=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
May 5, 1996
MELVILLE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
New York 1-1011 04-1611460
(State or Other (Commission File Number) (IRS Employer
Jurisdiction Identification
of Incorporation) No.)
One Theall Road
Rye, New York 10580
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code:
(914) 925-4000
Not Applicable
(Former Name or Former Address, if Changed
Since Last Report)
This is page 1 of ___ pages
Exhibit Index appears on page ___
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Item 2. Acquisition or Disposition of Assets.
On May 5, 1996, the Registrant consummated the closing (the
"Closing") of the sale to Consolidated Stores Corporation, a Delaware
corporation ("Consolidated"), of all of the capital stock (the "Shares") of
Kay-Bee Center, Inc., the Registrant's holding company for its Kay-Bee Toys
division, pursuant to the Stock Purchase Agreement between the Registrant and
Consolidated dated as of March 25, 1996 (as amended and supplemented, the
"Stock Purchase Agreement").
The purchase price paid by Consolidated at the Closing for the
Shares was $214,513,000 in cash and a 7% Senior Subordinated Note in the
amount of $100,000,000 issued to the Registrant by Consolidated Stores
Corporation, an Ohio corporation and a wholly-owned subsidiary of
Consolidated. The cash portion of the purchase price is subject to adjustment
following the Closing in accordance with the terms of the Stock Purchase
Agreement.
On May 6, 1996, the Registrant issued a press release
announcing the consummation of the Closing. The information contained in the
press release is incorporated herein by reference. The press release is
attached hereto as Exhibit 99.1.
The foregoing description is qualified in its entirety by
reference to the Stock Purchase Agreement, a copy of which is attached hereto
as Exhibit 2.1, as amended by Amendment No. 1 to the Stock Purchase Agreement,
a copy of which is attached hereto as Exhibit 2.2; and the press release, a
copy of which is attached hereto as Exhibit 99.1, respectively.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
(b) Pro Forma Financial Information.
Set forth hereunder is the pro forma financial information
required to be furnished by the Registrant with respect to the transaction
described in Item 2 above.
<PAGE>
UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS
FOR THE FISCAL QUARTER
ENDED MARCH 30, 1996
($ IN 000'S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Historical
Continuing
Operations Pro Forma Adjustments Pro Forma
Before Pro Forma ----------------------------- Continuing
The Company Kay-Bee Adjustments Debit Credit Operations
------------ --------- ----------------- ----------------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $1,744,681 $177,627 $1,567,054 $1,567,054
Cost of Goods Sold, Buying
and Warehousing Costs 1,200,175 108,628 1,091,547 1,091,547
------------ --------- ----------------- ------------- ------------ -----------
544,506 68,999 475,507 475,507
Selling, General and Adminis-
trative Expenses 481,861 85,026 396,835 500 (a) 396,335
Depreciation and Amortization 34,588 5,903 28,685 28,685
------------ --------- ----------------- ------------- ------------ -----------
Operating Profit 28,057 (21,930) 49,987 500 50,487
Interest Expense, Net 5,815 546 5,269 2,410 (c)
1,750 (d) 1,109
Dividend Income (2,734) 0 (2,734) (2,734)
------------ --------- ----------------- ------------- ------------ -----------
Earnings Before Income Taxes 24,976 (22,476) 47,452 4,660 52,112
Income Tax Provision 10,477 (9,161) 19,638 1,833 (e) 21,471
------------ --------- ----------------- ------------- ------------ -----------
Net Earnings $14,499 ($13,315) $27,814 ($1,833) $4,660 $30,641
============ ========= ================= ============= ============ ===========
Net Earnings per Share of
Common Stock $0.10 $0.26
============ ===========
</TABLE>
See accompanying notes to the unaudited pro forma financial statements.
<PAGE>
UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1995
($ IN 000'S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Historical
Continuing
Operations Pro Forma Adjustments Pro Forma
Before Pro Forma --------------------------- Continuing
The Company Kay-Bee Adjustments Debit Credit Operations
------------ ----------- ----------------- --------------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $9,689,062 $1,077,297 $8,611,765 $8,611,765
Cost of Goods Sold, Buying
and Warehousing Costs 6,574,658 652,800 5,921,858 5,921,858
------------ ----------- ----------------- ----------- ------------ -----------
3,114,404 424,497 2,689,907 2,689,907
Selling, General and
Administrative Expenses 2,722,621 354,555 2,368,066 2,000 (a) 2,366,066
Depreciation and Amortization 197,745 23,836 173,909 173,909
Restructuring and Asset
Impairment Charges 936,829 90,816 846,013 846,013
------------ ----------- ----------------- ----------- ------------ -----------
Operating Loss (742,791) (44,710) (698,081) 2,000 (696,081)
Interest Expense, Net 54,977 5,335 49,642 354 (b) 7,565 (c)
7,000 (d) 35,431
------------ ----------- ----------------- ----------- ------------ -----------
Loss Before Income Taxes (797,768) (50,045) (747,723) (354) 16,565 (731,512)
Income Tax Benefit (182,070) (1,700) (180,370) 6,375 (e) (173,995)
------------ ----------- ----------------- ----------- ------------ -----------
Net Loss ($615,698) ($48,345) ($567,353) ($6,729) $16,565 ($557,517)
============ =========== ================= =========== ============ ===========
Net Loss per Share of
Common Stock ($6.02) ($5.46)
============ ===========
</TABLE>
See accompanying notes to the unaudited pro forma financial statements.
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 30, 1996
($ IN 000'S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Historical
Continuing
Operations
Before Pro Forma Adjustments Pro Forma
Pro Forma ------------------------- Continuing
The Company Kay-Bee Adjustments Debit Credit Operations
------------ -------- ------------ ------------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
---------------------------------
Current Assets:
Cash and Cash Equivalents $90,009 $ 9,989 $80,020 $201,713 (a) $214,513 (b) $ 67,220
Investments 208,907 0 208,907 100,000 (a) 308,907
Accounts Receivable, Net 291,092 9,865 281,227 3,226 (c) 284,453
Inventories 1,799,408 240,725 1,558,683 1,558,683
Prepaid Expenses 255,590 16,001 239,589 3,511 (c) 236,078
------------ -------- ------------ -------------- ------------ -----------
Total Current Assets 2,645,006 276,580 2,368,426 304,939 218,024 2,455,341
Property and Equipment,
Net 1,115,472 150,362 965,110 965,110
Goodwill, Net 194,170 0 194,170 194,170
Deferred Charges and Other
Assets 95,895 3,012 92,883 92,883
------------ -------- ------------ -------------- ------------ -----------
TOTAL ASSETS $4,050,543 $429,954 $3,620,589 $304,939 $218,024 $3,707,504
============ ======== ============ ============== ============ ===========
LIABILITIES & EQUITY
---------------------------------
Current Liabilities:
Accounts Payable $603,830 $78,760 $525,070 $525,070
Accrued Expenses 774,167 15,357 758,810 22,302 (a)
285 (c) 736,223
Notes Payable 500,000 0 500,000 214,513 (b) 285,487
Other Current Liabilities 15,157 269 14,888 14,888
------------ -------- ------------ -------------- ------------ -----------
Total Current Liabilities 1,893,154 94,386 1,798,768 237,100 1,561,668
Long-Term Debt 327,500 7,866 319,634 319,634
Deferred Income Taxes 22,249 0 22,249 22,249
Other Long-Term Liabilities 140,532 3,687 136,845 136,845
Minority Interests in Subsidiaries 94,081 0 94,081 94,081
Redeemable Preferred Stock
Series B, $4.00 Dividend 1,330 0 1,330 1,330
Shareholders' Equity:
---------------------------------
Series One ESOP Convertible
Pref. Stock, $3.90 Dividend 326,950 0 326,950 5,701 (d) 321,249
Guaranteed ESOP Obligation (309,675) 0 (309,675) (309,675)
Common Stock 111,649 0 111,649 111,649
Capital Surplus 55,427 0 55,427 473 (d) 55,900
Retained Earnings 1,663,029 0 1,663,029 1,663,029
Unrealized Gain on Investments 21,378 0 21,378 21,378
Cumulative Trans. Adjustment 195 0 195 195
Common Stock in Treasury, at
Cost (297,256) 0 (297,256) 5,228 (d) (292,028)
Subsidiary Equity 0 324,015 (324,015) 324,015 (a) 0
------------ -------- ------------ -------------- ------------ -----------
Total Shareholders' Equity 1,571,697 324,015 1,247,682 5,701 329,716 1,571,697
------------ -------- ------------ -------------- ------------ -----------
TOTAL LIABILITIES & EQUITY $4,050,543 $429,954 $3,620,589 $242,801 $329,716 $3,707,504
============ ======== ============ ============== ============ ===========
</TABLE>
See accompanying notes to the unaudited pro forma financial statements.
Notes to Pro Forma Continuing Operations Financial Statements
Note 1 Background
On May 5, 1996, the Company completed the sale of its Kay-Bee
division ("Kay-Bee") to Consolidated Stores Corporation (the
"Purchaser") for total proceeds of $315 million, consisting of
$215 million in cash and a $100 million subordinated note.
Note 2 Basis of Presentation
The unaudited Pro Forma Continuing Operations financial
information is based upon the historical financial statements
of the Company, adjusted to exclude Kay-Bee, for the year ended
December 31, 1995 and for the three months ended March 30,
1996, and should be read in conjunction with the historical
consolidated financial statements and notes related thereto,
for the periods indicated.
Note 3 Unaudited Pro Forma Continuing Operations Balance Sheet
Adjustments
The following assets and (liabilities), formerly recorded on
the books of Kay-Bee, were retained by the Company after the
date of disposition:
Net income tax receivables $ 18,362
Net deferred tax assets 9,492
Miscellaneous other assets 190
---------
Total Assets $ 28,044
=========
Self insurance reserves $ (10,835)
Restructuring reserves (8,460)
Employee benefit accruals (2,401)
---------
Total Liabilities $ (21,696)
=========
Pro forma balance sheet adjustments are as follows:
(a) To record the sale proceeds, the loss on disposition and
the settlement of contractual obligations.
(b) To reduce short term borrowings to reflect the impact of
the sale.
(c) To reclassify the tax benefit related to the loss on sale
from deferred to current taxes.
(d) To record the conversion of 106,654 shares of Series One
ESOP Preference Stock to common stock.
Note 4 Unaudited Pro Forma Adjustments for Continuing Operations
Statement of Operations
(a) To record anticipated reductions in corporate overhead.
(b) To record incremental ESOP costs resulting from the
conversion of 90,666 shares at January 1, 1995 of Series
One ESOP Preference Stock.
(c) To adjust interest expense to reflect the reduction in
short term borrowings.
(d) To record interest income on the 7% Senior Subordinated
Note.
(e) To record the net change in the income tax provision
(benefit) based upon the results of operations as set
forth in the pro forma financial statements.
(c) Exhibits.
2.1 Stock Purchase Agreement dated as of March 25, 1996 between
Melville Corporation and Consolidated Stores Corporation.
2.2 Amendment No. 1 to Stock Purchase Agreement dated as of May 3,
1996 between Melville Corporation and Consolidated Stores
Corporation.
99.1 Press Release of Melville Corporation dated May 6, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
MELVILLE CORPORATION
Dated: May 20, 1996 By /s/ CARLOS E. ALBERINI
_____________________________
Name: Carlos E. Alberini
Title: Vice President and Acting
Chief Financial Officer
EXHIBIT INDEX
Sequential
Exhibit No. Description of Exhibit Page No.
2.1 Stock Purchase Agreement dated as
of March 25, 1996 between Melville
Corporation and Consolidated
Stores Corporation.
2.2 Amendment No. 1 to Stock Purchase
Agreement dated as of May 3, 1996
between Melville Corporation and
Consolidated Stores Corporation.
99.1 Press Release of Melville Corporation
dated May 6, 1996.
Exhibit 2.1
STOCK PURCHASE AGREEMENT
dated as of
March 25, 1996
between
Melville Corporation
and
Consolidated Stores Corporation
relating to the purchase and sale
of
100% of the Common Stock
of
Kay-Bee Center, Inc.
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
1.1 Definitions..................................................... 1
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale.............................................. 11
2.2 Closing........................................................ 11
2.3 Closing Balance Sheet.......................................... 12
2.4 Adjustment of Purchase Price................................... 14
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Corporate Existence and Power.................................. 15
3.2 Corporate Authorization........................................ 15
3.3 Governmental Authorization..................................... 15
3.4 Non-Contravention.............................................. 15
3.5 Capitalization................................................. 16
3.6 Subsidiaries................................................... 16
3.7 Financial Statements........................................... 17
3.8 Absence of Certain Changes..................................... 17
3.9 No Undisclosed Material Liabilities............................ 20
3.10 Labor Matters.................................................. 20
3.11 Material Contracts............................................. 21
3.12 Litigation..................................................... 23
3.13 Compliance with Laws and Court Orders.......................... 24
3.14 Leases......................................................... 24
3.15 Properties..................................................... 24
3.16 ERISA Representations.......................................... 25
3.17 Environmental Matters.......................................... 25
3.18 Intellectual Property.......................................... 26
3.19 Insurance Coverage............................................. 28
3.20 Licenses and Permits........................................... 29
3.21 Fixed Assets................................................... 29
3.22 Finders' Fees.................................................. 30
3.23 Accounts....................................................... 30
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Corporate Existence and Power.................................. 30
4.2 Corporate Authorization........................................ 30
4.3 Governmental Authorization..................................... 31
4.4 Non-Contravention.............................................. 31
4.5 Financing...................................................... 31
4.6 Purchase for Investment........................................ 32
4.7 Litigation..................................................... 32
4.8 Finders' Fees.................................................. 32
4.9 Net Worth...................................................... 32
ARTICLE 5
COVENANTS OF SELLER
5.1 Conduct of the Company......................................... 32
5.2 Access to Information.......................................... 34
5.3 Notices of Certain Events...................................... 34
5.4 Resignations................................................... 35
5.5 Intercompany Accounts and Agreements........................... 35
5.6 Store Openings, Remodelings and Relocations.................... 35
5.7 Other Offers................................................... 35
5.8 Risk of Loss................................................... 36
5.9 Confidentiality................................................ 36
5.10 Accounts....................................................... 37
5.11 No Solicitation or Employment.................................. 37
5.12 Books and Records; Personnel................................... 37
5.13 Use of Certain Names and Marks................................. 37
ARTICLE 6
COVENANTS OF BUYER
6.1 Confidentiality................................................ 38
6.2 Access......................................................... 39
6.3 Notices of Certain Events...................................... 39
6.4 Assumption of Leases........................................... 39
6.5 Financing...................................................... 40
ARTICLE 7
COVENANTS OF BUYER AND SELLER
7.1 Reasonable Best Efforts........................................ 40
7.2 Certain Filings................................................ 40
7.3 Public Announcements........................................... 41
7.4 Certain Matters Relating to Lease Consents..................... 41
7.5 Designated Closed Store Leases and Excluded Subsidiaries....... 45
7.6 Reimbursement by the Parties................................... 45
7.7 Information.................................................... 45
7.8 Litigation..................................................... 45
7.9 Guarantees..................................................... 46
7.10 Material Contracts............................................. 47
ARTICLE 8
TAX MATTERS
8.1 Tax Representations............................................ 47
8.2 Tax Covenants.................................................. 48
8.3 Termination of Existing Tax Sharing Agreements................. 54
8.4 Cooperation on Tax Matters..................................... 54
8.5 Indemnification by Seller...................................... 55
8.6 Indemnification by Buyer....................................... 56
8.7 Miscellaneous Tax Matters...................................... 57
ARTICLE 9
EMPLOYEES AND EMPLOYEE BENEFITS
9.1 Employees...................................................... 57
9.2 Qualified Plans................................................ 57
9.3 Other Employee Plans and Benefit Arrangements.................. 59
9.4 Insurance Coverage............................................. 60
9.5 Third Party Beneficiaries...................................... 61
ARTICLE 10
CONDITIONS TO CLOSING
10.1 Conditions to Obligations of Buyer and Seller.................. 62
10.2 Conditions to Obligation of Buyer.............................. 62
10.3 Conditions to Obligation of Seller............................. 63
ARTICLE 11
SURVIVAL; INDEMNIFICATION
11.1 Survival....................................................... 64
11.2 Indemnification................................................ 64
11.3 Lease Indemnity................................................ 65
11.4 Procedures; Exclusivity........................................ 65
11.5 Limitation of Indemnification.................................. 66
11.6 No Circular Recovery........................................... 67
ARTICLE 12
TERMINATION
12.1 Grounds for Termination........................................ 67
12.2 Effect of Termination.......................................... 68
12.3 Termination Fee................................................ 69
ARTICLE 13
MISCELLANEOUS
13.1 Notices........................................................ 69
13.2 Amendments and Waivers......................................... 70
13.3 Expenses....................................................... 71
13.4 Successors and Assigns......................................... 71
13.5 Governing Law.................................................. 71
13.6 Jurisdiction................................................... 71
13.7 Counterparts; Effectiveness.................................... 72
13.8 Third Party Beneficiaries...................................... 72
13.9 Entire Agreement............................................... 72
13.10 Validity of Provisions......................................... 72
13.11 Section Headings............................................... 72
13.12 Force Majeure.................................................. 72
13.13 Further Assurances............................................. 73
EXHIBITS
Exhibit A Senior Subordinated Note Term Sheet
Exhibit B Opinion Items to be Covered by Counsel of Melville
Corporation
Exhibit C Opinion Items to be Covered by Counsel of Consolidated
Stores Corporation
SCHEDULES
Schedule 2.3 Calculation of Net Book Value
Schedule 3.6 Subsidiaries
Schedule 3.8 Absence of Certain Changes
Schedule 3.9 Undisclosed Material Liabilities
Schedule 3.10 Labor Matters
Schedule 3.11 Material Contracts
Schedule 3.12 Litigation
Schedule 3.14 Leases
Schedule 3.15 Liens
Schedule 3.16 Employees Plans and Benefits Arrangements
Schedule 3.17 Environmental Matters
Schedule 3.18 Company Intellectual Property Rights
Schedule 3.19 Insurance Coverage
Schedule 3.20 Licenses and Permits
Schedule 3.23 Accounts
Schedule 5.1 Conduct of the Company
Schedule 5.6 Store Openings, Remodelings and Relocations
Schedule 7.4 Designated Month-to-Month Leases
Schedule 7.5 Designated Closed Store Leases and Excluded
Subsidiaries
Schedule 8.1 Tax Matters
STOCK PURCHASE AGREEMENT
AGREEMENT dated as of March 25, 1996 (the "Agreement") between
Consolidated Stores Corporation, a Delaware corporation ("Buyer"), and
Melville Corporation, a New York corporation ("Seller").
WHEREAS, Seller is the owner of 10 shares of common stock (the
"Shares") of Kay-Bee Center, Inc., a California corporation (the "Company"),
constituting one hundred percent of the issued and outstanding capital stock
of the Company;
WHEREAS, the Company is the owner of 100 shares of common stock of
Southdale Kay-Bee Toy, Inc., a Minnesota corporation ("Southdale"),
constituting one hundred percent of the issued and outstanding capital stock
of Southdale;
WHEREAS, Southdale is the owner of 100 shares of common stock of
Mall of America Kay-Bee Toy, Inc., a Minnesota corporation ("Mall of
America"), constituting one hundred percent of the issued and outstanding
capital stock of Mall of America;
WHEREAS, Mall of America is the owner of (i) 100 shares of common
stock of CW Kay-Bee, Inc., a New York corporation ("CW Kay-Bee"), constituting
one hundred percent of the issued and outstanding capital stock of CW Kay-Bee,
(ii) 100 shares of common stock of K&K Kay-Bee, Inc., a Virginia corporation
("K&K Kay-Bee"), constituting one hundred percent of the issued and
outstanding capital stock of K&K Kay-Bee, (iii) one hundred percent of the
issued and outstanding capital stock of Kay-Bee Toy & Hobby Shops, Inc., a
Massachusetts corporation ("Toy & Hobby"), and (iv) one hundred percent of the
issued and outstanding capital stock of certain other corporations disclosed
in Schedule 3.6 hereto.
WHEREAS, Buyer desires to purchase the Shares from Seller, and
Seller desires to sell the Shares to Buyer, upon the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
together with the mutual covenants hereinafter contained, Buyer and Seller
hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. (a) The following terms, as used herein, have
the following meanings:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control
with such Person; provided that neither the Company nor any Subsidiary shall
be considered an Affiliate of Seller.
"Balance Sheet" means the consolidated balance sheet of the
Company, the Subsidiaries and the Excluded Subsidiaries as at December 31,
1995.
"Balance Sheet Date" means December 31, 1995.
"Benefit Arrangement" means any employment, severance or similar
contract, arrangement or policy, or any plan or arrangement (whether or not
written) providing for severance benefits, insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits that (i) is not an
Employee Plan, (ii) is entered into or maintained, as the case may be, by the
Seller or any of its ERISA Affiliates and (iii) covers any employee or former
employee of the Company or any Subsidiary.
"Business" means the business of the Company and the Subsidiaries
as such business is currently conducted on the date hereof.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"Buyer's 401(k) Plan" means the Consolidated Stores Corporation
401(k) Savings Plan and Trust Agreement, a retirement plan tax-qualified under
Sections 401(a) and 401(k) of the Code.
"Charter" means, with respect to any juridical Person, the
certificate or articles of incorporation, or other analogous organizational
or constituent documents of such Person (including, in the case of a
partnership, such partnership's partnership agreement, or in the case of a
limited liability company, such limited liability company's limited
liability company agreement).
"Closed Store Lease" means each real property lease or sublease
disclosed in Schedule 7.5.
"Closing Balance Sheet" means a consolidated balance sheet of the
Company and the Subsidiaries as at the close of business on the Closing Date,
together with the notes thereto.
"Closing Date" means the date of the Closing.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Common Stock" means the Common Stock, no par value per share, of
the Company.
"Contribution" means, with respect to any Lease, the "adjusted
contribution A" of the Store that is the subject of such Lease for the fiscal
year ended December 31, 1995, as reflected in the 1995 Revised Stores Profit
and Loss Statement of the Company and the Subsidiaries previously delivered to
Buyer.
"CSC Ohio" means Consolidated Stores Corporation, an Ohio
corporation and a wholly owned subsidiary of Buyer.
"Designated Closed Store Lease" means each Closed Store Lease to
which the Company or a Subsidiary (other than an Excluded Subsidiary) is a
party.
"Designated Month-to-Month Leases" means the month-to-month leases
disclosed in Schedule 7.4.
"Distribution Center Leases" means (i) the lease dated as of
December 30, 1986, as amended, between Toy & Hobby, as lessee, and Mt. Pocono
Associates, a New York general partnership, as lessor, relating to the
distribution center located in Mt. Pocono, Pennsylvania and (ii) the lease
dated as of February 21, 1985 between Toy & Hobby, as lessee, and Danville
Associates, a New York general partnership, as lessor, relating to the
distribution center located in Danville, Kentucky.
"Distribution Centers" means the distribution centers of the
Company and the Subsidiaries located in (i) Mt. Pocono, Pennsylvania, (ii)
Danville, Kentucky, (iii) Pittsfield, Massachusetts and (iv) Glendale,
Arizona, each of which individually is referred to as a Distribution Center.
"Effective Rent" means, with respect to any Lease, the Original
Minimum Rent of such Lease plus the Original Percentage Rent of such Lease.
"Employee Plan" means any "employee benefit plan", as defined in
Section 3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by the Seller or any of its ERISA
Affiliate and (iii) covers any employee or former employee of the Company or
any Subsidiary.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances and rules as in effect on the
Closing Date, relating to protection of the environment or to the effect on
the environment of any toxic, radioactive, ignitable, corrosive, reactive or
otherwise hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974,
or any successor statute, and the rules and regulations promulgated
thereunder, and in the case of any referenced section of any such statute,
rule or regulation, any successor section thereto, in each case, as from time
to time amended and then in effect.
"ERISA Affiliate" of any entity means any other entity which,
together with such entity, would be treated as a single employer under Section
414 of the Code.
"Escrow Agent" means The Bank of New York, or such other party as
may be mutually agreed by Buyer and Seller.
"Escrow Agreement" means an escrow agreement in form and substance
reasonably satisfactory to Buyer, Seller and the Escrow Agent, containing
terms and conditions which are customary for such agreements.
"Estimated Net Book Value" means $322,513,000.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Excluded Subsidiary" means each subsidiary of the Company
disclosed in Schedule 7.5.
"Facility Leases" means the Distribution Center Leases, the
Headquarters Leases and the Regional Office Leases.
"Final Net Book Value" means Net Book Value (i) as shown in the
calculation delivered pursuant to Section 2.3(a), if no notice of disagreement
with respect thereto is delivered pursuant to Section 2.3(b), or (ii) if such
a notice of disagreement is delivered, (A) as agreed by Buyer and Seller
pursuant to Section 2.3(c) or (B) in the absence of such agreement, as shown
in the Independent Accountant's calculation delivered pursuant to Section
2.3(c); provided that in no event shall Final Net Book Value be less than the
calculation of Net Book Value set forth in the notice delivered by Buyer
pursuant to Section 2.3(b) or more than the calculation of Net Book Value
delivered by Seller pursuant to Section 2.3(a).
"Hazardous Substances" means any pollutant, contaminant, waste or
chemical or otherwise hazardous material, substance or waste which is
regulated under any Environmental Law.
"Headquarters Leases" means (i) the lease dated as of April 7,
1987 between Toy & Hobby, as lessee, and Pittsfield Mass Associates, a New
York general partnership, as lessor, relating to certain office space located
at 100 West Street, Pittsfield, Massachusetts, (ii) the lease dated as of
August 15, 1990 between Kay-Bee Toy Stores, Inc., as lessee, and Scarafoni
Realty as assignee of Bank of Boston, as landlord, relating to certain office
space located at 5-7 North Street, Pittsfield, Massachusetts, which is
presently being occupied on a month-by-month basis, (iii) the sublease dated
November 30, 1995 between Toy & Hobby, as sublessee, and Keane, Inc., a
Massachusetts corporation, as sublessor, relating to certain office space
located at 877 South Street, Pittsfield, Massachusetts, (iv) the lease dated
January 1, 1996 between Toy & Hobby, as lessee, and The Geary Corporation, a
Massachusetts corporation, as lessor, relating to certain office space at 877
South Street, Pittsfield, Massachusetts and (v) a lease dated December 7, 1995
between Kay Bee Toys, as lessee, and Greylock Mills, as lessor, relating to
certain office space at 7 Hoosac Street, Adams, Massachusetts.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Income Tax" means any Tax which is, in whole or in part, based on
or measured by income or gains, including the Michigan Single Business Tax.
"Independent Accountants" means a nationally recognized
independent accounting firm chosen by, and mutually acceptable to, both Buyer
and Seller.
"Indianapolis Lease" means the lease dated as of January 27, 1976
between CW Kay-Bee, as successor by merger to Circus World Toy Stores, Inc.
and assignee of J.C. Penney Company, Inc., as tenant, and Rauenhorst
Corporation to whose right, title and interest Opus Corporation has succeeded,
as landlord, relating to the property having a street address of 8001-8003
Woodland Drive, Indianapolis, Indiana.
"Intellectual Property Right" means any trademark, service mark,
trade name, invention, patent, trade secret, copyright, know-how (including
any registrations or applications for registration of any of the foregoing) or
any other similar type of proprietary intellectual property right.
"Inventory Firms" means RGIS or any other firm or firms of
inventory specialists chosen by, and mutually acceptable to, both Buyer and
Seller.
"Lease" means each real property lease, sublease or month-to-month
tenancy arrangement to which the Company or any Subsidiary is a party, other
than a Closed Store Lease or Facility Lease.
"Lease Book Value" means, with respect to any Lease, the net book
value of the fixed assets of the Store that is the subject of such Lease, as
reasonably determined by Buyer on a basis consistent with Seller's past
practices as used in connection with the preparation of the Balance Sheet.
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset. For the purposes of this
Agreement, a Person shall be deemed to own subject to a Lien any property or
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such property or asset.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the condition (financial or otherwise), business,
assets, or results of operations of such Person and its Subsidiaries, taken as
whole.
"Miscellaneous Taxes" means all Taxes other than Income Taxes and
Transfer Taxes.
"MRC" means Melville Realty Company, Inc., a New York corporation.
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 3(37) of ERISA.
"Net Book Value" means the amount resulting from the calculation
set forth in Schedule 2.3 pursuant to the provisions of Section 2.3.
"New Store Lease" means a Lease entered into after January 1, 1995.
"Note" means a senior subordinated note of CSC Ohio in the
principal amount of $100 million, containing the terms and conditions set
forth in Exhibit A and such other terms and conditions as may be mutually
agreed by Buyer and Seller.
"Operating Loss Adjustment" means an amount equal to (i) the
number of days from and including May 5, 1996 to and including the Closing
Date multiplied by (ii) $128,678.
"Original Minimum Rent" means, with respect to any Lease, the
amount provided for by such Lease as minimum, base or other fixed amount of
rent.
"Original Percentage Rent" means, with respect to any Lease, the
amount of percentage rent provided for by such Lease, calculated in accordance
with the percentages and breakpoints provided for in such Lease, for (i) the
most recent 12-month period ending prior to the Closing Date or (ii) such
other period as is specifically provided for in such Lease.
"Person" means an individual, corporation, limited liability
company, partnership, association, trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"Post-Closing Tax Period" means any Tax period ending after the
Closing Date, excluding the portion, if any, of such Tax period up to and
including the Closing Date.
"Pre-Closing Tax Period" means any Tax period ending on or before
the Closing Date; provided that if a Tax period ending after the Closing Date
contains any days which fall prior to or on the Closing Date, any portion of
such Tax period up to or including the Closing Date shall also be included in
the Pre-Closing Tax Period.
"Reference Rate" means a rate per annum equal to the reference
rate from time to time of Morgan Guaranty Trust Company of New York.
"Regional Offices" means, collectively, the regional offices of
the Company and the Subsidiaries that are the subject of the Regional Office
Leases, each of which individually is referred to as a Regional Office.
"Regional Office Leases" means (i) the lease agreement dated
January 10, 1996 between Kay Bee Toys, Inc., a Massachusetts corporation, as
lessee, and P.S.P., Inc., as lessor, relating to certain office space at 2625
Sandy Plains Road, Suite 205, Marietta, Georgia, (ii) the lease agreement
dated October 11, 1994 between Toy & Hobby, as lessee, and State of California
Public Employees' Retirement System, an agency of the State of California, as
lessor, relating to certain office space at 500 Park Boulevard, Suite 152C,
Itasca, Illinois, (iii) the lease agreement dated July 18, 1995 between Toy &
Hobby, as lessee, and Weteringweg Vastgoed B.V., as lessor, relating to
certain office space at 6709 Ridge Road, Suite 200, Port Richey, Florida, (iv)
the lease agreement dated 17 September, 1993 between Kay-Bee Toy Stores, Inc.,
a Massachusetts corporation, as lessee, and Carter-Crowley Properties, Inc., a
Texas corporation, as lessor, as amended, relating to certain office space at
the Concourse Office Park, Dallas, Texas, (v) the lease agreement dated
November 15, 1994 between KayBee Toys, Inc., a Massachusetts corporation, as
lessee, and L.A.T. Investment Corporation, a California corporation, as
lessor, as amended, relating to certain office space at 5777 West Century
Boulevard, Los Angeles, California, (vi) the lease agreement dated November
7, 1994 between Toy & Hobby, as lessee, and BTR Business Center, Inc., as
lessor, relating to certain office space at 227 Gateway Drive, Bel Air,
Maryland, and (vii) the lease agreement dated January 31, 1995 between Kay Bee
Toys and Hobby Shop, Inc., as lessee, and Dr. Ki H. Oh, as lessor, relating to
certain office space at 200 South 333rd Street, Federal Way, Washington.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Hazardous Substance into the environment.
"Release Payment" means any payment required by any Landlord in
connection with a Lease before delivery by such Landlord of its Consent with
respect thereto, regardless of whether such payment is required pursuant to
the terms of the applicable Lease or is otherwise required by such Landlord
(including but not limited to any additional remodeling costs, transfer or
assignment charges, administration fees and fees and expenses of counsel in
connection therewith).
"Rent Increase" means an increase in rent (including, if
applicable, retroactive rent to the Closing Date); provided that an increase
in rent shall not be deemed to be a Rent Increase unless either (i) the
Original Minimum Rent is increased to an amount greater than the Effective
Rent or (ii) the Original Percentage Rent is increased such that the amount
that would have been payable under the applicable Lease for the most recent
12-month period ending prior to the Closing Date is greater than the Effective
Rent payable under such Lease for such period.
"Return" means any Tax return, statement, report or form.
"Seller Group" means, with respect to federal income Taxes, the
affiliated group of corporations (as defined in Section 1504(a) of the Code)
of which Seller is a member and, with respect to state income or franchise
Taxes, an affiliated, consolidated, combined, unitary or similar group of
which Seller or any of its Affiliates is a member.
"Seller's ESOP" means The Melville Corporation and Subsidiaries
Employee Stock Ownership Plan.
"Seller's 401(k) Profit Sharing Plan" means the 401(k) Profit
Sharing Plan of Melville Corporation and Affiliated Companies.
"Seller's Individual Account Plans" means the Seller's ESOP and
the Seller's 401(k) Profit Sharing Plan.
"Seller Subsidiary" means any Subsidiary of Seller other than the
Company or any of its Subsidiaries.
"Shares" means all of the outstanding shares of Common Stock of
the Company.
"Stores" means, collectively, the stores that are the subject of
the Leases, each of which individually is referred to as a Store.
"Subsidiary" means, with respect to any Person, any other entity
of which securities or other ownership interests having ordinary voting power
to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by such Person.
Unless otherwise specified in this Agreement, any reference to a Subsidiary
shall mean a Subsidiary of the Company; provided that no Excluded Subsidiary
shall be considered to be a Subsidiary of the Company.
"Tax" means any tax imposed under Subtitle A of the Code and any
net income, alternative or add-on minimum tax, gross income, gross receipts,
sales, use, ad valorem, value added, transfer, franchise, profits, license,
withholding on amounts paid to or by the Company or any Subsidiary, payroll,
employment, excise, severance, stamp, capital stock, occupation, property,
windfall profit tax, premium, custom, duty or other tax, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest, penalty (including penalties for failures in connection with
information returns), addition to tax or additional charges (including charges
for failures in connection with information returns) imposed by any
governmental authority responsible for the imposition of any such tax
(domestic or foreign) (a "Taxing Authority").
"Tax Accountants" means a nationally recognized independent
accounting firm chosen by, and mutually acceptable to, both Buyer and Seller.
"Tax Loss" means any payment by Buyer, its Affiliates, or
effective upon the Closing, the Company or any Subsidiary, of (i) an Income
Tax of the Company or any Subsidiary with respect to any Pre-Closing Tax
Period, (ii) a Transfer Tax in excess of the amount allocated to Buyer under
Section 8.2(e), (iii) a Miscellaneous Tax with respect to any Pre-Closing Tax
Period, in excess of the amount reflected on the Closing Balance Sheet
(adjusted as appropriate to reflect Final Net Book Value) for Miscellaneous
Taxes, and (iv) any Tax as a result of Treasury Regulation Section 1.1502-6 or
any similar federal, state, local or foreign law, rule or regulation, plus, in
connection with each of (i), (ii), (iii) and (iv), any loss, cost and
reasonable out-of-pocket expenses incurred by Buyer, any of its Affiliates or,
effective upon the Closing, the Company or any Subsidiary as a result of any
assertion, assessment or imposition by any Taxing Authority of any of the
above-described types of Taxes.
"Terminated Lease" means any Lease (i) the premises of which Buyer
cannot take possession as of the Closing Date as a result of an injunction or
restraining order concerning the sale of the Shares contemplated by this
Agreement, provided that if such injunction or order is later lifted, such
Lease will no longer be a Terminated Lease, unless such Lease becomes a
Terminated Lease under another provision of this Agreement, (ii) the premises
of which Buyer must vacate after the Closing Date as a result of (A) a final
court order concerning the sale of the Shares pursuant to this Agreement for
which all applicable appeal periods have expired and (B) a settlement
concerning the sale of the Shares pursuant to this Agreement negotiated by
Buyer with Landlord which requires Buyer to vacate such Store, provided that
such settlement shall be subject to the prior approval of Seller, which
approval shall not be unreasonably conditioned, delayed or withheld, or (iii)
which Seller and Buyer at any time mutually agree is a Terminated Lease.
"Title IV Plan" means an Employee Plan, other than any
Multiemployer Plan, subject to Title IV of ERISA.
(b) Each of the following terms is defined in the Section set
forth opposite such term:
Term Section
---- -------
Account Balance Transfer 9.2(c)
Acquisition Proposal 5.7
Allocation Statement 8.2(a)
Bridge Commitment Letter 4.5
Bridge Financing 4.5
Buyer's Benefit Plans 9.4
Cash Consideration 2.1
Closing 2.2
Commitment Letter 4.5
Company Intellectual Property Rights 3.18(a)
Company Securities 3.5(b)
Consent 7.4(a)
Damages 11.2(a)
Delivered Lease 7.4(a)
Direct Rollover 9.2(a)
Financing 4.5
Indemnified Party 11.4(a)
Indemnifying Party 11.4(a)
Landlord 7.4(a)
Loss 8.2(b)
Permits 3.20
Price Allocation 8.2(a)
Puerto Rico Subsidiary 8.2(k)
Purchase Price 2.1
Section 338(h)(10) Election 8.2(a)
Section 1115 Authority 8.2(k)
Section 1115 Election 8.2(k)
Subsidiary Securities 3.6(b)
Tax Loss 8.5(a)
Tax Packages 8.2(g)
Transfer Taxes 8.2(e)
Transferred Employees 9.1
Transition Period 9.4
(c) Definitions shall be equally applicable to both the singular
and plural forms of the terms defined, and references to the masculine,
feminine or neuter gender shall include each other gender. All references in
this Agreement to any Exhibit or Schedule shall, unless the context otherwise
requires, be deemed to be a reference to an Exhibit or Schedule, as the case
may be, to this Agreement, all of which are made a part of this Agreement.
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale. Upon the terms and subject to the
conditions of this Agreement, Seller agrees to sell to Buyer or its designee
and Buyer agrees to purchase, or cause its designee to purchase, from Seller,
the Shares at the Closing. The purchase price for the Shares (the "Purchase
Price") is (i) an amount in cash equal to $214,513,000 plus the Operating Loss
Adjustment, if any (the "Cash Consideration") and (ii) the Note. The Purchase
Price shall be paid as provided in Section 2.2, subject to adjustment as
provided in Section 2.4.
2.2 Closing. The closing (the "Closing") of the purchase and
sale of the Shares hereunder shall take place at the offices of Davis Polk &
Wardwell, 450 Lexington Avenue, New York, New York, at 10:00 a.m. on May 4,
1996, or at such other time or place as Buyer and Seller may agree. At the
Closing:
(i) Buyer shall, or shall cause its designee to, deliver to
Seller (x) the Cash Consideration in immediately available funds by wire
transfer to an account of Seller with a bank designated by Seller, by
written notice to Buyer to be made no later than two Business Days prior
to the Closing Date, and (y) the Note.
(ii) Seller shall deliver to Buyer or its designee
certificates for the Shares duly endorsed or accompanied by stock powers
duly endorsed in blank, with any required transfer stamps affixed
thereto, and in form proper for transfer.
Notwithstanding the foregoing, if the Closing Date shall be a day other than a
Business Day, on the Business Day immediately preceding the Closing Date, (x)
Buyer shall, or shall cause its designee to, deliver the Cash Consideration,
in immediately available funds by wire transfer, and the Note to the Escrow
Agent for deposit pursuant to the Escrow Agreement and (y) Seller shall
deliver to the Escrow Agent certificates for the Shares accompanied by stock
powers duly endorsed in blank, with any required transfer stamps affixed
thereto, and in form proper for transfer, for deposit pursuant to the Escrow
Agreement. All funds deposited with the Escrow Agent shall be applied by the
Escrow Agent in accordance with the terms of the Escrow Agreement to make the
payment required by Section 2.2(i)(x). Any amounts remaining in the Escrow
Account after the payment of such amount shall be paid by the Escrow Agent to
Buyer or its designee, except as otherwise provided in the Escrow Agreement.
The Note and the certificates for the Shares shall be distributed by the
Escrow Agent in accordance with the terms of the Escrow Agreement to satisfy
the requirements of Sections 2.2(i)(y) and 2.2(ii), respectively. The fees
and expenses of the Escrow Agent shall be borne by Buyer and Seller equally.
2.3 Closing Balance Sheet. (a) Within 60 days after the Closing
Date, Seller will cause to be prepared and delivered to Buyer the Closing
Balance Sheet, together with an unqualified report of KPMG Peat Marwick
thereon, and a certificate of Seller's Chief Financial Officer based on such
Closing Balance Sheet setting forth the calculation of Net Book Value. The
Closing Balance Sheet shall fairly present the consolidated financial position
of Company and the Subsidiaries as of the close of business on the Closing
Date on a basis consistent with Seller's past practices as used in the
preparation of the Balance Sheet, except that (i) inventory cost will be
determined using the first-in first-out inventory cost method, (ii) a liability
for the accrued vacation of Transferred Employees will be recorded and (iii)
if the amount of net audit adjustments is in excess of $1 million, the amount
of such excess shall be recorded as an asset or a liability, as the case may
be. The cost of such KPMG Peat Marwick review and report shall be borne by
Buyer and Seller equally. Commencing on the date three days prior to the
Closing Date, the Inventory Firms shall conduct a wall-to-wall physical count
of all owned inventory located at the stores, distribution centers and
warehouses of the Company and the Subsidiaries. Buyer, Seller and their
respective accountants shall have the opportunity to observe the physical
count of the inventory. As promptly as practicable, but in no event later
than 14 days following the Closing Date, the Inventory Firms shall deliver to
Seller and Buyer their written reports setting forth the counted value of the
inventory. The inventory reflected on the Closing Balance Sheet shall reflect
the results of the physical count of the inventory by the Inventory Firms and
shall be calculated in conformity with generally accepted accounting
principles applied on a basis consistent with Seller's past practices as used
in connection with the preparation of the Balance Sheet, except that inventory
cost will be determined using the first-in first-out inventory cost method.
The cost of such Inventory Firms physical count and reports shall be borne by
Buyer and Seller equally.
(b) Buyer shall review the Closing Balance Sheet and the
calculation of Net Book Value delivered pursuant to Section 2.3(a). In
connection with such review, Deloitte & Touche and representatives of Buyer
shall have the opportunity to review KPMG Peat Marwick's work papers. If
Buyer disagrees with the calculation of Net Book Value delivered pursuant to
Section 2.3(a), Buyer may, within 20 Business Days after delivery of the
documents referred to in Section 2.3(a), deliver a notice to Seller
disagreeing with such calculation and setting forth Buyer's calculation of Net
Book Value.
(c) If a notice of disagreement shall be delivered pursuant to
Section 2.3(b), Buyer and Seller shall, during the 20 days following such
delivery, use their best efforts to reach agreement on the disputed items or
amounts in order to determine, as may be required, the amount of Net Book
Value which amount shall not be less than the amount thereof shown in the
calculation set forth in the notice delivered by Buyer pursuant to Section
2.3(b) nor more than the amount thereof shown in the calculation delivered by
Seller pursuant to Section 2.3(a). If, during such period, Buyer and Seller
are unable to reach such agreement, they shall promptly thereafter cause the
Independent Accountants promptly to review this Agreement and the disputed
items or amounts for the purpose of calculating Net Book Value and, in
connection therewith, Buyer and Seller shall stipulate to the Independent
Accountants the items or amounts in the Closing Balance Sheet or the
calculation of Net Book Value which are in dispute. In making such
calculation, the Independent Accountants shall consider only those items or
amounts in the Closing Balance Sheet or the calculation of Net Book Value that
have been stipulated by Buyer and Seller as in dispute. The Independent
Accountants shall deliver to Buyer and Seller, as promptly as practicable, a
written report setting forth such calculation. Such report shall be final and
binding upon Buyer and Seller. The cost of such review and report shall be
borne (i) by Buyer if the difference between Final Net Book Value and the
calculation of Net Book Value delivered pursuant to Section 2.3(b) is greater
than the difference between Final Net Book Value and the calculation of Net
Book Value delivered pursuant to Section 2.3(a), (ii) by Seller if the first
such difference is less than the second such difference and (iii) otherwise
equally by Buyer and Seller.
(d) Buyer will cause the Company and each Subsidiary to cooperate
with Seller and its agents in connection with the preparation of the Closing
Balance Sheet and the calculation of Net Book Value pursuant to Section
2.3(a), including without limitation, (i) affording Seller and its agents
prompt and reasonable access during normal business hours to the properties,
books and records and employees of the Company and the Subsidiaries and (ii)
permitting Seller to have a representative present at the Company or any
Subsidiary during such time; provided that any such access or presence (x)
does not unreasonably interfere with the normal conduct of the Business and
(y) is reasonably related to the preparation of the Closing Balance Sheet and
the calculation of Net Book Value. Seller shall reimburse Buyer, the Company
or any Subsidiary for the reasonable out-of-pocket expenses incurred by such
Person in connection therewith.
2.4 Adjustment of Purchase Price. (a) If Estimated Net Book
Value exceeds Final Net Book Value, Seller shall pay to Buyer or its designee,
as an adjustment to the Purchase Price, in the manner and with interest as
provided in Section 2.4(b), the amount of such excess. If Final Net Book
Value exceeds Estimated Net Book Value, Buyer shall, or shall cause its
designee to, pay to Seller, as an adjustment to the Purchase Price, in the
manner and with interest as provided in Section 2.4(b), the amount of such
excess.
(b) Any payment pursuant to Section 2.4(a) shall be made at a
mutually convenient time and place within five days after the Final Net Book
Value has been determined by delivery by Buyer or Seller, as the case may be,
by wire transfer of immediately available funds to an account of the other
party designated in writing by such other party. The amount of any payment to
be made pursuant to this Section shall bear interest from and including the
Closing Date to but excluding the date of payment at the Reference Rate. Such
interest shall be payable at the same time as the payment to which it relates
and shall be calculated daily on the basis of a year of 365 days and the
actual number of days elapsed.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as of the date hereof and
as of the Closing Date that, except as disclosed in any of the Schedules
hereto:
3.1 Corporate Existence and Power. Each of Seller and the
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
corporate powers and all material governmental licenses, authorizations,
permits, consents and approvals required to carry on its business as now
conducted. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where such
qualification is necessary, except for those jurisdictions where failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on the Company. Seller has heretofore delivered to Buyer true
and complete copies of the certificate of incorporation and bylaws of Seller
and the Company as currently in effect.
3.2 Corporate Authorization. The execution, delivery and
performance by Seller of this Agreement are within Seller's corporate powers
and have been duly authorized by all necessary corporate action on the part of
Seller. This Agreement constitutes a valid and binding agreement of Seller
enforceable in accordance with its terms, except as (i) the enforceability
hereof may be limited by bankruptcy, insolvency, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (ii) the
availability of equitable remedies may be limited by equitable principles of
general applicability.
3.3 Governmental Authorization. The execution, delivery and
performance by Seller of this Agreement require no approval, consent, waiver,
authorization or other action by or in respect of, or filing, registration or
recording with, any governmental body, agency, or official, except for (i)
satisfaction of the requirements of the HSR Act, (ii) compliance with any
applicable requirements of the Exchange Act and (iii) any such approval,
consent, waiver, authorization or other action or filing, registration or
recording as to which the failure to make or obtain would not, individually or
in the aggregate, have a Material Adverse Effect on the Company.
3.4 Non-Contravention. The execution, delivery and performance
by Seller of this Agreement do not and will not (i) violate the Charter or
bylaws of Seller, the Company or any Subsidiary, (ii) assuming compliance with
the matters referred to in Section 3.3, violate any applicable law, rule,
regulation, judgment, injunction, order or decree, (iii) require any approval,
consent, waiver, authorization or other action by, or filing, registration or
recording with, any Person under, constitute a breach or default under, or
give rise to any right of termination, cancellation or acceleration of any
right or obligation of the Company or any Subsidiary or to a modification of
the terms or conditions of any right or obligation to which the Company or any
Subsidiary is entitled under, any agreement or other instrument (other than
any Facility Lease or Lease) binding upon the Company or any Subsidiary or any
license, franchise, permit or other similar authorization held by the Company
or any Subsidiary, or (iv) result in the creation or imposition of any Lien
on, or the forfeiture of, any asset of the Company or any Subsidiary, except,
in the case of clauses (ii), (iii), and (iv), to the extent that any such
violation, failure to obtain any such approval, consent, waiver, authorization
or other action, default, right, modification, Lien or forfeiture would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
3.5 Capitalization. (a) The authorized capital stock of the
Company consists of 100 shares of Common Stock, of which 10 shares are issued
and outstanding.
(b) The Shares have been duly authorized and validly issued and
are fully paid and non-assessable. Except as disclosed in Section 3.5(a),
there are no outstanding (i) shares of capital stock or voting securities of
the Company, (ii) securities of the Company convertible into or exchangeable
for shares of capital stock or voting securities of the Company or (iii)
options or other rights to acquire from the Company, or other obligation of
the Company to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company (the items in clauses (i), (ii) and (iii) being referred to
collectively as the "Company Securities"). There are no outstanding
obligations of the Company or any Subsidiary (including but not limited to
pursuant to any Charter or bylaw provision of the Company or any Subsidiary)
to issue, repurchase, redeem or otherwise acquire, or make any payment in
respect of, any Company Securities.
(c) Seller is the record and beneficial owner of the Shares,
free and clear of any Lien and any other limitation or restriction (including
any restriction on the right to vote, sell or otherwise dispose of the
Shares), and will transfer and deliver to Buyer at the Closing valid title to
the Shares free and clear of any Lien and any such limitation or restriction.
3.6 Subsidiaries. (a) Each Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all corporate powers and all material
governmental licenses, authorizations, permits, consents and approvals
required to carry on its business as now conducted. Each Subsidiary is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where such qualification is necessary except for those
jurisdictions where failure to be so qualified would not, individually or in
the aggregate, have a Material Adverse Effect on the Company. All
Subsidiaries and their respective jurisdictions of incorporation, issued and
outstanding capital stock or other voting securities or ownership interests
and the owner of such outstanding capital stock or other voting securities or
ownership interests are disclosed in Schedule 3.6. Seller has heretofore made
available to Buyer true and complete copies of the Charter and bylaws of each
Subsidiary as is currently in effect and as will be in effect immediately
prior to the Closing.
(b) All of the outstanding capital stock of, or other voting
securities or ownership interests in, each Subsidiary, is owned by the
Company, directly or indirectly, free and clear of any Lien and free of any
other limitation or restriction (including any restriction on the right to
vote, sell or otherwise dispose of such capital stock or other voting
securities or ownership interests). All of the outstanding capital stock or
other voting securities or ownership interests in each Subsidiary have been
duly authorized and validly issued and are fully paid and non-assessable.
There are no outstanding (i) securities of any Subsidiary convertible into or
exchangeable for shares of capital stock or other voting securities or
ownership interests in any Subsidiary or (ii) options or other rights to
acquire from the Company or any Subsidiary, or other obligation of the Company
or any Subsidiary to issue, any capital stock or other voting securities or
ownership interests in, or any securities convertible into or exchangeable for
any capital stock or other voting securities or ownership interests in, any
Subsidiary (the items in clauses (i) and (ii) being referred to collectively
as the "Subsidiary Securities"). There are no outstanding obligations of the
Company or any Subsidiary (including but not limited to pursuant to any
Charter or bylaw provision of the Company or any Subsidiary) to issue,
repurchase, redeem or otherwise acquire, or make any payment in respect of,
any outstanding Subsidiary Securities.
3.7 Financial Statements. The consolidated balance sheets of the
Company, the Subsidiaries and the Excluded Subsidiaries as of December 31,
1993, December 31, 1994 and December 31, 1995 and the related consolidated
statements of income and cash flows for each of the years ended December 31,
1993, December 31, 1994 and December 31, 1995, previously delivered to Buyer,
present fairly, in all material respects, the consolidated financial position
of the Company, the Subsidiaries and the Excluded Subsidiaries as of the dates
thereof and their consolidated results of operations for the periods then
ended in conformity with generally accepted accounting principles applied on a
consistent basis consistent with Seller's past practices. Notwithstanding the
foregoing, such consolidated balance sheets do not reflect an accrual for
straight-line rent.
3.8 Absence of Certain Changes. Except as disclosed in Schedule
3.8, 5.1 or 5.6 or as contemplated by this Agreement (including but not
limited to the provisions of Sections 5.1, 5.5, 5.6, 7.4, 7.5, 7.8 and 7.9),
since the Balance Sheet Date, the Business has been conducted in the ordinary
course consistent with past practices and there has not been:
(a) any event, occurrence, development or state of
circumstances or facts which has had or would reasonably be expected to
have a Material Adverse Effect on the Company, other than any resulting
from or attributable to (i) the transactions contemplated by this
Agreement and (ii) changes in general economic conditions that have not
had a materially more adverse effect on the Company and the
Subsidiaries, taken as a whole, than on similar retail businesses;
(b) any declaration, setting aside or payment of any
dividend or other distribution with respect to the Shares, or any
repurchase, redemption or other acquisition by the Company or any
Subsidiary of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or any
Subsidiary, other than any distribution in the ordinary course
consistent with past practice or in connection with the repayment or
cancellation of any intercompany debt, advance or other balance;
(c) any amendment of any material term of any outstanding
security of the Company or any Subsidiary;
(d) any incurrence, assumption or guarantee by the Company
or any Subsidiary of any indebtedness for borrowed money, other than (i)
any such indebtedness between the Company and any Subsidiary or between
Subsidiaries and (ii) intercompany indebtedness between Seller and its
Affiliates, on the one hand, and the Company and the Subsidiaries, on
the other hand;
(e) any creation or assumption by the Company or any
Subsidiary of any Lien on any asset, other than in the ordinary course
of business consistent with past practices;
(f) any making of any loan, advance or capital
contributions to or investment in any Person, other than (i) loans,
advances or capital contributions to or investments between the Company
and any Subsidiary or between Subsidiaries and (ii) intercompany
indebtedness between Seller and its Affiliates, on the one hand, and the
Company and the Subsidiaries, on the other hand;
(g) any damage, destruction or other casualty loss (whether
or not covered by insurance) affecting the Business or assets of the
Company or any Subsidiary which, individually or in the aggregate, has
had or would have a Material Adverse Effect on the Company;
(h) any transaction or commitment made, or any contract or
agreement entered into, by the Company or any Subsidiary relating to its
assets or the Business (including the acquisition, disposition or lease
of any assets) or any relinquishment by the Company or any Subsidiary of
any contract or other right, in either case, material to the Company and
the Subsidiaries, taken as a whole, other than (i) transactions and
commitments in the ordinary course of business consistent with past
practices and (ii) those contemplated by this Agreement;
(i) any change in any method of accounting or accounting
practice by the Company or any Subsidiary, except for any change
required by reason of a concurrent change in generally accepted
accounting principles;
(j) any (i) employment, deferred compensation, severance,
retirement or other similar agreement entered into with any director,
officer or employee of the Company or any Subsidiary (or any amendment
to any such existing agreement), (ii) grant of any severance or
termination pay to any director, officer, employee, consultant or agent
of the Company or any Subsidiary, or (iii) increase in compensation or
other benefits paid or payable to any director, officer, employee,
consultant or agent of the Company or any Subsidiary, except in each
case in the ordinary course of business consistent with past practice and
which have not had and would not have a Material Adverse Effect on the
Company;
(k) any labor dispute, other than routine individual
grievances, or any activity or proceeding by a labor union or
representative thereof to organize any employees of the Company or any
Subsidiary, which employees were not subject to a collective bargaining
agreement at the Balance Sheet Date, or any lockouts, strikes,
slowdowns, work stoppages or threats thereof by or with respect to any
employees of the Company or any Subsidiary;
(l) any material capital expenditures, other than
expenditures for repair and maintenance of Stores or the distribution
centers and warehouses of the Company and the Subsidiaries in the
ordinary course of business;
(m) any sale, transfer, license or other disposition of any
Company Intellectual Property Rights, other than in the ordinary course
of business;
(n) any canceled or compromised debt or claim, other than
(i) between the Company and any Subsidiary or between Subsidiaries and
(ii) between the Seller and its Affiliates, on the one hand, and the
Company and the Subsidiaries, on the other hand;
(o) any settlement of, or agreement to settle, any material
claim, action, cause of action, suit, arbitration, proceeding or
investigation, other than in connection with a Closed Store Lease; or
(p) any acquisition of capital stock of any Person or any
assets material in amount and constituting a business, or any merger,
consolidation or other business combination affecting the Company and
the Subsidiaries or the entering into of an agreement for such an
acquisition, merger, consolidation or other business combination.
3.9 No Undisclosed Material Liabilities. There are no
liabilities of the Company or any Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, other
than:
(i) liabilities provided for in the Balance Sheet or
disclosed in the notes thereto;
(ii) liabilities incurred in the ordinary course of business
consistent with past practice since the Balance Sheet Date;
(iii) liabilities disclosed in Schedule 3.9; and
(iv) other undisclosed liabilities which, individually or in
the aggregate, are not material to the Company and the Subsidiaries,
taken as a whole.
3.10 Labor Matters. (a) The Company and the Subsidiaries have
complied and are complying with all federal, state and local laws, rules,
regulations and policies of a material nature respecting employment and
employment practices (including but not limited to compensation for or
termination of employment) and have not and are not engaged in any unfair labor
practice or unlawful discriminatory act or any other act which violates in any
material respect any of such laws, rules, regulations or policies. Except as
disclosed in Schedules 3.10 and 3.12, there is no pending or, to the knowledge
of the Seller, threatened charge or complaint by or against the Company or any
Subsidiary before the Equal Employment Opportunity Commission, any other
federal governmental authority relating to labor or employee matters or any
similar state or local governmental authority, or any other charge or
complaint pending between the Company or any Subsidiary, on the one hand, and
any of their respective employees, on the other hand, except for charges and
complaints with individual employees arising in the ordinary course of
business that have not had and would not have a Material Adverse Effect on the
Company. Neither the Company nor any Subsidiary is a party to, or subject to,
any collective bargaining or other similar agreement with any labor union or
other similar association representing employees of the Company and the
Subsidiaries, nor is any collective bargaining agreement currently being
negotiated by Seller, the Company or any Subsidiary with respect to any
employees of the Company or any Subsidiary, nor has any labor union within the
last 12 months invoked the process of the National Labor Relations Board, or
any similar state or local agency, seeking to represent any of the Company's
or any Subsidiary's employees or demand recognition as the collective
bargaining representative of any such employees, and, to the knowledge of
Seller, no movement to designate a collective bargaining agent to represent
any such employees, is being conducted or is threatened. No employee of
Seller or any of its Affiliates devotes his or her business time primarily to
the affairs of the Company or any Subsidiary.
(b) Except as disclosed in Schedule 3.10, the employment by the
Company or any Subsidiary of any individual (whether or not a party to a
written employment agreement) is at-will and may be terminated for any reason
whatsoever not inconsistent with applicable law without penalty or liability of
any kind other than expenses or liabilities payable or reimbursable to such
individuals (including but not limited to accrued vacation pay and severance
payable pursuant to a Company severance policy) in the ordinary course of
business consistent with Seller's past practices.
(c) Neither the Company nor any Subsidiary maintains,
participates in or is otherwise subject to any grievance procedure or other
dispute resolution mechanism under which it is obligated to adjust or resolve
employee grievances or complaints in a manner other than through the exercise
of the Company's or any Subsidiary's own discretion.
3.11 Material Contracts. (a) Except as disclosed in Schedule
3.11, neither the Company nor any Subsidiary is a party to or bound by:
(i) any lease or sublease (other than the Closed Store
Leases, the Facility Leases and the Leases) for real or personal
property held or used by the Company or any Subsidiary having an annual
cost or capitalized lease obligation of $200,000 or more;
(ii) any agreement for the purchase or other acquisition of
goods, services, equipment, property or other assets that provides for
annual payments by the Company and the Subsidiaries of $200,000 or more,
other than purchase orders for inventory and other arrangements with
suppliers entered into in the ordinary course of business;
(iii) any sales, distribution or other similar agreement
(including but not limited to any option) providing for the sale by the
Company or any Subsidiary of materials, supplies, goods, services,
equipment or other assets that provides for annual payments to the
Company and the Subsidiaries of $200,000 or more, other than sales,
distribution or other similar agreements entered into in the ordinary
course of business;
(iv) any partnership, joint venture or other similar
agreement or arrangement;
(v) any agreement relating to indebtedness for borrowed
money or the deferred purchase price of property other than inventory
(in either case, whether incurred, assumed, guaranteed or secured by any
asset), other than (A) any such agreement between the Company and any
Subsidiary or between Subsidiaries and (B) any such agreement between
Seller and its Affiliates, on the one hand, and the Company and the
Subsidiaries, on the other hand;
(vi) any license, franchise or similar agreement;
(vii) any agency, dealer, sales representative, marketing or
other similar agreement that provides for annual payments by the Company
or any Subsidiary of $200,000 or more;
(viii) any agreement (other than the Closed Store Leases, the
Facility Leases and the Leases) that limits the freedom of the Company
or any Subsidiary to compete in any line of business or with any Person
or in any area or which would so limit the freedom of the Company or any
Subsidiary after the Closing Date;
(ix) any agreement with (A) Seller or any of its Affiliates,
(B) any Person directly or indirectly owning, controlling or holding
with power to vote, 5% or more of the outstanding voting securities of
Seller or any of its Affiliates, (C) any Person 5% or more of whose
outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote by Seller or any of its Affiliates
or (D) any director or officer of Seller or any of its Affiliates or any
"associates" or members of the "immediate family" (as such terms are
respectively defined in Rule 12b-2 and Rule 16a-1 of the 1934 Act) of
any such director or officer;
(x) any agreement with any director or officer of the
Company or any Subsidiary or with any "associate" or any member of the
"immediate family" (as such terms are respectively defined in Rules
12b-2 and 16a-1 of the 1934 Act) of any such director or officer;
(xi) any employment or material consulting agreement and all
other plans, agreements, arrangements or practices which provide
compensation or benefits to any of the directors, officers or employees
of the Company or any Subsidiary, other than any Employee Plan or Benefit
Arrangement; or
(xii) any other agreement, commitment, arrangement or plan not
made in the ordinary course of business that is material to the Company
and the Subsidiaries, taken as a whole.
(b) Each agreement, commitment, arrangement, lease (other than
the Closed Store Leases, the Facility Leases and the Leases) or plan disclosed
in Schedule 3.11 is a valid and binding agreement of Seller, the Company or a
Subsidiary, as the case may be, and is in full force and effect, and neither
Seller, the Company nor any Subsidiary is nor, to the knowledge of Seller, is
any other party thereto in default or breach in any material respect under the
terms of any such agreement, contract, plan, lease, arrangement or commitment.
To the knowledge of Seller, no event has occurred or circumstance exists which
with notice or lapse of time would constitute such a material default or
breach, or permit termination, modification or acceleration by the Company,
any Subsidiary or any other Person or would result in a loss of rights or the
creation of any Lien under any such agreement, commitment, arrangement, lease
or plan. Seller has heretofore delivered to Buyer true and complete copies of
each of the agreements, commitments, arrangements, leases and plans disclosed
in Schedule 3.11.
3.12 Litigation. Except as disclosed in Schedule 3.12, as of the
date hereof, there is no action, suit, investigation or proceeding pending
against, or to the knowledge of Seller threatened against or affecting, the
Company or any Subsidiary or any of their respective properties before any
court or arbitrator or any governmental body, agency or official.
3.13 Compliance with Laws and Court Orders. Neither the Company
nor any Subsidiary is in violation of, or has since January 1, 1995 violated,
any applicable law, rule, regulation, judgement, injunction, order or decree,
except for such violations as have not had and will not have individually or
in the aggregate a Material Adverse Effect on the Company.
3.14 Leases. (a) Except as disclosed in Schedule 3.14, Seller
has given Buyer a true and complete copy of each Facility Lease and Lease
(other than month-to-month tenancy arrangements), together with all amendments
and modifications thereto, all of which Leases (including any month-to-month
tenancy arrangements) are listed on Schedule 3.14. Except as disclosed in
Schedule 3.14, all of the Stores operated in the Business (other than Stores
operated pursuant to month-to-month tenancy arrangements) are leased by the
Company or a Subsidiary as lessee or sublessee and each Facility Lease and
Lease (other than a month-to-month tenancy arrangement) is a valid and binding
agreement of the Company or a Subsidiary, as the case may be, and is in full
force and effect. The Company and the Subsidiaries are not (and, to the
knowledge of Seller, no other party is) in breach or default in any material
respect under any Facility Lease or Lease, and no event has occurred which
constitutes or, with the lapse of time or the giving of notice or both, would
constitute such a material breach or default by the Company or any Subsidiary
thereunder, other than any breach or default resulting from the transactions
contemplated by this Agreement.
(b) As of the Closing Date, except as disclosed in Schedule 3.14,
the Company and the Subsidiaries shall have paid to Landlord under each
Facility Lease and Lease (other than a Terminated Lease) all monies then due
and owing pursuant to the provisions of such Facility Lease or Lease and shall
have fulfilled all material obligations required to be performed by the
Company or any Subsidiary under such Facility Lease or Lease, except for
obligations arising out of or resulting from the transactions contemplated by
this Agreement.
(c) Except as otherwise provided in any Facility Lease or Lease,
neither the Company nor any Subsidiary is (i) subject to any continuous
operating covenants or radius restrictions and (ii) obligated to remodel any
of the premises subject to a Facility Lease or a Lease during the term of such
Facility Lease or Lease.
3.15 Properties. (a) The Company and the Subsidiaries have good
and marketable title to, or in the case of leased property have valid
leasehold interests in, all property, rights and assets (whether real or
personal, tangible or intangible) reflected on the Balance Sheet or acquired
after the Balance Sheet Date. None of such property or assets is subject to
any Liens, except:
(i) Liens disclosed on the Balance Sheet;
(ii) Liens disclosed in Schedule 3.15;
(iii) Liens for taxes not yet due or being contested in good
faith (and for which adequate accruals or reserves have been established
on the Balance Sheet); or
(iv) Liens which do not materially detract from the value or
materially interfere with any present or intended use of such property,
rights or assets.
(b) There are no developments affecting any such property or
assets (whether real or personal) pending or, to the knowledge of Seller
threatened, which might materially detract from the value of such property,
rights or assets or materially interfere with any present or intended use of
any such property, rights or assets, other than any such developments affecting
leased property, rights or assets resulting from the transactions contemplated
by this Agreement.
3.16 ERISA Representations. (a) Schedule 3.16 identifies each
Employee Plan. Seller has furnished or made available to Buyer copies of the
Employee Plans (and, if applicable, related trust agreements) together with
related summary plan descriptions and the most recent annual report prepared
in connection with any Employee Plan (Form 5500).
(b) Each Employee Plan that is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service that covers the applicable provisions of the Code
added by the Tax Reform Act of 1986 and other subsequent legislation covered
by applicable Internal Revenue Service procedures relating to such Employee
Plans. Each Employee Plan has been maintained in substantial compliance with
its terms and with the requirements prescribed by any and all applicable
statutes, orders, rules and regulations, including but not limited to ERISA
and the Code. No Employee Plan is a Title IV Plan or a Multiemployer Plan.
(c) Schedule 3.16 identifies each Benefit Arrangement. Seller
has furnished or made available to Buyer copies or descriptions of each
Benefit Arrangement. Each Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all applicable statutes, orders, rules and regulations.
3.17 Environmental Matters. Except as disclosed in Schedule 3.17,
(i) no notice, demand, request for information or
complaint has been received by Seller, the Company or any Subsidiary and
no penalty has been assessed against the Company or any Subsidiary with
respect to any (A) alleged material violation by the Company or any
Subsidiary of any Environmental Law, (B) alleged material failure by the
Company or any Subsidiary to have any permit, certificate, license,
approval, registration or authorization required under any Environmental
Law in connection with the conduct of the Business or (C) alleged
material liability of the Company or any Subsidiary as a potentially
responsible party in connection with any site listed on the National
Priorities List;
(ii) the Company has not created any condition that
requires remediation under Environmental Laws except for any such
condition that would not reasonably be expected to result, individually
or in the aggregate, in a Material Adverse Effect on the Company;
(iii) the Company and the Subsidiaries are in compliance with
all applicable Environmental Laws, except for such noncompliance which
would not, individually or in the aggregate, have a Material Adverse
Effect on the Company;
(iv) the Company and the Subsidiaries have obtained all
environmental, health and safety permits, licenses or approvals
necessary for the operation of the Business, and all such permits,
licenses or approvals are in good standing, and the Company and each
Subsidiary is in compliance with all terms and conditions of such
permits, licenses or approvals, except where the failure to obtain such
permits, licenses or approvals, the failure of such permits, licenses or
approvals to be in good standing or the failure to comply with such
terms and conditions would not, individually or in the aggregate, have a
Material Adverse Effect on the Company; and
(v) none of the Company or the Subsidiaries or any of their
respective currently owned or leased properties is subject to any
on-going investigation, order, judicial or administrative proceeding,
judgment, decree or settlement relating to (A) any Environmental Law
(including, any liability thereunder), (B) any remediation activity or
(C) any Release of Hazardous Substances, which would reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect on the Company.
3.18 Intellectual Property. (a) Schedule 3.18 contains a list
of all material Intellectual Property Rights owned or licensed by the Company
or any Subsidiary ("Company Intellectual Property Rights"), specifying as to
each, as applicable: (i) the nature of such Intellectual Property Right; (ii)
the owner of such Intellectual Property Right; (iii) the jurisdictions by or
in which such Intellectual Property Right has been issued or registered,
including the respective registration numbers and registration dates, as well
as the dates of any renewals filed in connection therewith; (iv) the
jurisdictions in which an application for such issuance or registration has
been filed with respect to such Intellectual Property Right, including the
respective application numbers and filing dates; and (v) all licenses,
sublicenses, consents and other agreements as to which the Company or any
Subsidiary is a party, and pursuant to which any Person is authorized to use
such Intellectual Property Right or which otherwise relates to any such
Intellectual Property Rights, including the identity of all parties thereto, a
description of the nature and subject matter thereof, the applicable royalty
and any advances, the term thereof and the territory covered thereby. Copies
of all such licenses heretofore have been delivered to the Purchaser.
(b) Except as disclosed in Schedule 3.18, all Company
Intellectual Property Rights are owned solely by the Company or a Subsidiary
or licensed to the Company or a Subsidiary under an exclusive perpetual
license not requiring payment of any royalty or fee (other than in the case of
licenses of software in the ordinary course of business and other than
intercompany royalty fees). Except as disclosed in Schedule 3.18, there is no
material license or other contractual obligation under which the Company or
any Subsidiary is liable as licensor with respect to any Company Intellectual
Property Rights and neither the Company nor any Subsidiary has granted any
material license to any third party with respect to any Company Intellectual
Property Rights. Except as disclosed in Schedule 3.18 and to the Seller's
knowledge, the use or sale by the Company and the Subsidiaries of any products
or services in the Business and use by the Company and the Subsidiaries of the
Company Intellectual Property Rights does not infringe and has not infringed
any rights of any third party, and no activity of any third party infringes
upon the rights of the Company or any Subsidiary with respect to any of the
Company Intellectual Property Rights. Except as disclosed in Schedule 3.18,
no action alleging or relating to any such infringement against the rights of
the Company or any Subsidiary or any third parties is currently pending or, to
the knowledge of Seller, threatened.
(c) (i) Each of the registrations obtained in connection with
such Intellectual Property Rights as disclosed in Schedule 3.18 has been
validly issued and remains in force; (ii) all filings required to have been
made in order to maintain such registrations have been duly and timely made;
and (iii) all fees required to have been paid in order to maintain such
registrations have been duly and timely paid.
(d) (i) Except as disclosed in Schedule 3.18, since January 1,
1995, neither the Company nor any Subsidiary has been a defendant in any
unsettled action, suit, investigation or proceeding relating to, or otherwise
has been notified of, any alleged claim of infringement of any other Person's
Intellectual Property Rights by the Company or any Subsidiary, whether or not
such claim of infringement involves the Company Intellectual Property Rights;
and (ii) except as disclosed in Schedule 3.18, to the knowledge of Seller,
neither the Company nor any Subsidiary has engaged in any activity which would
amount to or give rise to any claim of an infringement of any other Person's
Intellectual Property Rights.
(e) (i) Except as disclosed in Schedule 3.18, since January 1,
1995, neither the Company or any Subsidiary has been a plaintiff in any
unsettled action, suit, investigation or proceeding relating to any of the
Company Intellectual Property Rights; and (ii) except as disclosed in Schedule
3.18, Seller has no knowledge of any continuing infringement or other unlawful
use of any of the Company Intellectual Property Rights by any other Person.
(f) Except as disclosed in Schedule 3.18 or the agreements
referred to therein, no Company Intellectual Property Right is subject to any
outstanding judgment, injunction, order, decree or agreement restricting the
use thereof by the Company or any Subsidiary or restricting the licensing or
sale thereof by the Company or any Subsidiary to any Person.
(g) Neither the Company nor any Subsidiary has entered into any
agreement to indemnify any third party against any charge of infringement of
any Intellectual Property Right, other than as may be provided in the
agreements disclosed in Schedule 3.18.
3.19 Insurance Coverage. All material properties of the Company
and the Subsidiaries are covered by valid and currently effective insurance
policies issued in favor of the Company and the Subsidiaries or are
self-insured in amounts that are consistent with Seller's customary business
practices. All insurance coverages required under the Leases and Facility
Leases are in force under valid and currently effective insurance policies.
Schedule 3.19 contains a summary of all policies or binders of insurance by
which the Company or any Subsidiary (or any risk of the Business) is insured
(the "Insurance Policies") together with (i) the name of the insurer and the
names of the principal insured and each named insured and (ii) the policy
number and period of coverage, the type, scope (including an indication of
whether the coverage is on a claims made, occurrence or other basis) and
amounts (including a description of how deductibles, retentions, aggregates
and retroactive premium adjustments or other loss-sharing arrangements are
calculated and operate) of coverage. Seller has given Buyer access to true
and complete copies of all Insurance Policies and fidelity bonds relating to
the assets, Business, operations, employees, officers or directors of the
Company and the Subsidiaries. Except as disclosed in Schedule 3.8, there is no
claim by or on behalf of the Company or any Subsidiary pending under any of
such Insurance Policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such Insurance Policies or bonds or
in respect of which such underwriters have reserved their rights. All premiums
payable under all such Insurance Policies and bonds have been paid timely and
Seller, the Company and the Subsidiaries have otherwise complied in all
material respects with the terms and conditions of all such Insurance Policies
and bonds. The insurance currently maintained by Seller on behalf of the
Company and the Subsidiaries provides coverage in kind and amount reasonably
necessary to protect against the risks inherent or associated with the
Business.
3.20 Licenses and Permits. Schedule 3.20 contains a list of each
material license, franchise, permit or other similar authorization affecting,
or relating in any way to, the assets or Business (the "Permits") together
with the name of the government agency or entity issuing such Permit. The
Company and the Subsidiaries have been duly granted and continue to hold, and
as of the Closing Date will hold, all Permits necessary for the conduct of the
Business, except for such Permits the failure to hold would not have a
Material Adverse Effect on the Company. Except as disclosed in Schedule 3.20,
such Permits are valid and in full force and effect and none of the Permits
will be terminated or impaired or become terminable, in whole or in part, as a
result of the transactions contemplated hereby except as would not reasonably
be expected to have a Material Adverse Effect on the Company. Neither Seller,
the Company nor any Subsidiary has received written notice that any
governmental authority or agency will revoke, cancel, rescind, materially
modify or refuse to renew in the ordinary course of business any of the
Permits, except for those Permits the revocation, rescission, modification or
refusal to renew would not reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect on the Company.
3.21 Fixed Assets. All of the Stores are equipped and complete
with all fixtures, leasehold improvements, furnishings, machinery, equipment,
signs and other tangible personal property reasonably necessary for the
operation of the Stores in accordance with the Company's customary business
practices. Such assets are in normal working condition consistent with their
age and useful lives and shall be in the same condition on the Closing Date,
subject to ordinary wear and tear and damage due to fire or other casualty.
3.22 Finders' Fees. Except for Financo, Inc. and Morgan Stanley
& Co. Incorporated whose fees will be paid by Seller, there is no investment
banker, broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of Seller, the Company, any Subsidiary or any
Seller Subsidiary who might be entitled to any fee or commission in connection
with the transactions contemplated by this Agreement.
3.23 Accounts. Schedule 3.23 contains a list of each bank or
similar account for the deposit of cash or securities maintained by or on
behalf of the Company or any Subsidiary and the name of the bank or other
financial institution, the account name and number, and the individuals with
signing authority for such account.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the date hereof and
as of the Closing Date that, except as disclosed in any of the Schedules
hereto:
4.1 Corporate Existence and Power. Each of Buyer and CSC Ohio is
a corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has all corporate powers and
all material governmental licenses, authorizations, permits, consents and
approvals required to carry on its business as now conducted.
4.2 Corporate Authorization. The execution, delivery and
performance by Buyer of this Agreement are within the corporate powers of
Buyer and have been duly authorized by all necessary corporate action on the
part of Buyer. This Agreement constitutes a valid and binding agreement of
Buyer enforceable in accordance with its terms, except as (i) the
enforceability hereof may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting the enforcement of creditors' rights generally
and (ii) the availability of equitable remedies may be limited by equitable
principles of general applicability. The execution, delivery and performance
by CSC Ohio of the Note are within the corporate powers of CSC Ohio and have
been duly authorized by all necessary corporate action on the part of CSC
Ohio. The Note, when issued and delivered at the Closing in accordance with
the terms hereof, will constitute a valid and binding obligation of CSC Ohio
enforceable in accordance with its terms, except as (i) the enforceability
hereof may be limited by bankruptcy, insolvency, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (ii) the
availability of equitable remedies may be limited by equitable principles of
general applicability.
4.3 Governmental Authorization. The execution, delivery and
performance by Buyer of this Agreement and the execution, delivery and
performance by CSC Ohio require no approval, consent, waiver, authorization or
other action by or in respect of, or filing, registration or recording with,
any governmental body, agency or official except for (i) satisfaction of the
requirements of the HSR Act, (ii) compliance with any applicable requirements
of the Exchange Act and (iii) any such approval, consent, waiver,
authorization or other action or filing, registration or recording as to which
the failure to make or obtain would not, individually or in the aggregate,
have a Material Adverse Effect on Buyer or CSC Ohio, as the case may be.
4.4 Non-Contravention. The execution, delivery and performance
by Buyer of this Agreement and the execution, delivery and performance by CSC
Ohio of the Note do not and will not (i) violate the Charter or bylaws of
Buyer or CSC Ohio, (ii) assuming compliance with the matters referred to in
Section 4.3, violate any applicable law, rule, regulation, judgment,
injunction, order or decree, or (iii) require any approval, consent, waiver,
authorization or other action by, or filing, registration or recording with,
any Person under, constitute a breach or default under, or give rise to any
right or obligation of Buyer or to a modification of the terms or conditions
of any right or obligation to which Buyer or CSC Ohio is entitled under, any
agreement or other instrument binding upon Buyer or CSC Ohio, except to the
extent that any such approval, consent, waiver, authorization or other action,
default, right or modification would not individually or in the aggregate,
have a Material Adverse Effect on Buyer or CSC Ohio, as the case may be.
4.5 Financing. Buyer has received and delivered to Seller a
letter from (i) PNC Bank, Ohio, National Association, (ii) National City Bank,
(iii) National City Bank, Columbus and (iv) Bank One Columbus, N.A. dated as
of the date hereof (the "Commitment Letter"), with respect to debt financing
(the "Financing") in an amount sufficient to enable Buyer or its designee to
purchase the Shares and make any other payments to be made by Buyer or its
designee under this Agreement. Buyer has also received and delivered to
Seller a letter from Merrill Lynch Capital Corporation dated as of the date
hereof (the "Bridge Commitment Letter"), with respect to bridge financing (the
"Bridge Financing"). The terms and conditions of the Commitment Letter and
the Bridge Commitment Letter have not been altered or amended in a manner that
would have an adverse effect on Buyer's ability to perform its obligations
under this Agreement and the Commitment Letter and the Bridge Commitment
Letter remain in full force and effect (unless superseded by definitive
documentation that would not have an adverse effect upon Buyer's ability to
perform its obligations under this Agreement). As of the date hereof, Buyer
knows of no facts or circumstances that are reasonably likely to result in any
of the conditions set forth in the Commitment Letter or the Bridge Commitment
Letter not being satisfied.
4.6 Purchase for Investment. Buyer is purchasing the Shares for
investment for its own account and not with a view to, or for sale in
connection with, any distribution thereof. Buyer (either alone or together
with its advisors) has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in the Shares and is capable of bearing the economic risks of such
investment.
4.7 Litigation. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of Buyer threatened against or
affecting, Buyer or any of Buyer's Subsidiaries before any court or arbitrator
or any governmental body, agency or official (i) in which there is a reasonable
possibility of an adverse decision which would have a Material Adverse Effect
on Buyer or (ii) which in any manner challenges or seeks to prevent, enjoin,
alter or materially delay the transactions contemplated by this Agreement and
which has a substantial likelihood of success on the merits.
4.8 Finders' Fees. There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of Buyer or any Buyer Subsidiary who might be entitled to any fee or
commission from Seller or any of its Affiliates upon consummation of the
transactions contemplated by this Agreement.
4.9 Net Worth. As of February 3, 1996, the consolidated net
worth of Buyer and its Subsidiaries was $389,564,000.
ARTICLE 5
COVENANTS OF SELLER
Seller agrees as follows:
5.1 Conduct of the Company. Except as otherwise contemplated by
this Agreement or disclosed in Schedule 5.1, from the date hereof until the
Closing Date, Seller will cause the Company and the Subsidiaries to conduct
the Business in the ordinary course consistent with past practice and to use
their reasonable best efforts to preserve intact their business organizations
and relationships with third parties and to keep available the services of
their present officers and employees. Without limiting the generality of the
foregoing, except as otherwise contemplated by this Agreement, from the date
hereof until the Closing Date, without the prior written consent of Buyer,
Seller will not permit the Company or any Subsidiary to:
(i) adopt or propose any change to its Charter or bylaws;
(ii) merge or consolidate with any other Person or acquire a
material amount of assets of any other Person;
(iii) sell, lease, license or otherwise dispose of any
material assets or property except (A) pursuant to existing contracts or
commitments and (B) in the ordinary course consistent with past
practice;
(iv) fail to maintain the Company's and the Subsidiaries'
books and records in the ordinary course of business;
(v) fail to maintain in good repair, subject to ordinary
wear and tear, the premises, fixtures, machinery, furniture and
equipment of the Company and the Subsidiaries in a manner consistent
with Seller's past practices;
(vi) hire any new employee of the Company or any Subsidiary
for an annual salary in excess of $50,000;
(vii) except as provided by Sections 5.6 and 7.4, enter into,
amend in any material respect, extend or terminate any Facility Lease or
Lease or permit any renewal notice period or option to lapse with
respect to any Facility Lease or Lease;
(viii) purchase or otherwise acquire any real property;
(ix) make any significant decisions regarding merchandise
markdowns or promotional activities, or any purchases of inventory in
excess of $15 million (whether in one purchase transaction or a series
of purchase transactions of the same or a similar type of inventory);
(x) make any material capital expenditures, other than
expenditures for repair and maintenance of Stores or the distribution
centers and warehouses of the Company and the Subsidiaries in the
ordinary course of business;
(xi) enter into any agreement with a vendor providing for
payments to the Company or any Subsidiary in return for an exclusive
arrangement with such vendor; or
(xii) agree or commit to do any of the foregoing.
Seller will not, and will not permit the Company and its
Subsidiaries to, (A) take or agree or commit to take any action that would
make any representation and warranty of Seller hereunder inaccurate in any
respect at, or as of any time prior to, the Closing Date or (B) omit or agree
or commit to omit to take any action necessary to prevent any such
representation or warranty from being inaccurate in any respect at any such
time.
5.2 Access to Information. From the date hereof until the
Closing Date, Seller (i) will give, and will cause the Company and each
Subsidiary to give, Buyer, its counsel, financial advisors, auditors,
prospective lenders and other authorized representatives reasonable access
during normal business hours to the offices, properties, books and records of
the Company and the Subsidiaries and to the books and records of Seller
relating to the Company and the Subsidiaries, (ii) will furnish, and will
cause the Company and each Subsidiary to furnish, to Buyer, its counsel,
financial advisors, auditors, prospective lenders and other authorized
representatives such financial and operating data and other information
relating to the Company or any Subsidiary as such Persons may reasonably
request, including but not limited to (A) daily and weekly sales reports of
the Company and the Subsidiaries currently prepared in the ordinary course of
business, (B) unaudited monthly consolidated statements of income of the
Company and the Subsidiaries prepared in conformity with Seller's past
practices for internal use and (C) unaudited quarterly consolidated balance
sheets and statements of income of the Company and the Subsidiaries prepared
in conformity with Seller's past practices, and (iii) will instruct the
employees, counsel and financial advisors of Seller, the Company and the
Subsidiaries to cooperate with Buyer in its investigation of the Company and
the Subsidiaries. Notwithstanding the foregoing, Buyer shall not have access
to personnel records of the Company or any Subsidiary relating to individual
performance or evaluation records, medical histories or other information
which in Seller's good faith opinion is sensitive or the disclosure of which
could subject Seller to risk of liability.
5.3 Notices of Certain Events. Seller shall promptly notify
Buyer in writing of:
(i) any notice or other communication received from any
Person alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) any notice or other communication received from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement;
(iii) any actions, suits, claims, investigations or
proceedings commenced or, to its knowledge threatened against, relating
to or involving or otherwise affecting the Company or any Subsidiary
that, if pending on the date of this Agreement, would have been required
to have been disclosed pursuant to Section 3.12 or that relate to the
consummation of the transactions contemplated by this Agreement; and
(iv) any development which would have a Material Adverse
Effect on the Company and any breach of any representation or warranty
of Seller contained in this Agreement; provided that no such disclosure
shall be deemed to amend any Schedule or cure any such breach or provide
an exception to any such representation or warranty.
5.4 Resignations. Seller will deliver to Buyer the resignations
of all officers and directors of the Company and each Subsidiary who will be
officers, directors or employees of Seller or any of its Affiliates after the
Closing Date from their positions with the Company or any Subsidiary at or
prior to the Closing Date.
5.5 Intercompany Accounts and Agreements. As of the Closing, no
intercompany accounts reflecting intercompany transactions between Seller and
its Affiliates, on the one hand, and the Company and the Subsidiaries, on the
other hand, will be outstanding and any agreements relating to such
intercompany accounts shall have been terminated.
5.6 Store Openings, Remodelings and Relocations. To the extent
reasonably in the control of Seller, the Company or any Subsidiary, Seller
shall cause the Company and the Subsidiaries to proceed with the plans and
preparations for new stores and the remodeling or relocation of certain
existing Stores during calendar year 1996, in the locations and in conformity
with the schedule of openings, remodelings and relocations and the budgets
related thereto disclosed in Schedule 5.6. The terms and conditions of
leases, agreements for the construction, build-out, remodeling or relocation
shall, to the extent not otherwise agreed to as of the date hereof, be subject
to the consent of Buyer, which consent shall not be unreasonably conditioned,
delayed or withheld.
5.7 Other Offers. From the date hereof until the Closing Date or
termination hereof, Seller will not, and will cause the Company and the
Subsidiaries and their respective directors, officers, employees and
representatives not to, directly or indirectly, take any action to solicit,
initiate or encourage any Acquisition Proposal or in any manner discuss,
consider or accept any Acquisition Proposal. For purposes of this Agreement,
"Acquisition Proposal" means any offer or proposal for, or any indication of
interest in, a business combination involving the Company and the Subsidiaries
or the acquisition of any equity interest in, or a material portion of the
assets of, the Company or any Subsidiary, other than the transactions
contemplated by this Agreement. Seller shall promptly notify Buyer of any
Acquisition Proposal, which notice shall include the identity of all relevant
parties thereto and the terms and conditions of such Acquisition Proposal, or
any change in the terms and conditions of any such Acquisition Proposal,
unless Seller is otherwise prohibited from disclosing the identity of such
parties or the terms and conditions of such Acquisition Proposal pursuant to
an existing contractual arrangement.
5.8 Risk of Loss. The risk of loss of the assets of the Company
and the Subsidiaries shall remain with Seller until the Closing Date. If any
Store or any Distribution Center, as the case may be, is damaged by fire or
other casualty prior to the Closing Date, Seller shall assign to Buyer (i) all
insurance proceeds for such Store or such Distribution Center which relate to
the assets of the Company and the Subsidiaries located at such Store or such
Distribution Center and (ii) the business interruption insurance proceeds, if
any, for such Store or such Distribution Center which are attributable to the
period beginning on the Closing Date and continuing thereafter. To the extent
the Company and the Subsidiaries are self-insured, Seller shall pay to Buyer
that amount needed to restore the Store or the Distribution Center, as the
case may be, and the assets of the Company and the Subsidiaries related to
such Store or such Distribution Center to the same condition which such Store
or such Distribution Center and such assets were in prior to such casualty;
provided that to the extent any such amount is taken into account in
connection with the preparation of the Closing Balance Sheet and the
calculation of Net Book Value, Seller shall no longer be obligated to pay such
amount to Buyer pursuant to this Section 5.8.
5.9 Confidentiality. From and after the Closing Date, Seller and
its Affiliates will hold in confidence and not use, and will use their best
efforts to cause their respective officers, directors, employees, accountants,
counsel, consultants, advisors and agents to hold in confidence and not use,
unless compelled to disclose by judicial or administrative process of by other
requirements of law (including but not limited to the rules and regulations of
the Internal Revenue Service or any comparable foreign or state agency or
authority), all confidential documents and information concerning the Company
and the Subsidiaries (including information provided pursuant to Section 6.2),
and all information relating to Buyer, as may be received from Buyer, except
to the extent that such information can be shown to have been (i) in the case
of information relating to Buyer, previously known on a nonconfidential basis
by Seller, (ii) in the public domain through no fault of Seller or (iii) later
lawfully acquired by Seller from sources other than Buyer, the Company or any
Subsidiary. Seller shall be liable for any breach by any such Person of such
obligations. The obligation of Seller and its Affiliates to hold any such
information in confidence shall be satisfied if they exercise the same care
with respect to such information as they would take to preserve the
confidentiality of their own similar information.
5.10 Accounts. From the Closing Date, all monies and bank or
similar accounts for the deposit of cash or securities maintained by or on
behalf of the Company or any Subsidiary shall be held by, and accessible only
to, the Company or such Subsidiary and the respective officers thereof.
5.11 No Solicitation or Employment. Except as provided by
applicable law, from the date hereof to the date two years after the Closing
Date, neither Seller nor any of its Affiliates shall solicit to employ or
employ any individual who is an employee of the Company or any Subsidiary on
the date hereof, or at any time following the date hereof, and who on or prior
to the Closing Date occupies a home office position (other than a secretarial
or clerical position) or a management position, unless (i) such individual
shall have been, or received notice that he or she will be, involuntarily
terminated by the Company or any Subsidiary or (ii) at least six months shall
have elapsed following the cessation of such individual's employment (other
than as a result of involuntary termination) with Buyer or any of its
Affiliates.
5.12 Books and Records; Personnel. Seller acknowledges and
agrees that from and after the Closing the Company will be entitled to own and
possess, subject to the next succeeding sentence, all documents, books,
records, agreements and financial data of any sort relating to the Company, the
Subsidiaries or the Business. Seller agrees to deliver and cause its
Affiliates to deliver, prior to the Closing, all such books and records in
their possession to the Company or, to the extent such books and records are
not readily separable from the books and records of Seller or any of its
Affiliates relating to their businesses other than the Business, true and
complete copies of such books and records.
5.13 Use of Certain Names and Marks. Seller acknowledges and
confirms that (i) from and after the Closing Date, neither Seller nor any of
its Affiliates has or shall have any rights in the Company Intellectual
Property Rights and (ii) neither Seller nor any of its Affiliates will contest
the ownership or validity of any rights of Buyer or the Company in or to any
of the Company Intellectual Property Rights, or registrations (or applications
for registration) thereof. Neither Seller nor any of its Affiliates shall
have any right, from and after the Closing Date, to use or exploit any of the
Company Intellectual Property Rights, or any name confusingly similar thereto.
ARTICLE 6
COVENANTS OF BUYER
Buyer agrees that:
6.1 Confidentiality. Prior to the Closing Date and after any
termination of this Agreement, Buyer and its Affiliates will hold in
confidence and not use, and will use their best efforts to cause their
respective officers, directors, employees, accountants, counsel, consultants,
advisors and agents to hold in confidence and not to use, unless compelled to
disclose by judicial or administrative process or by other requirements of
law, all confidential documents and information concerning the Company or any
Subsidiary furnished to Buyer or its Affiliates in connection with the
transactions contemplated by this Agreement, except to the extent that such
information can be shown to have been (i) previously known on a
nonconfidential basis by Buyer, (ii) in the public domain through no fault
of Buyer or (iii) later lawfully acquired by Buyer from sources other than
Seller, the Company or any Subsidiary and except that such Person may use
such information for purposes relating to consummation of the transactions
contemplated hereby; provided that Buyer may disclose such information to
its officers, directors, employees, accountants, counsel, consultants,
advisors and agents in connection with the transactions contemplated by
this Agreement and to its lenders in connection with obtaining the
financing for the transactions contemplated by this Agreement so long as
such Persons are informed by Buyer of the confidential nature of such
information and are directed by Buyer to comply with the foregoing
obligations. Buyer shall be liable for any breach by any such Person of
such obligations. The obligation of Buyer and its Affiliates to hold any
such information in confidence shall be satisfied if they exercise the same
care with respect to such information as they would take to preserve the
confidentiality of their own similar information. If this Agreement is
terminated, Buyer and its Affiliates will, and will use their best efforts
to cause their respective officers, directors, employees, accountants,
counsel, consultants, advisors and agents to, destroy or deliver to Seller,
upon request, all documents and other materials, and all copies thereof,
obtained by Buyer or its Affiliates or on their behalf from Seller, the
Company or any Subsidiary in connection with this Agreement that are
subject to such confidence.
6.2 Access. Buyer will cause CSC Ohio, the Company and each
Subsidiary, on and after the Closing Date, to afford promptly to Seller and
its agents reasonable access during normal business hours to their properties,
books, records, employees and auditors to the extent necessary to permit
Seller to determine any matter relating to its rights and obligations
hereunder or to any period ending on or before the Closing Date; provided that
any such access (i) does not unreasonably interfere with the normal conduct of
the Business and (ii) is reasonably related to such matter (including but not
limited to the preparation of any Tax Returns). Seller shall reimburse Buyer,
CSC Ohio, the Company or any Subsidiary for the reasonable out-of-pocket
expenses incurred by such Person in connection therewith.
6.3 Notices of Certain Events. Buyer shall promptly notify
Seller in writing of:
(i) any notice or other communication received from any
Person alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) any notice or other communication received from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement;
(iii) any actions, suits, claims, investigations or
proceedings commenced or, to its knowledge threatened against, relating
to or involving or otherwise affecting Buyer that, if pending on the
date of this Agreement, would have been required to have been disclosed
pursuant to Section 4.7 or that relate to the consummation of the
transactions contemplated by this Agreement; and
(iv) any development which would have a Material Adverse
Effect on Buyer or which could reasonably be expected to have an adverse
effect on the Financing and any breach of any representation or warranty
of Buyer contained in this Agreement; provided that no such disclosure
shall be deemed to amend any Schedule or cure any such breach or provide
an exception to any such representation or warranty.
6.4 Assumption of Leases. Buyer agrees to assume and pay,
perform and discharge when due all liabilities and obligations arising under
the Facility Leases and the Leases from and after the Closing Date.
6.5 Financing. Buyer will use, and will cause CSC Ohio to use,
their respective best efforts to obtain the Financing, including the Bridge
Financing. In the event that any portion of the Financing or the Bridge
Financing becomes unavailable, regardless of the reason therefor, Buyer will
use, and will cause CSC Ohio to use, their respective best efforts to obtain
alternative financing from other sources on and subject to substantially the
same terms and conditions as the portion of the Financing or the Bridge
Financing that has become unavailable. Buyer shall use, and shall cause CSC
Ohio to use, their respective best efforts to (i) satisfy at or prior to the
Closing Date all requirements of the agreements related to the Financing and
the Bridge Financing (or any alternative financing) which are conditions to
closing under such agreements and to drawing down the proceeds of the
Financing and the Bridge Financing (or any such alternative financing), (ii)
defend all lawsuits or other legal proceedings challenging such agreements
related to the Financing or the Bridge Financing (or any alternative
financing) or the consummation of the transactions contemplated thereby and
(iii) lift or rescind any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate the
transactions contemplated thereby.
ARTICLE 7
COVENANTS OF BUYER AND SELLER
Buyer and Seller agree as follows:
7.1 Reasonable Best Efforts. Subject to the terms and conditions
of this Agreement, Buyer and Seller will use their reasonable best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary or desirable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement. Seller and Buyer
agree, and Seller, prior to the Closing, and Buyer, after the Closing, agree
to cause the Company and each Subsidiary, to execute and deliver such other
documents, certificates, agreements and other writings and to take such other
actions as may be necessary or desirable in order to consummate or implement
expeditiously the transactions contemplated by this Agreement.
Buyer agrees to cause CSC Ohio to execute and deliver all documents,
certificates, agreements and other writings and to take such other actions as
may be necessary or desirable in order to consummate or implement
expeditiously the Financing and the Bridge Financing.
7.2 Certain Filings. (a) Seller and Buyer shall cooperate with
one another (i) in determining whether any action by or in respect of, or
filing with, any governmental body, agency, official or authority is
required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material contracts, in connection with the
consummation of the transactions contemplated by this Agreement and (ii) in
taking such actions or making any such filings, furnishing information
required in connection therewith and seeking timely to obtain any such
actions, consents, approvals or waivers.
(b) Promptly upon execution and delivery of this Agreement, each
of Seller and Buyer will prepare and file, or cause to be prepared and
filed, with the appropriate governmental authorities, a notification with
respect to the transactions contemplated by this Agreement pursuant to the
HSR Act. Each of Seller and Buyer will promptly provide all additional
information requested, and take all other actions necessary or appropriate,
to comply with notification requirements under the HSR Act and to cause the
expiration of all waiting periods under the HSR Act.
7.3 Public Announcements. Seller and Buyer agree not to issue
any press release or make any public statement with respect to this Agreement
or the transactions contemplated hereby without the approval of the other,
which approval shall not be unreasonably withheld, and, except as may be
required by applicable law or any listing agreement with any national
securities exchange, will not issue any such press release or make any such
public statement prior to receipt of such approval.
7.4 Certain Matters Relating to Lease Consents. (a)
If prior to the first anniversary of the Closing Date, neither Seller nor
Buyer has received any written objection from a lessor or sublessor (a
"Landlord") under a Lease for any Store indicating that a consent or other
approval (a "Consent") of such Landlord is required under such Lease in
connection with the sale of the Shares to Buyer pursuant to this Agreement, a
Consent shall be deemed to have been delivered with respect to such Lease (a
"Delivered Lease"). If prior thereto Seller, Buyer, the Company or any
Subsidiary has received any such written objection from a Landlord, such Lease
shall not be considered a Delivered Lease until (a) two years have elapsed
from the Closing Date without the commencement of legal proceedings by such
Landlord against Seller, Buyer, the Company or any Subsidiary resulting from
the sale of the Shares to Buyer pursuant to this Agreement or (b) such
Landlord withdraws its objections in writing or legal proceedings having been
commenced within two years after the Closing Date are discontinued or
otherwise resolved against such Landlord without further right of appeal on
the part of such Landlord. If legal proceedings are commenced against Seller,
Buyer, the Company or any Subsidiary regarding any such Consent within two
years of the Closing Date, Buyer shall be responsible for defending such
action and Buyer and Seller shall share equally the cost and expense of such
defense. If legal proceedings are commenced against Seller, Buyer, the
Company or any Subsidiary regarding any such Consent more than two years after
the Closing Date, Buyer shall be responsible for defending such action at
Buyer's sole cost and expense. Seller shall promptly forward to Buyer any
written objection or other similar notice received by Seller from any Landlord.
(b) For each Lease determined to be a Terminated Lease prior to
the Closing Date, Seller's liability to Buyer for each such Terminated Lease
shall, notwithstanding any provision of this Agreement to the contrary, be
limited to the Lease Book Value and, in connection therewith, the Lease Book
Value of such Terminated Lease shall be taken into account in calculating the
Purchase Price pursuant to Section 2.01; provided that if Buyer cannot take
possession of a Store as of the Closing Date as a result of an injunction or
restraining order resulting from the sale of the Shares to Buyer pursuant to
this Agreement and such injunction or order is later lifted, such Lease will
no longer be a Terminated Lease and Buyer shall, within five Business Days
after such injunction or order is lifted, pay in cash to Seller an amount
equal to the Lease Book Value of such Lease.
(c) For each Lease determined to be a Terminated Lease after the
Closing Date, Seller shall, within five Business Days after Buyer has vacated
the Store pertaining to such Terminated Lease, pay in cash to Buyer an amount
equal to the Lease Book Value of such Terminated Lease; provided that, at such
time as the aggregate Contribution of Leases determined to be Terminated
Leases exceeds $5 million (including Leases with negative Contribution as a
deduction therefrom), Seller shall, in respect of the Terminated Lease that
caused the aggregate Contribution of Leases determined to be Terminated Leases
to exceed $5 million and each subsequent Terminated Lease, within five
Business Days after Buyer has vacated the Store pertaining to such Terminated
Lease, pay in cash to Buyer an amount equal to 50% of the present value
(applying a discount rate equal to the Reference Rate) of the Contribution of
such Terminated Lease for the remainder of the current term of such Terminated
Lease (including any option thereunder existing on the date hereof); and
provided further that, at such time as the aggregate Contribution of Leases
determined to be Terminated Leases exceeds $5 million (including Leases with
negative Contribution as a deduction therefrom), Seller shall, within five
Business Days after receipt of written notice of such event from Buyer, pay in
cash to Buyer an additional amount equal to the difference between (i) the
aggregate amount of payments previously made by Seller to Buyer in respect of
the Lease Book Value of Terminated Leases and (ii) an amount equal to the sum
of 50% of the present value (applying a discount rate equal to the Reference
Rate) of the Contribution of each such Terminated Lease for the remainder of
the term of such Terminated Lease (including any option thereunder existing
on the date hereof) in effect immediately prior to the termination of such
Terminated Lease. Buyer and Seller agree that, for purposes of the
calculation of any payment pursuant to this Section 7.4(c), (x) the
Contribution of a Terminated Lease that is a New Store Lease shall be deemed
to be equal to the Lease Book Value of such New Store Lease, (y) the
Contribution of a Terminated Lease that is less than zero shall be deemed to
be equal to zero and (z) the current term of a Terminated Lease that is a
Designated Month-to-Month Lease shall be equal to five years.
(d) (i) Except as otherwise provided in this Agreement, Buyer's
only obligation with respect to a Terminated Lease which Buyer does not take
possession of as of the Closing Date shall be to accept delivery of the
inventory from the Store relating to such Terminated Lease; provided that the
cost of shipping such inventory from the Store subject to the Terminated Lease
to Buyer shall be shared equally by Seller and Buyer.
(ii) Except as otherwise provided in this Agreement, Buyer's
only obligations with respect to a Terminated Lease which Buyer must vacate on
or after the Closing Date shall be (A) to remove the inventory from the Store
relating to such Terminated Lease and (B) deliver possession of such Store to
Landlord as soon as practicable, broom clean and in a condition substantially
equivalent to the condition in which such Store was delivered to Buyer.
Seller shall be responsible for any other modifications to the Store required
under the Terminated Lease, including restoration of the Store to its
pre-lease condition and remedying conditions caused by vacating such Store,
such as nail holes, screw holes, paint chips, scratches and dents.
(e) If, at any time subsequent to the Closing Date, any Landlord
provides as a condition to the delivery of a Consent with respect to the
applicable Lease (other than a Delivered Lease) (i) a Release Payment or (ii)
a Rent Increase, Seller shall, upon written notice thereof delivered to Seller
by Buyer at any time within 30 days following the date Buyer, the Company or
any Subsidiary enters into an agreement (including but not limited to any
amendment to such Lease or a new lease which replaces such Lease) with such
Landlord providing for such Release Payment or such Rent Increase, as the case
may be, pay to Buyer in cash an amount equal to (x) in the case of a Release
Payment, 50% of such Release Payment, or (y) in the case of a Rent Increase,
50% of the present value (applying a discount rate equal to the Reference
Rate) of the Rent Increase for the remainder of the current term of the
applicable Lease; provided that, in the event of a Rent Increase resulting
from an increase in the Original Percentage Rent, for purposes of the
calculation in this clause (y), the amount of such Rent Increase shall be
deemed to be equal to the difference in rent that would have been payable for
the most recent 12-month period ending prior to the Closing Date had such
increase in Original Percentage Rent been in effect under such Lease. In no
event shall the amount required to be paid by Seller pursuant to this Section
7.4(e) exceed the Lease Book Value of the applicable Lease. Upon payment by
Seller of any amount required to be paid by it pursuant to this Section 7.4(e)
with respect to any Lease, such Lease shall be deemed to be a Delivered Lease
and Seller shall have no further obligation of any kind whatsoever with
respect to such Lease.
(f) (i) If, at any time prior to the Closing Date, any
Landlord provides as a condition to the delivery of a Consent with respect
to the applicable Lease (other than a Delivered Lease) (A) a Release
Payment or (B) a Rent Increase, Seller shall obtain the consent of Buyer
prior to causing the Company or any Subsidiary to enter into an agreement
(including but not limited to any amendment to such Lease or a new lease
which replaces such Lease) with such Landlord providing for such Release
Payment or such Rent Increase, as the case may be, which consent of Buyer
shall not be unreasonably conditioned, delayed or withheld; provided that
if Buyer does not so consent, the applicable Lease shall be deemed to be a
Terminated Lease. Seller may otherwise enter into, or cause the Company or
any Subsidiary to otherwise enter into, any such agreement with any
Landlord to obtain the Consent of such Landlord with respect to the
applicable Lease, so long as such agreement does not provide for a Release
Payment or a Rent Increase or other action not permitted by this Agreement,
and such Lease shall be deemed to be a Delivered Lease.
(ii) If Buyer consents to such Release Payment or such Rent
Increase, as the case may be, Seller shall, on the Closing Date, pay to Buyer
in cash an amount equal to (A) in the case of a Release Payment, 50% of such
Release Payment or (B) in the case of a Rent Increase, 50% of the present
value (applying a discount rate equal to the Reference Rate) of the Rent
Increase for the remainder of the current term of the applicable Lease;
provided that, in the event of a Rent Increase resulting from an increase in
the Original Percentage Rent, for purposes of the calculation in this clause
(B), the amount of such Rent Increase shall be deemed to be equal to the
difference in rent that would have been payable for the most recent 12-month
period ending prior to the Closing Date had such increase in Original
Percentage Rent been in effect under such Lease. Upon payment by Seller of
any amount required to be paid by it pursuant to this Section 7.4(f)(ii) with
respect to any Lease, such Lease shall be deemed to be a Delivered Lease and
Seller shall have no further obligation of any kind whatsoever with respect to
such Lease.
(g) Buyer agrees that, if any Landlord provides as a condition to
the delivery of a Consent with respect to the applicable Lease that Buyer, the
Company or any Subsidiary give an assurance (either orally or in writing) that
such Person will comply with the terms and conditions of such Lease, Buyer
shall, or shall cause the Company or the relevant Subsidiary to, give such
assurance to such Landlord.
(h) Each of Buyer and Seller agree to keep the other generally
apprised of the status of any matters that are the subject of this Section 7.4.
7.5 Designated Closed Store Leases and Excluded Subsidiaries.
Prior to the Closing Date, Seller shall cause the Indianapolis Lease and the
Designated Closed Store Leases and the Excluded Subsidiaries disclosed in
Schedule 7.5 to be contributed, distributed or otherwise transferred or
assigned to Seller or one of its Affiliates; provided that, to the extent any
such contribution, distribution, transfer or assignment is prohibited by a
judgment, injunction, order or decree or by applicable law, Buyer and Seller
shall use their best efforts to implement any lawful arrangement designed to
effect the intent of such parties hereunder.
7.6 Reimbursement by the Parties. To the extent that Seller, on
the one hand, or Buyer, the Company or any Subsidiary, on the other hand,
receives any payment after the Closing which is properly payable to the other
party, it shall promptly pay over such payment to the other party.
7.7 Information. For so long as MRC is a guarantor under any
Facility Lease or Lease, Buyer shall, within 30 days after the end of each
March, June, September and December, deliver to Seller a schedule of the
Leases then outstanding in respect of which MRC is a guarantor, including a
list of such Leases and the remaining term (including any option(s)) and the
applicable rent and any other amounts payable under such Leases. Prior to the
Closing Date, Seller shall prepare and deliver to Buyer a schedule setting
forth such information as of March 31, 1996. The provisions of Section 6.2
(including expense reimbursement) shall apply to the matters covered by this
Section 7.7.
7.8 Litigation. (a) Seller shall indemnify Buyer against and
defend and hold Buyer harmless from any and all Damages incurred or suffered
by Buyer arising out of (i) all matters disclosed in item 1 of Schedule 3.10
and Schedule 3.12 (each such Schedule as updated as of the Closing Date
pursuant to this Section 7.8), (ii) any suit, action, charge or complaint
relating to (x) any labor or employment matter (including but not limited to
discrimination, employment practice or workmen's compensation matters) arising
from occurrences prior to the Closing Date or (y) any product liability claim
arising from products sold prior to the Closing Date, and (iii) any suit,
action, charge or complaint brought by any person ingressing, egressing or
situated upon or in any Store, Distribution Center or Regional Office arising
from occurrences related thereto prior to the Closing Date. On the Closing
Date, Seller shall deliver to Buyer a schedule updating the information set
forth in item 1 of Schedule 3.10 and Schedule 3.12 as of the Closing Date.
(b) Buyer and Seller hereby agree that, from and after the
Closing Date, Seller shall have the right to assume and take control of, in
the name and on behalf of the Company and the Subsidiaries, at Seller's sole
cost and expense, the actions disclosed in Schedule 3.12. Buyer hereby agrees
to cause the Company or any Subsidiary to promptly execute and deliver any
document, certificate, agreement or other writing and to take such other
actions as may be necessary or desirable in connection therewith. Any amounts
recovered by Seller in respect of such actions shall, to the extent
attributable to the period prior to the Closing Date, be solely for the
account of Seller and, to the extent attributable to the period from and after
the Closing Date, be solely for the account of the Company and the
Subsidiaries.
(c) Buyer agrees to (i) give, and to cause the Company and the
Subsidiaries to give, Seller, its counsel and other authorized representatives
reasonable access during normal business hours to the employees, offices,
properties, books and records of the Company and the Subsidiaries reasonably
related to the investigation, defense or pursuit of the matters referred to
in Sections 7.8(a) and (b) and (ii) instruct the employees of the Company and
the Subsidiaries to cooperate with and assist Seller, its counsel and other
authorized representatives in the investigation and defense or pursuit of any
such matters, including but not limited to participating in depositions or
appearing as witnesses. Seller shall reimburse Buyer, the Company or any
Subsidiary or any of their respective employees for the reasonable
out-of-pocket expenses incurred by any such Person in connection therewith.
7.9 Guarantees. Buyer and Seller hereby agree that, in
connection with any new lease or sublease to be entered into by the Company or
any Subsidiary from the date hereof to the Closing Date, Buyer and Seller
shall enter into a guarantee arrangement with the landlord whereby Seller or
one of its Subsidiaries shall be the guarantor of such lease until the Closing
Date and, assuming the Closing shall have occurred on the Closing Date, Buyer
or one of its Subsidiaries shall be the guarantor of such lease from and after
the Closing Date and Seller or such Subsidiary of Seller shall be released
from any and all liabilities and obligations under such guarantee arrangement
as of the Closing Date. In connection with any renewal or extension of, or
the exercise of any option under, any Lease from the date hereof to the
Closing Date, Buyer and Seller shall use their best efforts to substitute the
existing MRC guarantee of such Lease with the guarantee arrangement described
in the previous sentence of this Section 7.9.
7.10 Material Contracts. The parties recognize that several of
the material contracts disclosed in Schedule 3.11 will need to be assigned by
Seller to the Company or a Subsidiary prior to the Closing Date and that such
assignment may require the consent of the counterparty to such contract.
Seller shall use its best efforts to obtain any such consent prior to the
Closing Date. To the extent that any such consent is not obtained as of the
Closing Date, Buyer and Seller shall use their best efforts, at Seller's sole
cost and expense, to implement any lawful arrangement designed to effect the
intent of the parties hereunder.
ARTICLE 8
TAX MATTERS
8.1 Tax Representations. Seller represents and warrants to Buyer
as of the date hereof and as of the Closing Date that, except as set forth in
the Balance Sheet (including the notes thereto) or on Schedule 8.1, to
Seller's knowledge, (i) all material Returns required to be filed on or before
the date hereof with respect to any Pre-Closing Tax Period by, or with respect
to the Company or any Subsidiary have been duly and timely filed (taking into
account extensions); (ii) no position is reflected in a Return referred to in
clause (i) for which the applicable limitation period has not expired (and for
which a closing agreement has not been entered into) which (A) was not, at the
time such Return was filed, supported by substantial authority (as determined
for purposes of Section 6662 of the Code, or any predecessor provision, and
any comparable provisions of applicable foreign, federal, state, or local tax
statutes, rules or regulations) and (B) would have a Material Adverse Effect
on the Company if decided against the taxpayer; (iii) the Company and the
Subsidiaries have timely paid, withheld or made provision for all Taxes shown
as due and payable on any Return and have timely paid, withheld, or made
provision for all material Taxes, whether or not shown on any Return; (iv)
there is no action, suit, proceeding, investigation, audit or claim now
proposed or pending against or with respect to the Company or any Subsidiary
in respect of any material Tax; (v) the Company and each Subsidiary is a
member of the Seller Group, and the Seller Group files a consolidated federal
Income Tax Return; (vi) since 1982, neither the Company nor any Subsidiary has
at any time been a member of an affiliated group filing a consolidated federal
Income Tax Return other than a group, the common parent of which is Seller;
(vii) Seller has made available to Buyer correct and complete copies of all
portions of federal Income Tax Returns and examination reports which pertain
to the Company and the Subsidiaries, and statements of deficiencies assessed
against or agreed to by any of the Company and the Subsidiaries for any Tax
period ending after December 30, 1992; (viii) Schedule 8.1 lists any statute
of limitations in respect of Taxes the Company or any Subsidiary has waived or
any extension of time agreed to by the Company or any Subsidiary, with respect
to a Tax audit, examination, assessment or deficiency, in each case, which
shall not have expired on or prior to the Closing Date; (ix) neither the
Company nor any Subsidiary has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances
could obligate it to make any payments that will not be deductible under Code
Sections 280G or 162(m); and (x) no taxing jurisdiction has since 1992 claimed
in writing that Returns that the Company and the Subsidiaries are not (in
fact) filing should be filed, or that Taxes of a type not (in fact) being paid
to such jurisdiction should be paid.
8.2 Tax Covenants. (a) Seller and Buyer agree to make a timely,
effective and irrevocable election under Section 338(h)(10) of the Code and
under any comparable statutes in any other jurisdiction (other than Puerto
Rico or any other jurisdiction outside of the United States) with respect to
the Company and each of the Subsidiaries (the "Section 338(h)(10) Election"),
and to file such election in accordance with applicable regulations. Seller
and Buyer agree to cooperate (and cause their respective subsidiaries to
cooperate) in all respects for the purpose of effectuating a timely and
effective Section 338(h)(10) Election, including without limitation, the
execution and filing of any forms or returns. The Section 338(h)(10) Election
shall properly reflect the Price Allocation (as hereinafter defined). Within
150 days after the Closing Date, Buyer shall deliver to Seller a statement
(the "Allocation Statement") allocating the modified ADSP (as such term is
defined in Treasury Regulations Section 1.338(h)(10)-1) among the assets of
the Company and the Subsidiaries in accordance with the Treasury regulations
promulgated under Section 338(h)(10). Seller shall have the right to review
the Allocation Statement. If within 30 days after receipt of the Allocation
Statement Seller notifies Buyer in writing that the allocation of one or more
items reflected in the Allocation Statement is not a reasonable allocation,
Buyer and Seller will negotiate in good faith to resolve such dispute. If
Buyer and Seller fail to resolve such dispute within 30 days, the Tax
Accountants shall determine whether the allocation was reasonable and, if not
reasonable, shall appropriately revise the Allocation Statement. The costs,
fees and expenses of the Tax Accountants shall be borne equally by Buyer and
Seller. If Seller does not respond within 30 days, or upon resolution of the
disputed items, the allocation reflected on the Allocation Statement (as such
may have been adjusted) shall be the "Price Allocation" which shall be binding
on the parties hereto. Seller and Buyer agree to act in accordance with the
Price Allocation in the preparation and filing of any Return.
(b) Buyer covenants that it will not cause or permit the Company,
any Subsidiary or any Affiliate of Buyer (i) to take any action on the Closing
Date (A) other than as contemplated by this Agreement or any other agreement
or document contemplated by this Agreement or (B) other than in the ordinary
course of business, including but not limited to the distribution of any
dividend or the effectuation of any redemption that could give rise to any Tax
liability of the Seller Group or to any loss of Seller or the Seller Group
under this Agreement or (ii) except as provided in Section 8.2(c), to make or
change any Tax election (other than the making of the Section 338(h)(10)
Election), amend any Return or take any position on any Return, that results
in any increased Tax liability, including Tax increases resulting from the
reduction of any Tax attribute. Buyer agrees that Seller is to have no
liability for any Tax resulting from any action, referred to in the preceding
sentence, of the Company, Buyer or any Affiliate of Buyer, and agrees to
indemnify and hold harmless Seller and its Affiliates against any such Tax and
any loss, cost and reasonable out-of-pocket expenses incurred by Seller or any
of its Affiliates as a result of any assertion, assessment or imposition by
any Taxing Authority of any of the above-described types of Taxes (any such
loss, cost and expense herein referred to as a "Loss").
(c) With respect to Income Tax Returns for a Tax period of the
Company or any Subsidiary that includes (but does not end on) the Closing
Date, the Buyer may cause or permit the Company or any Subsidiary to make or
change any Tax election or accounting method. If it is "more likely than not"
(within the meaning of Treasury Regulation Section 1.6662-4(d)(2)) that the
Tax election or accounting method used by the Company or any Subsidiary prior
to the Closing was a proper election or method, Buyer shall indemnify and hold
Seller and its Affiliates harmless against any Tax resulting from such action.
If the Tax election or accounting method used by the Company or any Subsidiary
prior to the Closing does not meet the "more likely than not" standard
referred to in the preceding sentence, but was supported by "substantial
authority" (within the meaning of Treasury Regulation Section 1.6662-4(d)(3)),
then Buyer shall indemnify and hold harmless Seller and its Affiliates against
50 percent of any Tax resulting from such action. At the time such Return is
delivered to Seller pursuant to Section 8.2(h), Buyer shall notify Seller in
writing (i) if any Tax election or accounting method in effect for the Company
or any Subsidiary has been changed, (ii) if in Buyer's view such prior
election or method did not meet the "more likely than not" standard or lacked
"substantial authority" and (iii) the cost to Seller of the change of such
election or method. If Seller disagrees with any position taken by Buyer in
such written notice, the parties shall proceed in good faith to resolve the
matter and, if they are unable to do so within 10 Business Days, the Tax
Accountants shall resolve the disputed items within a reasonable time, taking
into account the deadline for filing such Return. The costs, fees and
expenses of the Tax Accountants shall be borne equally by Buyer and Seller.
(d) Buyer shall promptly pay or shall cause prompt payment to be
made to Seller of all refunds of Taxes (except refunds of Taxes reflected on a
Return that does not include Seller or any of its Affiliates and which is
attributable to carrybacks of tax attributes from a Post-Closing Tax Period to
a Pre-Closing Tax Period) and interest thereon received by, or credited to the
Tax liability of, Buyer, any Affiliate of Buyer, the Company, or any
Subsidiary attributable to Taxes paid by Seller, the Company or any Subsidiary
(or any predecessor of Affiliate of Seller) with respect to any Pre-Closing
Tax Period and which is not reflected on the Closing Balance Sheet, adjusted
as appropriate to reflect Final Net Book Value.
(e) All transfer, documentary, sales, use, stamp, registration
and other such Taxes and fees (including any penalties and interest) incurred
in connection with the transactions contemplated by this Agreement ("Transfer
Taxes") shall be borne by the party on whom such Tax is imposed under the
relevant law, except that the aggregate liability for any New York State Real
Property Transfer Gains Tax, New York State Real Estate Transfer Tax, New York
City Real Property Transfer Tax shall be shared equally by Buyer and Seller.
The party that is required by applicable law to make the filings, reports,
returns or payments with respect to any Transfer Tax shall do so, and the
other party shall cooperate with respect thereto as necessary. Within a
reasonable period prior to the date on which a Transfer Tax that the parties
share equally is required to be paid, the parties shall agree on the amount of
such Transfer Tax and the basis on which the amount of such Transfer Tax is to
be computed and the party that is not making the payment to the Taxing
Authority shall compensate the paying party in accordance with this Section
8.2(e) prior to the date on which such Transfer Tax is required to be paid.
(f) Seller shall include the income of the Company and the
Subsidiaries in Seller's federal consolidated Income Tax Return, and shall
file all state, foreign and local Income Tax Returns of the Company and the
Subsidiaries, for all Tax periods ending on or before the Closing Date and
shall be responsible for remitting all Taxes reflected on such Income Tax
Returns.
(g) With respect to Income Tax Returns referred to in Section
8.2(f) for the Tax period ending on the Closing Date, Buyer shall cause the
Company and the Subsidiaries to prepare and provide to Seller one or more
packages of information materials as are reasonably necessary for the purpose
of preparing each such Income Tax Return (the "Tax Packages"). Each Tax
Package shall be completed in all material respects in accordance with the
standards that Seller has established for its other subsidiaries. If Buyer
reasonably believes that such standards differ materially from Seller's past
practices for the Company and the Subsidiaries, Buyer shall provide written
notice to Seller setting forth in detail the specific differences. If within
10 Business Days after receipt of such notice Seller notifies Buyer that it
disagrees that such standards differ materially from Seller's past practices,
Buyer and Seller will negotiate in good faith to resolve such dispute. If
Buyer and Seller fail to resolve such dispute within 10 days, the Tax
Accountants shall determine whether such standards differ materially from
Seller's past practices for the Company and the Subsidiaries. Such
determination shall be binding upon the parties hereto. The costs, fees and
expenses of the Tax Accountants shall be borne equally by Buyer and Seller.
If it is agreed or determined that such standards differ materially from
Seller's past practices for the Company and the Subsidiaries, Seller shall (at
Seller's option) either bear all reasonable costs of preparing such Tax
Packages in excess of those that would have been incurred had they been
prepared in a manner consistent with Seller's past practices for the Company
and the Subsidiaries or prepare such additional materials as may be necessary
at its expense. Buyer shall use reasonable efforts to deliver the Tax
Packages to Seller as soon as practicable after the Closing date, but in no
event later than the date that is eight months after the Closing Date. Within
30 days after the filing of such Income Tax Returns, Seller shall provide Buyer
with copies of each separate company pro forma Income Tax Return and any other
Income Tax Return pertaining exclusively to the Company and the Subsidiaries.
(h) Buyer shall prepare and file, or cause to be prepared and
filed, on a timely basis all Income Tax Returns required to be filed by the
Company and each Subsidiary for any Tax period of the Company or any
Subsidiary that includes (but does not end on) the Closing Date and shall be
responsible for remitting all Taxes reflected on such Returns (subject to
reimbursement to the extent provided in Section 8.5 below). Except as
provided in Section 8.2(c), any such Return shall be prepared in a manner
consistent with past practice and without a change of any election or any
accounting method and shall be submitted by Buyer to Seller (together with
schedules, statements and, to the extent requested by Seller, supporting
documentation) at least 45 days prior to the due date (including extensions)
of such Return. Seller shall have the right to review all work papers and
procedures used to prepare any such Return. If Seller, within 10 Business
Days after delivery of any such Return, notifies Buyer in writing that it
objects to any items in such Return or to any position taken by Buyer in the
notification described in Section 8.2(c), the parties shall proceed in good
faith to resolve the disputed items and, if they are unable to do so within 10
Business Days, the disputed items shall be resolved (within a reasonable time,
taking into account the deadline for filing such Return) by the Tax
Accountants; provided that if the Tax Accountants shall determine that two or
more alternative positions with respect to the matter in question are equally
supported by applicable law, then, at Buyer's option, either (i) Seller's
position shall be taken on the relevant Return and Seller shall pay to Buyer
any additional Tax shown on such Return resulting from such position to the
extent it relates (pursuant to Section 8.5(b)) to the Post-Closing Tax Period
or (ii) Buyer's position shall be taken on the relevant Return and Buyer shall
pay to Seller any additional Tax shown on such Return resulting from such
position to the extent it relates (pursuant to Section 8.5(b)) to the
Pre-Closing Tax Period; and provided further that if a disputed item is
subject to the provisions of Section 8.2(c) as well as the provisions of this
Section 8.2(h), the provisions of Section 8.2(c) shall govern. Upon
resolution of all disputed items, the relevant Return shall be adjusted to
reflect such resolution and shall be binding upon the parties without further
adjustment. The costs, fees and expenses of the Tax Accountants shall be
borne equally by Buyer and Seller.
(i) The Estimated Net Book Value and the Closing Balance Sheet
shall each include accruals for Miscellaneous Taxes owing for the Pre-Closing
Tax Period. Seller shall prepare or cause to be prepared and file or cause to
be filed all Miscellaneous Tax Returns due on or before the Closing Date
(taking into account extensions) and shall be responsible for remitting all
Miscellaneous Taxes reflected on such Miscellaneous Tax Returns. Copies of
such Miscellaneous Tax Returns shall be maintained by the Company and the
Subsidiaries. Buyer shall prepare and file or cause to be prepared and filed
in accordance with the procedures and methods set forth in Section 8.2(h) all
Miscellaneous Tax Returns due after the Closing Date (taking into account
extensions) and shall remit all Taxes reflected on such Returns (subject to
reimbursement to the extent provided in Section 8.5 below). Buyer shall,
within a reasonable period after each month end, submit to Seller a schedule
in reasonable detail outlining the Miscellaneous Returns filed during such
month which include Taxes for the Pre-Closing Tax Period, and the amount of
Taxes paid with respect to the Pre-Closing Tax period. Seller, at its expense
may at reasonable times audit the Miscellaneous Tax Returns including the
Pre-Closing Tax Period at any time prior to December 31, 1997. If Seller, in
connection with such audit, and no later than June 30, 1998, notifies Buyer
that its allocation of Miscellaneous Taxes to the Pre-Closing Tax Period is
excessive, the parties shall proceed in good faith to resolve the matter and,
if they are unable to do so within 10 business days, the disputed matter shall
be resolved (within a reasonable time) by the Tax Accountants and such
resolution shall be binding upon the parties. The costs, fees and expenses of
the Tax Accountants shall be borne equally by Buyer and Seller.
(j) Any Return prepared by Seller with respect to a Pre-Closing
Tax Period, pursuant to Section 8.2(f) or (i), shall be prepared in a manner
consistent with past practice and without a change of any election or any
accounting method.
(k) Notwithstanding the first sentence of Section 8.2(a), with
respect to each Subsidiary which on or before the Closing Date will have done
business in Puerto Rico (a "Puerto Rico Subsidiary"), Seller (i) may, at its
option, prior to the Closing Date, cause each Puerto Rico Subsidiary to
distribute its undistributed earnings and profits estimated through the Closing
Date, and to withhold and remit any associated withholding Taxes and (ii)
shall, if necessary, reflect on the Closing Balance Sheet (adjusted as
appropriate to reflect Final Net Book Value), in addition to all other
accruals, a liability for Puerto Rico taxes equal to the undistributed
earnings and profits of each Puerto Rico Subsidiary calculated through the
Closing Date multiplied by the Puerto Rico withholding tax rate (in effect on
the Closing Date) which is imposed on distributions of earnings and profits;
provided that if Seller does not elect the option provided by clause (i),
Seller may request that Buyer make, and if so requested Buyer shall make, an
election under Puerto Rico law comparable to the election under Section 338 of
the Code (the "Section 1115 Election"); and provided further that Buyer shall
not be obligated to comply with such request unless such request is received
by Buyer at least 30 days prior to the date which Seller reasonably believes
is the date by which the Section 1115 Election must be filed with the
appropriate Puerto Rico Taxing Authority. If a Section 1115 Election is made
and either Seller obtains a favorable ruling from the appropriate Puerto Rico
Taxing Authority that earnings and profits are reduced or published rules or
regulations are reasonably clear that earnings and profits are reduced (in
either case, the "Section 1115 Authority"), the accrual on the Closing Balance
Sheet (adjusted as appropriate to reflect Final Net Book Value) referred to in
clause (ii) shall be reduced proportionately to the extent that earnings and
profits accumulated through the Closing Date by any Puerto Rico Subsidiary are
reduced as a result of the Section 1115 Election, and Buyer shall promptly
refund to Seller an amount equal to the reduction in such accrual; provided
that Seller shall indemnify Buyer for any Tax resulting from the Section 1115
Election, other than any Tax resulting from a reduction in the basis of any
asset held by a Puerto Rico Subsidiary; and provided further that if the
Section 1115 Election is made without any Section 1115 Authority, Buyer shall
be under no obligation to refund any amounts to Seller under this Section
8.2(k) until it is reasonably clear that Section 1115 Authority exists. In
addition, with respect to each Puerto Rico Subsidiary, Seller (i) may, at its
option, cause each Puerto Rico Subsidiary to pay all its estimated but unpaid
interest and royalty payments, calculated through the Closing Date, and
withhold and remit any associated withholding Taxes and (ii) shall, if
necessary, reflect on the Closing Balance Sheet (adjusted as appropriate to
reflect Final Net Book Value), in addition to all other accruals, a liability
for Puerto Rico Taxes equal to the sum of (x) the accrued and unpaid interest
of each Puerto Rico Subsidiary, calculated through the Closing Date,
multiplied by the Puerto Rico withholding Tax rate (in effect on the Closing
Date) which is imposed on interest payments and (y) the accrued and unpaid
royalty payments of each Puerto Rico Subsidiary, calculated through the
Closing Date, multiplied by the Puerto Rico withholding Tax rate (in effect on
the Closing Date) which is imposed on royalty payments. If a dispute arises
between Buyer and Seller pursuant to this Section 8.2(k), Buyer and Seller
shall negotiate in good faith to resolve it. If Buyer and Seller fail to
resolve such dispute within 10 days, such dispute shall be referred to the Tax
Accountants for resolution. The costs, fees and expenses of the Tax
Accountants shall be borne equally by Buyer and Seller.
8.3 Termination of Existing Tax Sharing Agreements. Any and all
existing Tax sharing agreements (written or unwritten, formal or informal)
between the Company or any Subsidiary and any member of the Seller Group shall
be terminated as of the Closing Date. After such date neither the Company,
any Subsidiary, Seller nor any Affiliate of Seller shall have any further
rights or liabilities thereunder.
8.4 Cooperation on Tax Matters. Seller and Buyer shall
reasonably cooperate, and shall cause their respective Affiliates, agents,
auditors, representatives, officers and employees reasonably to cooperate, in
preparing and filing all Tax Returns (including amended returns and claims for
refund), including maintaining and making available to each other all records
necessary in connection with Taxes and in resolving all disputes and audits
with respect to all taxable periods relating to Taxes. Buyer and Seller agree
to retain or cause to be retained all books and records pertinent to the
Company and the Subsidiaries until the applicable period for assessment under
applicable law (giving effect to any and all extensions or waivers) has
expired, and to abide by or cause the abidance with all record retention
agreements entered into with any taxing authority. Buyer, Seller, the Company
and the Subsidiaries agree to give the other reasonable notice prior to
transferring, discarding or destroying any such books relating to Tax matters
and, if Seller so requests, the Company or any Subsidiary shall allow Seller
to take possession of such books and records. Buyer and Seller shall
cooperate with each other in the conduct of any audit or other proceedings
involving the Company or any Subsidiary for any Tax purposes and each shall
execute and deliver such powers of attorney and other documents as are
necessary to carry out the intent of this Section 8.4. For any Income Tax
Return of the Company or any Subsidiary that Seller is responsible for filing
and that requires the signature of an officer of the Company or such
Subsidiary, Seller shall present a completed Income Tax Return for the
signature of an appropriate officer designated by the Company or such
Subsidiary. Seller shall give such officer any support for the Tax Return
reasonably requested by such officer. The officer shall sign the return and
deliver it to Seller as soon as reasonably practicable.
8.5 Indemnification by Seller. (a) Seller hereby indemnifies
Buyer against and agrees to hold it harmless from any (i) Tax Loss, and (ii)
Tax attributable to the Section 338(h)(10) Election, other than any Tax
imposed for a Post-Closing Tax Period which is attributable to the Price
Allocation; provided that Seller shall have no liability for the payment of
any Tax or Loss for which Buyer explicitly assumes ultimate responsibility
pursuant to this Article 8.
(b) For purposes of this Section 8.5, in the case of any Taxes
that are imposed on a periodic basis and are payable for a Tax period that
includes (but does not end on) the Closing Date, the portion of such Tax
related to the portion of such Tax period ending on the Closing Date shall (i)
in the case of any Taxes other than Taxes based upon or related to income,
sales, gross receipts, wages, capital expenditures or expenses, be deemed to
be the amount of such Tax for the entire Tax period multiplied by a fraction
the numerator of which is the number of days in the Tax period ending on the
Closing Date and the denominator of which is the number of days in the entire
Tax period, and (ii) in the case of any Tax based upon or related to income,
sales, gross receipts, wages, capital expenditures or expenses, be deemed
equal to the amount which would be payable if the relevant Tax period ended on
the Closing Date. Any Tax credits relating to a Tax period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Tax period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner
consistent with prior practice of the Company and the Subsidiaries, provided
that such prior practice is "more likely than not" (within the meaning of
Treasury Regulation Section 1.6662-4(d)(2) a proper practice. If at least 45
days prior to the payment of any Tax subject to this Section 8.5(b) Buyer
shall notify Seller in writing that in Buyer's view such practice does not
meet the "more likely than not" standard and Seller disagrees, the matter
shall be resolved in accordance with the provisions of Section 8.2(c).
(c) If as a result of an adjustment Seller makes a payment to
any Taxing Authority in respect of a Miscellaneous Tax of the Company with
respect to any Pre-Closing Tax Period, then Buyer shall promptly pay to Seller
an amount equal to such payment made by Seller; provided that no such payment
shall be made by Buyer if Buyer has incurred a Tax Loss in connection with
Miscellaneous Taxes; and provided further that any payment by Buyer pursuant
to this Section 8.5(c) shall be treated as a payment by Buyer of a
Miscellaneous Tax for a Pre-Closing Tax Period.
(d) Subject to Section 8.7, Seller shall pay Buyer the amount of
any Tax Loss for which Seller is responsible pursuant to this Section 8.5 not
later than 20 days after receipt by Seller of written notice from Buyer
stating that a Tax Loss has been incurred by Buyer, any of its Affiliates or,
effective upon the Closing, the Company or any Subsidiary and the amount
thereof and of the indemnity payment requested.
(e) If any claim or demand for Taxes in respect of which
indemnity may be sought pursuant to this Section 8.5 (other than Taxes shown
as due on a Return pursuant to Section 8.2(e), (h) or (i)) is asserted in
writing against Buyer, any of its Affiliates the Company or any Subsidiary,
Buyer shall promptly notify Seller of such claim or demand within sufficient
time that would allow Seller to timely respond to such claim or demand, and
shall give Seller such information with respect thereto as Seller may
reasonably request. Seller may discharge, at any time, its indemnification
obligation under this Section 8.5 by paying to Buyer the amount of the
applicable Tax Loss, calculated on the date of such payment. Seller may, at
its own expense, participate in and, upon notice to Buyer, assume the defense
of any such claim, suit, action, litigation or proceeding (including any Tax
audit). If Seller assumes such defense and if the relevant claim, suit,
action, litigation or proceeding relates to a taxable period that includes
(but does not end on) the Closing Date, Buyer shall have the right (but not
the duty) to participate in the defense thereof and to employ counsel, at its
own expense, separate from the counsel employed by Seller. Whether or not
Seller chooses to defend or prosecute any claim, all of the parties hereto
shall cooperate in the defense or prosecution thereof. Seller shall not be
liable under this Section 8.5, for (i) any Tax claimed or demanded by any
taxing authority, the payment of which was made without Seller's prior written
consent unless Seller refused to participate in the proceedings and assume the
defense, or (ii) any settlements entered into without the consent of Seller,
or resulting from any claim, suit, action, litigation or proceeding in which
Seller was not permitted an opportunity to participate. Notwithstanding
anything herein to the contrary, Buyer may, at its own expense, initiate a
challenge to any real property assessment relating to a Pre-Closing Tax Period.
8.6 Indemnification by Buyer. Buyer hereby indemnifies Seller
against and agrees to hold it harmless from any Taxes and Loss for which Buyer
is responsible pursuant to Section 8.2(b), (c), (e) or (h). Other than with
respect to Taxes shown as due on a Return pursuant to Section 8.2(e) or (h),
Seller agrees to give prompt notice to Buyer of the assertion of any claim, or
the commencement of any action or proceeding, in respect of which indemnity
may be sought under this Article 8. Buyer may participate in and assume the
defense of any such suit, action or proceeding at its own expense. If Buyer
assumes such defense, Seller shall have the right (but not the duty) to
participate in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by Buyer. Whether or not Seller chooses to
defend or prosecute any claim, the parties hereto shall cooperate in the
defense or prosecution thereof.
8.7 Miscellaneous Tax Matters. Notwithstanding any other
provision of this Agreement, (i) Buyer shall not make a demand for payment
from Seller of any Tax Loss, nor shall Seller make a demand for payment from
Buyer of any Tax or Loss, unless the demand for payment includes claims for an
aggregate amount of at least $2,000, and (ii) the provisions of Sections
11.4(a) and 11.5 shall not apply to claims for indemnity under this Article 8.
ARTICLE 9
EMPLOYEES AND EMPLOYEE BENEFITS
9.1 Employees. With respect to each individual who, as of the
Closing Date, is employed (including persons absent from active service by
reason of illness, disability or leave of absence, whether paid or unpaid) by
the Company or any Subsidiary ("Transferred Employees"), Buyer shall cause the
Company to continue the employment of each Transferred Employee. The employee
benefit plans and arrangements maintained by Buyer (other than Buyer's defined
benefit pension plan, participation in which was frozen as of April 1, 1994)
shall give full credit for purposes of eligibility and vesting (and in
connection with any such severance or vacation plan or policy, for purposes of
determining the level of benefit) for any service of a Transferred Employee
with Seller, the Company and the Subsidiaries.
9.2 Qualified Plans. (a) Seller shall retain all liabilities
and obligations in respect to benefits accrued by Transferred Employees under
Seller's ESOP. As soon as practicable after the Closing Date, Seller shall
take such action as may be necessary, if any, to permit each Transferred
Employee to exercise his rights under Seller's ESOP to effect an immediate
distribution of such Transferred Employee's full account balances under
Seller's ESOP or to effect a tax-free rollover of the taxable portion of the
account balances into Buyer's 401(k) Plan (a "Direct Rollover") or to an
individual retirement account. Seller and Buyer shall work together in order
to facilitate any such distribution or rollover and to effect a Direct
Rollover for those participants who elect to roll over their account balances
directly into Buyer's 401(k) Plan; provided that nothing contained herein
shall obligate Buyer's 401(k) Plan to accept a Direct Rollover in a form other
than cash.
(b) On the Closing Date, or as soon as practicable thereafter,
Buyer shall take all action necessary, if any, to qualify Buyer's 401(k) Plan
under the applicable provisions of the Code and shall make any and all filings
and submissions to the appropriate governmental authorities required to be
made by it in connection with any Direct Rollover.
(c) As soon as practicable after the Closing Date, Buyer shall
take all necessary action, if any, and shall make any and all filings and
submissions to the appropriate governmental agencies required to be made by
it, in connection with the transfer of assets described below. As soon as
practicable following the issuance of indemnities satisfactory to Seller,
Seller shall cause the trustee of Seller's 401(k) Profit Sharing Plan to
transfer (the "Account Balance Transfer") to the trustee under the trust
agreement forming a part of Buyer's 401(k) Plan, in the form of cash or, to
the extent provided by Section 9.2(d), notes (or such other form as may be
agreed to by Seller and Buyer) the full account balances of Transferred
Employees under Seller's 401(k) Profit Sharing Plan (which account balances
will have been credited with appropriate earnings attributable to the period
from the Closing Date to the date of the Account Balance Transfer), reduced by
any necessary benefit or withdrawal payments to or in respect of Transferred
Employees occurring during the period from the Closing Date to the date of the
Account Balance Transfer; provided that Seller shall be under no obligation to
effect a distribution or payment under Seller's 401(k) Profit Sharing Plan
prior to the Account Balance Transfer in respect of a Transferred Employee
(who either terminates employment after the Closing Date but prior to the
Account Balance Transfer or is seeking such distribution or payment in
connection with a hardship withdrawal) if the required distribution and
payment forms have not been received by Seller prior to the last day of the
month preceding the month in which the Account Balance Transfer occurs. In
consideration for the Account Balance Transfer, Buyer shall, effective as of
the date of such transfer, assume all of the obligations of Seller in respect
of the account balances accumulated by Transferred Employees under Seller's
401(k) Profit Sharing Plan (exclusive of any portion of such account balances
which are paid or otherwise withdrawn prior to the date of such transfer).
(d) As part of the Account Balance Transfer, Seller shall cause
the trustee of Seller's 401(k) Profit Sharing Plan to transfer to the trustee
of Buyer's 401(k) Plan any outstanding notes attributable to loans made to
Transferred Employees under the terms of Seller's 401(k) Profit Sharing Plan.
Upon receipt of such notes, the trustee of Buyer's 401(k) Plan shall
re-amortize the remaining principal balance of each affected Transferred
Employee's account based on the remaining term of such loan and the original
interest rate.
(e) The benefits to which an executive officer of Seller who is a
Transferred Employee as of the Closing Date may be entitled under any deferred
compensation or supplemental executive retirement plan of Seller or any
performance based restricted stock award of Seller shall remain liabilities of
Seller and shall not be liabilities of Buyer.
9.3 Other Employee Plans and Benefit Arrangements. (a) Buyer
and Seller hereby agree that any amounts payable (i) within six months of the
Closing Date under the severance arrangements disclosed in item no. 2 in
Schedule 3.10 shall be shared equally by Buyer and Seller and (ii) under the
retention arrangements disclosed in item no. 3 in Schedule 3.10 shall be borne
solely by Seller. Seller shall, within five Business Days after receipt of
written notice from Buyer that any such amounts have been paid (which notice
shall include reasonable evidence thereof), pay in cash to Buyer an amount
equal to (x) in the case of clause (i) above, 50% of such amounts, and (y) in
the case of clause (ii) above, 100% of such amounts.
(b) Seller shall retain all obligations and liabilities under the
Employee Plans and Benefit Arrangements in respect of any employee or prior
employee (including any beneficiary or dependent thereof) who is not a
Transferred Employee.
(c) With respect to Transferred Employees, Seller shall retain
all obligations and liabilities relating to or arising under the Employee
Plans or Benefit Arrangements which are attributable to benefits accrued or
otherwise payable on or prior to the Closing Date, except that with respect to
any Transferred Employee who, on the Closing Date, is absent by reason of
disability or salary continuation, Buyer shall assume and be liable for any
payments attributable to the period beginning on the Closing Date.
(d) Except as otherwise provided in Section 9.3(a), Buyer shall
be responsible for all claims for severance benefits or wrongful termination
claims made by Transferred Employees who are discharged by Buyer, the Company
or any Subsidiary on or after the Closing Date and, in connection therewith,
Buyer hereby agrees to provide, or cause the Company to provide, severance
benefits equivalent to those provided under the Company's severance plan
disclosed in Schedule 3.16 to any Transferred Employee discharged by the
Company or any Subsidiary within six months of the Closing Date. In addition,
Seller shall have no obligations with respect to any act or omissions of
Buyer, the Company or any Subsidiary and their respective officers, agents and
employees relating to Transferred Employees which occur on or after the
Closing Date. Buyer shall indemnify and hold Seller harmless from any Damages
with respect to, arising from or pursuant to any complaint, charge or
grievance made by any such Transferred Employee with respect to any action or
activities of Buyer, the Company or any Subsidiary on or after the Closing
Date.
(e) Except as otherwise provided in Sections 9.2, 9.3(a),
9.3(b), 9.3(c) and 9.4, Seller shall have no liability or responsibility under
the Employee Plans or Benefit Arrangements after the Closing Date with respect
to Transferred Employees (and dependents and beneficiaries thereof).
(f) Buyer shall cause the Company to retain all obligations
relating to vacation and personal holidays to which each Transferred Employee
is entitled as of the Closing Date under the applicable Employee Plans and
Benefit Arrangements in effect on the Closing Date. Subject to the foregoing,
Buyer's vacation and holiday policies and practices may be made applicable to
Transferred Employees for the period commencing immediately after the Closing
Date. For purposes of preparing the Closing Balance Sheet and calculating Net
Book Value pursuant to Section 2.3, there shall only be taken into account a
pro rata accrual of any liability relating to vacation and personal holidays
to which Transferred Employees are entitled for the period from January 1,
1996 to but not including the Closing Date.
(g) Buyer shall not, as of the Closing Date, assume any Employee
Plan or Benefit Arrangement. Except as may be provided elsewhere in this
Section 9.3, Buyer shall have no liability or responsibility to any
Transferred Employee with respect to any benefits payable under any Employee
Plan or Benefit Arrangement. On the Closing Date, subject to the requirements
of Section 9.1, each Transferred Employee shall be eligible to participate in
Buyer's employee plans and benefit arrangements under the terms and conditions
of such plans and arrangements. In addition, Buyer shall have no obligations
with respect to any acts or omissions of Seller, or its officers, agents or
employees relating to Transferred Employees which occur prior to the Closing
Date. Seller shall indemnify and hold Buyer harmless from any Damages with
respect to, arising from or pursuant to any complaint, charge or grievance
made by any such Transferred Employee with respect to any acts or omissions of
Seller prior to the Closing Date.
9.4 Insurance Coverage. (a) As of the Closing Date, Buyer
agrees to provide insurance coverage (including medical and life insurance) to
Transferred Employees who, after taking into account the provisions of Section
9.1, meet the eligibility requirements of Buyer's employee plans and benefit
arrangements ("Buyer's Benefit Plans"). Any pre-existing conditions of
Transferred Employees as of the Closing Date shall be waived under Buyer's
Benefit Plans. Buyer and Seller agree to establish reasonable rules pursuant
to which expenses incurred prior to the Closing Date by Transferred Employees
shall be recognized under Buyer's Benefit Plans for purposes of deductibles,
co-payments and maximum liability rules. To the extent requested by Buyer in
writing prior to the Closing Date, and for a period of not longer than 60 days
after the Closing Date (the "Transition Period"), Seller agrees to continue to
provide, at the Buyer's expense, medical and dental insurance coverage and
claims processing services for Transferred Employees under the Employee Plans
and Benefit Arrangements providing for such insurance and services, to the
extent permissible under the applicable Employee Plans and Benefit
Arrangements. Such continuation of coverage and services shall not affect the
allocation of liabilities and obligations set forth in this Article 9. Any
incurred, but unpaid, claims of Transferred Employees existing on the Closing
Date shall be submitted for processing in accordance with the terms of the
applicable Employee Plans or Benefit Arrangements and shall be the
responsibility of Seller. Any claims of Transferred Employees incurred during
the Transition Period shall be submitted for processing within 12 months
following the date incurred and shall be the responsibility of Buyer.
(b) Not less than 10 Business Days prior to the Closing Date,
Buyer shall deliver to Seller a list of the Transferred Employees who as of
the Closing Date will not meet the eligibility requirements of Buyer's medical
plans. Seller shall have the responsibility of complying with the continuation
coverage requirements of Section 4980B of the Code in respect of such
Transferred Employees. Seller shall provide Buyer with all information
reasonably requested by Buyer which is necessary for Buyer to determine which
Transferred Employees, if any, will not meet the eligibility requirements of
Buyer's medical plans as of the Closing Date.
9.5 Third Party Beneficiaries. No provision of this Article 9
shall create any third party beneficiary rights in any employee or former
employee of the Company (including any beneficiary or dependent thereof) in
respect of continued employment or resumed employment, and no provision of
this Article 9 shall create any rights in any such persons in respect of any
benefits that may be provided, directly or indirectly, under any employee
benefit plan or arrangement.
ARTICLE 10
CONDITIONS TO CLOSING
10.1 Conditions to Obligations of Buyer and Seller. The
obligations of Buyer and Seller to consummate the Closing are subject to the
satisfaction of the following conditions:
(i) No provision of any applicable law or regulation and
no judgment, injunction, order or decree shall prohibit the consummation
of the Closing.
(ii) Any applicable waiting period under the HSR Act
relating to the transactions contemplated hereby shall have expired or
been terminated.
(iii) All actions by or in respect of or filings with any
governmental body, agency, official or authority required to permit the
consummation of the Closing shall have been taken, made or obtained.
10.2 Conditions to Obligation of Buyer. The obligation of Buyer
to consummate the Closing is subject to the satisfaction of the following
further conditions:
(i) (A) Seller shall have performed in all material
respects all of its obligations hereunder required to be performed by it
on or prior to the Closing Date, (B) the representations and warranties
of Seller contained in this Agreement (other than Section 3.12 and the
second sentence of Section 3.10) and in any certificate or other writing
delivered by Seller pursuant hereto shall be true in all material
respects at and as of the Closing Date as if made at and as of such
date, it being understood that, for purposes of this Section 10.2, where
any such representation or warranty already includes a Material Adverse
Effect or materiality exception, the materiality exception in this
clause (B) shall not apply, and (C) Buyer shall have received a
certificate signed by an officer of Seller to the foregoing effect.
(ii) If the Closing Date is a Business Day, Buyer or its
designee shall have received certificates for the Shares duly endorsed
or accompanied by stock powers duly endorsed in blank, with any required
transfer stamps affixed thereto and in form proper for transfer, and, if
the Closing Date is not a Business Day, Seller shall have deposited
certificates representing the Shares with the Escrow Agent pursuant to
the terms of the Escrow Agreement.
(iii) Buyer shall have received an opinion of counsel of
Seller, dated the Closing Date, covering the matters described in
Exhibit B.
(iv) Buyer shall have received all documents it may
reasonably request relating to the existence of Seller, the Company and
the Subsidiaries and the authority of Seller for this Agreement, all in
form and substance reasonably satisfactory to Buyer.
(v) Buyer shall have received the letters of resignation
required pursuant to Section 5.4.
(vi) Buyer or CSC Ohio shall have obtained the Financing (or
any alternative financing), unless Buyer or CSC Ohio shall have failed
to have obtained such financing exclusively as a result of Buyer's or
CSC's failure to pay any fees or expenses required to be paid by Buyer
or CSC Ohio in connection therewith.
10.3 Conditions to Obligation of Seller. The obligation of
Seller to consummate the Closing is subject to the satisfaction of the
following further conditions:
(i) (A) Buyer shall have performed in all material respects
all of its obligations hereunder required to be performed by it at or
prior to the Closing Date, (B) the representations and warranties of
Buyer contained in this Agreement and in any certificate or other
writing delivered by Buyer pursuant hereto shall be true in all material
respects at and as of the Closing Date as if made at and as of such
date, it being understood that, for purposes of this Section 10.3, where
any such representation or warranty already includes a Material Adverse
Effect or materiality exception, the materiality exception in this
clause (B) shall not apply,and (C) Seller shall have received a
certificate signed by an officer of Buyer to the foregoing effect.
(ii) If the Closing Date is a Business Day, Seller shall have
received the Cash Consideration and the Note and, if the Closing Date is
not a Business Day, Buyer or its designee shall have deposited the Cash
Consideration and the Note with the Escrow Agent pursuant to the terms
of the Escrow Agreement.
(iii) Seller shall have received an opinion of counsel to or
counsel of Buyer, dated the Closing Date, covering the matters described
in Exhibit C.
(iv) Seller shall have received all documents it may
reasonably request relating to the existence of Buyer and the authority
of Buyer for this Agreement, all in form and substance reasonably
satisfactory to Seller.
ARTICLE 11
SURVIVAL; INDEMNIFICATION
11.1 Survival. The covenants, agreements, representations and
warranties of the parties hereto contained in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection
herewith shall survive the Closing until 18 months after the Closing Date;
provided that (i) the representations and warranties contained in Section 3.17
shall survive for three years after the Closing Date, (ii) the covenants and
agreements contained in Articles 5, 6, and 7 shall survive for the respective
periods set forth therein, (iii) the covenants, agreements, representations
and warranties contained in Section 3.16 and Articles 8 and 9 shall survive
until expiration of the statute of limitations applicable to the matters
covered thereby (giving effect to any waiver, mitigation or extension
thereof), if later, and (iv) the representations and warranties set forth in
Section 3.5(c) and the first sentence of Section 3.6(b) shall survive
indefinitely; and provided further that no representation or warranty shall
survive the Closing if the party to whom such representation or warranty is
made has knowledge of facts on the Closing Date that would cause such
representation or warranty not to be true on such date. No covenant,
agreement, representation or warranty contained in this Agreement shall
survive after the time at which it would otherwise terminate pursuant to the
preceding sentence unless notice of the inaccuracy or breach thereof shall
have been given to the party against whom such indemnity may be sought prior
to such time.
11.2 Indemnification. (a) Seller hereby indemnifies Buyer, its
Affiliates and their respective directors and officers against and agrees to
hold them harmless from any and all damage, loss, liability and expense
(including without limitation reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any action, suit or
proceeding) ("Damages") incurred or suffered by Buyer, the Company or any
Subsidiary arising out of any misrepresentation or breach of warranty,
covenant or agreement made or to be performed by Seller pursuant to this
Agreement (other than pursuant to Article 8) or any Damages under the Worker
Adjustment Retraining Notification Act incurred in connection with any
employment loss occurring prior to the Closing Date; provided that (i) Seller
shall not be liable under this Section 11.2(a) unless the aggregate amount of
Damages with respect to all matters referred to in this Section 11.2(a)
exceeds an amount equal to 2% of the Purchase Price and then only for the
aggregate amount of Damages that exceeds 1% of the Purchase Price and (ii)
Seller's maximum liability under this Section 11.2(a) shall not exceed an
amount equal to the Purchase Price; and provided further that any Damages
incurred or suffered by Buyer, the Company or any Subsidiary arising out of
fraud or any misrepresentation or breach of warranty, covenant or agreement
contained in the second sentence of Section 3.10 or in Section 3.12, 3.14(b),
3.16, 3.22, 5.5, 5.8, 7.4, 7.5, 7.6, 7.8 or 9.3 shall not be subject to the
limitation on Damages set forth in clause (i) of the proviso above.
(b) Buyer hereby indemnifies Seller against and agrees to hold it
harmless from any and all Damages incurred or suffered by Seller arising out
of any misrepresentation or breach of warranty, covenant or agreement made or
to be performed by Buyer pursuant to this Agreement (other than pursuant to
Article 8); provided that (i) Buyer shall not be liable under this Section
11.2(b) unless the aggregate amount of Damages with respect to all matters
referred to in Section 11.2(b) exceeds an amount equal to 2% of the Purchase
Price and then only for the aggregate amount of Damages that exceeds 1% of the
Purchase Price and (ii) Buyer's maximum liability under Section 11.2(b) shall
not exceed an amount equal to the Purchase Price; and provided further that
any Damages incurred or suffered by Seller arising out of fraud or any
misrepresentation or breach of warranty, covenant or agreement contained in
Section 4.8, 6.5, 7.4, 7.6, 7.7, 7.8, 7.9 or 9.3 shall not be subject to the
limitation on Damages set forth in clause (i) of the proviso above.
(c) Any and all payments pursuant to Sections 7.4 and 11.2 and
Article 8 shall be deemed for all purposes to be adjustments to the Purchase
Price.
11.3 Lease Indemnity. Notwithstanding anything to the contrary
in this Agreement (including without limitation Section 11.2), Buyer hereby
indemnifies each of Seller and MRC against and agrees to hold each of Seller
and MRC harmless from any and all Damages incurred or suffered by Seller or
MRC arising out of Buyer's, the Company's or any Subsidiary's failure to pay
all monies due and owing pursuant to the provisions of any Facility Lease or
Lease (other than a Terminated Lease) on or after the Closing Date, or by
reason of Buyer's, the Company's or any Subsidiary's breach of any of the
other terms, covenants and conditions of any Facility Lease or Lease occurring
on or after the Closing Date.
11.4 Procedures; Exclusivity. (a) The party seeking
indemnification under Section 11.2 or 11.3 (the "Indemnified Party") agrees to
give prompt notice to the party against whom indemnity is sought (the
"Indemnifying Party") of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be sought
under such Section; provided that, if a claim for indemnification under
Section 11.2 or 11.3 is based upon the claim, demand, action or assertion of a
third party, such notice shall be given within 10 Business Days after the
Indemnified Party has received from such third party written notice of such
claim, demand, action or assertion. The Indemnifying Party may, and at the
request of the Indemnified Party shall, participate in and control the defense
of any such suit, action or proceeding at its own expense. The Indemnifying
Party shall not be liable under Section 11.2 or 11.3 for any settlement
effected without its consent of any claim, litigation or proceeding in respect
of which indemnity may be sought hereunder.
(b) After the Closing, Article 8 and Sections 11.2, 11.3, 11.4
and 11.5 will provide the exclusive remedy for any misrepresentation or breach
of warranty, covenant or other agreement (other than those contained in
Sections 2.2, 2.4, 5.9, 5.11 and 6.1), or other claim arising out of this
Agreement or the transactions contemplated hereby. Without limiting the
generality of the foregoing, Buyer and, effective at the Closing, the Company
and its Subsidiaries, hereby waive all rights for contribution or any other
rights of recovery (except as otherwise provided in Section 11.2) with respect
to any Damages arising under or relating to Environmental Laws, whether now or
hereafter in effect, that it might have by statute or otherwise against Seller
or any of its Affiliates.
11.5 Limitation of Indemnification. Notwithstanding the
foregoing provisions of this Article 11, an Indemnifying Party's obligation to
indemnify an Indemnified Party shall be subject to the following limitations:
(i) No indemnification shall be required to be made by
Buyer or Seller to the extent that the Damages incurred or suffered by
the Indemnified Party have been taken into account in connection with
the preparation of the Closing Balance Sheet and the calculation of
Final Net Book Value.
(ii) No indemnification shall be required to be made by Buyer
or Seller with respect to any claim for indemnity which individually is
less than $2,000.
(iii) The Damages required to be paid by the Indemnifying
Party pursuant to this Article 11 shall be reduced to the extent of any
amounts actually received by the Indemnified Party after the Closing
Date pursuant to the terms of any insurance policies covering such
Damages.
(iv) Each of the parties agrees that to the extent the other
party indemnifies it from any claim for Damages, the Indemnified Party
shall assign its rights to such claim to the Indemnifying Party to the
extent of any amounts actually received by the Indemnified Party from
the Indemnifying Party.
11.6 No Circular Recovery. Seller hereby agrees that it will not
make any claim for indemnification against Buyer, the Company or any
Subsidiary by reason of the fact that it or any of its officers, directors,
agents or other representatives was a controlling person, director, officer,
employee, agent or other representative of the Company or any Subsidiary or
was serving as such for another person at the request of the Company or any
Subsidiary of the Company (whether such claim is for losses of any kind or
otherwise and whether such claim is pursuant to any statute, Charter, bylaw,
contractual obligation or otherwise) with respect to any action, suit, claim
or proceeding brought by Buyer or any of its Affiliates against Seller
(whether such action, suit, claim or proceeding is pursuant to this Agreement,
applicable law or otherwise).
ARTICLE 12
TERMINATION
12.1 Grounds for Termination. This Agreement may be terminated
at any time prior to the Closing:
(i) by mutual written agreement of Seller and Buyer;
(ii) by either Seller or Buyer if the Closing shall not
have been consummated on or before June 1, 1996;
(iii) by either Seller or Buyer if there shall be any law or
regulation that makes consummation of the transactions contemplated
hereby illegal or otherwise prohibited or if consummation of the
transactions contemplated hereby would violate any nonappealable final
order, decree or judgment of any court or governmental body having
competent jurisdiction;
(iv) by Seller, if any representation or warranty of Buyer
contained in this Agreement shall prove to be inaccurate in any material
respect at the time when made (it being understood that, for purposes
of this subsection (iv), where any such representation or warranty
already includes a Material Adverse Effect or materiality exception, the
materiality exception in this subsection (iv) shall not apply) and Buyer
shall refuse or fail after written notice to correct such representation
or warranty within 45 days of such written notice; provided that Seller
may not terminate this Agreement pursuant to this subsection (iv) if
Buyer continues in good faith to use its best efforts to correct any
such representation or warranty, and such correction is capable of being
performed prior to June 1, 1996;
(v) by Buyer, if any representation or warranty of Seller
contained in this Agreement shall prove to be inaccurate in any material
respect at the time when made (it being understood that, for purposes of
this subsection (v), where any such representation or warranty already
includes a Material Adverse Effect or materiality exception, the
materiality exception in this subsection (v) shall not apply) and Seller
shall refuse or fail after written notice to correct such representation
or warranty within 45 days of such written notice; provided that Buyer
may not terminate this Agreement pursuant to this subsection (v) if
Seller continues in good faith to use its best efforts to correct any
such representation or warranty, and such correction is capable of being
performed prior to June 1, 1996;
(vi) by Seller, if there shall be any material breach or
violation of any material covenant or agreement herein to be performed
by Buyer and such breach or violation is not capable of cure prior to
June 1, 1996;
(vii) by Buyer, if there shall be any material breach or
violation of any material covenant or agreement herein to be performed
by Seller and such breach or violation is not capable of cure prior to
June 1, 1996;
(viii) by Buyer, if, prior to the Closing Date, Leases
accounting for Contribution of more than $5 million (including Leases
with negative Contribution as a deduction therefrom) are determined to
be Terminated Leases; provided that, for purposes hereof, the
Contribution of a New Store Lease shall be deemed to be zero.
The party desiring to terminate this Agreement shall give notice
of such termination to the other party.
12.2 Effect of Termination. If this Agreement is terminated as
permitted by Section 12.1, termination shall be without liability of any party
(or any stockholder, director, officer, employee, agent, consultant or
representative of such party) to any other party to this Agreement; provided
that if such termination shall result from the willful failure of Buyer or
Seller to fulfill a condition to the performance of the obligations of the
other party, failure to perform a covenant of this Agreement or breach by such
party of any representation or warranty or agreement contained herein, such
party shall be fully liable for any and all Damages incurred or suffered by
the other party as a result of such failure or breach. The provisions of
Sections 5.9, 6.1, 12.2, 12.3, 13.1, 13.2, 13.3, 13.5, 13.6, 13.9, 13.10 and
13.12 shall survive any termination hereof pursuant to Section 12.1.
12.3 Termination Fee. In the event that (i) Seller shall breach
the provisions of Section 5.7, (ii) this Agreement is terminated other than
(A) as permitted by Section 12.1 (other than as a result of a breach by Seller
of the provisions of Section 5.7) or (B) as a result of the willful failure of
Buyer to fulfill a condition to the performance of the obligations of Seller,
failure of Buyer to perform a covenant of this Agreement or breach by Buyer of
any representation or warranty or agreement contained herein and (iii) within
24 months of the breach referred to in clause (i) there is a consummation of a
transaction involving the acquisition of all or substantially all of the
capital stock or the assets or the business of the Company and the
Subsidiaries, whether by direct purchase, merger, consolidation or other
combination), immediately upon consummation of such transaction, Seller shall
pay, or cause the Company to pay, to Buyer an amount in cash equal to (x)
$10,000,000 plus (y) Buyer's reasonable out-of-pocket expenses incurred in
connection with the transactions contemplated by this Agreement. Any amounts
due under this Section 12.3 shall be in the nature of liquidated damages and
not in the nature of a penalty. Notwithstanding anything in this Agreement to
the contrary, the provisions of this Section 12.3 shall be the sole and
exclusive remedy of Buyer in the event of a breach by Seller of the provisions
of Section 5.7.
ARTICLE 13
MISCELLANEOUS
13.1 Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given,
if to Buyer, to:
Consolidated Stores Corporation
300 Phillipi Road
P.O. Box 28512
Columbus, Ohio 43228-0512
Attention: Chief Financial Officer
Telecopier: (614) 278-6666
and
Attention: General Counsel
Telecopier: (614) 278-6763
with a copy to:
Benesch, Friedlander, Coplan & Aronoff P.L.L.
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Telecopier: (216) 363-4588
Attention: Michael K. Wager, Esq.
if to Seller, to:
Melville Corporation
One Theall Road
Rye, New York 10580
Attention: Chief Financial Officer
Telecopier: (914) 925-4022
and
Attention: General Counsel
Telecopier: (914) 925-4042
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopier: (212) 450-4800
Attention: Dennis S. Hersch, Esq.
All such notices, requests and other communications shall be deemed received
(i) on the date of receipt by the recipient thereof if delivered personally,
by facsimile transmission or overnight courier service and received prior to 5
p.m. in the place of receipt and such day is a Business Day in the place of
receipt or (ii) three days after having been deposited in the United States
mail, certified or registered, return receipt requested, postage prepaid.
Otherwise, any such notice, request or communication shall be deemed not to
have been received until the next succeeding Business Day in the place of
receipt.
13.2 Amendments and Waivers. (a) Any provision of this
Agreement may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed, in the case of an amendment, by each party to
this Agreement, or in the case of a waiver, by the party against whom the
waiver is to be effective.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights
or remedies provided by law.
13.3 Expenses. Except as otherwise expressly provided herein,
all costs and expenses incurred in connection with this Agreement shall be
paid by the party incurring such cost or expense.
13.4 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto. Notwithstanding the
foregoing, Buyer may assign its rights hereunder to one or more wholly owned
Subsidiaries of Buyer, but such assignment shall not relieve Buyer of its
obligations hereunder.
13.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York, without regard
to the conflicts of law rules of such state.
13.6 Jurisdiction. Except as otherwise expressly provided in
this Agreement, any suit, action or proceeding seeking to enforce any
provision of, or based on any matter arising out of or in connection with,
this Agreement or the transactions contemplated hereby shall only be brought
in the United States District Court for the Southern District of New York or
any other New York State court sitting in New York County, and each of the
parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such
suit, action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 13.1 shall
be deemed effective service of process on such party.
13.7 Counterparts; Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto
shall have received a counterpart hereof signed by the other party hereto
(which counterpart may be a facsimile copy of the original executed
counterpart).
13.8 Third Party Beneficiaries. No provision of this Agreement
is intended to confer upon any Person other than the parties hereto any rights
or remedies hereunder.
13.9 Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter thereof and
supersedes all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter thereof. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by either party hereto. Neither
this Agreement nor any provision hereof is intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.
13.10 Validity of Provisions. Should any provision of this
Agreement be declared by any court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions shall not be affected thereby. If any
provision of this Agreement shall be held to be partially invalid and
unenforceable, then that portion which is not held to be invalid or
unenforceable shall be deemed enforceable to the maximum extent permitted by
law.
13.11 Section Headings. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
13.12 Force Majeure. In the event that Buyer or Seller shall be
delayed or hindered in or prevented from doing or performing any act or thing
required by this Agreement by reason of strikes, lock-outs, casualties, acts
of God, labor troubles, inability to procure materials, governmental laws or
regulations, riots, insurrection, war or other causes beyond its reasonable
control (except for a lack of funds or an inability to obtain financing), then
the delayed party shall not be liable or responsible for any such delay, and
the doing or performing of such act or thing shall be excused for the period
of the delay, and the period for performance of any such act shall be extended
for a period equivalent to the period of such delay.
13.13 Further Assurances. At any time and from time to time,
each party hereto, without further consideration, shall cooperate, take such
further action and consideration, shall cooperate, take such further action
and execute and deliver such further instruments and documents as may be
reasonably requested by any other party in order to carry out the provisions
and purposes of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
MELVILLE CORPORATION
By: /s/ CARLOS E. ALBERINI
_____________________________
Name: Carlos E. Alberini
Title: Vice President-Finance
CONSOLIDATED STORES CORPORATION
By: /s/ WILLIAM G. KELLEY
_____________________________
Name: William G. Kelley
Title: Chairman and
Chief Executive Officer
Exhibit A
CONSOLIDATED STORES CORPORATION
$100,000,000
Subordinated Notes due 2000
Summary of Indicative Terms
Issue Subordinated Notes due 2000
Issuer Consolidated Stores Corporation, an Ohio
corporation (the "Company")
Principal Amount $100,000,000
Maturity 2000 (4 years)
Coupon 7.00% payable semi-annually in arrears.
Issue Price 100% of principal amount
Ranking The Notes will be general unsecured obligations
of the Company and will be subordinated to all
Senior Indebtedness of the Company, whether
outstanding on the issue date or thereafter
issued. Subject to the next sentence, payments
of principal and interest on the Notes may not
be made if (i) any nonpayment default or event
of default exists or would occur with the
passage of time under the Credit Agreement or
other instrument evidencing the Senior
Indebtedness and the relevant Senior
Indebtedness has delivered notice to the Company
and the holder of the Notes of such default or
event of default or (ii) any payment default
exists on the Senior Indebtedness. No payment
of principal of the Notes may be made, and no
action may be taken to enforce the Notes, until
the earlier of (i) 179 days after the date that
the Company received written notice of such
default or event of default or (ii) the date, if
any, on which the Senior Indebtedness to which
such default of event of default relates is
discharged of such default or event of default
as waived or otherwise cured (such period
hereinafter referred to as the "Blockage
Period". In any event, not more than one
Blockage Period may be commenced during any
period of 360 consecutive days and there will be
at least 181 consecutive days in each period of
360 consecutive days when no Blockage Period is
in effect.
No default or event of default that existed or
was continuing on the date of any Blockage
Period with respect to the Senior Indebedness
initiating such Blockage Period will be, or can
be made, the basis for the start of a subsequent
blockage period unless such default has been
cured for at least 90 consecutive days.
Any payments received by the holder of the Notes
which are not permitted shall be held in trust
and turned over to the holders of Senior
Indebtedness. Upon any bankruptcy or insolvency
proceeding, the holders of Senior Indebtedness
shall be entitled to be paid irrevocably in full
in cash before any distribution is made to the
holder of the Notes and prior to such time any
distribution received by the holder of the Notes,
whether in cash, property or securities, shall
be turned over to the holder of the Senior
Indebtedness and the holders of Senior
Indebtedness shall exercise all rights with
respect to the Notes.
Security None.
Mandatory Redemption None.
Optional Redemption The Notes will be non-callable for two years
after issuance. Thereafter, the Notes may be
redeemed at the option of the Company, in whole
or in part, at par, plus accrued interest
through the redemption date. The Notes will
provide "make-whole" assurances in the event of
redemption.
Change of Control Upon any Change of Control, the Company will be
required to offer to purchase all of the
outstanding Notes at 101% plus accrued interest
through the redemption date.
Limitation on Incurrence
of Additional
Indebtedness The Company will not, and will not permit any of
its Subsidiaries to, create, incur, assume,
guarantee or otherwise become directly or
indirectly liable for the payment of any
Indebtedness other than Permitted Indebtedness;
provided, however, that the Company shall be
permitted to create, incur, assume, guarantee or
otherwise become directly or indirectly liable
for payment of any Indebtedness if, after giving
pro forma effect thereto, the Fixed Charge
Coverage Ratio (as defined) for the prior four
fiscal quarters is at least 1.4 to 1.0.
Permitted Indebtedness will include (i)
Indebtedness incurred by the Company under that
certain credit agreement (the "Credit
Agreement") dated as of _______________, 1996
among the Company, PNC Bank, Ohio National
Association, National City Bank and Bank One
Columbus N.A.; (ii) all obligations owed by the
Company under or in connection with that certain
senior subordinated unsecured bridge loan
agreement with Merrill Lynch Capital Corporation
and the related documents; (iii) Indebtedness
owed by Company to any wholly-owned Subsidiary
of the Company or Indebtedness owed by any
Subsidiary to the Company or a wholly-owned
Subsidiary; (iv) renewals, extensions,
refinancings or refundings of any Indebtedness
(such new Indebtedness being "Refinancing
Indebtedness"); provided that such Refinancing
Indebtedness (a) does not exceed the principal
or accreted amount of, (b) ranks in order of
payment to the Notes at least to the same extent
and (c) if such Indebtedness so repaid,
refinanced or refunded is junior to, or pari
pass with, the Notes, does not shorten the
average life or stated maturity thereof; and (v)
Indebtedness not otherwise permitted to be
incurred in an aggregate principal amount not to
exceed $75,000,000 at any one time outstanding.
Indebtedness means with respect to any Person on
any date of determination (without duplication),
(i) the principal of and premium (if any ) in
respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by
notes, debentures, bonds or other similar
instruments for the payment of which such Person
is responsible or liable; (ii) all Capital Lease
Obligations of such Person, (iii) all
obligations of such Person issued or assumed as
the deferred purchase price of property, all
conditional sale obligations of such Person and
all obligations of such Person under any title
retention agreement (but excluding (x) trade
accounts payable arising in the ordinary course
of business and (y) deferred purchase price
obligations where payment is due within 6 months
of delivery); (iv) all obligations of such
Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or
similar credit transaction (other than
obligations with respect to letters of credit
and related hedging obligations securing
obligations (other than obligations described in
clauses (i) through (ii) above) entered into in
the ordinary course of business of such person
to the extent such letter of credit are not
drawn upon or, if and to the extent drawn upon
such drawing is reimbursed following payment on
the letter of credit); (v) the amount of all
obligations of such Person with respect to the
redemption, repayment or other repurchase of any
redeemable stock (but excluding, in each case,
any accrued dividends); (vi) all obligations of
the type referred to in clauses (i) through (v)
above of other Persons and all dividends of
other Persons for the payment of which in either
case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or
otherwise; (vii) all obligations of the type
referred to in clauses (i) through (vi) above of
other Persons secured by any lien on any
property or asset of such Person (whether or not
such obligation is assumed by such Person), the
amount of such obligations being deemed to be the
lesser of (A) the value of such property or
assets and (B) the amount of the obligation so
secures; and (viii) to the extent not otherwise
included in this definition, hedging obligations
of such Person (other than hedging obligations
excluded pursuant to clause (iv) above);
provided, however, that Indebtedness of such
Person on such date of determination shall
exclude (A) in the case of any original issue
discount security issued by such Person, the
face amount less the unamortized portion of such
security on such date; and (B) any Federal,
state or local tax liability of such Person on
such date. The amount of Indebtedness of any
Person at any date shall be the outstanding
balance at such date of all unconditional
obligations as described above and the maximum
liability, upon the occurrence of the
contingency giving rise to the obligation of any
contingent obligations at such date.
Senior Indebtedness means (i) all obligations
owed by the Company under or in connection with
the certain Credit Agreement (the "Credit
Agreement") dated as of _____________________,
1996 among the Company, PNC Bank, Ohio National
Association, National City Bank and Bank One
Columbus N.A. and the related Credit Documents,
whether outstanding on the date of this Note or
thereafter created, assumed or incurred and any
refinancing, refunding or replacement thereof;
provided, however, that any Indebtedness under
any refinancing, refunding or replacement of the
Credit Agreement shall not constitute Senior
Indebtedness to the extent that Indebtedness
thereunder is by its terms expressly subordinate
in right of payment to any other Indebtedness of
the Company; (ii) all obligations owed by the
Company under or in connection with that certain
senior subordinated unsecured bridge loan
agreement with Merrill Lynch Capital Corporation
and the related documents; and (iii) the
principal of, premium, if any, and accrued and
unpaid interest on Indebtedness of the Company,
contingent or otherwise, in respect of borrowed
money, whether outstanding on the date of this
Note or thereafter created, incurred or assumed,
unless, in the case of any particular
Indebtedness, the instrument creating or
evidencing the same or pursuant to which the
same is outstanding expressly provides that such
Indebtedness shall not be senior in right of
payment to the Securities. Notwithstanding the
foregoing, "Senior Indebtedness" shall not
include (i) Indebtedness evidenced by the Notes,
(ii) Indebtedness that is expressly subordinated
or junior in rights of payment to any
Indebtedness of the Company, (iii) any liability
for federal, state, provincial, local or other
taxes owned or owing by the Company, (iv)
Indebtedness of or amounts owned by the Company
for compensation to employees and for services
(v) Indebtedness of the Company to a Subsidiary
of the Company or any other Affiliate of the
Company or any of such Affiliates Subsidiaries,
and (vi) amounts owing under leases (other than
Capital Lease Obligations). All interest which
would accrue after the filing of a petition by
or against the Company under any federal, state
or foreign bankruptcy or similar law, whether or
not such interest is allowed as a claim after
such filing any proceeding under such bankruptcy
or similar law, shall constitute Senior
Indebtedness.
Fixed Charge Coverage Ratio of any Person means
for any period the ratio of (i) the sum of (A)
the Company's earnings before interest expense
and taxes plus (B) rent expense to (ii) the sum
of (A) interest expense plus (B) rent expense.
Limitations on
Restricted payments The Company will not directly or indirectly: (a)
declare or pay any dividend on, or make any
distribution in respect of, its Capital Stock
(Capital Stock defined to include common or
preferred stock, warrants, rights, options or
any other equity interest or participation), (b)
purchase, redeem or otherwise acquire or retire
for consideration any shares of its Capital
Stock, (c) make any loan, advance or other
investment, in any of its Subsidiaries or
Affiliates (other than its wholly-owned
Subsidiaries or if otherwise a Permitted
Investment); (d) make, or permit any Subsidiary
to make any payment, distribution, advances or
other Restricted Payment (as defined herein); or
(e) purchase, redeem or otherwise acquire or
retire for consideration, prior to a scheduled
mandatory sinking fund payment date or maturity
date, any Indebtedness of (i) the Company which
ranks subordinated in right of payment to the
Notes or (ii) any Subsidiary (each such
declaration, distribution, purchase, redemption,
acquisition, retirement, loan, advance or other
investment being referred to as a "Restricted
Payment"); if, at the time of such action, or
after giving effect to such Restricted Payment,
(i) an Event of Default or a Default shall have
occurred and be continuing; (ii) the aggregate
amount of all Restricted Payments declared or
made beginning on the date of the Indenture
shall exceed the sum of: (A) 50% of Consolidated
Net Income accrued on a cumulative basis from
February 4, 1996 through the last fiscal quarter
ending prior to the date of such proposed
Restricted Payments (or if Consolidated Net
Income shall be a deficit, minus 100% of such
deficit) plus (B) the aggregate net cash
received by the Company (other than from a
Subsidiary) as capital contributions to the
Company or from the issuance and sale of either
capital stock, other than Redeemable Stock, or
Indebtedness that is convertible into Capital
Stock, to the extent such Indebtedness is
actually converted into Capital Stock; or (iii)
the Company could not incur $1.00 of additional
Indebtedness) pursuant to the "Limitation on
Incurrence of Additional Indebtedness" covenant
contained herein, after giving effect on a pro
forma basis to such Restricted Payment.
Notwithstanding any of the foregoing
restrictions, such provisions will not prevent
(a) the payment of any dividend within 60 days
after the date of the declaration, if at the
date of declaration such payment would comply
with such provisions; (b) any dividend on shares
of Capital Stock payable solely in shares of
Capital Stock (other than Redeemable Stock); and
(c) any dividend or other distribution payable
from a Subsidiary to the Company or any wholly
owned Subsidiary.
Limitation on Dividends
and Other Payment
Restrictions Affecting
Subsidiaries The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create or
otherwise cause or suffer to exist or become
effective any consensual encumbrance or
restriction of any kind on the ability of any
Subsidiary to (a) pay dividends or make any
other distributions on its Capital Stock, (b)
pay any Indebtedness owed to the Company or any
other Subsidiary, (c) make loans or advances to
the Company or any Subsidiary or (d) transfer
any of its property or assets to the Company or
any other Subsidiary, except for such
encumbrances or restrictions (i) existing as of
the date of the Indenture, (ii) pursuant to an
agreement relating to any Indebtedness by such
Subsidiary prior to the date on which such
Subsidiary was acquired, (iii) pursuant to an
agreement which has been entered into for the
pending sale or disposition of all or
substantially all of the Capital Stock or Assets
of such Subsidiary (provided that such
restriction terminate upon consummation of such
disposition), (iv) pursuant to customary
non-assignment provisions and leases entered
into in the ordinary course of business or (v)
pursuant to an agreement effecting a renewal,
extension, refinancing or refunding of
Indebtedness incurred pursuant to an agreement or
arrangement referred to in clauses (i) or (ii)
above; provided however that provisions related
to such encumbrance or restriction contained in
any such renewal, extension, refinancing or
refunding are no more restrictive in any
material respect than the provisions contained
in the agreement it replaces.
Limitations on
Transactions with
Affiliates The Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly,
enter into or suffer to exist any transaction or
series of related transactions (including,
without limitation, the sale, purchase, exchange
or lease of assets, property or services) with
any Affiliate unless (a) such Affiliate is (both
before and after such transaction (i) a
wholly-owned Subsidiary or (ii) another
Subsidiary the minority interests in which are
not held by any Affiliate or (b) such
transaction or series of transactions is on
terms that are no less favorable to the Company
or such Subsidiary, as the case may be, than
would be available in a comparable transaction
with an unrelated third party. With respect to
a transaction or series of transactions involving
aggregate payments in excess of $5,000,000, a
committee of independent Directors of the
Company shall approve by resolution certifying
that such transaction or series of transactions
comply with the clause (b) above.
Limitation on Asset
Sales The Company will not, and will not permit any
Subsidiary to, directly or indirectly, make any
Asset Sale unless (i) the Company (or the
Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at
least equal to the fair market value for the
shares or assets sold or otherwise disposed of
and (ii) at least 75% of such consideration
consists of cash. Within six months of any
Asset Sale, the Company may apply the Net Cash
Proceeds from such Asset Sale to the permanent
reduction of Senior Indebtedness or to an
investment in properties and assets that
replaces the properties and assets that were the
subject of such Asset Sale. Any Net Cash
Proceeds from the Asset Sale that are not
invested as provided in the preceding sentence
shall constitute Excess Proceeds.
Notwithstanding a limitation on redemption of
the Notes, when the aggregate amount of Excess
Proceeds exceeds $5,000,000, the Company shall
offer to purchase from all holders of the Notes
the maximum principal amount of Notes that may
be purchased out of the Excess Proceeds, at an
offer price in cash in an amount equal to 100%
of the principal amount thereof plus accrued
interest, if any, to the date fixed for the
closing of such offer. To the extent that the
aggregate amount of Notes tendered pursuant to
an offer is less than the Excess Proceeds, the
Company may use such uncommitted funds, or a
portion thereof, for general corporate purposes.
If the aggregate principal amount of Notes
surrendered by holders thereof exceeds the
amount of Excess Proceeds, the Company shall
select the Notes to be purchased on a pro rata
basis in accordance with the principal amount of
all Notes surrendered. Upon completion of such
offer, the amount of Excess Proceeds shall be
reset at zero.
Notwithstanding the foregoing, $ 25,000,000 of
Net Cash Proceeds received from Asset Sales in
any fiscal year shall not be subject to the
restrictions contained in this covenant.
Reporting Requirements The Company will furnish to each holder of Note
such financial reports as would be deliverable
to the Securities Exchange Commission whether or
not the Company is subject to the reporting
requirements of Section 13(a) of Section 15(d)
of the Securities Exchange Act of 1934, as
amended. In addition, Company will provide
holders of the Notes with timely notice of the
occurrence of an Event of Default together with
a statement of the chief financial officer of
the Company setting forth detail of such Event
of Default.
Limitation on Mergers The Company (i) may not consolidate with or
merge and Consolidations and into the Company or
any Subsidiary; (ii) may not, directly Certain
Sales of Assets
or indirectly, in one or a series of
transactions, transfer, convey, sell, lease or
otherwise dispose of all or substantially all of
the properties and assets of the Company and its
Subsidiaries on a consolidated basis; (iii) may
not, and may not permit any Subsidiary to
acquire capital stock of or other ownership
interests in any other Person such that such
other Person becomes a Subsidiary; and (iv) may
not, and may not permit any Subsidiary to, (x)
purchase, lease or otherwise acquire all or
substantially all of the properties and assets
of any Person or any existing business (whether
existing as a separate entity, subsidiary,
division, unit or otherwise) of any Person or
(y) make any Investment in a Person that, as a
consequence of such Investment, becomes a
Subsidiary of the Company, unless, in each case
(i), (ii), (iii) and (iv) above: (1) immediately
before and after giving effect to such
transaction (or series ) and treating andy
Indebtedness incurred by the Company or a
Subsidiary as a result of such transaction (or
series) as having been incurred by the Company
or such Subsidiary at the time of the
transaction (or series), no Event of Default or
event that with the passing of time or the
giving of notice, or both, will constitute an
Event of Default shall have occurred and be
continuing; (2) in a transaction (or series) in
which the Company does not survive or in which
the Company transfers, conveys, sells, leases or
otherwise disposes of all or substantially all
of its properties and assets, the successor
entity is a corporation, partnership, limited
liability company or trust and is organized and
validly existing under the laws of the United
States of America, any State thereof or the
District of Columbia and expressly assumes, by a
supplemental agreement all the Company's
obligations under the Notes; (3) immediately
after giving effect to such transaction (or
series), the Company or the successor entity
would have a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of the
Company immediately prior to such transaction
(or series); or (4) in a transaction (or series)
that does not constitute a Change of Control,
Persons who beneficially own in the aggregate
more than 50% of the total voting power of all
classes of Voting Stock of the Company
immediately prior to such transaction (or
series) will, immediately after such transaction
(or series), beneficially own more than 50% of
the voting power of all classes of Voting Stock
of the Company or, in the case of a transaction
(or series) described in (2) above, of the
successor entity.
Events of Default Events of Default shall include: (1) default for
30 days in payment of any interest due on the
Notes; (2) default in the payment of the
principal of or premium, if any, on any Notes
when due upon redemption or otherwise; (3)
default for 60 days in the performance of any
covenant or warranty in the Indenture after
written notice by the Trustee or Holders of at
least 25% of the aggregate principal amount of
the Notes outstanding; (4) default by the
Company or any Subsidiary in the payment of any
payment of or interest made due (after giving
effect to any applicable grace period) on
Indebtedness exceeding $5,000,000 in the
aggregate, which results in such Indebtedness
being declared due and payable; (5) any final
judgments or orders rendered against the Company
or any Subsidiary for more than $5,000,000 and
either (A) the commencement by any creditor of
any enforcement proceeding upon any such
judgment or order or (B) such judgment or order
remains unstayed for 60 days; (6) certain events
of bankruptcy, insolvency and reorganization of
the Company or any Subsidiary; and (7) default
in the performance or breach of the terms set
forth under "Limitation on Mergers and
Consolidations."
If an Event of Default other than certain events
with respect to bankruptcy, insolvency and
reorganization of the Company shall occur and be
continuing, then the holders of 25% of the
aggregate principal amount of the Notes
outstanding may declare by written notice to the
Company the principal amount of the Notes to be
due and payable immediately in an amount equal
to the principal amount of the Notes, together
with accrued interest to the date the Notes
become due and payable. After any such
acceleration, but before a judgment decree based
on acceleration, the holders of a majority in
aggregate principal amount of the Notes may,
under certain circumstances, rescind and annul
such acceleration if Events of Default, (other
than the nonpayment of the accelerated
principal), have been cured away. If an Event
of Default with respect to certain events of
bankruptcy, insolvency and reorganization of the
Company occurs and is continuing, then the
principal of all the Notes shall automatically
be immediately due and payable without any act
on the part of any holder of Notes.
Amendments;
Modifications; Waivers Provisions permitting the Company, with the
consent of at least 51% in aggregate outstanding
principal amount of the Notes, to amend, modify
or waive provisions of the Notes, except for the
interest rate, maturity and redemption
provisions of the Notes which will require the
consent of the holders of 100% of the aggregate
outstanding principal amount of the Notes.
Defeasance The Company may terminate its obligations under
the Notes (except for certain obligations with
respect to transfer and exchange of Notes)
through certain legal defeasance procedures.
Transfer The Notes will be transferable upon their
surrender to the Company for appropriate
exchange/reissuance and notations on the
Company's registry of notes. Those transfers
will be without expense (other than transfer
taxes, if any).
Governing Law The Notes shall be governed by and construed in
accordance with, the laws of the State of New
York,
Indenture The Notes shall be issued pursuant to an
indenture. Seller shall be responsible for the
costs and expenses of the Trustee thereunder.
Cooperation Upon the request of the holder of the Notes, the
Company agrees to use its reasonable best
efforts to prepare all information reasonably
requested by the holder in connection with a
possible sale of the Notes and to take all other
actions reasonably requested by the holder in
connection with such possible sale.
Exhibit B
MATTERS TO BE COVERED IN THE OPINION OF
COUNSEL OF MELVILLE CORPORATION
(a) Each of Seller, the Company, Southdale, Mall of America, CW
Kay-Bee, K&K Kay-Bee and Toy & Hobby is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers and all material governmental
licenses, authorizations, permits, consents and approvals required to carry
on its business as now conducted. Each of the Company, Southdale, Mall of
America, CW Kay-Bee, K&K Kay-Bee and Toy & Hobby is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where such qualification is necessary, except for those jurisdictions where
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect on the Company.
(b) The execution, delivery and performance by Seller of this
Agreement are within Seller's corporate powers and have been duly authorized
by all necessary corporate action on the part of Seller. This Agreement
constitutes a valid and binding agreement of Seller enforceable in accordance
with its terms, except as (i) the enforceability hereof may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
(c) The execution, delivery and performance by Seller of this
Agreement require no approval, consent, waiver, authorization or other action
by or in respect of, or filing, registration or recording with, any
governmental body, agency, or official, except for (i) satisfaction of the
requirements of the HSR Act, which requirements have been satisfied, (ii)
compliance with any applicable requirements of the Exchange Act and (iii) any
such approval, consent, waiver, authorization or other action or filing,
registration or recording as to which the failure to make or obtain would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
(d) The execution, delivery and performance by Seller of this
Agreement do not and will not (i) violate the Charter or bylaws of Seller, the
Company or any Subsidiary, (ii) assuming compliance with the matters referred
to in paragraph (c) above, violate any applicable law, rule, regulation,
judgment, injunction, order or decree, (iii) to the best knowledge of such
counsel, require any approval, consent, waiver, authorization or other action
by, or filing, registration or recording with, any Person under, constitute a
breach or default under, or give rise to any right of termination,
cancellation or acceleration of any right or obligation of the Company or any
Subsidiary or to a modification of the terms or conditions of any right or
obligation to which the Company or any Subsidiary is entitled under, any
agreement or other instrument (other than any Facility Lease or Lease) binding
upon the Company or any Subsidiary or any license, franchise, permit or other
similar authorization held by the Company or any Subsidiary, or (iv) to the
best knowledge of such counsel, result in the creation or imposition of any
Lien on, or the forfeiture of, any asset of the Company or any Subsidiary,
except, in the case of clauses (ii), (iii), and (iv), to the extent that any
such violation, failure to obtain any such approval, consent, waiver,
authorization or other action, default, right, modification, Lien or
forfeiture would not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
(e) The authorized capital stock of the Company consists of 100
shares of Common Stock, of which 10 shares are issued and outstanding. The
Shares have been duly authorized and validly issued and are fully paid and
non-assessable. Seller is the record and beneficial owner of the Shares, to
the best knowledge of such counsel, free and clear of any Lien and any other
limitation or restriction (including any restriction on the right to vote,
sell or otherwise dispose of the Shares). To the best knowledge of such
counsel, there are no other outstanding Company Securities and no outstanding
obligations of the Company or any Subsidiary (including but not limited to
pursuant to any Charter of bylaw provision of the Company or any Subsidiary)
to issue, repurchase, redeem or otherwise acquire, or make any payment in
respect of, any Company Securities.
(f) All of the outstanding capital stock of each of Southdale,
Mall of America, CW Kay-Bee, K&K Kay-Bee and Toy & Hobby is owned by the
Company, directly or indirectly, to the best knowledge of such counsel, free
and clear of any Lien and any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock).
(g) Except as disclosed in Schedule 3.12 of the Stock Purchase
Agreement (as amended as of the Closing Date), there is no action, suit,
investigation or proceeding pending against, or to the best knowledge of such
counsel threatened against or affecting, the Company or any Subsidiary or any
of their respective properties before any court or arbitrator or any
governmental body, agency or official.
(h) To the best knowledge of such counsel, neither the Company
nor any Subsidiary is in violation of, or has since January 1, 1995 violated,
any applicable law, rule, regulation, judgement, injunction, order or decree,
except for such violations as have not had and will not have individually or
in the aggregate a Material Adverse Effect on the Company.
Counsel may rely on corporate records, certificates of public
officials and corporate officers and opinions of local counsel for purposes of
rendering an opinion.
To the extent the opinion involves matters governed by the laws of
jurisdictions other than the State of New York and the Federal law of the
United States of America, counsel may assume that the laws of such
jurisdictions are the same in substantive effect as the laws of the State of
New York.
Exhibit C
MATTERS TO BE COVERED IN THE OPINION OF
COUNSEL OF CONSOLIDATED STORES CORPORATION
(a) Each of Buyer and CSC Ohio is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate powers and all material
governmental licenses, authorizations, permits, consents and approvals
required to carry on its business as now conducted.
(b) The execution, delivery and performance by Buyer of this
Agreement are within the corporate powers of Buyer and have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement constitutes a valid and binding agreement of Buyer enforceable in
accordance with its terms, except as (i) the enforceability hereof may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
the enforcement of creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability. The execution, delivery and performance by CSC Ohio of the
Note are within the corporate powers of CSC Ohio and have been duly authorized
by all necessary corporate action on the part of CSC Ohio. The Note, when
issued and delivered at the Closing in accordance with the terms of the Stock
Purchase Agreement, will constitute a valid and binding obligation of CSC Ohio
enforceable in accordance with its terms, except as (i) the enforceability
hereof may be limited by bankruptcy, insolvency, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (ii) the
availability of equitable remedies may be limited by equitable principles of
general applicability.
(c) The execution, delivery and performance by Buyer of this
Agreement and the execution, delivery and performance by CSC Ohio of the Note
require no approval, consent, waiver, authorization or other action by or in
respect of, or filing, registration or recording with, any governmental body,
agency or official except for (i) satisfaction of the requirements of the HSR
Act, which requirements have been satisfied, (ii) compliance with any
applicable requirements of the Exchange Act and (iii) any such approval,
consent, waiver, authorization or other action or filing, registration or
recording as to which the failure to make or obtain would not, individually or
in the aggregate, have a Material Adverse Effect on Buyer or CSC Ohio, as the
case may be.
(d) The execution, delivery and performance by Buyer of this
Agreement and the execution, delivery and performance by CSC Ohio of the Note
do not and will not (i) violate the Charter or bylaws of Buyer or CSC Ohio or
(ii) assuming compliance with the matters referred to in paragraph (c) above,
violate any applicable law, rule, regulation, judgment, injunction, order or
decree.
(e) There is no action, suit, investigation or proceeding pending
against, or to the best knowledge of such counsel threatened against or
affecting, Buyer or any of Buyer's Subsidiaries before any court or arbitrator
or any governmental body, agency or official (i) in which there is a reasonable
possibility of an adverse decision which would have a Material Adverse Effect
on Buyer or (ii) which in any manner challenges or seeks to prevent, enjoin,
alter or materially delay the transactions contemplated by this Agreement and
which has a substantial likelihood of success on the merits.
Counsel may rely on corporate records, certificates of public
officials and corporate officers and opinions of local counsel for purposes of
rendering an opinion.
To the extent the opinion involves matters governed by the laws of
jurisdictions other than the State of Ohio and the Federal laws of the United
States of America, counsel may assume that the laws of such jurisdictions are
the same in substantive effect as the laws of the State of Ohio.
Exhibit 2.2
AMENDMENT NO. 1
TO
STOCK PURCHASE AGREEMENT
AMENDMENT NO. 1 dated as of May 3, 1996 between Consolidated
Stores Corporation, a Delaware corporation ("Buyer"), and Melville
Corporation, a New York corporation ("Seller").
WHEREAS, the parties hereto have previously entered into the
Stock Purchase Agreement dated as of March 25, 1996 (the "Agreement"); and
WHEREAS, the parties hereto desire to supplement and amend the
provisions of the Agreement in the manner set forth in this Amendment.
NOW THEREFORE, in consideration of the mutual agreements
contained herein and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. Terms used herein and not otherwise defined
herein shall have the meanings set forth in the Agreement.
ARTICLE 2
AMENDMENT
2.1 Preamble. Section (ii) of the fourth "Whereas" clause of
the Agreement is hereby amended by deleting the number "100" in the phrase
"100 shares of common stock" and substituting therefor the number "1", and by
deleting the word "shares" and substituting therefor the word "share".
2.2 Schedules. (a) Schedules 2.3, 3.18 and 5.6 of the
Agreement are hereby deleted in their entirety and replaced by Schedules 2.3,
3.18 and 5.6 attached to this Amendment, respectively.
(b) Schedule 3.6 of the Agreement is hereby amended by
removing the number "100" and substituting therefor the number "1" in the row
describing K&K Kay-Bee, Inc.
(c) Schedule 3.12 of the Agreement is hereby amended by
deleting item no. 2 in its entirety by redesignating item no. 3 as item no.
"2" and by adding the following items:
"3. A store in North Ridge, California, was damaged in the
Southern California earthquake. In connection with
repairs to the premises, the Landlord caused
approximately $400,000 of damage to the store. Insurance
has covered approximately $90,000 of the damage. The
Company may initiate an action against the Landlord to
recover the remaining amount of damages.
4. A trade dress infringement civil action, No. 96 Cv 1103,
by Fundamental Too, Inc. was filed against Kay-Bee Toy &
Hobby Shops, Inc. relating to the manufacture and sale of
the "Currency Can" at the Company's stores."
(d) Item no. 1 of Schedule 3.14 of the Agreement is hereby
amended by deleting all references to the Leases with Store nos. 247, 769,
1732, 7084, 7480 and 8611.
(e) Item no. 9 of Schedule 5.1 of the Agreement is hereby
amended by adding in numerical order "3, 281, 362, 381, 396, 403, 423, 500,
640, 761, 765, 814, 887, 1179, 1758, 7016 and 7745".
(f) Schedule 7.5 of the Agreement is hereby amended by adding
"#7480" in numerical order to the list of Closed Store Leases.
2.3 Section 2.2. The first sentence of Section 2.2 is hereby
deleted in its entirety and replaced by the following sentence:
"The closing (the "Closing") of the purchase and sale of the
Shares hereunder shall take place at the offices of Davis Polk
& Wardwell, 450 Lexington Avenue, New York, New York at 10:00
a.m. on May 4, 1996, effective as of 12:01 a.m. on May 5, 1996,
or at such other place or time as Buyer and Seller may agree."
2.4 Section 2.3(a). Section 2.3(a) of the Agreement is hereby
amended by deleting the number "14" in the sixth sentence and substituting
therefor the number "21".
2.5 Section 5.1. Section 5.1 of the Agreement is hereby
amended by deleting "Schedule 5.1" and substituting therefor the phrase
"Schedules 5.1 and 7.5".
2.6 Section 9.3(a). Section 9.3(a) is hereby amended by:
(i) in clause (i), deleting the number "2" in the phrase "item
no. 2" and substituting therefor the number "3";
(ii) in clause (ii), deleting the number "3" in the phrase
"item no. 3" and substituting therefor the number "2";
(iii) inserting at the beginning of the last sentence the
phrase "Except as provided in the next succeeding sentence,"; and
(iv) inserting the following at the end thereof:
"In connection with any payment required to be made pursuant to
Section 2.4 or, in the event that no such payment is required,
within 90 days of the Closing Date, (I) Buyer shall pay in cash
to Seller an amount equal to 50% of the severance amount
payable by Seller under clause (i) above in the case of Alan
Fine and (II) Seller shall pay in cash to Buyer an amount equal
to 50% of the severance amount payable by Buyer under clause
(i) above in the case of John Hendrix and Patti Ippoliti;
provided that the amounts payable pursuant to clauses (I) and
(II) may be netted against each other. With respect to Alan
Fine, John Hendrix and Patti Ippoliti, Seller shall retain all
obligations and liabilities (other than the severance payments
described above) under their respective severance agreements,
including without limitation, obligations and liabilities with
respect to stock options and relocation costs; provided that
Buyer shall be responsible for any continuing medical and
dental benefit coverage for John Hendrix and Patti Ippoliti."
2.7 Section 9.3(b). Section 9.3(b) of the Agreement is hereby
amended by inserting immediately before the period at the end of such Section,
"including, without limitation, Alan Fine".
2.8 Section 11.3. Section 11.3 of the Agreement is hereby
amended by (i) inserting the phrase "or any other contract or agreement to
which the Company or any Subsidiary is a party and in respect of which
Melville or one of its Affiliates is a guarantor" immediately after the phrase
"(other than a Terminated Lease)" and (ii) inserting the phrase "or any such
other contract or agreement" immediately before the word "occurring".
ARTICLE 3
SUPPLEMENTAL PROVISIONS
3.1 Representations and Warranties. For purposes of
satisfying the condition set forth in Section 10.2(i)(B), the parties hereto
agree that, as of the Closing Date:
(i) item no. 8 of Schedule 3.14, which discloses the list of
Stores being operated on a month-to-month basis, shall be deemed to
have been amended by deleting the following stores, as such stores
are no longer occupying their locations on a month-to-month basis:
44, 140, 319, 325, 361, 390, 422, 473, 701, 769, 771, 817, 7480,
7629, 7906, 8210 and 8647; and shall be deemed to have been amended
by adding the following stores, as such stores are now occupying
their locations on a month-to-month basis: 28, 48, 142, 393, 835 and
7555.
(ii) Seller has not, as of the Closing Date, delivered to
Buyer true and complete copies of each of the material contracts
disclosed in item no. 2 of Schedule 3.11 and Buyer hereby agrees to
waive such obligation.
ARTICLE 4
MISCELLANEOUS
4.1 Incorporation by Reference. The provisions of Article 13
of the Agreement shall be incorporated by reference herein and each reference
therein to the Agreement shall apply to this Amendment as if this Amendment
were referred to therein.
4.2 Effect on Agreement. Except to the extent amended or
supplemented as set forth in this Amendment, all provisions of the Agreement
are and shall remain in full force and effect and are hereby ratified and
confirmed in all respects, and the execution, delivery and effectiveness of
this Agreement shall not operate as a waiver or amendment of any provision of
the Agreement not specifically amended or supplemented by this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their respective authorized officers as of
the date and year first above written.
MELVILLE CORPORATION
By /s/ CARLOS E. ALBERINI
___________________________
Name: Carlos E. Alberini
Title: Vice President-Finance
CONSOLIDATED STORES CORPORATION
By /s/ MICHAEL J. POTTER
________________________
Name: Michael J. Potter
Title: Senior Vice President
Exhibit 99.1
Melville
Investor Contact: Nancy Christal Media Contact: Jim Fingeroth
Vice President-Investor Wendi Kopsick
Relations Kekst and Company
Melville Corporation (212) 593-2655
(914) 925-4385
FOR IMMEDIATE RELEASE
MELVILLE COMPLETES SALE OF KAY-BEE TOYS
TO CONSOLIDATED STORES FOR $315 MILLION
RYE, NEW YORK, May 6, 1996 -- Melville Corporation (NYSE:MES), one of the
nation's largest speciality retailers, today completed the previously
announced sale of its Kay-Bee Toys division to Consolidated Stores
Corporation (NYSE:CNS) for approximately $315 million, including $215
million in cash and $100 million in a Consolidated Stores four-year
subordinated note.
The sale is a part of the strategic restructuring program Melville has been
carrying out since last October. Its principal components include the
creation of two publicly traded, independent and industry focused companies
-- CVS Corporation in the chain drug industry and Footstar, Inc. in the
footwear industry, the sale of Melville's mature or unrelated businesses, a
significant reduction in costs and the closing of approximately 330
underperforming stores.
"The sale of Kay-Bee is an important step in our strategic restructuring,"
said Stanley Goldstein, Melville chairman and chief executive officer. "We
are on target to complete the program this summer. This transaction will
help to enhance value for Melville's shareholders, in both the short and
long-term. At the same time, Kay-Bee will benefit from the financial and
other support Consolidated will provide."
Kay-Bee is one of the nation's leading mall-based toy speciality retailers,
with over 1,000 locations in all fifty states and the Commonwealth of Puerto
Rico. It had 1995 revenues of $1.1 billion.
# # #
Melville Corporation, One Theall Road, Rye, New York 10580, (914) 925-4000,
Fax (914) 925-4026
