlled directly or
indirectly by any such subsidiary or entity. The term
"undersigned" as used throughout this agreement shall include the
individual or individuals, association, partnership or corporation
named herein as "undersigned," and (a) any successor individual or
individuals, association or partnership or corporation to which all
or substantially all of the business or assets of said undersigned
shall have been transferred, (b) in case of a partnership, any new
partnership which shall have been created by reason of the
admission of any new partner or partners therein or the dissolution
of the existing partnership by death. resignation or other
withdrawal of any partner. and (c) in the case of a corporation ,
any other corporation into or with which said undersigned shall
have been merged, consolidated reorganized or absorbed.
<PAGE>
Exhibit 2.8
Page 6 of 6
23. This agreement is made in the City (if New York and shall he
construed in accordance with the laws of the State of New York.
In the event that you bring any action or suit in any court to
record of New York State or the Federal Government to enforce any
or all of the Liabilities Ail the undersigned
or any of your rights hereunder. service of process may he made
upon the undersigned by mailing a copy of the summons to the
undersigned at the address set forth below, and the undersigned
hereby irrevocably submits to the jurisdiction of any New York
State or Federal court located in New York City over any action,
suit or proceeding arising out of any dispute between the
undersigned and you.
24. We hereby certify that the merchandise to be shipped under
this Letter of Credit or the shipping thereof is not prohibited
under the Foreign Assets
Control Regulations, of the United States Treasury Department and
that any importation of goods, merchandise or other property
covered by this application conforms in every respect with all
existing United States Government reputations.
25. If any term, condition or provisions of this agreement or
of any other agreement or document executed and/or delivered to you
is determined to be
invalid or unenforceable, such determination shall not affect the
validity or enforceability of any other term, condition or
provisions of this agreement and
all other agreements executed and/or delivered to you and they
shill he carried out as if any such invalid or unenforceable term,
condition or provision
were not embodied herein or therein.
26. You may assign or transfer this agreement and all Collateral
and in such event the assignee (or transferee thereof hall have the
same rights and remedies hereunder as if originally named herein in
your place. Upon any such assignment or transfer. you may deliver
the Collateral and property held
as security or any part thereof to the assignee or transferee who
shall hereupon become vested with all your powers and rights in
respect thereof and you shall thereafter be forever relieved and
fully discharged from any liability or responsibility with respect
to the property transferred but you shall retain all powers and
rights with respect to the property not so transfer red. You
shall, at all reasonable times and from time to time, be allowed,
by or through any of your officers, agents, attorneys or
accountants, to examine, inspect and make abstracts from the
undersigned's books.
27. The Credit shall be subject to the Uniform Customs and
Practice for Documentary Credits, International Chamber of Commerce
Publication is amended from time to time.
28. The undersigned agrees that: (a) any assistance provided by
you in the preparation of the terms of the credit was requested by
the undersigned and was based solely upon information provided to
you by the undersigned, (B) except for information furnished by the
undersigned, you have no knowledge of the transaction for which the
credit has been obtained.; (C) the undersigned has read and
understands all of the terms and provisions of the credit and this
Letter of Credit Application, and (D) the terms of the credit are
in accord with the undersigned's instructions and represent all the
conditions that the undersigned has requested as a prerequisite for
you to pay under the credit.
By
Address
<PAGE>
Exhibit (10) (g)
ADDENDUM TO LEASE DATED SEPTEMBER 8, 1989
BETWEEN ROWLAND SCHAEFER & ASSOCIATES AS LANDLORD,
AND CLAIRE'S STORES, INC. AS TENANT
WHEREAS, Landlord and Tenant entered into an
office lease agreement (the "Lease") on September 8,
1989 for approximately 30,070 square feet on the
second, third and fourth floors of the building known
as Claire's Corporate Plaza (the "Building") located at
3 Southwest 129th Avenue, Pembroke Pines, Florida; and
WHEREAS, the Lease was amended by an Amendment to
office Lease Agreement dated July, 1990 ("Lease
Amendment"); and
WHEREAS, Tenant wishes to lease an additional 500
(more or less) square feet of space on the second floor
of the Building;
NOW, THEREFORE, the parties hereby agree as
follows:
1. All terms used herein shall have the same
meaning as identical terms in the Lease and Lease
Amendment.
2. Additional Premises. Landlord does hereby
lease, demise and let to Tenant and Tenant does hereby
lease, demise and let from landlord those certain
additional premises (the "Additional Premises")
comprising approximately 500 feet on the second floor
of the Building more particularly described as Suite
#205 of the building.
3. Term. This Lease shall be co-terminus with
the lease dated September 8, 1989 between Tenant and
Landlord, unless sooner terminated or extended as
provided in the Lease and Lease Amendment.
4. Option to Renew. Provided that Tenant has not
been in default of any of the terms, conditions or
provisions of the Lease, the LeaseAmendment, or this
Addendum to lease at any time during the Additional
lease Term, then Tenant shall have the option, but only
if exercised in writing by January 31, 2000, to renew
this Additional Lease Term for an additional five (5)
years upon all of the terms, conditions, provisions and
covenants set forth in this Addendum to Lease and in
the Lease and Lease Amendment. In the event of exercise
of the option to renew, in addition to the "Adjustment
Month" set forth in paragraph 7 of this Addendum to
Lease, the Monthly Base Rent shall also be adjusted in
the month of August in the following years: 2000, 2001,
2002, 2003 and 2004.
5. Base Rent. The Annual Base Rent during the
Additional lease Term shall be increased by $8,466.09
per year so that the same shall be $517,616.64 per year
(payable in equal monthly installments of $43,134.72
per month).
6. Additional Rent. Tenant's Proportionate Share
of operating expenses and taxes shall be increased
during the Additional Lease Term from 63.72% to 64.78%.
<PAGE>
7. Cost of Living Increase. With respect to the
cost of living increase, the Base Index shall be deed
the Price Index as of October 1, 1990. The Adjustment
Month shall remain the month of November in each of the
following years: 1991, 1992, 1993, 1994, 1995, 1996,
1997, 1998 and 1999.
8. Construction of Tenant Improvements. Tenant
shall be fully responsible for the construction and
cost of its own Tenant Improvements ("Tenant's work").
Except as set forth herein to the contrary, all of
the terms and provisions of the Lease and the Lease
Amendment shall remain in full force and effect
according to their terms, which terms and conditions
are incorporated herein.
WITNESSES:
LANDLORD: Rowland Schaefer &
Associates, A
Florida general
partnership by its
general partners.
Scharol, Inc.
by:
Ira Kaplan, Secretary/Treasurer
Dated: 1/30/97
Sharsea, Inc.
by:
//'Ira Kaplan, Secretary/Treasurer
Dated: 1/30/97
TENANT: Claire's Stores, Inc.
by:
Robert Lewis, Vice President/Finance
Dated: 1/31/97
<PAGE>
EXHIBIT (21)
CLAIRE'S STORES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Name State/Country of Incorporation
Claire's Boutiques, Inc. Delaware
CSL, Inc. Delaware
CBI Distributing Corp. Delaware
RSI International Limited Hong Kong
Claire's Puerto Rico Corp. Delaware
Claire's Canada Corp. Delaware
Claire's Accessories UK, Ltd. United Kingdom
Just Nikki, Inc. Delaware
Sassy Doo!, Inc. Delaware
Lux Corp.
Washington
Bijoux One Trading AG Switzerland
Bijoux One AG Switzerland
Bosco GmbH Germany
Bijoux One Trading GesmbH Austria
Modewaren Femina Handelsgesell -
Schaft m.b.H. Austria
Modewaren Femina Handelsgesell -
Schaft m.b.H. & Co. KG Austria
<PAGE>
EXHIBIT (23)
Consent of Independent Accountants
The Board of Directors
Claire's Stores, Inc.
We consent to the incorporation by reference in the Registration
Statement of Claire's Stores, Inc., on Form S-8(No. 333-58549) and
Form S-3(No. 333-42027) of our report, dated March 26, 1999,
relating to the consolidated balance sheets of Claire's Stores,
Inc. and subsidiaries as of January 30, 1999 and January 31, 1998,
and the related consolidated statements of income and comprehensive
income, changes in stockholders' equity and cash flows for each of
the years in the three year period ended January 30, 1999 which
report appears in the January 30, 1999 Annual Report on Form 10-K
of Claire's Stores, Inc.
/S/KPMG LLP
Fort Lauderdale
April 29, 1999
206
