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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): April 12, 1996
CML GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
0-12628 04-2451745
(Commission File Number) (I.R.S. Employer Identification No.)
524 Main Street, Acton, Massachusetts 01720
(Address of Principal Executive Offices) (Zip Code)
(508) 264-4155
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 12, 1996, CML Group, Inc. (the "Company") sold all of the
outstanding capital stock of its Britches of Georgetowne, Inc. subsidiary
("BGI") and, directly or indirectly, all of the outstanding capital stock of the
subsidiaries of BGI (collectively, "Britches") to Britches Acquisition Corp. and
Damrack Company Limited (collectively, "Buyer"), pursuant to a Stock Purchase
Agreement dated as of April 11, 1996 (the "Purchase Agreement"), for an
aggregate cash purchase price of $13,400,000, subject to adjustment as described
below (the "Purchase Price").
The Purchase Price is subject to a dollar for dollar adjustment to the
extent that the working capital of Britches as of the Closing Date (as reflected
in the Closing Date balance sheet) differs from $12,555,000. The Purchase Price
is also subject to adjustment in the event that Britches is unable to retain
certain store leases. Approximately $1,300,000 is being held in escrow pending
the determination of the working capital as of the Closing Date, which is
expected to occur between 60 and 150 days after the Closing Date. An additional
approximately $600,000 also is being held in escrow to satisfy potential claims
which may arise from Britches' inability to retain certain store leases.
The foregoing description of the Purchase Agreement does not purport to
be complete and is qualified in its entirety by reference to the full text of
the Purchase Agreement which is attached hereto as Exhibit 2 and incorporated
herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
2 Stock Purchase Agreement dated as of April 11, 1996 among
Britches of Georgetowne, Inc., CML Group, Inc., Britches
Acquisition Corp. and Damrak Company Limited.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: April 26, 1996 CML GROUP, INC.
(Registrant)
/s/ Glenn E. Davis
----------------------------------------
By: Glenn E. Davis
Vice President, Finance and
Chief Financial Officer
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INDEX TO EXHIBITS
Exhibit
Number Page No.
- ------ --------
2 Stock Purchase Agreement dated as of
April 11, 1996 among Britches of
Georgetowne, Inc., CML Group, Inc.,
Britches Acquisition Corp. and Damrak
Company Limited
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STOCK PURCHASE AGREEMENT
among
BRITCHES OF GEORGETOWNE, INC., (the "Company")
CML GROUP, INC. ("Shareholder")
and
BRITCHES ACQUISITION CORP. and
DAMRAK COMPANY LIMITED ("Buyer")
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TABLE OF CONTENTS
ARTICLE I - Certain Definitions..................................... 2
1.1 Definitions........................................ 2
ARTICLE II - Purchase and Sale of the Shares......................... 5
2.1 Purchase of the Shares from Shareholder............ 5
2.2 Purchase Price for the Shares...................... 5
2.3 Closing Adjustments................................ 6
2.4 Post-Closing Adjustments........................... 7
2.5 Allocation......................................... 9
ARTICLE III - The Closing............................................. 9
3.1 Date and Time...................................... 9
3.2 Obligations at the Closing......................... 9
ARTICLE IV - Representations and Warranties Regarding Shareholder.... 10
4.1 Organization of Shareholder........................ 11
4.2 Authorization of Transaction....................... 11
4.3 Noncontravention................................... 11
4.4 Brokers' Fees...................................... 11
4.5 Capital Stock...................................... 11
ARTICLE V - Representations and Warranties Regarding the Company.... 12
5.1 Organization, Qualification, and Corporate Power... 12
5.2 Capitalization Hong Kong Stock..................... 12
5.3 Authorization of Transaction....................... 13
5.4 Noncontravention................................... 13
5.5 Subsidiaries....................................... 13
5.6 Transactions with Certain Persons.................. 14
5.7 Financial Statements; Undisclosed Liabilities...... 14
5.8 Absence of Material Adverse Effect................. 15
5.9 Taxes.............................................. 15
5.10 Leases............................................. 16
5.11 Title to Properties................................ 18
5.12 Intellectual Property.............................. 19
5.13 Contracts and Agreements........................... 19
5.14 Insurance.......................................... 20
5.15 Litigation......................................... 21
5.16 Accounts Receivable................................ 21
5.17 Inventory.......................................... 21
5.18 Condition of Assets................................ 21
5.19 Compliance with Law................................ 21
5.20 Employees.......................................... 22
5.21 Employee Benefit Plans............................. 22
5.22 Environmental Matters.............................. 25
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5.23 Powers of Attorney................................. 26
5.24 Bank Accounts...................................... 27
5.25 Absence of Certain Changes......................... 27
5.26 Books and Records.................................. 28
5.27 Absence of Certain Business Practices.............. 29
5.28 Disclosure......................................... 29
ARTICLE VI - Representations and Warranties of Buyer................. 29
6.1 Organization of Buyer.............................. 29
6.2 Authorization of Transaction....................... 29
6.3 Noncontravention................................... 30
6.4 Brokers' Fees...................................... 30
6.5 Investment......................................... 30
ARTICLE VII - Covenants of Shareholder and the Company................ 30
7.1 Normal Course...................................... 30
7.2 Negative Covenants................................. 30
7.3 Full Access........................................ 31
7.4 Notices and Consents............................... 31
7.5 HSR................................................ 31
7.6 Maintenance of Quota............................... 32
7.7 Tax Matters........................................ 32
7.8 Non-Solicitation................................... 33
7.9 Continuation of Lease Terms........................ 33
ARTICLE VIII - Covenants of Buyer...................................... 33
8.1 Confidentiality.................................... 33
8.2 Access to Data..................................... 34
8.3 HSR................................................ 34
ARTICLE IX - Joint Covenants......................................... 35
9.1 Public Announcements............................... 35
9.2 Section 338(h)(10) Election........................ 35
9.3 Further Assurances................................. 35
9.4 Litigation Support................................. 35
9.5 Notification of Certain Matters.................... 35
9.6 Landlords Consents................................. 36
9.7 Conveyance Taxes................................... 39
9.8 Insurance Claims................................... 39
ARTICLE X - Conditions to Obligation to Close....................... 39
10.1 Conditions to Obligation of Each Party............. 39
10.2 Conditions to Obligation of Buyer.................. 40
10.3 Conditions to Obligation of Shareholder............ 41
ARTICLE XI - Indemnification......................................... 42
11.1 Survival of Representations and Warranties......... 42
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11.2 Indemnification by Shareholder..................... 42
11.3 Indemnification by Buyer........................... 43
11.4 Assumption of Defense.............................. 44
11.5 Cooperation of the Indemnified Party............... 44
11.6 General Limitations on Indemnification............. 44
ARTICLE XII - Termination............................................. 45
12.1 Termination of Agreement........................... 45
12.2 Effect of Termination.............................. 46
ARTICLE XIII - Miscellaneous........................................... 46
13.1 No Third Party Beneficiaries....................... 46
13.2 Entire Agreement; Amendments....................... 46
13.3 Succession and Assignment.......................... 46
13.4 Counterparts....................................... 47
13.5 Headings........................................... 47
13.6 Notices............................................ 47
13.7 Severability....................................... 48
13.8 Expenses........................................... 48
13.9 Governing Law; Consent to Jurisdiction; Jury
Trial Waiver....................................... 48
EXHIBIT A Ancillary Agreement Among the Parties
EXHIBIT B Escrow Agreement
EXHIBIT C Opinion of Counsel to Shareholder
EXHIBIT D Opinion of Counsel to Buyer
ANNEX I List of Leases
ANNEX II Top Sixty Stores
ANNEX III Allocation of Purchase Price
ANNEX IV List of Omitted Good Standing Certificates
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STOCK PURCHASE AGREEMENT
Agreement made as of the 11th day of April, 1996 by and among Britches
Acquisition Corp., a Delaware corporation with its principal office at 5401 S.
Soto Street, Los Angeles, California 90058 ("BAC"), Damrak Company Limited, a
Hong Kong corporation with its principal office at 30 Canton Road, Suite 1601,
Touch II, Kowloon, Hong Kong ("DCL"; collectively with BAC, "Buyer"), Britches
of Georgetowne, Inc., a Delaware corporation with its principal office at 544
Herndon Parkway, Herndon, Virginia 22070 (the "Company"), and CML Group, Inc., a
Delaware corporation with its principal office at 524 Main Street, Acton, MA
01720 ("Shareholder"), which owns all of the issued and outstanding capital
stock of the Company.
RECITALS
WHEREAS, Shareholder owns all of the issued and outstanding shares of
the common stock, $0.01 par value per share (the "Common Stock"), of the
Company, which shares represent all of the issued and outstanding shares of
capital stock of the Company.
WHEREAS, Company and its wholly owned subsidiaries own all of the
issued and outstanding shares of the common stock, par value HK $1 per share, of
Bontik Limited, Britches (H.K.) Limited, Butcon Limited, Canterbury Tales (H.K.)
Limited and Easitrades, Limited, all of which are Hong Kong companies (the "Hong
Kong Companies").
WHEREAS, Buyer desires to purchase, and Shareholder and Company desire
to sell directly or indirectly, all of the outstanding shares of Capital Stock
of the Company and all of the outstanding equity interests (howsoever
denominated) of Britches Holdings, Inc., a Delaware corporation ("Holdings") and
the Hong Kong Companies (collectively, the "Shares") for the consideration set
forth below, all upon and subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and the mutual
covenants and agreements hereinafter set forth and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties,
intending to be legally bound, hereby agree as follows:
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ARTICLE I
Certain Definitions
1.1 Definitions.
"Affiliate" means, with respect to any Person, any other
Person that, directly or indirectly, alone or together with others, controls, is
controlled by, or is under common control with the first Person.
"Balance Sheet Date" has the meaning set forth in Section 5.7.
"Business Day" means any day that is not a Saturday or Sunday
or a legal holiday on which banks are authorized or required to be closed in The
City of New York.
"Buyer" has the meaning set forth in the preface above.
"Capital Stock" means the common stock of the Company, par
value $.01 per share.
"Closing" has the meaning set forth in Section 2.1.
"Closing Date" has the meaning set forth in Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended,
and regulations promulgated thereunder.
"Company" has the meaning set forth in the preface above.
"Determination Date" has the meaning set forth in Section
2.4(e).
"Disclosure Schedule" means the schedule of information
concerning Shareholder and the Company, referring to the appropriate section(s)
of the Agreement to which such information relates, furnished to Buyer as of the
date of this Agreement.
"Encumbrance" means any lien, pledge, mortgage, security
interest, charge, restriction, adverse claim or other encumbrance of any kind or
nature whatsoever.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"Group" shall mean, individually and collectively, (i) the
Company, (ii) Shareholder, (iii) any Subsidiary, and (iv) any individual, trust,
corporation, partnership or any other entity as to which the Company or any
Subsidiary may be liable for Taxes incurred by such individual or entity either
as a transferee, or pursuant to Treasury Regulations Section 1.1502-6, or
pursuant to any other provision of federal, state, local or foreign law or
regulations.
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"Hong Kong Stock" shall mean the equity interests (howsoever
denominated) of the Hong Kong Companies.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Intellectual Property" means all (a) patents, patent
applications, patent disclosures, and improvements thereto, (b) trademarks,
service marks, trade dress, logos, trade names, and corporate names and
registrations and applications for registration thereof, (c) copyrights and
registrations and applications for registration thereof, (d) mask works and
registrations and applications for registration thereof, (e) computer software,
data, and documentation, (f) trade secrets and confidential business information
(including ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information) (g) other proprietary rights, and (h) copies and tangible
embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge without independent
investigation.
"Landlord Consent" has the meaning set forth in Section
2.3(b).
"Leases" has the meaning set forth in Section 2.3(a).
"Loss(es)" means any loss, liability, cost, expense, judgment,
settlement or other damage, including reasonable attorneys' fees and expenses,
reasonable costs of investigating or defending any claim, action, suit or
proceeding or of avoiding the same or the imposition of any judgment or
settlement, and reasonable costs of enforcing any indemnification obligations.
"Material Adverse Effect" means any material adverse effect on
the business, operations, assets, condition (financial or otherwise), results of
operations or prospects of Company and its Subsidiaries, taken as a whole, or on
the ability of Shareholder and the Company to consummate the transactions
contemplated by this Agreement. In determining whether any event, circumstance
or occurrence has had, or would reasonably be expected to have, a Material
Adverse Effect, there shall be considered the effect of such event, circumstance
or occurrence individually and in the aggregate together with all events,
circumstances or occurrences of a like or similar nature.
"March 1996 Balance Sheet" has the meaning set forth in
Section 5.7.
"Ordinary Course of Business" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
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"Party" means each of Buyer (including the Company from and
after the Closing) and Shareholder (including the Company prior to the Closing),
as the context requires.
"Permitted Encumbrance" has the meaning set forth in Section
5.11(b).
"Person" means an individual, partnership, venture, limited
liability company, unincorporated association, organization, syndicate,
corporation, trust and trustee, executor, administrator or other legal or
personal representative or any government or any agency or political subdivision
thereof.
"Pre-Closing Period" has the meaning set forth in Section
5.9(b).
"Section 338(h)(10) Election" has the meaning set forth in
Section 9.2.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Shares" has the meaning set forth in the preface above.
"Shareholder" has the meaning set forth in the preface above.
"Subsidiary" means, with respect to the Company, any
corporation, partnership, association or other business entity of which
securities or other ownership interests representing (x) at least 50% of the
equity, (y) at least 50% of the outstanding voting securities having the power
to elect a majority of the board of directors of such entity, or (z) at least
50% of the general partnership interests are, at the time the determination is
made, directly or indirectly owned or controlled by the Company and/or one or
more Subsidiaries.
"Tax(es)" means any federal, state, local, or foreign income,
gross receipts, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, stamp, excise,
occupation, sales, use, transfer, value added, alternative minimum, estimated,
or other tax, including any interest, penalty, or addition thereto, whether
disputed or not.
"Working Capital" has the meaning set forth in Section 2.4(e).
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ARTICLE II
Purchase and Sale of the Shares.
2.1 Purchase of the Shares from Shareholder. Subject to and
upon the terms and conditions of this Agreement, at the closing of the
transactions contemplated by this Agreement (the "Closing"), (i) the Company
shall sell, transfer, convey, assign and deliver free and clear of Encumbrances
of any kind to DCL, and DCL shall purchase, acquire and accept free and clear of
Encumbrances of any kind from Company, all of its Hong Kong Stock, and all of
the capital stock of Holdings and, (ii) immediately after such purchase,
Shareholder shall sell, transfer, convey, assign and deliver free and clear of
Encumbrances of any kind to BAC, and BAC shall purchase, acquire and accept free
and clear of Encumbrances of any kind from Shareholder, all of the Capital
Stock, such that upon conclusion of such Closing, Company and Shareholder shall
have sold, directly or indirectly, as aforesaid, and Buyer shall have purchased,
as aforesaid, all of the Shares.
2.2 Purchase Price for the Shares.
(a) In consideration of the sale, transfer, conveyance,
assignment and delivery of the Hong Kong Stock and the capital stock of Holdings
by Company to DCL as aforesaid and in reliance upon the representations and
warranties made herein by the Company and Shareholder, Buyer shall pay an amount
equal to Two Million Dollars ($2,000,000). At the Closing, Buyer shall pay to
Company, or as the Company shall direct, such amount in cash, by cashier's or
certified check in New York clearinghouse funds, or by wire transfer of
immediately available funds to an account designated by Company not less than
two (2) Business Days prior to the Closing.
(b) In consideration of the sale, transfer, conveyance,
assignment and delivery of the Capital Stock by Shareholder to BAC as aforesaid,
and in reliance upon the representations and warranties made herein by
Shareholder, Buyer shall pay an amount equal to Eleven Million Four Hundred
Thousand Dollars ($11,400,000), subject to adjustment as provided in Section 2.3
(the "Base Purchase Price"). The Base Purchase Price shall be subject to a
post-Closing adjustment, as provided in Section 2.4. At the Closing, Buyer shall
pay to Shareholder the Base Purchase Price, less the amount of the Escrow as
provided in subsection (c) below, in cash, by cashier's or certified check in
New York clearinghouse funds, or by wire transfer of immediately available funds
to an account designated by Shareholder not less than two (2) Business Days
prior to the Closing.
(c) At the Closing, Buyer shall also deposit with an
escrow agent (the "Escrow Agent"), mutually agreed upon by Buyer and
Shareholder, by cashier's or certified check in New York clearinghouse funds, a
cash amount (the "Escrow") equal to $2,431,325, comprised of $1,300,000, plus
the Escrowed Store Contributions, as provided in Section 2.3(c). The Escrow
Agent shall hold and release the Escrow in accordance with the provisions of an
Escrow Agreement, substantially in the form attached hereto as Exhibit B.
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2.3 Closing Adjustments. (a) Annex I, attached hereto, is a
list prepared by the Company of each real property lease or sublease pursuant to
which Company or any of its Subsidiaries leases or subleases real property
(each, a "Lease", and collectively, the "Leases"), designated by Buyer as either
an "AAA", "A", "B" or "C" Lease (it being agreed that the Lease pursuant to
which the Company leases the warehouse located at 544 Herndon Parkway, Herndon,
Virginia is designated as a "AAA" Lease). Annex II, attached hereto, is a list
prepared by the Company of the fifty nine (59) of the Company's stores (the "Top
Sixty Stores") with the highest contribution to the Company's operating cash
flow (before depreciation and amortization) for the twelve months ended February
3, 1996 (such contribution for each Lease being referred to as the "Store
Contribution Amount" for such Lease), ranked on the basis of Store Contribution
Amount and reflecting the actual Store Contribution Amount for each such Store.
(b) It shall be a condition (the "Consent Condition") to
the obligations of Buyer to consummate the purchase and sale of the Shares that,
on or before the Closing Date, Shareholder shall either (x) deliver the
unconditional consent (each, a "Landlord Consent") of the landlord or lessor of
the respective Leases to the purchase of the Shares by Buyer, to any deemed
assignment or transfer of the Lease as a result thereof, and to any waiver or
amendment required in respect thereto, such that such purchase will not (i)
constitute a default or give rise to any other remedy of the landlord or lessor
under such Leases, (ii) result in any increase in the level of payments by the
tenant thereunder (by way of rent or otherwise) except as the parties may
otherwise agree, such agreements to be as set forth on Exhibit A attached hereto
and initialled by the parties, (iii) cause or permit the landlord or lessor to
cause any change in any of the terms, conditions, rights, liabilities or
obligations of the Company or any of its Subsidiaries under or pursuant to the
terms of any such Lease, or (iv) permit the landlord or lessor to terminate such
Lease or recapture the premises subject to any such Lease, or to demand the
payment of any money to it as a result of the purchase of the Shares, other than
minor sums to compensate it for fees and expenses incurred in reviewing the
proposed transaction as provided in such Lease, or (y) establish to the
reasonable satisfaction of Buyer that such consent is not required, with respect
to 100% of the "AAA" designated Leases; at least 75% of the "A" designated
Leases; and at least 50% of the aggregate of the "B" and "C" designated Leases.
(c) If the Consent Condition is satisfied or waived, but
the Shareholder does not deliver a Landlord Consent, or establish to the
reasonable satisfaction of Buyer that such consent is not required, with respect
to the Lease for any store included in the Top Sixty Stores, the amount of the
Base Purchase Price shall be reduced by the aggregate of the Store Contribution
Amounts for all Top Sixty Stores as to which a required Landlord Consent is not
delivered. The reduction in the Base Purchase Price provided in the previous
sentence (the "Store Contribution Reduction") shall be subject to the following
qualifications:
(i) No Store Contribution Reduction shall be made at
the Closing with respect to any store as to which Shareholder shall
establish on or before the Closing Date to the reasonable satisfaction
of Buyer that (x) Shareholder is diligently seeking to obtain a
Landlord Consent with respect to the Lease of such
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store and has reasonable prospects for obtaining such consent and (y)
the Company will continue to have quiet enjoyment of the premises under
such Lease following the Closing Date; provided, however, that fifty
percent (50%) of the Store Contribution Amount with respect to such
Lease shall be placed in escrow (collectively, with respect to all such
Leases, the "Escrowed Store Contributions") and held and released as
provided in Section 9.6 hereof and the Escrow Agreement annexed hereto
as Exhibit B; and
(ii) Shareholder shall not be required to consummate
the purchase and sale of the Shares if the aggregate amount of the
Store Contribution Reductions and the Escrowed Store Contributions
would exceed $2,000,000, unless Buyer shall agree to limit the
aggregate amount of the Store Contribution Reductions and the Escrowed
Store Contributions to $2,000,000 (in such manner as Buyer shall in its
sole discretion determine).
2.4 Post-Closing Adjustments. The Base Purchase Price set
forth in Subsection 2.2(b) shall be subject to adjustment after the Closing Date
as follows:
(a) As promptly as possible following the Closing Date,
Shareholder, at its own expense, shall cause Deloitte & Touche or other
independent accounting firm of national reputation (the "Company's Auditors") to
conduct a special purpose audit (the "Working Capital Audit") of the items of
Working Capital (as such term is defined below) of the Company as of the Closing
Date, including a physical count of the Company's inventory. An independent
accounting firm engaged by Buyer ("Buyer's Auditor's") shall have the
opportunity, at Buyer's own expense, to observe and comment upon the physical
inventory count in connection with the Working Capital Audit and to examine the
work papers, schedules and other documents prepared by Shareholder or the
Company's Auditors in connection with the Working Capital Audit. The Buyer may
at its option on reasonable advance notice to Shareholder and Company's
Auditors, convert the Working Capital Audit into an audit of the full balance
sheet of the Company, it being agreed that the marginal cost of such balance
sheet audit over the cost of the Working Capital Audit shall be borne by Buyer.
(b) Not later than 60 days after the Closing Date,
Shareholder shall cause the Company's Auditors to deliver to each of the Parties
a consolidated balance sheet of the Company and the Subsidiaries as of the
Closing Date (the "Closing Balance Sheet"). The Closing Balance Sheet shall be
delivered together with a certification of the Company's Auditors that the
Closing Balance Sheet has been prepared in accordance with GAAP, consistently
applied, except that the applicable materiality standards shall be determined
and applied as though the Company were a stand-alone company or entity having a
materiality threshold of $10,000 in respect of any one item and $150,000 in the
aggregate, and that no adjustments applicable solely as a result of the
acquisition of the Shares by Buyer on the Closing Date shall be made. In
preparing the Closing Balance Sheet, point of sale reductions to retail selling
prices in excess of One Million Five Hundred Thousand Dollars ($1,500,000)
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(at retail) not accounted for to reduce inventory value will be treated as a
permanent markdown for inventory valuation.
(c) Within thirty (30) days following delivery of the
Closing Balance Sheet and the related certification of the Company's Auditors,
Buyer shall deliver to Shareholder a notice of objection (an "Objection Notice")
or a notice of acceptance (an "Acceptance Notice") with respect to the Closing
Balance Sheet and related certification. The Closing Balance Sheet and related
certification shall be final and binding on the Parties if an Acceptance Notice
is delivered to Shareholder or no Objection Notice is delivered to Shareholder
within such thirty (30) day period. Any Objection Notice shall specify in
reasonable detail the items on the Closing Balance Sheet that are disputed and
shall describe in reasonable detail the basis for the objection. If an Objection
Notice is timely delivered, the Parties shall negotiate in good faith with the
respect to all disputed issues, and the Closing Balance Sheet shall be adjusted
to reflect the Parties' resolution of such issues, if any. If the Parties are
unable to resolve any disputed issues within thirty (30) days after delivery of
the Objection Notice, any unresolved disputed issues shall be promptly referred
to an independent accounting firm jointly selected by the Company's Auditors and
Buyer's Auditors (the "Unrelated Accounting Firm"). The Unrelated Accounting
Firm shall be directed to render a written report on the unresolved disputed
issues as promptly as practicable, but in no event later than thirty (30) days
after the date of referral of such issues. The resolution of the disputed issues
by the Unrelated Accounting Firm shall be final and binding upon the parties and
the Closing Balance Sheet shall be adjusted accordingly. The fees and expenses
of the Unrelated Accounting Firm shall be borne equally by the Parties.
(d) If the Working Capital (as such term is hereinafter
defined) determined on the basis of the Closing Balance Sheet exceeds
$12,555,000, Buyer shall pay to Shareholder an amount equal to the excess within
four (4) Business Days following the Determination Date. If the Working Capital
determined on the basis of the Closing Balance Sheet is less than $12,555,000,
Shareholder shall pay to Buyer an amount equal to the difference within four (4)
Business Days following the Determination Date. Such payment shall be made by
cashier's or certified check in New York clearinghouse funds, or by wire
transfer of immediately available funds to an account designated by Shareholder
or Buyer, as the case may be, not later than one (1) Business Day after the
Determination Date; provided that if any such payment shall be due from
Shareholder to Buyer hereunder, such payment shall be made first, through
application of the cash funds remaining in the Escrow, exclusive of any Escrowed
Store Contributions, and then, if necessary, by check or wire as aforesaid.
(e) As used in this Section 2.4:
"Determination Date" means either (w) the date on which
Buyer delivers an Acceptance Notice, (x) the date of the expiration of
the first thirty (30) day period referred to in Subsection (c) above,
if Buyer shall not have timely delivered an Objection Notice, (y) the
date on which Buyer and Shareholder shall have resolved all disputed
issues, or (z) the date on which the Unrelated Accounting Firm shall
have delivered its report, as the case may be.
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"Working Capital" means the excess of the current assets
of the Company and the Subsidiaries over all current liabilities of the
Company and the Subsidiaries (excluding intercompany tax liabilities or
credits between the Shareholder and the Company, but not excluding Hong
Kong taxes payable by the Hong Kong Companies, and further excluding
any other intercompany liabilities); provided, however, that in no
event shall (i) inventory in excess of $20,000,000 (less any applicable
reserve) be counted in the determination of Working Capital or (ii) the
reserve for insurance and related legal claims be less than $600,000.
2.5 Allocation. The Final Purchase Price shall be allocated
among the Assets in accordance with Annex III attached hereto, to which
allocation Buyer and Shareholder agree to be bound. Buyer and Shareholder agree
to file all returns and reports including, without limitation, all federal,
state, local, and foreign income and franchise tax returns, on the basis of such
allocation (except to the extent that a different allocation is subsequently
determined by a taxing authority to be required).
ARTICLE III
The Closing
3.1 Date and Time. The Closing shall take place at the offices
of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919 Third Avenue, New York,
New York at 10:00 a.m., on April 12, 1996 or at such other place, time or date
as may be mutually agreed upon in writing by the parties (the "Closing Date").
The transfer of the Hong Kong Stock and the capital stock of Holdings by Company
to DCL shall be deemed to occur at 9:00 a.m., New York time, on the Closing Date
and the transfer of the Capital Stock by Shareholder to Buyer shall be deemed to
occur at 9:01 a.m., New York time, on the Closing Date.
3.2 Obligations at the Closing. (a) At the Closing, Company
and Shareholder shall deliver to Buyer:
(i) stock certificates representing the Hong Kong
Stock, the capital stock of Holdings and the Capital Stock,
duly endorsed in blank, and with all necessary stock transfer
stamps attached;
(ii) resignations, effective immediately, of (a) the
directors, as such, of each of the Company and the
Subsidiaries; and (b) the officers, as such, of each of the
Company and the Subsidiaries who are not employed by the
Company;
(iii) mutual releases between Shareholder and each of
the Company and the Subsidiaries, in form and substance
reasonably satisfactory to Buyer;
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(iv) certificates as of a recent date as to the good
standing of each of the Companies and the Subsidiaries (except
for those listed on Annex IV), and their payment of franchise
taxes and filing of required reports, from appropriate
officials of the jurisdictions in which they are incorporated
or qualified to do business as a foreign corporation or other
business entity;
(v) the minute books and stock ledgers of each of the
Company and the Subsidiaries; and
(vi) all other documents required to be delivered by
Shareholder to Buyer under the provisions of this Agreement.
(b) At the Closing, Buyer shall deliver to Shareholder:
(i) the cash payments required pursuant to Sections
2.2(a) and 2.2(b);
(ii) a certificate as to the good standing of Buyer,
from the Secretary of State of Delaware; and
(iii) all other documents required to be delivered by
Buyer to Shareholder under the provisions of this Agreement.
(c) At the Closing, the Parties and the Escrow Agent shall
enter into the Escrow Agreement, and Buyer will deposit with the Escrow Agent
the Escrow required pursuant to Section 2.2(b).
(d) At any time and from time to time after the Closing,
at Buyer's request and without further consideration, Shareholder will execute
and deliver such other instruments of sale, transfer, conveyance, assignment and
confirmation and take such action as Buyer may reasonably deem necessary or
desirable in order more effectively to transfer, convey and assign to Buyer, and
to confirm Buyer's title to, the Shares, to put Buyer in actual possession and
operating control of all of the business, properties and assets of the Company
and the Subsidiaries and allow Buyer to exercise all rights of an owner with
respect thereto.
ARTICLE IV
Representations and Warranties Regarding Shareholder
Shareholder represents and warrants to Buyer that each of the
statements contained in this Article IV are true, correct and complete as of the
date of this Agreement and will be true correct and complete as of the Closing
Date (as though then made).
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<PAGE> 15
4.1 Organization of Shareholder. Shareholder is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation.
4.2 Authorization of Transaction. Shareholder has full power
and authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. All proceedings
required to be taken by Shareholder or by its stockholders to authorize the
execution, delivery and performance by Shareholder of this Agreement and the
agreements related hereto have been taken, and this Agreement constitutes the
valid and legally binding obligation of Shareholder, enforceable in accordance
with its terms and conditions.
4.3 Noncontravention. Except as set forth in Section 4.3 of
the Disclosure Schedule, and except for required Landlord Consents, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (i) conflict with or violate the
certificate of incorporation or by-laws of Shareholder; (ii) violate any
statute, regulation, rule, judgment, order, decree, stipulation, writ,
injunction, charge, or other restriction of any government, governmental agency,
or court to which Shareholder is subject; (iii) except for the filing of a
premerger notification report under the HSR Act or as set forth in Section 4.3
of the Disclosure Schedule, require the consent of or any notice to or filing
with any third party or governmental authority; (iv) create an Encumbrance on
any of the Shares or other assets of Shareholder; or (v) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, security interest, or other arrangement to which
Shareholder is a party or by which it is bound or to which any of its assets is
subject, except, in the case of clauses (ii), (iii) and (v), where such
violation, conflict, breach, default, acceleration, termination, modification,
cancellation or the failure to give notice or obtain any authorization, consent
or approval would not have a Material Adverse Effect.
4.4 Brokers' Fees. Except for fees payable to First Boston
Corporation, Shareholder has no liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement.
4.5 Capital Stock. Shareholder holds of record and owns
beneficially all 1,000 of the issued and outstanding shares of Capital Stock,
free of any restrictions on transfer (other than restrictions under (a) the
Securities Act and state securities laws and (b) the current pledge of such
shares to Citibank, N.A., which pledge shall be released at the Closing),
claims, Taxes, Encumbrances, options, warrants, rights, contracts, calls,
commitments, equities, and demands. Shareholder is not a party to any option,
warrant, right, contract, call, put, or other agreement or commitment providing
for the disposition or acquisition of any capital stock of the Company or any of
its Subsidiaries (other than this Agreement). Shareholder is not a party to any
voting trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of the Company. At the
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Closing, Shareholder will convey good and valid title to all of the issued and
outstanding capital stock of the Company.
ARTICLE V
Representations and Warranties Regarding the Company
Shareholder and the Company jointly and severally represent and
warrant to Buyer that the statements contained in this Article V are true,
correct and complete as of the date of this Agreement and will be true correct
and complete as of the Closing Date (as though then made):
5.1 Organization, Qualification, and Corporate Power. Each of
the Company and its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. Each of the Company and its Subsidiaries is duly authorized to
conduct business and is in good standing as a foreign corporation under the laws
of each jurisdiction in which the nature of its business or the ownership or
leasing of its properties requires such qualification, except where such failure
to obtain authorization or maintain good standing would not have a Material
Adverse Effect. Each of the Company and its Subsidiaries has full corporate
power and authority to carry on the business in which it is engaged and to own
and use the properties owned and used by it. Section 5.1 of the Disclosure
Schedule lists the directors and officers of each of the Company and its
Subsidiaries.
5.2 Capitalization; Hong Kong Stock. (a) The entire authorized
capital stock of the Company consists of 10,000 shares of Capital Stock, of
which 1,000 shares are issued and outstanding and held of record and
beneficially by Shareholder.
(b) The authorized issued and outstanding capital stock of
each of the Hong Kong Companies is as set out in Section 5.5 of the Disclosure
Schedule; all of such shares are held of record and beneficially by the Company
or Holdings, free of any restrictions on transfer (other than restrictions under
(a) the Securities Act and state securities laws and (b) the current pledge of
Hong Kong Shares and shares of capital stock of Holdings to Citibank, N.A.,
which pledge shall be released at the Closing), claims, Taxes or Encumbrances.
Company is not a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of any Hong Kong
Company. At the Closing Company will convey good and valid title to (i) all of
the issued and outstanding capital stock of Holdings and (ii) all shares of each
Hong Kong Company owned by it, which together will result in all of the equity
interests of the Hong Kong Companies being owned, directly or indirectly, by
DCL.
(c) All of the issued and outstanding Shares have been
duly authorized, and validly issued, and are fully paid, and nonassessable.
There are no outstanding or authorized options, warrants, rights, contracts,
calls, puts, rights to subscribe, conversion rights, exchange rights or other
agreements or commitments to which the
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<PAGE> 17
Company, Holdings or any Hong Kong Company is a party or which are binding upon
the Company, Holdings or any Hong Kong Company providing for the issuance,
disposition, or acquisition of any of capital stock of the Company, Holdings or
any Hong Kong Company (other than this Agreement). There are no outstanding or
authorized stock appreciation, phantom stock, or similar rights with respect to
the Company, Holdings or any Hong Kong Company.
5.3 Authorization of Transaction. The Company has full power
and authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligation hereunder. All proceedings
required to be taken by the Company to authorize the execution, delivery and
performance by the Company of this Agreement and the agreements related thereto
have been taken, and this Agreement constitutes the valid and legally binding
obligation of the Company, enforceable in accordance with its terms and
conditions.
5.4 Noncontravention. Except as set forth in Section 5.4 of
the Disclosure Schedule and except for required Landlord Consents, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (i) conflict with or violate the articles
of incorporation or by-laws of the Company or any of its Subsidiaries; (ii)
violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government, governmental agency,
or court to which any of the Company and its Subsidiaries is subject; (iii)
except for the filing of a premerger notification report under the HSR Act,
require the consent of or any notice to or filing with any third party or
governmental authority; (iv) create an Encumbrance on any of the assets of any
of the Company and its Subsidiaries except for such Encumbrances that would not
detract in any material respect from the Company's right and ability to continue
to use and enjoy the use of such asset as heretofore; (v) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, security interest, or other arrangement to which any
of the Company and its Subsidiaries is a party or by which it is bound or to
which any of its assets is subject, except, in the case of clauses (ii), (iii)
and (v) where such violation, conflict, breach, default, acceleration,
termination, modification, cancellation or the failure to give notice or obtain
any authorization, consent or approval would not have a Material Adverse Effect.
5.5 Subsidiaries. Section 5.5 of the Disclosure Schedule sets
forth for each Subsidiary of the Company and each other entity in which the
Company has an interest: (i) its name and jurisdiction of organization; (ii) the
number of shares of authorized capital stock of each class of its capital stock
or other equity interests; (iii) the number of issued and outstanding shares of
each class of its capital stock or other equity interests, the names of the
holders thereof, and the number of shares or other equity interests held by each
such holder; (iv) the number of shares of its capital stock or other equity
interests held in treasury; and (v) any options, warrants, rights, contracts,
calls, puts, rights to subscribe, conversion rights, exchange rights or other
agreements or commitments to which such Subsidiary or other entity
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<PAGE> 18
is a party or which is binding upon such Subsidiary or entity for the issuance,
disposition or acquisition of any of its capital stock or other equity
interests. Except as set forth in Section 5.5 of the Disclosure Schedule, the
Company has no interest, direct or indirect, and has no commitment to purchase
any interest, direct or indirect, in any other corporation, partnership, joint
venture or other business enterprise or entity. Except as set forth on Section
5.5 of the Disclosure Schedule, Shareholder has conducted the business of the
Company only through the Company and its Subsidiaries and not through any other
direct or indirect subsidiary or Affiliate of Shareholder.
5.6 Transactions with Certain Persons. Except as set forth in
Section 5.6 of the Disclosure Schedule, (i) neither the Company nor its
Subsidiaries has during the last three years, directly or indirectly, purchased,
leased or otherwise acquired any property or obtained any services (other than
tax preparation, procurement and administration of insurance, cash management,
auditing, external financing, employee benefit administration, legal, and
strategic planning, budgeting and similar consulting, services provided by
Shareholder throughout such period) from, or sold, leased or otherwise disposed
of any property or furnished any services to (except with respect to
remuneration for services rendered as a director, officer or employee of Company
or its Subsidiaries), in the ordinary course of business or otherwise,
Shareholder or any of its Affiliates (other than the Company and its
Subsidiaries); (ii) neither Company nor its Subsidiaries owes any amount to any
such Affiliate; and (iii) no such Affiliate owes any amount to the Company or
any of its Subsidiaries, and no part of the property or assets of any such
Affiliate is used by the Company or any of its Subsidiaries in the conduct or
operation of its business.
5.7 Financial Statements; Undisclosed Liabilities.
(a) Attached hereto as Exhibit B are the following
financial statements (collectively the "Financial Statements"): (i) unaudited
consolidated balance sheets and statements of income, as of and for the fiscal
years ended July 31, 1993, July 31, 1994 and July 31, 1995 for the Company and
its Subsidiaries; and (ii) unaudited consolidated balance sheets and statements
of income, as of and for the seven months ended March 2, 1996 for the Company
and its Subsidiaries. The Financial Statements have been prepared in accordance
with GAAP, and present fairly the consolidated financial condition of the
Company and its Subsidiaries as at their respective dates and the consolidated
results of operations of the Company and its Subsidiaries for the periods
covered thereby, except that the interim financial statements are subject to
normal year-end adjustments and lack footnotes and other presentation items.
None of the foregoing statements of income contain any material item of special
or non-recurring income or any other income not earned in the ordinary course of
business, except as stated therein or as set forth in Section 5.7 of the
Disclosure Schedule.
(b) Except as and to the extent reflected or reserved
against on the balance sheet (the "March 1996 Balance Sheet"), dated as of March
2, 1996 (the "Balance Sheet Date"), or as set forth in Section 5.7 of the
Disclosure Schedule, or for liabilities not exceeding $10,000 in any one case
and $100,000 in the aggregate, as of the Balance Sheet Date, Company and its
Subsidiaries had no liabilities, debts or obligations (whether absolute,
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<PAGE> 19
accrued, contingent or otherwise), including, without limitation, any liability
for Taxes, relating to or arising out of any act, transaction, circumstance, or
state of facts which occurred or existed on or before the Balance Sheet Date,
whether or not then known, due or payable. None of the employees of the Company
and its Subsidiaries is now or will by the passage of time hereafter become
entitled to receive any vacation time or vacation pay attributable to services
rendered prior to the Balance Sheet Date, except as disclosed on the face of the
March 1996 Balance Sheet.
5.8 Absence of Material Adverse Effect. Since the Balance
Sheet Date, there has been no event, circumstance or occurrence which, taken
individually or in the aggregate, has had or would reasonably be expected to
have a material adverse effect on the business, operations, assets, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole, or on the ability of Shareholder and the Company
to consummate the transactions contemplated by this Agreement.
5.9 Taxes.
(a) The Company and each other member of the Group have timely
filed with the appropriate taxing authorities all returns and reports in respect
of Taxes ("Returns") required to be filed by them (taking into account any
extension of time to file granted to or on behalf of the Company or each other
member of the Group). The information on such Returns is complete and accurate
in all respects. The Company and each other member of the Group have paid on a
timely basis all Taxes of the Company and each other member of the Group
(whether or not shown on any Return) due and payable except for Taxes which the
Company or each other member of the Group, in good faith, is contesting by
appropriate proceedings and for which the Company or each other member of the
Group have set aside on their books reserves to the extent required by GAAP;
except as provided in Section 5.9(a) of the Disclosure Schedule, there are no
such Taxes being contested with respect to the Company or any Subsidiary at the
date of this Agreement. There are no liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of the Company or any Subsidiary.
(b) Except as set forth in Section 5.9(b) of the Disclosure
Schedule, no unpaid (or unreserved in accordance with GAAP) deficiencies for
Taxes have been claimed, proposed or assessed by any taxing or other
governmental authority with respect to the Company or each Subsidiary for any
taxable period ending on or before the Closing Date and the portion ending on
the Closing Date of any taxable period that includes (but does not end on) the
Closing Date (the "Pre-Closing Period"), and there are no pending or threatened
audits, investigations or claims for or relating to any liability in respect of
Taxes of the Company or each Subsidiary. Except as set forth in Section 5.9(b)
of the Disclosure Schedule, no extension of a statute of limitations relating to
any Taxes is in effect with respect to the Company or each Subsidiary.
(c) Except as set forth in Section 5.9(c) of the Disclosure
Schedule, (i) the Company and each other member of the Group have withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee,
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<PAGE> 20
independent contractor, creditor, shareholder or other third party; (ii) there
are no private letter rulings in respect of any Tax pending with any taxing
authority which affect the Company or any Subsidiary; (iii) neither the Company
nor any Subsidiary owns any interest in real property in the State of New York;
(iv) the taxable year of the Company and each subsidiary is July 31st and
neither the Company nor any Subsidiary has been a member, during any open
taxable year, of an affiliated group or filed or been included in a combined,
consolidated or unitary return of any Person other than consolidated group of
which Shareholder is the common parent; (v) neither the Company nor any
Subsidiary is currently under any contractual obligation to indemnify any Person
with respect to Taxes or is a party to any tax sharing agreement or any other
agreement providing for payments by the Company or any Subsidiary with respect
to Taxes; (vi) neither the Company nor any Subsidiary is, or has been, a real
property holding corporation (as defined in section 897(c)(2) of the Internal
Revenue Code of 1986, as amended as in effect on the date hereof ("Code") during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code; (vii)
neither the Company nor any Subsidiary is obligated under any written agreement
with respect to industrial development bonds or other obligations with respect
to which the excludability from gross income of the holder for federal or state
income tax purposes could be affected by the transactions contemplated hereby;
(viii) neither the Company nor any Subsidiary is a party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal income tax purposes; (ix) neither the Company nor any
Subsidiary has entered into any sale leaseback or any leveraged lease
transaction that fails to satisfy the requirements of Revenue Procedure 75-21
(or similar provisions of foreign law); (x) neither the Company nor any
Subsidiary is a party to any agreement, contract, arrangement or plan that would
result after the Closing (taking into account the transactions contemplated by
this Agreement), separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code; (xi) neither
the Company nor any Subsidiary has ever been a Subchapter S corporation; (xii)
Section 5.9(c) of the Disclosure Schedule contains a list of all jurisdictions
to which any Tax is properly payable by the Company or any Subsidiary and
Shareholder has provided to Buyer Tax Returns filed in any jurisdiction in the
last three years (1995 Tax Returns may be provided to Buyer within thirty (30)
days of this Agreement) in which the Company or any Subsidiary filed on a
stand-alone basis; (xiii) neither the Company nor any Subsidiary owns any
property of a character, the indirect transfer of which, pursuant to this
Agreement, would give rise to any material documentary, stamp or other transfer
Tax; and (xiv) neither the Company nor any Subsidiary has liability for the
Taxes of any Person other than the Company, any Subsidiary or any Person
included in Shareholder's federal consolidated income Tax Returns for periods
prior to or ending on the Closing Date, respectively, under Treas. Reg. Section
1.1502-6.
5.10 Leases.
(a) Section 5.10 of the Disclosure Schedule contains a
list of all Leases, together with a list of each lease, sublease, license, or
any other instrument under which the Company or any of its Subsidiaries claims
or holds the leasehold or other interest or right of use with respect to the
relevant premises or pursuant to which Shareholder has sublet or granted any
rights therein, identifying the parties thereto and which of those Leases
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<PAGE> 21
may require that a consent be obtained (from any lessors, guarantors or any
other third parties) before a valid transfer may be effected and identifying in
each instance the consenting party thereto of which Shareholder has written
notice. Such leases, subleases and other agreements are valid, subsisting, in
full force and effect as to the Company or its Subsidiaries, as the case may be,
and binding upon the parties thereto in accordance with their terms except, with
respect to any lessors or third parties thereunder, as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally and subject to the discretion of a
court in granting equitable remedies.
(b) Shareholder has delivered for examination by Buyer
true, correct and complete copies of all of the Leases and related contracts and
agreements set forth in Section 5.10 of the Disclosure Schedule.
(c) Either the Company and/or one of its Subsidiaries is
the tenant under all of the Leases, and the Company and/or one of its
Subsidiaries has the right to use the property subject to the Leases for the
operations presently conducted thereon. The Company and/or one of its
Subsidiaries has paid in full all amounts due, and has satisfied in full all of
its liabilities and obligations, including without limitation any obligation to
pay for and/or perform any tenant initial installation work under the Leases,
and is not in default under any of them, nor to the Knowledge of the Company at
the date of this Agreement is any other party to any such Lease in default
thereunder, nor to the Knowledge of the Company does any condition exist that
with notice or the lapse of time or both would constitute a default thereunder,
except for defaults that would not materially and adversely effect the rights of
the Company and its Subsidiaries under any of such Leases including, without
limitation, the quiet enjoyment of the premises subject thereto. Except as set
forth in Section 5.10 of the Disclosure Schedule: (i) none of the Company or its
Subsidiaries has received any notice of any claim by any landlord or other third
party adverse to the possessory rights of the Company or its Subsidiaries under
any Leases, or any other notice of default or notice of any claim regarding any
of the property subject to the Leases; (ii) no written notice from any
governmental body has been served upon the Company or its Subsidiaries claiming
any violation of any federal, state or local law, code, regulation, zoning or
building ordinance or health or safety ordinance, or requiring or calling
attention to the need for any work, repairs, construction, alterations or
installations on or in connection with such Leases which has not been complied
with in all material respects (it being understood and agreed that this
representation in no way diminishes or limits the representation set forth in
Section 5.19); (iii) none of the premises subject to the Leases is subject to
any sublease, sublicense or other agreement granting to any other Person any
right to the use, occupancy or enjoyment of such property or any portion
thereof; and (iv) except to the extent that a Landlord Consent is required, all
of the Leases will continue in full force and effect following the Closing.
Buyer will be entitled to the full benefits thereof and to operate the Company's
stores, provided Buyer operates such stores in accordance with the Lease terms
under the names Britches of Georgetowne, Britches Great Outdoors, or Britches
Great Outdoors Outlets, without any increase in rent or any other costs payable
as a result of the consummation of the transactions contemplated hereby,
including, but not limited to common area maintenance costs, insurance or taxes,
and without creating any default or
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<PAGE> 22
violation under any provisions of the Leases, excluding any radius clauses to
the extent that they would be violated by virtue of a store operated by Buyer or
any Affiliate of Buyer (other than the Company or any Subsidiary after the
Closing), but including but not limited to any use clauses (i.e. such Leases
allow such premises to be used for the operation of a retail store).
(d) Except as set forth in Section 5.10 of the Disclosure
Schedule, (i) all public utilities used in the operation of premises subject to
the Leases in the manner currently operated are installed and operating, and all
installation and connection charges have been paid in full or provided for; and
(ii) the plumbing, electrical, heating, air conditioning, ventilating, septic
and all other structural or material mechanical systems in the buildings upon
the premises subject to the Leases are in good working order and working
condition, so as to be adequate for the operation of the business of the Company
and its Subsidiaries as heretofore conducted, except as would not have a
Material Adverse Effect.
5.11 Title to Properties. (a) Except as set forth in Section
5.11 of the Disclosure Schedule, (x) the Company or its Subsidiaries has good
title to tenant's interest in the Leases and to all of the other material
properties and assets, real and personal, tangible and intangible, it owns or
purports to own, including those reflected on its books and records and on the
March 1996 Balance Sheet (except for supplies and other consumables utilized in
the ordinary course of business and accounts receivable collected after the
Balance Sheet Date), and the permanent quota set out on Section 7.6 of the
Disclosure Schedule, free and clear of all Encumbrances, except for Permitted
Encumbrances, and (y) the Company or its Subsidiaries has a valid leasehold,
license or other interest in all of the other material assets, real or personal,
tangible or intangible, which are used in the operation of its business, free
and clear of all Encumbrances, except for Permitted Encumbrances
(b) "Permitted Encumbrances" means: (i) liens for Taxes not
yet due and payable or which are being contested in good faith by appropriate
proceedings and as to which appropriate reserves (to the extent required by
GAAP) have been established in Company's books and records and which are
reflected on the March 1996 Balance Sheet; (ii) mechanics', materialmen's,
carriers', warehousemen's, landlord's and similar liens securing obligations not
yet delinquent or which are being contested in good faith by appropriate
proceedings and as to which appropriate reserves (to the extent required by
GAAP) have been established in Company's books and records; (iii) such
imperfections of title, easements, encroachments and Encumbrances as do not
detract from the value or interfere with the present use of the properties or
assets subject thereto or affected thereby; (iv) Encumbrances on personal
property taken by or granted to a Person who, by making advances or incurring an
obligation gives value to enable Company to acquire rights in or the use of such
property, provided that the Encumbrance does not extend to or cover any other
property and the total cost to Company that would be required to discharge such
Encumbrance in full does not exceed the value so given by such Person to
Company; (v) any other Encumbrances for which appropriate reserves (to the
extent required by GAAP) have been established on the books and records of the
Company and which are reflected on the March 1996 Balance Sheet; and (vi) liens,
pledges, mortgages or guarantees that will be
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<PAGE> 23
unconditionally released (of record, if the Encumbrance is of record) on or
prior to the Closing; provided that Permitted Encumbrances shall not in any
event include any Encumbrance to the extent that its existence would create a
default under any Lease or other agreement to which the Company or any
Subsidiary is a party.
5.12 Intellectual Property.
(a) Section 5.12 of the Disclosure Schedule contains a
complete and accurate list of all patents and patent applications, all
registrations and applications for registration of trademarks, trade names,
service marks, copyrights and common-law trademarks owned or used by Company or
its Subsidiaries. The Company and/or one or more of its Subsidiaries owns or has
the right to use pursuant to license, sublicense, agreement, or permission all
Intellectual Property necessary for the operation of the businesses of the
Company and its Subsidiaries as presently conducted.
(b) Except as set forth in Section 5.12 of the Disclosure
Schedule: (i) all Intellectual Property used by Company in the operation of its
business is either (x) owned by Company or its Subsidiaries free and clear of
all Encumbrances, other than Permitted Encumbrances, or (y) subject to a right
of use by Company or its Subsidiaries pursuant to a license or other agreement;
(ii) no third party has been granted by Company the right to use any
Intellectual Property owned or used by Company or its Subsidiaries; (iii) to the
Knowledge of Shareholder or the Company, no third party is infringing upon or
misappropriating any Intellectual Property used by Company or its Subsidiaries
in the operation of its business, and no activity in which Company or its
Subsidiaries is engaged violates or infringes upon any intellectual property or
other proprietary rights of any third party; and (iv) there is no legal action
by any Person pending or, to the knowledge of the Shareholder of the Company,
threatened against Company or its Subsidiaries with respect to the matters
referred to in the preceding clause (iii), and no written claim with respect to
such matters has been received by Company or its Subsidiaries in the last three
years.
5.13 Contracts and Agreements.
(a) Section 5.13 of the Disclosure Schedule sets forth a
complete and accurate list of each of the following contracts and agreements to
which Company or its Subsidiaries is a party or by which Company or any of its
Subsidiaries or their properties are bound: (i) each agreement providing for
compensation in respect of services performed by employees of Company; (ii) each
management, service, consulting, retainer or other similar type of agreement
under which services are provided by any other Person to Company; (iii) each
agreement with an Affiliate of the Shareholder (other than the Company and its
Subsidiaries); (iv) each operating lease (as lessor, lessee, sublessor or
sublessee) of any tangible personal property; (v) each license (as licensor,
licensee, sublicensor or sublicensee) of any Intellectual Property (other than
customary, non-negotiated licenses of computer software); (vi) each agreement
for the manufacture or purchase of products, inventories or supplies; (vii) each
agreement under which any money has been or may be borrowed or loaned or any
note, bond, indenture or other evidence of indebtedness has been issued or
assumed, and each guaranty of any evidence of indebtedness or other
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<PAGE> 24
obligation, or of the net worth, of any Person (other than endorsements for the
purpose of collection in the ordinary course of business); (viii) each mortgage
agreement, deed of trust, security agreement, purchase money agreement,
conditional sales contract or capital lease; (ix) each partnership, joint
venture or similar agreement; and (x) each other contract or agreement not
terminable by the Company or its Subsidiaries without penalty on notice of
thirty (30) days or less; provided, however, that no contracts or agreements
described in clauses (iv), (v), (vi), (vii), (viii) or (x) above shall be
required to be disclosed which involve future payments to or by the Company and
its Subsidiaries of less than $100,000, in the case of any individual contract
or agreement or series of related contracts or agreements, and less than
$500,000, in the case of all such contracts and agreements. A complete and
correct copy of each written agreement, license, mortgage, deed of trust,
instrument, contract or other type of document required to be disclosed pursuant
to this Section 5.13(a) has been delivered to Buyer.
(b) Each agreement required to be delivered pursuant to
Section 5.13(a) (collectively, the "Contracts") is valid, binding and in full
force and effect and is enforceable by Company in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
moratorium and other similar laws affecting creditors' rights generally and by
general principles of equity and except as would not have a Material Adverse
Effect. Except as set forth in Section 5.13 of the Disclosure Schedule, Company
is not (with or without the lapse of time or the giving of notice, or both) in
material breach of or in material default under any of the Contracts, and no
other party to any of the Contracts is (with or without the lapse of time or the
giving of notice, or both) in material breach of or in material default under
any of the Contracts, except as would not have a Material Adverse Effect.
(c) Except as set forth in Section 5.13 of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries is a party to, or has
any obligation under, any contract or agreement, written or oral, which contains
any covenants currently or prospectively limiting in any material respect the
freedom of the Company or any of its Subsidiaries to engage in any line of
business or to compete with any entity.
5.14 Insurance. (a) All insurance policies of the Shareholder
pursuant to which the assets and business of the Company have been covered are
listed in Section 5.14 of the Disclosure Schedule ("Shareholder Policies").
Coverage of the Company and its Subsidiaries under the Shareholder Policies
shall terminate on the Closing Date. All other insurance policies currently
maintained by the Company and Subsidiaries are separately listed in Section 5.14
of the Disclosure Schedule ("Company Policies"). Each of the Company Policies is
in full force and effect (free of any presently exercisable right of termination
on the part of the insurance company issuing such Company Policy prior to the
expiration of the term of such Company Policy) and all premiums due and payable
in respect thereof have been paid. Company has not received notice of
cancellation or non-renewal of any Company Policy. The transactions contemplated
by this Agreement will not give rise to a right of termination of any Company
Policy by the insurance company issuing such Company Policy prior to the
expiration of the term of the Company Policy.
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<PAGE> 25
(b) All currently outstanding claims against the Company
or any Subsidiary pending or threatened or, to the Company's Knowledge, likely
to be asserted, noting separately those for which coverage has been requested by
the Company or any Subsidiary under a Shareholder Policy is set forth in Section
5.14 of the Disclosure Schedule ("Insurance Claims").
5.15 Litigation. Except as set forth in Section 5.15 of the
Disclosure Schedule, no lawsuit, governmental investigation or legal,
administrative or arbitration action or proceeding is pending or, to the
knowledge of the Company or Shareholder, threatened against Company or any of
its Subsidiaries, or any director, officer or employee of Company or any of its
Subsidiaries in his or her capacity as such, (i) which challenges the validity
of this Agreement or seeks to prohibit, enjoin or otherwise challenge the
consummation of the transactions contemplated hereby, or (ii) which involves an
amount in excess of $50,000. Except as set forth in Section 5.15 of the
Disclosure Schedule, neither Company nor any of its Subsidiaries is specifically
identified as a party subject to any restrictions or limitations under any
judgment, order or decree of any court, administrative agency or other
governmental authority.
5.16 Accounts Receivable. The accounts receivable of the
Company and its Subsidiaries as reflected in the most recent Financial
Statements, to the extent uncollected on the date hereof, and the accounts
receivable reflected on the books of the Company and its Subsidiaries are valid
and existing and represent monies due. The Company believes that the March 1996
Balance Sheet reflects reasonable reserves in accordance with GAAP for
receivables not collectible in the Ordinary Course of Business.
5.17 Inventory. The Company believes that the inventories of
the Company and its Subsidiaries as reflected in the March 1996 Balance Sheet,
or acquired by the Company or any of its Subsidiaries after the date thereof,
are carried at an amount not in excess of the lower of cost or net realizable
value, net of reserves provided therefor in accordance with GAAP.
5.18 Condition of Assets. The properties and assets, including
the equipment, supplies and other consumables, owned, leased or used by each of
the Company and its Subsidiaries in the operation of its business are in good
operating condition and repair, are suitable for the purposes for which they are
used, and are directly related to the business of Company and its Subsidiaries.
5.19 Compliance with Law. (a) Except as set forth in Section
5.19 of the Disclosure Schedule, each of the Company and its Subsidiaries is in
compliance in all material respects with all applicable laws, statutes, rules,
ordinances, regulations, orders and decrees governing the operation of its
business, including, without limitation, with respect to employment practices,
terms and conditions of employment and wages and hours, except where the failure
to be in compliance, individually or in the aggregate, would not have a Material
Adverse Effect. Except as set forth in Section 5.19 of the Disclosure Schedule,
since January 1, 1993, neither the Company nor any of its Subsidiaries has
received written notice of any violation of any such law, statute, rule,
ordinance, regulation, order, decree,
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<PAGE> 26
license or permit, except for such violations as could not reasonably be
expected to have a Material Adverse Effect.
(b) Except as set forth in Section 5.19 of the Disclosure
Schedule, each of the Company and its Subsidiaries has all governmental
licenses, approvals, authorizations, franchises and permits necessary to conduct
its business as currently conducted, such governmental licenses, approvals,
authorizations, franchises and permits are in full force and effect, and no
proceedings are pending or, to the knowledge of Shareholder or the Company,
threatened seeking the revocation or limitation of any such governmental
licenses, approvals, authorizations, franchises or permits, except where the
failure to have any such license, approval, authorization, franchise or permit,
could not reasonably be expected to have a Material Adverse Effect.
5.20 Employees.
(a) Except as set forth in Section 5.20A of the
Disclosure Schedule, (i) there are no controversies pending or, to the knowledge
of Shareholder or the Company, threatened, between the Company or any of its
Subsidiaries and any of their respective employees, which controversies could
reasonably be expected to have a Material Adverse Effect; (ii) neither the
Company nor any of its Subsidiaries is a party to any material collective
bargaining agreement or other labor union contract applicable to persons
employed by the Company or its Subsidiaries, nor does the Company or any of its
Subsidiaries know of any activities or proceedings of any labor union to
organize any such employees; and (iii) there are not pending or, to the
knowledge of Shareholder or the Company, threatened, strikes, slowdowns, work
stoppages or lockouts, by or with respect to any employees of the Company or any
of its Subsidiaries.
(b) Section 5.20B of the Disclosure Schedule sets forth
the name and annual base salary, bonus and other compensation of each employee
of the Company and its Subsidiaries whose annual compensation for the fiscal
year ending July 31, 1996 is reasonably anticipated to be in excess of $70,000.
5.21 Employee Benefit Plans.
(a) Section 5.21 of the Disclosure Schedule lists all Employee
Benefit Plans maintained by the Company (which term, for purposes of this
Section 5.21, includes all Subsidiaries of the Company). "Employee Benefit Plan"
means any "employee benefit plan" as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended from time to time ("ERISA")
and any other written plan, policy, program, practice, agreement, understanding
or arrangement providing compensation or other benefits to any current or former
officer, employee or consultant (or to any dependent or beneficiary thereof), of
the Company which are now or have been maintained by the Company and under which
the Company has any obligation or liability, whether actual or contingent,
including, without limitation, all incentive, bonus, deferred compensation,
vacation, holiday, medical, disability, share purchase or other similar plans,
policies, programs, practices or arrangements.
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<PAGE> 27
Shareholder or the Company has delivered or made available to
Buyer or its counsel prior to the date hereto true and complete copies of (i)
any employment agreements and any written procedures and policies relating to
the employment of employees of the Company (including summaries of any
procedures and policies that are unwritten), (ii) all Employee Benefit Plans and
related trust agreements, insurance and other contracts, summary plan
descriptions required by law and summaries of material modifications and written
communications distributed to the participants of each such Employee Benefit
Plan in its possession, (iii) the reports which have been filed (or are in fully
completed form for filing) for the last three years with the Internal Revenue
Service ("IRS") and the Department of Labor with respect to each Employee
Benefit Plan, (iv) the latest determination letter issued for each Employee
Benefit Plan and related trust that are intended to satisfy the qualification
requirements of Sections 401(a) and 501(a) of the Code, and (v) the latest IRS
Form 5300 or 5307 (whichever is applicable, if any) filed with the IRS for each
Employee Benefit Plan and related trust that are intended to satisfy the
qualification requirements of Sections 401(a) and 501(a) of the Code.
(b) Neither the Company nor any Subsidiary maintains or has
ever maintained an Employee Benefit Plan subject to Title IV of ERISA. With
respect to each Employee Benefit Plan, no party in interest or disqualified
person (as defined in Section 3(14) of ERISA and Section 4975 of the Code,
respectively) has at any time engaged in a transaction which could subject the
Buyer or the Company directly or indirectly, to a material tax, penalty or
liability for prohibited transactions imposed by ERISA or the Code. No fiduciary
(as defined in Section 3(21) of ERISA) with respect to any Employee Benefit Plan
has breached any of the responsibilities or obligations imposed upon fiduciaries
under Title I of ERISA or such breach will not have a Material Adverse Effect.
(c) Each Employee Benefit Plan is and has been operated in
compliance in all material respects with its terms and all applicable laws. As
of the Closing Date, the Company and Shareholder shall have made all required
contributions under each Employee Benefit Plan for all periods through and
including the Closing Date or adequate accruals therefor will have been provided
for and will be reflected on the books of the Company as of the Closing Date.
(d) Except as set forth in Section 5.21 of the Disclosure
Schedule, neither the Company nor Shareholder has received nor is aware of any
actions, claims (other than routine claims for benefits or actions seeking
payments pursuant to qualified domestic relations orders), lawsuits or
arbitrations pending or, to the knowledge of Company or Shareholder, threatened
with respect to any Employee Benefit Plan or against any fiduciary of any
Employee Benefit Plan, and neither the Company nor Shareholder has knowledge of
any facts that could give rise to any such actions, claims, lawsuits or
arbitrations.
(e) No Employee Benefit Plan provides or provided for
continuing benefits or coverage for any participant or any dependent or
beneficiary of any participant after such participant's retirement or other
termination of employment (except as may be required by applicable state law or
Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code
("COBRA")).
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<PAGE> 28
(f) Neither the Company nor Shareholder has ever contributed
to, or withdrawn in a partial or complete withdrawal from, any multiemployer
plan (as defined in Section 3(37) of ERISA) or incurred contingent liability
under Section 4204 of ERISA.
(g) Neither the Company nor any Subsidiary has agreed to, or
is otherwise obligated to provide, any increase in benefits under any Employee
Benefit Plan (or the creation of new benefits) or change in employee coverage
which would increase the expense of maintaining any such Employee Benefit Plan.
(h) Shareholder has delivered to Buyer a list of all employees
of the Company and their compensation as of the date of this Agreement. No
person or entity has an employment, severance or independent contractor
agreement with the Company. No "leased employee" (within the meaning of Section
414(n) or (o) of the Code) performs any material services for the Company.
(i) The consummation of the transactions contemplated by this
Agreement and any related agreements will not result in (i) any payment
(including, without limitation, severance, unemployment compensation, golden
parachute or bonus payments) becoming due to any director, officer, employee or
consultant of the Company, (ii) any increase in the amount of compensation or
benefits payable in respect of any director, officer, employee or consultant of
the Company or (iii) accelerate the vesting or timing of payment of any benefits
or compensation payable in respect of any director, officer, employee or
consultant of the Company. No Employee Benefit Plan provides benefits or
payments contingent upon, triggered by or increased as a result of, a change in
the ownership or effective control of the Company.
(j) Shareholder is the sponsoring employer of all Employee
Benefit Plans listed in Section 5.21(j) of the Disclosure Schedule. Company is
the sponsoring employer with respect to all other Employee Benefit Plans listed
in Section 5.21(a) of the Disclosure Schedule. Shareholder has taken all steps
necessary to insure that, as of the Closing Date, the Company will no longer be
a participating employer in any Employee Benefit Plan sponsored by the
Shareholder and will have no liability with respect to any such Employee Benefit
Plan.
(k) The Company has no material liability and, to the
knowledge of Shareholder, no circumstances exist that could result in Company
having any material liability with respect to any (a) pension plan as defined in
Section 3(2) of ERISA subject to Title IV of ERISA, (b) multiemployer plan as
defined in Section 3(37) of ERISA, or (c) plan subject to Part 6 of Subtitle B
of Title I of ERISA and Section 4980B of the Code ("COBRA"), maintained by an
"ERISA Affiliate". "ERISA Affiliate" means any entity (whether or not
incorporated) other than the Company, that, together with the Company is or was
a member of a controlled group of corporations (within the meaning of Section
414(b) of the Code or Section 4001(a)(14) of ERISA), or a group of trades or
businesses under common control (within the meaning of Section 414(c) of the
Code), or an affiliated service group (within the meaning of Section 414(m) of
the Code).
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<PAGE> 29
5.22 Environmental Matters.
(a) Except as set forth in Section 5.22 of the
Disclosure Schedule: (i) the Company and its Subsidiaries are in material
compliance with all Environmental Laws (as hereinafter defined), including the
possession by the Company and its Subsidiaries of all applicable Environmental
Permits (as hereinafter defined) and compliance in all respects with the terms
and conditions thereof, except in each case where such non-compliance would not
have a Material Adverse Effect; and (ii) neither the Company nor any of its
Subsidiaries has received any communication (written or oral), whether from a
governmental authority, citizens group, employee or otherwise, that alleges that
the Company or any of its Subsidiaries is not in such material compliance, and
there are no circumstances that may prevent or interfere with such compliance in
the future, except where such non-compliance would not have a Material Adverse
Effect.
(b) Except as set forth in Section 5.22 of the
Disclosure Schedule, (i) there are no Environmental Claims (as hereinafter
defined), including claims based on "arranger liability," pending or, to the
Knowledge of the Company, threatened against the Company or any of its
subsidiaries or against any person or entity whose liability for any
Environmental Claim the Company or any of its Subsidiaries has retained or
assumed either contractually or by operation of law, except for such
Environmental Claims that would not have a Material Adverse Effect; and (ii) to
the Knowledge of the Company, there are no past or present actions, inactions,
activities, circumstances, conditions, events or incidents, including any
Release (as hereinafter defined), that would form the basis of any Environmental
Claim against the Company or any of its Subsidiaries or against any person or
entity whose liability for any Environmental Claim the Company or any of its
Subsidiaries have retained or assumed either contractually or by operation of
law, except for such Environmental Claims that would not have a Material Adverse
Effect.
(c) Without in any way limiting the generality of the
foregoing, Section 5.22 of the Disclosure Schedule sets forth (i) all
Environmental Permits held by the Company or any of its Subsidiaries, the lack
of which would result in a material adverse effect with respect to the Lease or
continued quiet enjoyment of the premises requiring such Permit; (ii) all
on-site and off-site locations where the Company or any of its subsidiaries has
stored, disposed or arranged for the disposal of Hazardous Substances; and (iii)
any underground storage tanks, and the capacity and contents of such tanks,
located on property owned or leased by the Company or any of its Subsidiaries.
(d) Except as set forth in Section 5.22 of the
Disclosure Schedule, (i) there is no asbestos contained in or forming part of
any building, building component, structure or office space owned or leased by
the Company or any of its subsidiaries; and (ii) no polychlorinated biphenyls
(PCB's) or PCB-containing items are used or stored at any property owned or
leased by the Company or any of its Subsidiaries.
(e) As used in this Section 5.22,
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<PAGE> 30
(i) "Environment" means all air, surface
water, groundwater, drinking water or land, including land
surface or subsurface.
(ii) "Environmental Law(s)" means all
federal, state or local environmental, land use, health,
chemical use, safety and sanitation laws, statutes,
ordinances, rules, regulations and codes (including without
limitation specific governmental licenses, permits,
authorizations, directives, approvals or consents, court
orders, injunctions or decrees, or agreements with
governmental agencies), as in effect on the date hereof,
relating to health, safety or the protection of the
Environment or governing the discharge of pollutants or the
use, storage, treatment, generation, transportation,
processing, handling, production or disposal of Hazardous
Substances, including but not limited to RCRA, the Clean Air
Act, as amended, the Comprehensive Environmental Response,
Compensating and Liability Act of 1980, as amended, the Toxic
Substances Control Act, as amended, the Occupational Safety
and Health Act of 1970, the Federal Water Pollution Control
Act, the Clean Water Act and all state and foreign statutes
similar to or based upon the foregoing.
(iii) "Environmental Permits" means all
approvals, authorizations, consents, permits, licenses,
registrations and certificates required by any applicable
Environmental Law relating to: (A) pollution or the protection
of the Environment, including without limitation those
relating to the emission, Release or discharge of any
Hazardous Substances into the Environment, (B) the use,
treatment, storage, disposal, generation, transport or
handling of Hazardous Substances, or (C) the cleanup or
remediation of Hazardous Substances from any real property.
(iv) "Hazardous Substance(s)" means any
flammable explosives, radioactive materials, urea formaldehyde
foam insulation, polychlorinated biphenyls, petroleum and
petroleum products (including but not limited to waste
petroleum and petroleum products), methane, hazardous
materials, hazardous wastes, pollutants, contaminants and
hazardous or toxic substances, as defined in or regulated
under any applicable Environmental Laws.
(v) "RCRA" means the Resource Conservation
and Recovery Act of 1976, as amended.
(vi) "Release" means any past or present
spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping or
disposing of a Hazardous Substance into the Environment.
5.23 Powers of Attorney. There are no outstanding powers of
attorney to act in the place and stead of Company or its Subsidiaries.
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<PAGE> 31
5.24 Bank Accounts. Section 5.24 of the Disclosure Schedule
sets forth the name of each bank in which Company or its Subsidiaries has an
account, lock box or safe deposit box, the number of each such account, lock box
and safe deposit box, and the names of all Persons authorized to draw thereon or
have access thereto.
5.25 Absence of Certain Changes. Except as set forth in
Section 5.25 of the Disclosure Schedule, since March 2, 1996, the Company has
been operated in the Ordinary Course of Business. Without limiting the
generality of the foregoing, since that date, neither the Company nor any of its
Subsidiaries has:
(i) amended or otherwise modified its articles of
incorporation or by-laws (or similar organizational
documents);
(ii) declared, set aside, made or paid any dividend
or other distribution to any shareholder (other than dividends
by a Subsidiary to another Subsidiary or to the Company) with
respect to its Capital Stock;
(iii) incurred or assumed any long term liabilities
other than capital lease obligations and deferred rent
credits, or any indebtedness for borrowed money or guaranteed
any obligation or the net worth of any Person, except for
endorsements of negotiable instruments for collection in the
ordinary course of business;
(iv) paid any material obligation or liability,
absolute, accrued, contingent or otherwise, whether due or to
become due, except for any current liabilities, and the
current portion of any long term liabilities, shown on the
March 1996 Balance Sheet (or not required as of the date
thereof to be shown thereon in accordance with GAAP) or
incurred since the date of the March 1996 Balance Sheet in the
Ordinary Course of Business;
(v) mortgaged, pledged or granted any security
interest in any of its assets, except security interests
solely in tangible personal property granted pursuant to any
purchase money agreement, conditional sales contract or
capital lease under which there exists an aggregate future
liability not in excess of $75,000 per agreement, contract or
lease (which amount was not more than the purchase price for
such personal property and which security interest does not
extend to any other item or items of personal property);
(vi) cancelled or compromised any material debt or
claim or waived or released any material rights except in the
Ordinary Course of Business;
(vii) made any loan or advance to any Person other
than travel and other similar routine advances in the Ordinary
Course of Business, or acquired any capital stock or other
securities of any other corporation or any ownership interest
in any other business enterprise;
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<PAGE> 32
(viii) increased the compensation of any of its
employees who currently earns in excess of $70,000 per year;
(ix) lost the employment services of any key
employee;
(x) adopted or (except as otherwise required by law)
amended any Employee Benefit Plan or entered into any
collective bargaining agreement;
(xi) terminated or modified any Contract, or received
any written notice of termination of any Contract, except for
terminations of Contracts upon their expiration during such
period in accordance with their terms and terminations or
modifications that have not had and would have a Material
Adverse Effect;
(xii) made any material change in its inventory,
pricing, marketing or advertising policies;
(xiii) sold, transferred, leased to others or
otherwise disposed of any material asset except in the
Ordinary Course of Business;
(xiv) suffered any damage or destruction to or loss
of any of its tangible assets (whether or not covered by
insurance) which has had or could reasonably be expected to
have a Material Adverse Effect;
(xv) made any capital expenditures or capital
additions or betterments in amounts which exceeded $75,000 in
the aggregate;
(xvi) changed its method of accounting or the
accounting principles or practices utilized in the preparation
of the March 1996 Balance Sheet, other than as required by
GAAP;
(xvii) instituted or settled any litigation or any
legal, administrative or arbitration action or proceeding
before any court or governmental body relating to it or its
property;
(xviii) suffered any incident or event which,
individually or in the aggregate, has had or would have a
Material Adverse Effect;
(xix) suffered any loss of permanent quota which
would result in the Company's quota for any class of goods
being less than the amounts set out on Section 7.6 of the
Disclosure Schedule, for any reason; or
(xx) entered into any commitment to do any of the
foregoing.
5.26 Books and Records. All accounts, books, ledgers and
official and other records prepared and kept by Company and its Subsidiaries
have been truthfully and properly
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<PAGE> 33
kept and completed in all respects, and there are no material inaccuracies or
discrepancies of any kind contained or reflected therein.
5.27 Absence of Certain Business Practices. None of Company or
its Subsidiaries, or any of their respective officers, employees or authorized
agents, or any other Person acting on behalf of them has, directly or
indirectly, since January 1, 1993, given or agreed to give any gift or similar
benefit to any governmental employee, domestic or foreign, who is or may be in a
position to help or hinder the business of Company or its Subsidiaries (or
assist it in connection with any actual or proposed transaction) which could (x)
subject Company or its Subsidiaries to any damage or penalty in any civil,
criminal or governmental litigation or proceeding, domestic or foreign, or (y)
if not continued in the future, have a Material Adverse Effect.
5.28 Disclosure. No representation or warranty by Shareholder
or the Company in this Agreement, and no statement contained in any document
(including the Exhibits, Annexes and Disclosure Schedule hereto), list,
certificate or other instrument furnished or to be furnished pursuant to this
Agreement to Buyer contains or will contain any untrue statement of a material
fact or omit or will omit to state any material fact necessary in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading. Shareholder and the Company have
not Knowingly failed to disclosed to Buyer any event or circumstance that could
reasonably be expected to have a Material Adverse Effect or that is otherwise
material to the business of the Company and its Subsidiaries (other than facts
of a general business, financial or economic nature in the public domain or
available from public or commercial informational services).
ARTICLE VI
Representations and Warranties of Buyer
Buyer represent and warrant to Shareholder that the statements
contained in this Article VI are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
then made):
6.1 Organization of Buyer. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation.
6.2 Authorization of Transaction. Buyer has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. All proceedings
required to be taken by Buyer or by its stockholders to authorize the execution,
delivery and performance by Buyer of this Agreement and the agreements related
hereto have been taken, and this Agreement constitutes the valid and legally
binding obligation of Buyer, enforceable in accordance with its terms and
conditions.
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<PAGE> 34
6.3 Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) conflict with or violate the certificate of incorporation or the
by-laws of Buyer; (ii) violate any statute, regulation, rule, judgment, order,
decree, stipulation, injunction, charge, or other restriction of any government,
governmental agency, or court to which Buyer is subject; (iii) except for the
filing of a premerger notification report under the HSR Act, require the consent
of or any notice to or filing with any third party or governmental authority;
(iv) create an Encumbrance on any of the assets of Buyer; or (v) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, security interest, or other arrangement to which
Buyer is a party or by which it is bound or to which any of its assets is
subject.
6.4 Brokers' Fees. Except for fees payable to Financo Inc.,
Buyer has no liability or obligation to pay any fees or commissions to any
broker, finder or agent with respect to the transactions contemplated by this
Agreement.
6.5 Investment. Buyer is acquiring the Shares for its own
account and not with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act.
ARTICLE VII
Covenants of Shareholder and the Company
Shareholder and the Company hereby covenant and agree for the
benefit of Buyer as follows:
7.1 Normal Course. From the date of this Agreement until the
Closing, the Company and each of its Subsidiaries will, and Shareholder will
cause each of the Company and its Subsidiaries to: (i) maintain its corporate
existence in good standing; (ii) maintain the general character of its business;
(iii) conduct its business and affairs in the Ordinary Course of Business; (iv)
use all commercially reasonable efforts to maintain in effect all of its
presently existing insurance coverage (or substantially equivalent insurance
coverage), preserve its business organization substantially intact, keep the
services of its present principal employees and preserve its present business
relationships with its material suppliers and customers; and (v) perform in all
material respects all agreements or other obligations with banks, customers,
suppliers, employees and others.
7.2 Negative Covenants. From the date of this Agreement until
the Closing, the Company will not (without the prior written consent of Buyer):
(i) take any action or suffer any situation to exist that would be required to
be disclosed to Buyer pursuant to Section 5.25 had such action been taken or
such situation existed between March 2, 1996 and the date of this Agreement;
(ii) make any election with respect to Taxes prior to
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April 15, 1995; (iii) change any of its inventory policies or practices,
including without limitation, polices related to the mark down, sale and/or
transfer of slow-moving or excess inventory; and (iv) take any action that
primarily is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of any of the Company
and its Subsidiaries from maintaining the same business relationship with the
Company and its Subsidiaries after the Closing as its maintained with the
Company and its Subsidiaries prior to the Closing.
7.3 Full Access. (a) Prior to and up until the Closing,
Shareholder and the Company shall give Buyer and its attorneys, accountants and
other representatives reasonable access to the Company's personnel and in the
presence of personnel designated by Shareholder, all properties (including the
Company's stores), documents, contracts, books and records of the Company and
will furnish Buyer with copies of such documents and with such information with
respect to the affairs of the Company and its Subsidiaries as Buyer may from
time to time reasonably request. Such access shall be given during normal
business hours and under reasonable circumstances so as not to interfere
unreasonably with the conduct of the Company's business. Shareholder shall cause
its officers, employees, consultants, agents, accountants, auditors and
attorneys and those of the Company to cooperate fully with such representatives
in connection with such review and examination, including the audit workpapers
pertaining to the Company for Shareholder's most recent audited financial
statement period.
(b) In order to prepare for the orderly transition of
the business, from the date hereof to the Closing Date, Buyer may, at its own
expense, station an executive or executives at the principal offices and stores
of the Company, who shall have reasonable access to all information, procedures
and operations of Company flowing or controlled from such offices, with respect
to the operation of the business, provided, however, that the activities of such
executives do not unreasonably interfere with the conduct of the business or the
Company's business. Buyer shall have the right to actively consult with
Shareholder and the Company in connection with all aspects of the Company's
operations, including the design, merchandising and sourcing of inventory prior
to the Closing Date. Notwithstanding the provisions of this subsection (b), the
Company shall retain ultimate decision making authority with respect to matters
concerning the conduct of its business until the Closing.
7.4 Notices and Consents. Shareholder will cause each of the
Company and its Subsidiaries to give any notices to or make any filings with any
third parties or governmental authority, and will cause each of the Company and
its Subsidiaries to use its reasonable best efforts to obtain any third party
consents, including, without limitation, each of the Landlord Consents,
necessary in order to consummate the transactions contemplated by this Agreement
or as Buyer shall otherwise reasonably request. Buyer agrees to cooperate with
Shareholder and the Company in obtaining any Landlord Consents or any other
consent of any third party or governmental authority to the transactions
contemplated by this Agreement, as Shareholder shall reasonably request.
7.5 HSR. Shareholder has filed and received early termination
with respect to a premerger notification report with the Federal Trade
Commission (the "FTC") and the
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Antitrust Division of the United States Department of Justice (the "Department
of Justice") under the HSR Act. Shareholder shall use its reasonable best
efforts promptly to furnish any additional information and to make any
additional filings under the HSR Act as either the FTC or the Department of
Justice shall request.
7.6 Maintenance of Quota. Shareholder shall cause the Company
to own at Closing permanent quota at least at the level for each class thereof
as is set forth on Section 7.6 of the Disclosure Schedule.
7.7 Tax Matters. (a) Shareholder agrees to file, within the
time allowed by law, all foreign, federal, state, and local Tax Returns with the
appropriate jurisdictions, for any taxable year or period of the Company and
each Subsidiary ending on or before the Closing Date, and to include therein all
information required to be contained therein relating to the Company and each
Subsidiary for such period. Shareholder agrees to timely pay all Taxes with
respect to Company and each Subsidiary for the Pre-Closing Period and all Taxes
arising from or relating to the transaction contemplated hereby, including any
sales or transfer Taxes. Buyer agrees to provide Shareholder with a properly
executed resale certificate or other exemption certificate for each state in
which it is entitled to an exemption from sales tax. Buyer agrees to file Tax
Returns for all periods beginning after the Closing Date and any period which
includes but does not end on the Closing Date.
(b) Shareholder agrees that, on behalf of itself and
each other member of the Group, any Tax sharing agreement insofar as it applies
to the Company and/or each Subsidiary shall be terminated as of the Closing Date
and will have no further effect for any taxable year (whether the current year,
a future year or a prior year).
(c) Shareholder will include the income of the
Company and each Subsidiary (including any deferred income triggered into income
by Treas. Reg. Section 1.1502-13 and any excess loss accounts taken into income
under Reg. Section 1.1502-19) on Shareholder's consolidated federal income Tax
Returns for all periods through the Closing Date and pay any federal income
Taxes attributable to such income. Following the Closing Date, the Company will
furnish Tax information to Shareholder for inclusion in Shareholder's federal
consolidated income Tax Return for any period up to the Closing Date in
accordance with the Company's past custom and practice at such times as
Shareholder may reasonably request. The income of the Company will be
apportioned to the period up to the Closing Date and the period beginning with
the Closing Date by closing the books of Company as of the opening of business
on the Closing Date. Following the Closing Date, the Shareholder will furnish to
the Buyer Tax information and otherwise assist the Buyer in preparing Tax
Returns and reports with respect to the Company and any Subsidiary at such times
as the Buyer may reasonably request. Buyer will allow Shareholder an opportunity
to review and comment on such Tax Returns to the extent they relate to the
Pre-Closing Period. Upon review of such Tax Returns, but in no event later than
15 days before the due date for the filing of such Tax Returns, Shareholder
shall pay to Buyer the amount equal to any Taxes attributable to the Pre-Closing
Period.
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<PAGE> 37
(d) Shareholder will not settle any audit relating to
the Company or any Subsidiary in a manner which would materially increase the
amount of Taxes payable by the Company or any Subsidiary for any period
beginning with the Closing Date without the prior written consent of Buyer,
which consent shall not unreasonably be withheld.
7.8 Non-Solicitation. Neither Shareholder, any of its
Affiliates nor any of their respective representatives or agents shall (i)
solicit, initiate, encourage (including by way of furnishing information) or
take any other action to facilitate, any inquiry or the making of any proposal
which constitutes, or may reasonably be expected to lead to, any acquisition or
purchase of a substantial amount of assets of, or any equity interest in, the
Company or any material portion of the Company's assets or the Company's stock,
or an exchange offer, merger, consolidation, business combination, sale of
substantially all assets, sale of securities, recapitalization, liquidation,
dissolution or similar transaction involving the Company or any material portion
of the Company's assets or the Company's stock (other than the transactions
contemplated by this Agreement) or any other material corporate transaction the
consummation of which would or could reasonably be expected to impede, interfere
with, prevent or materially delay the transaction contemplated by this Agreement
(a "Transaction Proposal") or agree to or endorse any Transaction Proposal, or
(ii) propose, enter into or participate in any discussions or negotiations
regarding any of the foregoing, or furnish to another person any information
with respect to the Company's business, properties or assets or any of the
foregoing, or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, an effort or attempt by any other person to do or seek
any of the foregoing. Shareholder shall notify Buyer promptly of any Transaction
Proposal.
7.9 Continuation of Lease Terms. Regardless of any provision
in any Lease to the contrary, Shareholder covenants that Buyer shall be entitled
to succeed to the occupancy of all premises covered by any Lease on the exact
same terms and conditions (financial or otherwise) under which Company or any of
its Subsidiaries occupies such premises on the date hereof (and thereafter for
the remaining term of such Lease) as if no sale of Shares had occurred; provided
that as regards Leases as to which no Landlord Consent has been delivered, the
provisions of Section 9.6 shall apply.
ARTICLE VIII
Covenants of Buyer
Buyer hereby covenants and agrees for the benefit of
Shareholder and the Company as follows:
8.1 Confidentiality. (a) Unless the Closing shall occur, Buyer
shall treat as confidential any information ("Confidential Information")
concerning the Company furnished to it, its Affiliates and advisors by or on
behalf of Shareholder or the Company in connection with the transactions
contemplated by this Agreement, and will not disclose such information to any
Person; provided, however, that (i) any of such information may be disclosed to
Buyer's Affiliates and advisors in connection with the transactions contemplated
by this Agreement, (ii) any disclosure of such information may be made to which
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Shareholder or the Company consents in writing, and (iii) any disclosure of such
information may be made as required by applicable law. Confidential Information
shall not include information which (i) was already in possession of Buyer, its
Affiliates or advisors prior to disclosure to them of such information by or on
behalf of Shareholder or the Company; (ii) becomes generally available to the
public other than as a result of a disclosure by Buyer, its Affiliates and
advisors in breach of this Agreement; or (iii) is or becomes available to Buyer,
its Affiliates or advisors on a non-confidential basis from a source other than
Shareholder, the Company or their advisors, provided that such source is not
known by Buyer to be bound by a confidentiality agreement with Shareholder, the
Company or another Person.
(b) If this Agreement is terminated without the
consummation of the transactions contemplated hereby, Buyer will, and will cause
its Affiliates and advisors, promptly upon the request of Shareholder to,
deliver to Shareholder all documents and materials containing Confidential
Information furnished to Buyer, its Affiliates by or on behalf of Shareholder or
the Company, without retaining any copy thereof. In such event, all other
documents and materials containing Confidential Information in the possession of
Buyer, its Affiliates and advisors shall be destroyed, and Buyer shall certify
to Shareholder that all such documents and materials have been so destroyed.
8.2 Access to Data. Shareholder shall have the right for a
period of five years (or such additional periods with respect to information
relating to any open tax audit or pending insurance or legal claim until the
final resolution of such matter) following the Closing Date to have full access
to such personnel, books, records and accounts, including financial and tax
information, correspondence, production records, employment records and other
records of the Company for the limited purposes of concluding its involvement in
the business conducted by the Company prior to the Closing Date and for
complying with its obligations under applicable securities, tax, environmental,
employment or other laws and regulations. Buyer shall not destroy any such
books, records or accounts without first providing Shareholder with the
opportunity to obtain or copy such books, records, or accounts.
8.3 HSR. Affiliates of Buyer have filed and received early
termination with respect to a premerger notification report with the FTC and the
Department of Justice under the HSR Act. Buyer and its Affiliates shall use
their reasonable best efforts promptly to furnish any additional information and
to make any additional filings under the HSR Act as either the FTC or the
Department of Justice shall request.
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ARTICLE IX
Joint Covenants
The Parties hereby jointly covenant and agree as follows:
9.1 Public Announcements. Buyer, on the one hand, and
Shareholder and the Company, on the other hand, will consult with each other
before issuing any press release or otherwise making any public statements with
respect to the transactions contemplated by this Agreement, and neither Party
shall issue any such press release or make any such public statement prior to
such consultation and without the consent of the other Party, except as may be
required by applicable law or by obligations pursuant to any listing agreement
with any national securities exchange. The Parties intend to issue joint press
releases in a form to be agreed by them, upon (i) execution of this Agreement
and (ii) Closing.
9.2 Section 338(h)(10) Election. The Parties shall timely make
a joint Section 338(h)(10) Election with respect to the purchase and sale of the
stock of the Company. The Parties agree to report the transfer of the Company
consistent with the Section 338(h)(10) Election and shall not take a position
contrary thereto. The Parties shall jointly prepare and file all forms required
under Code Section 338, the regulations thereunder, and applicable state and
local law in order for the Section 338(h)(10) Election to be and remain
effective in accordance with applicable Tax laws and this Agreement. The Parties
agree to allocate the purchase price for the Shares (the Base Purchase Price,
adjusted pursuant to Section 2.4) in accordance with the allocation set forth in
Annex III attached hereto.
9.3 Further Assurances. Shareholder and the Company, on the
one hand, and Buyer, on the other, agree to execute and deliver, such additional
documents and instruments, and to perform such additional acts, as the other
Party may reasonably request to effectuate or carry out and perform all the
terms, provisions and conditions of this Agreement and the transactions
contemplated hereby and to effectuate the intent and purposes hereof.
9.4 Litigation Support. In the event and for so long as any
party actively is contesting or defending against any charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand in connection with
any transaction contemplated under this Agreement involving any of the Company
and its Subsidiaries, the other Party shall cooperate with it and its counsel in
the defense or contest, make available their personnel, and provide such
testimony and access to their books and records as shall be necessary in
connection with the defense or contest, all at the sole cost and expense of the
contesting or defending Party.
9.5 Notification of Certain Matters. Shareholder and the
Company shall give prompt notice to Buyer, and Buyer shall give prompt notice to
Shareholder the Company, of (i) the occurrence or nonoccurrence of any event the
occurrence or
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nonoccurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be materially untrue or inaccurate, or (ii) any
failure of Shareholder, the Company or Buyer, as the case may be, materially to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
9.6 Landlord Consents. If the Closing shall occur, but the
Shareholder shall not have delivered to Buyer all required Landlord Consents,
the parties covenant that the following provisions shall apply with respect to
Leases as to which no such Landlord Consent has been delivered:
(a) Buyer shall cause the Company to continue to
occupy the premises subject to such Lease and to make all rent, additional rent
and related occupancy payments required of the tenant under the Lease, other
than such payments or increases therein (which it may, but shall not be
obligated to pay) resulting from the purchase of the Shares by Buyer or the
other transactions contemplated by this Agreement ("Standard Lease Expenses")
for so long as the Company shall continue to have quiet enjoyment of the
premises; provided, however, that in the event that the Company or any
Subsidiary, as the tenant or subtenant under a Lease ("Tenant") shall receive
from the landlord under such Lease notice (a "Dispute Notice") stating that
monies are due as a result of, or a default has arisen by reason of, the
Transaction (as defined below), and the dispute identified in such notice
remains unresolved on the first anniversary of the Closing Date, then Tenant may
vacate and surrender the premises, on not less than thirty days' prior notice to
Shareholder (such notice, a "Vacation Notice"). Shareholder may, at its option,
prior to receipt of a Vacation Notice, make agreements with the applicable
landlord with respect to additional payments of money or increases in the level
of payments by Tenant in excess of Standard Lease Expenses to permit the Company
to continue to occupy such premises, provided that the provisions of paragraph
(d) hereunder shall apply with respect to such amounts. Shareholder shall
furnish Buyer with copies of all notices, consents, approvals or other
communications from or to a landlord under any Lease received or given by or on
behalf of Shareholder, including, without limitation, any Landlord Consent or
Non-Conforming Consent (as hereinafter defined), within ten (10) days after
receiving, giving or making such notice or other communication.
(b) If any of such premises are occupied by a store
to which the provisions of Section 2.3(c)(i) apply (a "Top Sixty Store"), the
Escrowed Store Contribution with respect to such Lease shall be released in
accordance with the terms of the Escrow Agreement.
(c) If Tenant shall cease to have quiet enjoyment of
any premises subject to a Lease as a result of the failure to obtain any
Landlord Consent, including, without limitation, ceasing to have quiet enjoyment
by virtue of any default in the payment of monies due as a result of the
Transaction or any default by reason of the Transaction (a "Dispossession"), or
shall vacate and surrender any premises let under a Lease pursuant to paragraph
(a) hereof, then Shareholder shall indemnify and hold harmless Buyer, the
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Company and their Affiliates against any and all damages, losses, costs,
expenses and liabilities which Buyer, the Company or any of their Affiliates may
incur or become obligated to pay (regardless of when claimed or billed) to or on
behalf of landlord under such Lease as a result thereof, including reasonable
attorney's fees and expenses, reasonable costs of defending any claim , action,
suit or proceeding in respect thereof (or any related dispossession or default
proceeding), or of avoiding the same or the imposition of any judgment or
settlement, and reasonable costs of enforcing any such indemnification
obligation subject to the provisions of Section 11.4 (collectively,
"Lease-Related Losses"), including, without limitation, all rent and additional
rent for the remainder of the term of the Lease and any reimbursement to the
landlord or lessor for reletting or related expenses for which Tenant becomes
liable; and if Tenant suffers a Dispossession then Shareholder shall also
indemnify and hold harmless Buyer, the Company and their Affiliates against
ancillary relocation and related costs incurred by Tenant up to a maximum amount
of $10,000 for each Lease of premises for which Tenant shall cease to have quiet
enjoyment in addition to Lease- Related Losses. In addition, if such premises
are occupied by a Top Sixty Store and Tenant suffers a Dispossession prior to
the first anniversary of the Closing Date, the Store Contribution Amount with
respect to such Top Sixty Store shall be released to the Buyer upon the
surrender of such premises (subject to the terms of the Escrow Agreement).
(d)(1) If Tenant continues to have quiet enjoyment of
the premises, but incurs or becomes obligated to pay any additional rent,
related occupancy costs or other additional payments in excess of Standard Lease
Expenses ("Excess Expenses") as a result of the failure to obtain any Landlord
Consent or the obtaining of a Non-Conforming Consent or as a result of any
agreement between Shareholder and a landlord as contemplated by paragraph (a)
hereof, Shareholder shall indemnify and hold harmless Buyer, the Company and
their Affiliates against all Excess Expenses incurred by Tenant or for which
Tenant becomes liable (regardless of when claimed or billed). In furtherance of
the foregoing:
(i) Shareholder shall pay to Buyer, within ten (10)
days after it makes an agreement with a landlord in accordance
with paragraph (a) hereof, an amount equal to the Present
Value of the Excess Expenses (as hereinafter defined) in
respect of the Lease which is the subject of such agreement.
(ii) If Buyer reasonably believes that the
non-payment of any Excess Expenses demanded or requested by
landlord under any Lease for which neither a Landlord Consent
nor a Non-Conforming Consent has been obtained by Shareholder
would put Tenant at risk of losing such Lease by reason of
default thereunder or of being subjected to damages, then,
Shareholder shall deposit with the Escrow Agent, within ten
(10) days after Tenant gives Shareholder notice that it has
received a billing statement, notice or other writing ("Excess
Expense Statement") from the landlord under such Lease
requesting or demanding that Tenant pay Excess Expenses, an
amount equal to the Present Value of the Excess Expenses in
respect of the Lease which is the subject of the Excess
Expense Statement to be held and disposed of in accordance
with the terms of this Agreement and the terms of the Escrow
Agreement.
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(iii) With respect to the Leases identified on
Schedule 9.6D for which Non-Conforming Consents have been
obtained by Shareholder, Buyer has agreed that Shareholder
shall not be required to deposit with the Escrow Agent on the
Closing Date any amount under the terms of the Escrow
Agreement.
(iv) With respect to any Lease for which Shareholder
submits a Non-Conforming Consent to Buyer after the Closing
Date, then, within ten (10) days after the delivery of the
Non-Conforming Consent to Buyer, Shareholder shall deposit
with the Escrow Agent an amount equal to the Present Value of
the Excess Expenses in respect of each such Lease for which a
Non-Conforming Consent was delivered.
(2) The Escrow Agent shall disburse the funds (the
"Excess Expense Funds") deposited into Escrow pursuant to this paragraph (d) as
follows:
(i) In the event that Tenant shall receive an Excess
Expense Statement from the landlord under any Lease for which
Excess Expense Funds have been deposited with the Escrow Agent
pursuant to clause (iv) above, then the Escrow Agent, upon
demand of Buyer, shall release to Buyer the Excess Expense
Funds allocable to such Lease.
(ii) In the event that Tenant gives a Vacation Notice
to Shareholder pursuant to paragraph (a) above, then the
Escrow Agent, upon demand of Buyer, shall release to Buyer the
Excess Expense Funds allocable to the Lease that is the
subject of the Vacation Notice.
(iii) On the forty-fifth day after the first
anniversary of the Closing Date, Escrow Agent shall release to
Shareholder the Excess Expense Funds then remaining in Escrow
and which are not the subject of any prior demand made by
Buyer pursuant to clause (i) or (ii) above and which are not
Excess Expense Funds allocable to a Lease for which a Dispute
Notice has been given and the dispute identified in such
notice remains unresolved. If such dispute is then pending,
the Excess Expense Funds allocable to the Lease which is the
subject of such dispute shall continue to be held by the
Escrow Agent and released to Buyer upon the commencement of
any proceeding to dispossess Tenant under such Lease or to
Shareholder upon the delivery to Buyer of a Landlord Consent
in respect of such Lease, which ever occurs first.
(e) For purposes of this Section 9.6, "Transaction"
shall mean the purchase of the Shares by Buyer or any other transaction
contemplated by this Agreement; "Non-Conforming Consent" shall mean a landlord
consent pursuant to which the landlord fails to waive any increase in rent or
additional rent or the making of other payments to or for the benefit of
landlord to which landlord may be entitled under a Lease as a result of the
Transaction; and "Present Value of the Excess Expenses" in respect of any Lease
shall mean the present value of the Excess Expenses that would become payable by
Tenant over the
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remaining term of such Lease, discounted at the rate of 8% per annum over the
remaining term of such Lease. For purposes of computing the Excess Expenses in
respect of a Lease which provides for percentage rent, the Company's gross sales
for each month as to which such percentage rent shall be payable will be deemed
to be 103% of the level of gross sales at such location for such month in the
prior year (actual or projected, as the case may be). For purposes of computing
any other Excess Expense which is not stated as a liquidated amount in a Lease,
the amount shall be reasonably estimated by the parties.
9.7 Conveyance Taxes. Shareholder shall be responsible for all
transfer, stamp, registration, recording, value added and similar taxes and
fees, including, without limitation, real property transfer or gains taxes,
assessed or payable in connection with the transactions contemplated hereby.
Shareholder shall be solely responsible for all sales taxes, if any, assessed or
payable in connection with the transactions contemplated hereby. Shareholder and
Buyer shall cooperate in the preparation, execution and filing of all returns,
questionnaires, applications, or other documents regarding any transfer, stamp,
registration, recording, sales, use, value added and other taxes and fees,
including, without limitation, real property transfer or gains taxes, assessed
or payable in connection with the transactions contemplated hereby.
9.8 Insurance Claims. Shareholder shall assign to Buyer and
the Company on the Closing Date all rights and choses in action and proceeds
under Shareholder Policies relating to any Insurance Claims. The Company shall
be responsible for all liabilities relating to any Insurance Claim, any claim
incurred but not asserted prior to the Closing (an "Unasserted Claim") and any
related retroactive premium charges and Buyer shall indemnify and hold
Shareholder harmless from any Loss incurred or suffered by Shareholder as a
result of, arising from or in connection with, any Insurance Claim, Unasserted
Claim or related retroactive premium charges in accordance with the provisions
of Section 11.3 hereof.
ARTICLE X
Conditions to Obligation to Close
10.1 Conditions to Obligation of Each Party. The respective obligations
of each Party to consummate the transactions to be performed by it in connection
with the Closing is subject to the following conditions:
(a) HSR. All waiting periods under the HSR Act applicable to
the consummation of the transactions contemplated by this Agreement
shall have expired or been terminated;
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint
or prohibition preventing the consummation of the transactions
contemplated by this Agreement shall be in effect, nor shall any
proceeding brought by any administrative agency or commission or
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other governmental authority or instrumentality, seeking any of the
foregoing be pending; and there shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the transactions contemplated by this Agreement which
makes the consummation of such transactions illegal; and
(c) Governmental Actions. There shall not have been
instituted, pending or threatened any action or proceeding (or any
investigation or other inquiry that might result in such an action or
proceeding) by any governmental authority or administrative agency
before any governmental authority, administrative agency or court of
competent jurisdiction, nor shall there be in effect any judgment,
decree or order of any governmental authority, administrative agency or
court of competent jurisdiction, in either case, seeking to prohibit or
limit Buyer from exercising all material rights and privileges
pertaining to its ownership of the Company and its Subsidiaries of all
or a material portion of their respective business or assets.
10.2 Conditions to Obligation of Buyer. The obligation of Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(a) the representations and warranties of Shareholder and the
Company set forth in Articles IV and V above shall be true and correct
in all material respects when made and at and as of the Closing Date;
(b) all covenants, agreements and obligations required by the
terms of this Agreement to be performed by Shareholder or the Company
at or before the Closing shall have been duly and properly performed in
all material respects;
(c) Shareholder and the Company shall have delivered to Buyer
a certificate, dated as of the Closing Date and executed by the
president or any vice president of each of Shareholder and the Company,
to the effect that each of the conditions specified above in clauses
(a) and (b) above has been fulfilled;
(d) Buyer shall have received from counsel to Shareholder an
opinion with respect to the matters set forth in Exhibit C attached
hereto, addressed to Buyer and dated as of the Closing Date;
(e) all actions to be taken by Shareholder or the Company in
connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, governmental approvals and
other documents required to be obtained or delivered by Shareholder or
the Company to effect the transactions contemplated hereby, have been
taken, obtained and delivered in form and substance reasonably
satisfactory to Buyer;
(f) Shareholder shall have converted all indebtedness owed by
the Company to Shareholder immediately prior to the Closing into a
capital contribution
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in the Company and such contribution shall be certified in writing by
the chief financial officer of each of Shareholder and the Company; and
(g) the Consent Condition shall have been satisfied, as
provided in Section 2.3(b).
10.3 Conditions to Obligation of Shareholder. The obligation
of Shareholder to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:
(a) the representations and warranties of Buyer set forth in
Article VI above shall be true and correct in all material respects when made
and at and as of the Closing Date;
(b) all covenants, agreements and obligations required by the
terms of this Agreement to be performed by Buyer at or before the Closing shall
have been duly and properly performed in all material respects;
(c) Buyer shall have delivered to Shareholder a certificate,
dated as of the Closing Date and executed by the president or any vice president
of Buyer, to the effect that each of the conditions specified in clauses (a) and
(b) above have been fulfilled;
(d) Shareholder shall have received from counsel to Buyer an
opinion with respect to the matters set forth in Exhibit D attached hereto,
addressed to Shareholder and dated as of the Closing Date;
(e) all actions to be taken by Buyer in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to be obtained or delivered
by Buyer, have been taken, obtained or delivered to effect the transactions
contemplated hereby, in form and substance reasonable satisfactory to
Shareholder;
(f) Buyer shall have caused to be issued, by such commercial
banking institution or institutions and in form and substance as shall be
reasonably acceptable to the institutional lenders and the insurance company
referred to below, back-to-back or standby letters of credit for the benefit of
Shareholder with respect to (i) all letters of credit issued on behalf of the
Company pursuant to Shareholder's Third Amended and Restated Revolving Credit
Agreement dated July 31, 1993 among Shareholder, Citibank, N.A., BayBank Boston
N.A. and the First National Bank of Boston, as amended, and (ii) the obligations
of Shareholder pursuant to all performance bonds issued on behalf of the Company
by Wausau Insurance Company, if any;
(g) the Company and its Subsidiaries shall have assigned to
Shareholder its right to receive any refund or repayment of any Taxes or
overpayment of Taxes or estimated Taxes for all periods prior to the Closing;
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<PAGE> 46
(h) either the adjustment to the Base Purchase Price required
pursuant to Section 2.3(c) does not exceed $2,000,000 or Buyer shall have agreed
in writing to limit such adjustment to an amount not in excess of $2,000,000;
and
(i) Buyer shall have completed and executed all forms and
documents reasonably requested by Shareholder and required to make effective the
Section 338(h)(10) Election with the federal, and any applicable state,
authorities.
ARTICLE XI
Indemnification
11.1 Survival of Representations and Warranties. Each representation
and warranty made by any Party in this Agreement shall be enforceable by the
other Party notwithstanding any audit, inquiry or investigation by or on behalf
of such other Party. Each such representation and warranty shall survive for a
period of two (2) years following the Closing Date (the "Survival Period"),
unless the Party seeking to enforce such representation or warranty gives
written notice to the other Party prior to the expiration of the Survival Period
of any claim for liability under this Agreement in respect thereof, in which
case such representation or warranty, shall survive until the complete and final
resolution of such claim; provided, however, that the representations and
warranties of Shareholder contained in Sections 4.1, 4.2, 4.5, 5.1 and 5.2 and
the representations of Buyer contained in Sections 6.1 and 6.2 shall survive
indefinitely; the representations and warranties of Shareholder with respect to
Taxes contained in Section 5.9 shall survive for the applicable period of
limitation under the Code or applicable state law; and the representations and
warranties of Shareholder with respect to employee benefit matters contained in
Section 5.21 shall survive for the applicable period of limitation under the
Code or ERISA or applicable state law.
11.2 Indemnification by Shareholder. Shareholder shall indemnify and
hold harmless Buyer and its Affiliates, including, following the Closing, the
Company and the Subsidiaries, from and against any Loss incurred or suffered as
a result of, arising from or in connection with:
(a) subject to Section 11.1, the breach by Shareholder of any
representation or warranty made by Shareholder on its behalf or on
behalf of the Company and its Subsidiaries in this Agreement, the
Disclosure Schedule, any Annex or Exhibit or any certificate or
instrument delivered pursuant hereto;
(b) the failure by Shareholder to perform or comply (or cause
the Company to perform or comply) with any covenant or agreement on the
part of Shareholder (or the Company) contained herein, including any
covenant contained in Article VII or Article IX;
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<PAGE> 47
(c) any obligations or liabilities of the Company or any
Subsidiary which would be required by GAAP to be set forth on the
Closing Balance Sheet, but were not so set forth; and any obligations
or liabilities (including any damages, losses, costs or expenses,
regardless of when claimed or billed) under the Leases for any period
prior to the Closing;
(d) any obligations or liabilities of the Company or any
Subsidiary in excess of the amount paid by the sublessee, if any, under
the Leases related to all Britches Great Outdoors for Women stores,
each of which is identified in Section 11.2A of the Disclosure
Schedule;
(e) any amounts payable to the landlord under the Lease with
Regency (which is identified in Section 11.2B of the Disclosure
Schedule), whether in settlement of the current dispute between the
Company and Regency or otherwise, in excess of the amounts set out in
such Section of the Disclosure Schedule (which shall be net of the
reserve therefor on the Closing Balance Sheet), provided that
settlement of such dispute shall require the prior written consent of
Shareholder, which shall not be unreasonably withheld; and
(f) any damages, losses, costs, expenses and liabilities of
the Company or any Subsidiary arising by operation of the provisions of
Section 2.3(b)(i), 2.3(c), or 9.6.
11.3 Indemnification by Buyer. Buyer shall indemnify and hold harmless
Shareholder and its Affiliates, including, prior to the Closing, the Company,
from and against any Loss incurred or suffered by Shareholder as a result of,
arising from or in connection with:
(a) subject to Section 11.1, a breach by Buyer of any
representation or warranty made by Buyer in this Agreement, in any
Exhibit or in any certificate or instrument delivered pursuant hereto;
(b) a failure by Buyer to perform or comply with any covenant
or agreement on the part of Buyer contained herein, including any
covenant contained in Article VIII or Article IX;
(c) any obligations in respect of periods after the Closing
under any Lease as to which a Landlord Consent has been obtained or for
which such consent is not required under the terms of such Lease;
(d) any operations of Buyer or the Company following the
Closing; and
(e) any obligation to make severance payments to employees of
the Company or its Subsidiaries.
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<PAGE> 48
11.4 Assumption of Defense. If a claim by any third Person
shall be made against a party entitled to indemnification pursuant to this
Article XI (an "Indemnified Party"), promptly after receipt by the Indemnified
Party of notice of such claim, such Indemnified Party shall notify the Party
against whom indemnification is to be sought (the "Indemnifying Party") in
writing of such claim (but the failure so to notify an Indemnifying Party shall
not relieve it from any liability which it may have under this Article XI except
to the extent that it has been prejudiced in any material respect by such
failure or from any liability which it may have otherwise). In case any such
action is brought against any Indemnified Party, and it notifies an Indemnifying
Party of the commencement thereof, the Indemnifying Party shall be entitled to
participate therein, and to the extent it may elect by written notice delivered
to the Indemnified Party promptly after receiving the aforesaid notice from the
Indemnified Party, to assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party. Notwithstanding the foregoing, the
Indemnified Party shall have the right to employ its own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of the
Indemnified Party unless (i) the employment of such counsel shall have been
authorized in writing by the Indemnifying Party in connection with the defense
of such action, (ii) the Indemnifying Party shall not have employed counsel to
have charge of the defense of such action within a reasonable time after notice
of commencement of the action, or (iii) the Indemnified Party shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to the Indemnifying Party (in
which case the Indemnifying Party shall not have the right to direct the defense
of such action on behalf of the Indemnified Party), it being understood,
however, that the Indemnifying Party shall not, in connection with any one such
claim, action or proceeding or separate but substantially similar or related
claims, actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm (together with appropriate local counsel) at any
time for the Indemnified Party. An Indemnifying Party shall not be liable for
any settlement of any claim or action effected by an Indemnified Party without
its written consent; provided, however, that such consent was not unreasonably
withheld. No settlement of any claim or action against an Indemnified Party
shall be effected by an Indemnifying Party unless either (i) such settlement
provides for a complete release of all claims against the Indemnified Party or
(ii) the Indemnifying Party acknowledges to the Indemnified Party the obligation
of the Indemnifying Party to indemnify the Indemnified Party with respect to any
claims not completely released .
11.5 Cooperation of the Indemnified Party. The Indemnified
Party will cooperate in all reasonable respects with any Indemnifying Party in
the conduct of any proceeding as to which such Indemnifying Party assumes the
defense; provided, however, that the Indemnifying Party shall promptly reimburse
the Indemnified Party for all reasonable out-of-pocket costs and expenses, legal
or otherwise, incurred by the Indemnified Party in connection therewith, as such
costs and expenses are incurred.
11.6 General Limitations on Indemnification.
(a) An indemnifying party shall not be liable to nor
required to indemnify or hold an indemnified party harmless with respect to any
Loss to the extent such
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<PAGE> 49
Loss is recoverable under insurance policies maintained by the indemnified party
or its Affiliates.
(b) If any Loss indemnified against under this
Article XI shall result (after giving effect to any differences in the timing of
recognition, payment and deductibility) in a direct or indirect Tax savings to
the indemnified party or its Affiliates, then the indemnification obligations to
which such indemnified party shall be entitled hereunder shall be reduced by the
amount of such Tax savings.
ARTICLE XII
Termination.
12.1 Termination of Agreement. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual written consent of Buyer and
Shareholder;
(b) by either Buyer or Shareholder if the
transactions contemplated hereby shall not have been consummated by May
15, 1996 (provided that the right to terminate this Agreement under
this Section 12.1(b) shall not be available to any Party whose failure
to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the transactions contemplated hereby to be
consummated on or before such date); or
(c) by either Buyer or Shareholder if a court of
competent jurisdiction or governmental, regulatory or administrative
agency or commission shall have issued a nonappealable final order,
decree or ruling or taken any other action having the effect of
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement (provided that the right to
terminate under this Section 12.1(c) shall not be available to any
party who has not complied with its obligations under Section 9.3 and
such noncompliance materially contributed to the issuance of any such
order, decree or ruling or the taking of such action); or
(d) by Buyer or Shareholder, if any representation or
warranty of Shareholder or the Company, on the one hand, or Buyer, on
the other, set forth in this Agreement shall be untrue in any material
respect when made; or
(e) by Buyer if (i) any representation or warranty of
Shareholder or the Company shall become untrue in any material respect,
or (ii) upon a material breach of any covenant or agreement on the part
of Shareholder or the Company (either (i) or (ii) above being a
"Terminating Breach"); provided, however, that if such Terminating
Breach is curable prior to May 15, 1996 by Shareholder or the Company
through the exercise of its reasonable best efforts and for so long as
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<PAGE> 50
Shareholder and the Company continue to exercise such reasonable best
efforts, Buyer may not terminate this Agreement under this Section
12.1(e); or
(f) by Shareholder if (i) any representation or
warranty of Buyer shall become untrue in any material respect, or (ii)
upon a material breach of any covenant or agreement on the part of
Buyer (either (i) or (ii) above being a "Terminating Breach");
provided, however, that if such Terminating Breach is curable prior to
May 15, 1996 by Buyer through the exercise of its reasonable best
efforts and for so long as Buyer continues to exercise such reasonable
best efforts, Shareholder may not terminate this Agreement under this
Section 12.1(f).
12.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 12.1, all obligations of the parties hereunder shall
terminate without any liability of any Party, except for any liability of any
Party arising out of a breach by such party of any representation, warranty,
agreement or covenant contained in this Agreement; provided, however, that the
provisions of Section 8.1 (Confidentiality), Section 9.1 (Public Announcements)
and Article XIII shall survive any termination of this Agreement.
ARTICLE XIII
Miscellaneous
13.1 No Third Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns.
13.2 Entire Agreement; Amendments. This Agreement, the
Disclosure Schedule, all Annexes and Exhibits hereto and the Confidentiality
Agreement referred to in Section 8.1 hereof, and all agreements and instruments
to be delivered by the Parties pursuant hereto represent the entire
understanding and agreement between the Parties with respect to the subject
matter hereof and supersede all prior oral and written and all contemporaneous
oral negotiations, commitments and understandings between such Parties. Without
limiting the foregoing, the Confidentiality Agreement dated January 23, 1996
between Shareholder (signed by First Boston as representative) and Buyer, and
the Letter of Intent dated February 28, 1996 to which Paul Davril Incorporated
and Shareholder are parties, are each terminated hereby. This Agreement may be
modified or amended only by a written instrument executed by Buyer, Shareholder
and the Company.
13.3 Succession and Assignment. This Agreement shall be
binding upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either this
Agreement or any of its rights, interests, or obligations hereunder without the
prior written approval of Buyer and Shareholder; provided, however, that Buyer
may (i) assign any or all if its rights and interests hereunder to one or more
of its Affiliates and (ii) designate one or more of its Affiliates to perform
its obligations hereunder (in any or all of which cases Buyer nonetheless shall
remain liable and responsible for the performance of all of its obligations
hereunder).
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<PAGE> 51
13.4 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
13.5 Headings. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
13.6 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made if and when delivered personally or by overnight courier to the
parties at the following addresses or sent by electronic transmission, with
confirmation received, to the telecopy numbers specified below (or at such other
address or telecopy number for any Person as shall be specified by like notice):
To Buyer: Messrs. Michel Harouche & Charles Perez
c/o Paul Davril Incorporated
5401 S. Sota Street
Los Angeles, California 90058
Fax: (213) 588-9854
Confirm: (213) 277-7900
With copies to: James Levy
Joseph S. Herbert & Company
1 West California Blvd.
Suite 123
Pasadena, CA 91105
Fax (818) 568-0441
Confirm (818) 568-0700
- and-
Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel
919 Third Avenue
New York, New York 10022
Fax: (212) 715-8000
Confirm: (212) 715-9100
Attention: Kenneth P. Kopelman,
Esq.
To Shareholder: Chief Financial Officer
CML Group, Inc.
524 Main Street
Acton, Massachusetts 01720
Fax: 508/264-4073
Confirm: 508/264-4155
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<PAGE> 52
With a copy to: Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Attn: Paul P. Brountas, Esq.
Fax: 617/526-5000
Confirm: 617/526-6000
13.7 Severability. Any provision of this Agreement which is
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provision of this Agreement
invalid, illegal or unenforceable in any other jurisdiction.
13.8 Expenses. Except as otherwise expressly provided herein,
Buyer, on the one hand, and Shareholder, on the other hand, will pay all fees
and expenses (including, without limitation, legal and accounting fees and
expenses) incurred by them in connection with the transactions contemplated
hereby. In no event will any of the fees or expenses incurred in connection with
this transaction by Shareholder, be billed to or paid by the Company or any
Subsidiary. Shareholder shall be responsible for payment of all sales or
transfer taxes arising out of the conveyance of the Shares.
13.9 Governing Law; Consent to Jurisdiction. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York. Each of Buyer, Shareholder and the Company hereby consent to the
non-exclusive personal jurisdiction in any action brought with respect to this
Agreement and the transactions contemplated hereby in any federal or state court
within the State of New York, City of New York, Borough of Manhattan, and agree
that service of process may be accomplished pursuant to the provisions of
Section 13.6.
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<PAGE> 53
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of and on the date first above written.
COMPANY:
ATTEST: BRITCHES OF GEORGETOWNE, INC.
/s/ Thomas S. Ward By: /s/ Robert J. Samuelson
- ----------------------------- --------------------------------
Title: Vice President
-----------------------------
SHAREHOLDER:
ATTEST: CML GROUP, INC.
/s/ Thomas S. Ward By: /s/ Robert J. Samuelson
- ----------------------------- --------------------------------
Title: Executive Vice President
-----------------------------
BUYER:
ATTEST: BRITCHES ACQUISITION CORP.
/s/ Charles Perez By: /s/ Michel Harouche
- ----------------------------- --------------------------------
Title: President
-----------------------------
ATTEST: DAMRAK COMPANY LIMITED
/s/ Michel Harouche By: /s/ Charles Perez
- ----------------------------- --------------------------------
Title: Authorized Signatory
-----------------------------
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