<PAGE> 1
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): March 25, 1996
CONSOLIDATED STORES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-8897 06-1119097
- ---------------------------- ------------------------ ------------------------
(State or other jurisdiction (Commission File Number) (IRS Identification No.)
of incorporation)
1105 NORTH MARKET STREET, SUITE 1300
P. O. BOX 8985
WILMINGTON, DE 19899
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (302) 478-4896
NOT APPLICABLE
(Former name or former address, if changed since last report.)
<PAGE> 2
Item 5. Other Events.
1. Consolidated Stores Corporation ("Company") and Melville Corporation have
entered into a Stock Purchase Agreement ("Agreement") dated as of March
25, 1996, relating to the sale and purchase of 100% of the Common Stock of
Kay-Bee Center, Inc. Pursuant to terms of the Agreement and subject to
conditions therein the Company agreed to purchase all outstanding shares of
Kay-Bee Center, Inc. which operates through its subsidiaries approximately
1,045 retail toy stores under the name of Kay-Bee Toys, Toy Works, K&K Toys,
and Circus World. Consummation of the transaction is subject to approval
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and to
certain other terms and conditions. On March 25, 1996, the Company issued a
press release announcing the definitive Agreement, among other matters, to
acquire Kay-Bee Toys and described consideration to be paid upon closing of
the sale. The press release is attached hereto as Exhibit A and the
definitive Agreement is attached hereto as Exhibit B.
Item 7(c). Exhibits.
Exhibit A Press Release of Consolidated Stores Corporation dated
March 25, 1996
Exhibit B STOCK PURCHASE AGREEMENT dated as of March 25, 1996
between Melville Corporation and Consolidated Stores
Corporation relating to the purchase and sale of 100% of
the Common Stock of Kay-Bee Center, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONSOLIDATED STORES CORPORATION
Dated: April 8, 1996 By: /s/ Michael J. Potter
-----------------------------
Michael J. Potter
Sr. Vice President and Chief
Financial Officer
INDEX TO EXHIBITS
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Exhibit No. Description Page No.
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A Press Release of Consolidated Stores Corporation dated March
25, 1996 3
B STOCK PURCHASE AGREEMENT dated as of March 25, 1996 between
Melville Corporation and Consolidated Stores Corporation
relating to the purchase and sale of 100% of the Common
Stock of Kay-Bee Center, Inc. 5
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EXHIBIT A
---------
PRESS RELEASE
FOR IMMEDIATE RELEASE Contact: Michael J. Potter
Senior Vice President
and Chief Financial Officer
(614) 278-6810
CONSOLIDATED STORES ENTERS INTO AGREEMENT TO PURCHASE
-----------------------------------------------------
KAY-BEE TOYS FROM MELVILLE CORPORATION
--------------------------------------
Columbus, Ohio - March 25, 1996 - Consolidated Stores Corporation (NYSE: CNS),
the parent company of Toy Liquidators, Odd Lots, Big Lots, All For One and
Itzadeal, today announced that it has entered into a definitive agreement with
Melville Corporation to acquire Kay-Bee Toys for approximately $315 million.
Closing date of the transaction is currently scheduled for May 4, 1996. This
acquisition is subject to certain conditions, including receipt of regulatory
approvals. There is no accounting goodwill associated with this transaction.
At the date of closing, Melville will receive $215 million in cash and $100
million in a Consolidated Stores four year subordinated note. To fund the cash
portion of the purchase price, along with the future working capital needs of
the combined company going forward, Consolidated Stores has secured a committed
revolving bank facility, and will offer to sell to the public approximately
$100 million of Consolidated Stores common stock. Consolidated Stores
currently has 48 million shares outstanding.
William G. Kelley, Chairman and Chief Executive Officer of Consolidated Stores
commented, "We are enormously pleased to be announcing the acquisition of
Kay-Bee Toys. Kay-Bee is one of the leading retailers of toys in enclosed
malls with over 1000 stores and is also a large buyer of close-out toys. The
combined businesses offer a great deal of synergy for our company.
Consolidated Stores will now be one of the nation's largest retailers of
small-box format toy stores. With Toy Liquidators as the leading outlet mall
toy store and Kay-Bee as the premier enclosed mall toy store, along with a
strip center toy store business with spectacular growth potential in The
Amazing Toy Store and Toy Works, Consolidated Stores will be one of the leading
retailers of toys in America."
Mr. Kelley continued, "Melville has done an excellent job of preparing this
division for stand-alone operation, including the closing of unprofitable
stores. This will enable us to transition this business into our company with
minimal disruption. Kay-Bee has a strong history of profitability, and we are
delighted to announce that we fully expect the acquisition to be meaningfully
accretive to earnings during the current fiscal year."
Continued
<PAGE> 4
EXHIBIT A
---------
PRESS RELEASE March 25, 1996
Page 2
Mr. Kelley added, "I am also very pleased to announce that Michael Glazer will
be named CEO of Kay-Bee, as well as continuing to serve as President of
Consolidated Stores. Mr. Glazer, who has served on the Board of Directors of
Consolidated Stores since 1991, brings significant mall experience to this
business given his previous position as President of The Bombay Company.
Michael's strong mall background makes him a natural to lead this acquisition
and ensure a smooth transition of Kay-Bee into the Consolidated Stores team.
We will continue to run the stores under the Kay-Bee name and plan very few
changes in its operations. Kay-Bee has a history of consistent profitability
and has a very talented management team. We believe that the strengths of our
Toy Liquidator stores can be combined with the strengths of the Kay-Bee stores
to produce meaningful synergies to both businesses."
Mr. Glazer commented, "All of us at Consolidated Stores are truly energized
about the opportunities that lie ahead in our growing and profitable toy
businesses. The addition of Kay-Bee gives us a solid foundation of very
profitable small-box toy stores and puts us in a unique position to grow our
toy business in strip centers at an aggressive pace. Kay-Bee has the unique
advantage of being the only toy store of its kind in over 900 malls in America,
and we view it as an important part of our future in the toy business."
Mr. Kelley concluded, "Of all the categories of close-out merchandise that we
buy and sell, we have been the most excited about toys. This acquisition of
Kay-Bee puts our company in a strong leadership position in the small-box
close-out toy marketplace which offers customers the unique combination of
convenience and extraordinary value. While much of the retailing world is
struggling with the prospect of growing consolidations and competition, we
continue to gain strength with our value concepts and look forward to a bright
future for our company."
Kay-Bee Toy Stores is one of the nation's largest mall-based toy specialty
retailer, with over 1000 locations in all 50 states and the Commonwealth of
Puerto Rico. Kay-Bee Toy Stores, which had revenues of $1.1 billion in 1995,
is headquartered in Pittsfield, Massachusetts.
Consolidated Stores Corporation, a leading retailer and wholesaler of close-out
merchandise, operated a total of 870 stores in 39 states as of March 2, 1996.
Consolidated Stores had revenues of $1.5 billion in 1995. Stores by division
consist of: 547 ODD LOTS/BIG LOTS and 65 ITZADEAL! specialty retail stores, 145
ALL FOR ONE/IT'S REALLY $1.00, single price point retail stores, and 113 TOY
LIQUIDATOR/TOYS UNLIMITED/THE AMAZING TOY STORE close-out toy stores.
Wholesale operations are conducted through CONSOLIDATED INTERNATIONAL and
WISCONSIN TOY.
<PAGE> 5
EXHIBIT B
STOCK PURCHASE AGREEMENT
dated as of
March 25, 1996
between
Melville Corporation
and
Consolidated Stores Corporation
relating to the purchase and sale
of
100% of the Common Stock
of
Kay-Bee Center, Inc.
<PAGE> 6
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
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1.1 Definitions 1
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale 11
2.2 Closing 11
2.3 Closing Balance Sheet 12
2.4 Adjustment of Purchase Price 14
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Corporate Existence and Power 15
3.2 Corporate Authorization 15
3.3 Governmental Authorization. 15
3.4 Non-Contravention 15
3.5 Capitalization 16
3.6 Subsidiaries 16
3.7 Financial Statements 17
3.8 Absence of Certain Changes 17
3.9 No Undisclosed Material Liabilities 20
3.10 Labor Matters 20
3.11 Material Contracts 21
3.12 Litigation 23
3.13 Compliance with Laws and Court Orders. 24
3.14 Leases 24
3.15 Properties 24
3.16 ERISA Representations 25
3.17 Environmental Matters 25
3.18 Intellectual Property 26
3.19 Insurance Coverage 28
3.20 Licenses and Permits 29
3.21 Fixed Assets 29
3.22 Finders' Fees 30
3.23 Accounts 30
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Corporate Existence and Power 30
4.2 Corporate Authorization 30
4.3 Governmental Authorization 31
4.4 Non-Contravention 31
4.5 Financing 31
4.6 Purchase for Investment 32
4.7 Litigation 32
4.8 Finders' Fees 32
4.9 Net Worth 32
ARTICLE 5
COVENANTS OF SELLER
5.1 Conduct of the Company 32
5.2 Access to Information 34
5.3 Notices of Certain Events 34
5.4 Resignations 35
5.5 Intercompany Accounts and Agreements 35
5.6 Store Openings, Remodelings and Relocations 35
5.7 Other Offers 35
5.8 Risk of Loss 36
5.9 Confidentiality 36
5.10 Accounts 37
5.11 No Solicitation or Employment 37
5.12 Books and Records; Personnel 37
5.13 Use of Certain Names and Marks 37
ARTICLE 6
COVENANTS OF BUYER
6.1 Confidentiality 38
6.2 Access 39
6.3 Notices of Certain Events 39
6.4 Assumption of Leases 39
6.5 Financing 40
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ARTICLE 7
COVENANTS OF BUYER AND SELLER
7.1 Reasonable Best Efforts 40
7.2 Certain Filings 40
7.3 Public Announcements 41
7.4 Certain Matters Relating to Lease Consents. 41
7.5 Designated Closed Store Leases and Excluded Subsidiaries 45
7.6 Reimbursement by the Parties 45
7.7 Information 45
7.8 Litigation. 45
7.9 Guarantees. 46
7.10 Material Contracts. 47
ARTICLE 8
TAX MATTERS
8.1 Tax Representations 47
8.2 Tax Covenants 48
8.3 Termination of Existing Tax Sharing Agreements 54
8.4 Cooperation on Tax Matters 54
8.5 Indemnification by Seller 55
8.6 Indemnification by Buyer. 56
8.7 Miscellaneous Tax Matters. 57
ARTICLE 9
EMPLOYEES AND EMPLOYEE BENEFITS
9.1 Employees 57
9.2 Qualified Plans 57
9.3 Other Employee Plans and Benefit Arrangements 59
9.4 Insurance Coverage 60
9.5 Third Party Beneficiaries 61
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ARTICLE 10
CONDITIONS TO CLOSING
10.1 Conditions to Obligations of Buyer and Seller 62
10.2 Conditions to Obligation of Buyer 62
10.3 Conditions to Obligation of Seller 63
ARTICLE 11
SURVIVAL; INDEMNIFICATION
11.1 Survival 64
11.2 Indemnification 64
11.3 Lease Indemnity 65
11.4 Procedures; Exclusivity 65
11.5 Limitation of Indemnification 66
11.6 No Circular Recovery 67
ARTICLE 12
TERMINATION
12.1 Grounds for Termination 67
12.2 Effect of Termination 68
12.3 Termination Fee 69
ARTICLE 13
MISCELLANEOUS
13.1 Notices 69
13.2 Amendments and Waivers 70
13.3 Expenses 71
13.4 Successors and Assigns 71
13.5 Governing Law 71
13.6 Jurisdiction 71
13.7 Counterparts; Effectiveness 72
13.8 Third Party Beneficiaries 72
13.9 Entire Agreement 72
13.10 Validity of Provisions 72
13.11 Section Headings 72
13.12 Force Majeure 72
13.13 Further Assurances 73
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<PAGE> 10
EXHIBITS
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Exhibit A Senior Subordinated Note Term Sheet
Exhibit B Opinion Items to be Covered by Counsel of Melville Corporation
Exhibit C Opinion Items to be Covered by Counsel of Consolidated Stores Corporation
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<PAGE> 11
SCHEDULES
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Schedule 2.3 Calculation of Net Book Value Schedule Subsidiaries
Schedule 3.8 Absence of Certain Changes
Schedule 3.9 Undisclosed Material Liabilities
Schedule 3.10 Labor Matters
Schedule Material Contracts
Schedule 3.12 Litigation
Schedule Leases
Schedule 3.15 Liens
Schedule Employees Plans and Benefits Arrangements
Schedule Environmental Matters
Schedule 3.18 Company Intellectual Property Rights
Schedule 3.19 Insurance Coverage
Schedule 3.20 Licenses and Permits
Schedule 3.23 Accounts
Schedule 5.1 Conduct of the Company
Schedule 5.6 Store Openings, Remodelings and Relocations
Schedule 7.4 Designated Month-to-Month Leases
Schedule 7.5 Designated Closed Store Leases and Excluded Subsidiaries
Schedule 8.1 Tax Matters
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<PAGE> 12
STOCK PURCHASE AGREEMENT
AGREEMENT dated as of March 25, 1996 (the "Agreement") between
Consolidated Stores Corporation, a Delaware corporation ("Buyer"), and Melville
Corporation, a New York corporation ("Seller").
WHEREAS, Seller is the owner of 10 shares of common stock (the
"Shares") of Kay-Bee Center, Inc., a California corporation (the "Company"),
constituting one hundred percent of the issued and outstanding capital stock of
the Company;
WHEREAS, the Company is the owner of 100 shares of common
stock of Southdale Kay-Bee Toy, Inc., a Minnesota corporation ("Southdale"),
constituting one hundred percent of the issued and outstanding capital stock of
Southdale;
WHEREAS, Southdale is the owner of 100 shares of common stock
of Mall of America Kay-Bee Toy, Inc., a Minnesota corporation ("Mall of
America"), constituting one hundred percent of the issued and outstanding
capital stock of Mall of America;
WHEREAS, Mall of America is the owner of (i) 100 shares of
common stock of CW Kay-Bee, Inc., a New York corporation ("CW Kay-Bee"),
constituting one hundred percent of the issued and outstanding capital stock of
CW Kay-Bee, (ii) 100 shares of common stock of K&K Kay-Bee, Inc., a Virginia
corporation ("K&K Kay-Bee"), constituting one hundred percent of the issued and
outstanding capital stock of K&K Kay-Bee, (iii) one hundred percent of the
issued and outstanding capital 8stock of Kay-Bee Toy & Hobby Shops, Inc., a
Massachusetts corporation ("Toy & Hobby"), and (iv) one hundred percent of the
issued and outstanding capital stock of certain other corporations disclosed in
Schedule 3.6 hereto.
WHEREAS, Buyer desires to purchase the Shares from Seller, and
Seller desires to sell the Shares to Buyer, upon the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
together with the mutual covenants hereinafter contained, Buyer and Seller
hereby agree as follows:
<PAGE> 13
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. (a) The following terms, as used herein, have the
following meanings:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person; PROVIDED that neither the Company nor any Subsidiary shall be
considered an Affiliate of Seller.
"Balance Sheet" means the consolidated balance sheet of the Company,
the Subsidiaries and the Excluded Subsidiaries as at December 31, 1995.
"Balance Sheet Date" means December 31, 1995.
"Benefit Arrangement" means any employment, severance or similar
contract, arrangement or policy, or any plan or arrangement (whether or not
written) providing for severance benefits, insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights or other forms of incentive compensation or post-retirement
insurance, compensation or benefits that (i) is not an Employee Plan, (ii) is
entered into or maintained, as the case may be, by the Seller or any of its
ERISA Affiliates and (iii) covers any employee or former employee of the
Company or any Subsidiary.
"Business" means the business of the Company and the Subsidiaries as
such business is currently conducted on the date hereof.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized by law to close.
"Buyer's 401(k) Plan" means the Consolidated Stores Corporation 401(k)
Savings Plan and Trust Agreement, a retirement plan tax-qualified under
Sections 401(a) and 401(k) of the Code.
"Charter" means, with respect to any juridical Person, the certificate
or articles of incorporation, or other analogous organizational or constituent
documents of such Person (including, in the case of a partnership, such
partnership's partnership agreement, or in the case of a limited liability
company, such limited liability company's limited liability company agreement).
"Closed Store Lease" means each real property lease or sublease
disclosed in Schedule 7.5.
"Closing Balance Sheet" means a consolidated balance sheet of the
Company and the Subsidiaries as at the close of business on the Closing Date,
together with the notes thereto.
"Closing Date" means the date of the Closing.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Common Stock" means the Common Stock, no par value per share, of the
Company.
<PAGE> 14
"Contribution" means, with respect to any Lease, the "adjusted
contribution A" of the Store that is the subject of such Lease for the fiscal
year ended December 31, 1995, as reflected in the 1995 Revised Stores Profit
and Loss Statement of the Company and the Subsidiaries previously delivered to
Buyer.
"CSC Ohio" means Consolidated Stores Corporation, an Ohio corporation
and a wholly owned subsidiary of Buyer.
"Designated Closed Store Lease" means each Closed Store Lease to which
the Company or a Subsidiary (other than an Excluded Subsidiary) is a party.
"Designated Month-to-Month Leases" means the month-to-month leases
disclosed in Schedule 7.4.
"Distribution Center Leases" means (i) the lease dated as of December
30, 1986, as amended, between Toy & Hobby, as lessee, and Mt. Pocono
Associates, a New York general partnership, as lessor, relating to the
distribution center located in Mt. Pocono, Pennsylvania and (ii) the lease
dated as of February 21, 1985 between Toy & Hobby, as lessee, and Danville
Associates, a New York general partnership, as lessor, relating to the
distribution center located in Danville, Kentucky.
"Distribution Centers" means the distribution centers of the Company
and the Subsidiaries located in (i) Mt. Pocono, Pennsylvania, (ii) Danville,
Kentucky, (iii) Pittsfield, Massachusetts and (iv) Glendale, Arizona, each of
which individually is referred to as a Distribution Center.
"Effective Rent" means, with respect to any Lease, the Original
Minimum Rent of such Lease plus the Original Percentage Rent of such Lease.
"Employee Plan" means any "employee benefit plan", as defined in
Section 3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by the Seller or any of its ERISA
Affiliate and (iii) covers any employee or former employee of the Company or
any Subsidiary.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances and rules as in effect on the
Closing Date, relating to protection of the environment or to the effect on the
environment of any toxic, radioactive, ignitable, corrosive, reactive or
otherwise hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, or
any successor statute, and the rules and regulations promulgated thereunder,
and in the case of any referenced section of any such statute, rule or
regulation, any successor section thereto, in each case, as from time to time
amended and then in effect.
"ERISA Affiliate" of any entity means any other entity which, together
with such entity, would be treated as a single employer under Section 414 of
the Code.
"Escrow Agent" means The Bank of New York, or such other party as may
be mutually agreed by Buyer and Seller.
<PAGE> 15
"Escrow Agreement" means an escrow agreement in form and substance
reasonably satisfactory to Buyer, Seller and the Escrow Agent, containing terms
and conditions which are customary for such agreements.
"Estimated Net Book Value" means $322,513,000.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Excluded Subsidiary" means each subsidiary of the Company disclosed
in Schedule 7.5.
"Facility Leases" means the Distribution Center Leases, the
Headquarters Leases and the Regional Office Leases.
"Final Net Book Value" means Net Book Value (i) as shown in the
calculation delivered pursuant to Section 2.3(a), if no notice of disagreement
with respect thereto is delivered pursuant to Section 2.3(b), or (ii) if such a
notice of disagreement is delivered, (A) as agreed by Buyer and Seller pursuant
to Section 2.3(c) or (B) in the absence of such agreement, as shown in the
Independent Accountant's calculation delivered pursuant to Section 2.3(c);
provided that in no event shall Final Net Book Value be less than the
calculation of Net Book Value set forth in the notice delivered by Buyer
pursuant to Section 2.3(b) or more than the calculation of Net Book Value
delivered by Seller pursuant to Section 2.3(a).
"Hazardous Substances" means any pollutant, contaminant, waste or
chemical or otherwise hazardous material, substance or waste which is regulated
under any Environmental Law
"Headquarters Leases" means (i) the lease dated as of April 7, 1987
between Toy & Hobby, as lessee, and Pittsfield Mass Associates, a New York
general partnership, as lessor, relating to certain office space located at 100
West Street, Pittsfield, Massachusetts, (ii) the lease dated as of August 15,
1990 between Kay-Bee Toy Stores, Inc., as lessee, and Scarafoni Realty as
assignee of Bank of Boston, as landlord, relating to certain office space
located at 5-7 North Street, Pittsfield, Massachusetts, which is presently
being occupied on a month-by-month basis, (iii) the sublease dated November 30,
1995 between Toy & Hobby, as sublessee, and Keane, Inc., a Massachusetts
corporation, as sublessor, relating to certain office space located at 877
South Street, Pittsfield, Massachusetts, (iv) the lease dated January 1, 1996
between Toy & Hobby, as lessee, and The Geary Corporation, a Massachusetts
corporation, as lessor, relating to certain office space at 877 South Street,
Pittsfield, Massachusetts and (v) a lease dated December 7, 1995 between Kay
Bee Toys, as lessee, and Greylock Mills, as lessor, relating to certain office
space at 7 Hoosac Street, Adams, Massachusetts.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Income Tax" means any Tax which is, in whole or in part, based on or
measured by income or gains, including the Michigan Single Business Tax.
"Independent Accountants" means a nationally recognized independent
accounting firm chosen by, and mutually acceptable to, both Buyer and Seller.
"Indianapolis Lease" means the lease dated as of January 27, 1976
between CW Kay-Bee, as successor by merger to Circus World Toy Stores, Inc. and
assignee of J.C. Penney Company, Inc., as tenant, and Rauenhorst Corporation to
whose right, title and interest Opus Corporation has succeeded,
<PAGE> 16
as landlord, relating to the property having a street address of 8001-8003
Woodland Drive, Indianapolis, Indiana.
"Intellectual Property Right" means any trademark, service mark, trade
name, invention, patent, trade secret, copyright, know-how (including any
registrations or applications for registration of any of the foregoing) or any
other similar type of proprietary intellectual property right.
"Inventory Firms" means RGIS or any other firm or firms of inventory
specialists chosen by, and mutually acceptable to, both Buyer and Seller.
"Lease" means each real property lease, sublease or month-to-month
tenancy arrangement to which the Company or any Subsidiary is a party, other
than a Closed Store Lease or Facility Lease.
"Lease Book Value" means, with respect to any Lease, the net book
value of the fixed assets of the Store that is the subject of such Lease, as
reasonably determined by Buyer on a basis consistent with Seller's past
practices as used in connection with the preparation of the Balance Sheet.
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset. For the purposes of this
Agreement, a Person shall be deemed to own subject to a Lien any property or
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such property or asset.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the condition (financial or otherwise), business,
assets, or results of operations of such Person and its Subsidiaries, taken as
whole.
"Miscellaneous Taxes" means all Taxes other than Income Taxes and
Transfer Taxes.
"MRC" means Melville Realty Company, Inc., a New York corporation.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
3(37) of ERISA.
"Net Book Value" means the amount resulting from the calculation set
forth in Schedule 2.3 pursuant to the provisions of Section 2.3.
"New Store Lease" means a Lease entered into after January 1, 1995.
"Note" means a senior subordinated note of CSC Ohio in the principal
amount of $100 million, containing the terms and conditions set forth in
Exhibit A and such other terms and conditions as may be mutually agreed by
Buyer and Seller.
"Operating Loss Adjustment" means an amount equal to (i) the number of
days from and including May 5, 1996 to and including the Closing Date
multiplied by (ii) $128,678.
"Original Minimum Rent" means, with respect to any Lease, the amount
provided for by such Lease as minimum, base or other fixed amount of rent.
<PAGE> 17
"Original Percentage Rent" means, with respect to any Lease, the
amount of percentage rent provided for by such Lease, calculated in accordance
with the percentages and breakpoints provided for in such Lease, for (i) the
most recent 12-month period ending prior to the Closing Date or (ii) such other
period as is specifically provided for in such Lease.
"Person" means an individual, corporation, limited liability company,
partnership, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Post-Closing Tax Period" means any Tax period ending after the
Closing Date, excluding the portion, if any, of such Tax period up to and
including the Closing Date.
"Pre-Closing Tax Period" means any Tax period ending on or before the
Closing Date; PROVIDED that if a Tax period ending after the Closing Date
contains any days which fall prior to or on the Closing Date, any portion of
such Tax period up to or including the Closing Date shall also be included in
the Pre-Closing Tax Period.
"Reference Rate" means a rate per annum equal to the reference rate
from time to time of Morgan Guaranty Trust Company of New York.
"Regional Offices" means, collectively, the regional offices of the
Company and the Subsidiaries that are the subject of the Regional Office
Leases, each of which individually is referred to as a Regional Office.
"Regional Office Leases" means (i) the lease agreement dated January
10, 1996 between Kay Bee Toys, Inc., a Massachusetts corporation, as lessee,
and P.S.P., Inc., as lessor, relating to certain office space at 2625 Sandy
Plains Road, Suite 205, Marietta, Georgia, (ii) the lease agreement dated
October 11, 1994 between Toy & Hobby, as lessee, and State of California Public
Employees' Retirement System, an agency of the State of California, as lessor,
relating to certain office space at 500 Park Boulevard, Suite 152C, Itasca,
Illinois, (iii) the lease agreement dated July 18, 1995 between Toy & Hobby, as
lessee, and Weteringweg Vastgoed B.V., as lessor, relating to certain office
space at 6709 Ridge Road, Suite 200, Port Richey, Florida, (iv) the lease
agreement dated 17 September, 1993 between Kay-Bee Toy Stores, Inc., a
Massachusetts corporation, as lessee, and Carter-Crowley Properties, Inc., a
Texas corporation, as lessor, as amended, relating to certain office space at
the Concourse Office Park, Dallas, Texas, (v) the lease agreement dated
November 15, 1994 between KayBee Toys, Inc., a Massachusetts corporation, as
lessee, and L.A.T. Investment Corporation, a California corporation, as lessor,
as amended, relating to certain office space at 5777 West Century Boulevard,
Los Angeles, California, (vi) the lease agreement dated November 7, 1994
between Toy & Hobby, as lessee, and BTR Business Center, Inc., as lessor,
relating to certain office space at 227 Gateway Drive, Bel Air, Maryland, and
(vii) the lease agreement dated January 31, 1995 between Kay Bee Toys and Hobby
Shop, Inc., as lessee, and Dr. Ki H. Oh, as lessor, relating to certain office
space at 200 South 333rd Street, Federal Way, Washington.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Hazardous Substance into the environment.
"Release Payment" means any payment required by any Landlord in
connection with a Lease before delivery by such Landlord of its Consent with
respect thereto, regardless of whether such payment is required pursuant to the
terms of the applicable Lease or is otherwise required by such Landlord
<PAGE> 18
(including but not limited to any additional remodeling costs, transfer or
assignment charges, administration fees and fees and expenses of counsel in
connection therewith).
"Rent Increase" means an increase in rent (including, if applicable,
retroactive rent to the Closing Date); PROVIDED that an increase in rent shall
not be deemed to be a Rent Increase unless either (i) the Original Minimum Rent
is increased to an amount greater than the Effective Rent or (ii) the Original
Percentage Rent is increased such that the amount that would have been payable
under the applicable Lease for the most recent 12-month period ending prior to
the Closing Date is greater than the Effective Rent payable under such Lease
for such period.
"Return" means any Tax return, statement, report or form.
"Seller Group" means, with respect to federal income Taxes, the
affiliated group of corporations (as defined in Section 1504(a) of the Code) of
which Seller is a member and, with respect to state income or franchise Taxes,
an affiliated, consolidated, combined, unitary or similar group of which Seller
or any of its Affiliates is a member.
"Seller's ESOP" means The Melville Corporation and Subsidiaries
Employee Stock Ownership Plan.
"Seller's 401(k) Profit Sharing Plan" means the 401(k) Profit Sharing
Plan of Melville Corporation and Affiliated Companies.
"Seller's Individual Account Plans" means the Seller's ESOP and the
Seller's 401(k) Profit Sharing Plan.
"Seller Subsidiary" means any Subsidiary of Seller other than the
Company or any of its Subsidiaries.
"Shares" means all of the outstanding shares of Common Stock of the
Company.
"Stores" means, collectively, the stores that are the subject of the
Leases, each of which individually is referred to as a Store.
"Subsidiary" means, with respect to any Person, any other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person. Unless
otherwise specified in this Agreement, any reference to a Subsidiary shall mean
a Subsidiary of the Company; PROVIDED that no Excluded Subsidiary shall be
considered to be a Subsidiary of the Company.
"Tax" means any tax imposed under Subtitle A of the Code and any net
income, alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, value added, transfer, franchise, profits, license,
withholding on amounts paid to or by the Company or any Subsidiary, payroll,
employment, excise, severance, stamp, capital stock, occupation, property,
windfall profit tax, premium, custom, duty or other tax, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest, penalty (including penalties for failures in connection with
information returns), addition to tax or additional charges (including charges
for failures in connection with information returns) imposed by any
governmental authority responsible for the imposition of any such tax (domestic
or foreign) (a "Taxing Authority").
<PAGE> 19
"Tax Accountants" means a nationally recognized independent accounting
firm chosen by, and mutually acceptable to, both Buyer and Seller.
"Tax Loss" means any payment by Buyer, its Affiliates, or effective
upon the Closing, the Company or any Subsidiary, of (i) an Income Tax of the
Company or any Subsidiary with respect to any Pre-Closing Tax Period, (ii) a
Transfer Tax in excess of the amount allocated to Buyer under Section 8.2(e),
(iii) a Miscellaneous Tax with respect to any Pre-Closing Tax Period, in excess
of the amount reflected on the Closing Balance Sheet (adjusted as appropriate
to reflect Final Net Book Value) for Miscellaneous Taxes, and (iv) any Tax as a
result of Treasury Regulation Section 1.1502-6 or any similar federal, state,
local or foreign law, rule or regulation, plus, in connection with each of (i),
(ii), (iii) and (iv), any loss, cost and reasonable out-of-pocket expenses
incurred by Buyer, any of its Affiliates or, effective upon the Closing, the
Company or any Subsidiary as a result of any assertion, assessment or
imposition by any Taxing Authority of any of the above-described types of
Taxes.
"Terminated Lease" means any Lease (i) the premises of which Buyer
cannot take possession as of the Closing Date as a result of an injunction or
restraining order concerning the sale of the Shares contemplated by this
Agreement, PROVIDED that if such injunction or order is later lifted, such
Lease will no longer be a Terminated Lease, unless such Lease becomes a
Terminated Lease under another provision of this Agreement, (ii) the premises
of which Buyer must vacate after the Closing Date as a result of (A) a final
court order concerning the sale of the Shares pursuant to this Agreement for
which all applicable appeal periods have expired and (B) a settlement
concerning the sale of the Shares pursuant to this Agreement negotiated by
Buyer with Landlord which requires Buyer to vacate such Store, PROVIDED that
such settlement shall be subject to the prior approval of Seller, which
approval shall not be unreasonably conditioned, delayed or withheld, or (iii)
which Seller and Buyer at any time mutually agree is a Terminated Lease.
"Title IV Plan" means an Employee Plan, other than any Multiemployer
Plan, subject to Title IV of ERISA.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Account Balance Transfer 9.2(c)
Acquisition Proposal 5.7
Allocation Statement
Bridge Commitment Letter 4.5
Bridge Financing 4.5
Buyer's Benefit Plans 9.4
Cash Consideration 2.1
</TABLE>
<PAGE> 20
<TABLE>
<S> <C>
Term Section
---- -------
Closing
Commitment Letter 4.5
Company Intellectual Property Rights 3.18(a)
Company Securities (b)
Consent
Damages (a)
Delivered Lease
Direct Rollover 9.2(a)
Financing 4.5
Indemnified Party 11.4(a)
Indemnifying Party 11.4(a)
Landlord
Loss 8.2(b)
Permits 3.20
Price Allocation
Puerto Rico Subsidiary 8.2(k)
Purchase Price
Section 338(h)(10) Election
Section 1115 Authority 8.2(k)
Section 1115 Election 8.2(k)
Subsidiary Securities (b)
Tax Loss 8.5(a)
Tax Packages
Transfer Taxes
Transferred Employees 9.1
Transition Period 9.4
</TABLE>
(c) Definitions shall be equally applicable to both the singular and
plural forms of the terms defined, and references to the masculine, feminine or
neuter gender shall include each other gender. All references in this
Agreement to any Exhibit or Schedule shall, unless the context otherwise
requires, be deemed to be a reference to an Exhibit or Schedule, as the case
may be, to this Agreement, all of which are made a part of this Agreement.
ARTICLE 2
PURCHASE AND SALE
2.1 PURCHASE AND SALE. Upon the terms and subject to the conditions
of this Agreement, Seller agrees to sell to Buyer or its designee and Buyer
agrees to purchase, or cause its designee to purchase, from Seller, the Shares
at the Closing. The purchase price for the Shares (the "Purchase Price") is
(i) an amount in cash equal to $214,513,000 plus the Operating Loss Adjustment,
if any (the "Cash Consideration") and (ii) the Note. The Purchase Price shall
be paid as provided in Section , subject to adjustment as provided in Section
2.4.
2.2 CLOSING. The closing (the "Closing") of the purchase and sale of
the Shares hereunder shall take place at the offices of Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York, at
<PAGE> 21
10:00 a.m. on May 4, 1996, or at such other time or place as Buyer and Seller
may agree. At the Closing:
(i) Buyer shall, or shall cause its designee to, deliver to Seller (x)
the Cash Consideration in immediately available funds by wire transfer to
an account of Seller with a bank designated by Seller, by written notice
to Buyer to be made no later than two Business Days prior to the Closing
Date, and (y) the Note.
(ii) Seller shall deliver to Buyer or its designee certificates for the
Shares duly endorsed or accompanied by stock powers duly endorsed in
blank, with any required transfer stamps affixed thereto, and in form
proper for transfer.
Notwithstanding the foregoing, if the Closing Date shall be a day other than a
Business Day, on the Business Day immediately preceding the Closing Date, (x)
Buyer shall, or shall cause its designee to, deliver the Cash Consideration, in
immediately available funds by wire transfer, and the Note to the Escrow Agent
for deposit pursuant to the Escrow Agreement and (y) Seller shall deliver to
the Escrow Agent certificates for the Shares accompanied by stock powers duly
endorsed in blank, with any required transfer stamps affixed thereto, and in
form proper for transfer, for deposit pursuant to the Escrow Agreement. All
funds deposited with the Escrow Agent shall be applied by the Escrow Agent in
accordance with the terms of the Escrow Agreement to make the payment required
by Section 2.2(i)(x). Any amounts remaining in the Escrow Account after the
payment of such amount shall be paid by the Escrow Agent to Buyer or its
designee, except as otherwise provided in the Escrow Agreement. The Note and
the certificates for the Shares shall be distributed by the Escrow Agent in
accordance with the terms of the Escrow Agreement to satisfy the requirements
of Sections 2.2(i)(y) and 2.2(ii), respectively. The fees and expenses of the
Escrow Agent shall be borne by Buyer and Seller equally.
2.3 CLOSING BALANCE SHEET. (a) Within 60 days after the Closing
Date, Seller will cause to be prepared and delivered to Buyer the Closing
Balance Sheet, together with an unqualified report of KPMG Peat Marwick thereon,
and a certificate of Seller's Chief Financial Officer based on such Closing
Balance Sheet setting forth the calculation of Net Book Value. The Closing
Balance Sheet shall fairly present the consolidated financial position of
Company and the Subsidiaries as of the close of business on the Closing Date on
a basis consistent with Seller's past practices as used in the preparation of
the Balance Sheet, except that (i) inventory cost will be determined using the
first-in first-out inventory cost method, (ii) a liability for the accrued
vacation of Transferred Employees will be recorded and (iii) if the amount of
net audit adjustments is in excess of $1 million, the amount of such excess
shall be recorded as an asset or a liability, as the case may be. The cost of
such KPMG Peat Marwick review and report shall be borne by Buyer and Seller
equally. Commencing on the date three days prior to the Closing Date, the
Inventory Firms shall conduct a wall-to-wall physical count of all owned
inventory located at the stores, distribution centers and warehouses of the
Company and the Subsidiaries. Buyer, Seller and their respective accountants
shall have the opportunity to observe the physical count of the inventory. As
promptly as practicable, but in no event later than 14 days following the
Closing Date, the Inventory Firms shall deliver to Seller and Buyer their
written reports setting forth the counted value of the inventory. The inventory
reflected on the Closing Balance Sheet shall reflect the results of the physical
count of the inventory by the Inventory Firms and shall be calculated in
conformity with generally accepted accounting principles applied on a basis
consistent with Seller's past practices as used in connection with the
preparation of the Balance Sheet, except that inventory cost will be determined
using the first-in first-out inventory cost method. The cost of such Inventory
Firms physical count and reports shall be borne by Buyer and Seller equally.
<PAGE> 22
(b) Buyer shall review the Closing Balance Sheet and the calculation
of Net Book Value delivered pursuant to Section 2.3(a). In connection with
such review, Deloitte & Touche and representatives of Buyer shall have the
opportunity to review KPMG Peat Marwick's work papers. If Buyer disagrees with
the calculation of Net Book Value delivered pursuant to Section , Buyer may,
within 20 Business Days after delivery of the documents referred to in Section
, deliver a notice to Seller disagreeing with such calculation and setting
forth Buyer's calculation of Net Book Value.
(c) If a notice of disagreement shall be delivered pursuant to
Section , Buyer and Seller shall, during the 20 days following such delivery,
use their best efforts to reach agreement on the disputed items or amounts in
order to determine, as may be required, the amount of Net Book Value which
amount shall not be less than the amount thereof shown in the calculation set
forth in the notice delivered by Buyer pursuant to Section nor more than the
amount thereof shown in the calculation delivered by Seller pursuant to Section
. If, during such period, Buyer and Seller are unable to reach such agreement,
they shall promptly thereafter cause the Independent Accountants promptly to
review this Agreement and the disputed items or amounts for the purpose of
calculating Net Book Value and, in connection therewith, Buyer and Seller shall
stipulate to the Independent Accountants the items or amounts in the Closing
Balance Sheet or the calculation of Net Book Value which are in dispute. In
making such calculation, the Independent Accountants shall consider only those
items or amounts in the Closing Balance Sheet or the calculation of Net Book
Value that have been stipulated by Buyer and Seller as in dispute. The
Independent Accountants shall deliver to Buyer and Seller, as promptly as
practicable, a written report setting forth such calculation. Such report
shall be final and binding upon Buyer and Seller. The cost of such review and
report shall be borne (i) by Buyer if the difference between Final Net Book
Value and the calculation of Net Book Value delivered pursuant to Section is
greater than the difference between Final Net Book Value and the calculation of
Net Book Value delivered pursuant to Section , (ii) by Seller if the first such
difference is less than the second such difference and (iii) otherwise equally
by Buyer and Seller.
(d) Buyer will cause the Company and each Subsidiary to cooperate
with Seller and its agents in connection with the preparation of the Closing
Balance Sheet and the calculation of Net Book Value pursuant to Section 2.3(a),
including without limitation, (i) affording Seller and its agents prompt and
reasonable access during normal business hours to the properties, books and
records and employees of the Company and the Subsidiaries and (ii) permitting
Seller to have a representative present at the Company or any Subsidiary during
such time; PROVIDED that any such access or presence (x) does not unreasonably
interfere with the normal conduct of the Business and (y) is reasonably related
to the preparation of the Closing Balance Sheet and the calculation of Net Book
Value. Seller shall reimburse Buyer, the Company or any Subsidiary for the
reasonable out-of-pocket expenses incurred by such Person in connection
therewith.
2.4 ADJUSTMENT OF PURCHASE PRICE. (a) If Estimated Net Book Value
exceeds Final Net Book Value, Seller shall pay to Buyer or its designee, as an
adjustment to the Purchase Price, in the manner and with interest as provided
in Section , the amount of such excess. If Final Net Book Value exceeds
Estimated Net Book Value, Buyer shall, or shall cause its designee to, pay to
Seller, as an adjustment to the Purchase Price, in the manner and with interest
as provided in Section , the amount of such excess.
(b) Any payment pursuant to Section shall be made at a
mutually convenient time and place within five days after the Final Net Book
Value has been determined by delivery by Buyer or Seller, as the case may be,
by wire transfer of immediately available funds to an account of the other
party designated in writing by such other party. The amount of any payment to
be made pursuant to this Section shall bear interest from and including the
Closing Date to but excluding the date of payment at the
<PAGE> 23
Reference Rate. Such interest shall be payable at the same time as the
payment to which it relates and shall be calculated daily on the basis of a year
of 365 days and the actual number of days elapsed.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as of the date hereof and as
of the Closing Date that, except as disclosed in any of the Schedules hereto:
3.1 CORPORATE EXISTENCE AND POWER. Each of Seller and the Company is
a corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation, and has all corporate powers and
all material governmental licenses, authorizations, permits, consents and
approvals required to carry on its business as now conducted. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where such qualification is necessary, except for those
jurisdictions where failure to be so qualified would not, individually or in
the aggregate, have a Material Adverse Effect on the Company. Seller has
heretofore delivered to Buyer true and complete copies of the certificate of
incorporation and bylaws of Seller and the Company as currently in effect.
3.2 CORPORATE AUTHORIZATION. The execution, delivery and performance
by Seller of this Agreement are within Seller's corporate powers and have been
duly authorized by all necessary corporate action on the part of Seller. This
Agreement constitutes a valid and binding agreement of Seller enforceable in
accordance with its terms, except as (i) the enforceability hereof may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
the enforcement of creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
3.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Seller of this Agreement require no approval, consent, waiver,
authorization or other action by or in respect of, or filing, registration or
recording with, any governmental body, agency, or official, except for (i)
satisfaction of the requirements of the HSR Act, (ii) compliance with any
applicable requirements of the Exchange Act and (iii) any such approval,
consent, waiver, authorization or other action or filing, registration or
recording as to which the failure to make or obtain would not, individually or
in the aggregate, have a Material Adverse Effect on the Company.
3.4 NON-CONTRAVENTION. The execution, delivery and performance by
Seller of this Agreement do not and will not (i) violate the Charter or bylaws
of Seller, the Company or any Subsidiary, (ii) assuming compliance with the
matters referred to in Section 3.3, violate any applicable law, rule,
regulation, judgment, injunction, order or decree, (iii) require any approval,
consent, waiver, authorization or other action by, or filing, registration or
recording with, any Person under, constitute a breach or default under, or give
rise to any right of termination, cancellation or acceleration of any right or
obligation of the Company or any Subsidiary or to a modification of the terms
or conditions of any right or obligation to which the Company or any Subsidiary
is entitled under, any agreement or other instrument (other than any Facility
<PAGE> 24
Lease or Lease) binding upon the Company or any Subsidiary or any license,
franchise, permit or other similar authorization held by the Company or any
Subsidiary, or (iv) result in the creation or imposition of any Lien on, or the
forfeiture of, any asset of the Company or any Subsidiary, except, in the case
of clauses (ii), (iii), and (iv), to the extent that any such violation,
failure to obtain any such approval, consent, waiver, authorization or other
action, default, right, modification, Lien or forfeiture would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
3.5 CAPITALIZATION. (a) The authorized capital stock of the Company
consists of 100 shares of Common Stock, of which 10 shares are issued and
outstanding.
(b) The Shares have been duly authorized and validly issued and are
fully paid and non-assessable. Except as disclosed in Section 3.5(a), there
are no outstanding (i) shares of capital stock or voting securities of the
Company, (ii) securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company or (iii) options or
other rights to acquire from the Company, or other obligation of the Company to
issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company (the items in
clauses (i), (ii) and (iii) being referred to collectively as the "Company
Securities"). There are no outstanding obligations of the Company or any
Subsidiary (including but not limited to pursuant to any Charter or bylaw
provision of the Company or any Subsidiary) to issue, repurchase, redeem or
otherwise acquire, or make any payment in respect of, any Company Securities.
(c) Seller is the record and beneficial owner of the Shares,
free and clear of any Lien and any other limitation or restriction (including
any restriction on the right to vote, sell or otherwise dispose of the Shares),
and will transfer and deliver to Buyer at the Closing valid title to the Shares
free and clear of any Lien and any such limitation or restriction.
3.6 SUBSIDIARIES. (a) Each Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all corporate powers and all material
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted. Each Subsidiary is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction where such qualification is necessary except for those
jurisdictions where failure to be so qualified would not, individually or in
the aggregate, have a Material Adverse Effect on the Company. All Subsidiaries
and their respective jurisdictions of incorporation, issued and outstanding
capital stock or other voting securities or ownership interests and the owner
of such outstanding capital stock or other voting securities or ownership
interests are disclosed in Schedule . Seller has heretofore made available to
Buyer true and complete copies of the Charter and bylaws of each Subsidiary as
is currently in effect and as will be in effect immediately prior to the
Closing.
(b) All of the outstanding capital stock of, or other voting
securities or ownership interests in, each Subsidiary, is owned by the Company,
directly or indirectly, free and clear of any Lien and free of any other
limitation or restriction (including any restriction on the right to vote, sell
or otherwise dispose of such capital stock or other voting securities or
ownership interests). All of the outstanding capital stock or other voting
securities or ownership interests in each Subsidiary have been duly authorized
and validly issued and are fully paid and non-assessable. There are no
outstanding (i) securities of any Subsidiary convertible into or exchangeable
for shares of capital stock or other voting securities or ownership interests
in any Subsidiary or (ii) options or other rights to acquire from the Company
or any Subsidiary, or other obligation of the Company or any Subsidiary to
issue, any capital stock or other voting securities or ownership interests in,
or any securities convertible into or exchangeable for any capital stock or
other
<PAGE> 25
voting securities or ownership interests in, any Subsidiary (the items in
clauses (i) and (ii) being referred to collectively as the "Subsidiary
Securities"). There are no outstanding obligations of the Company or any
Subsidiary (including but not limited to pursuant to any Charter or bylaw
provision of the Company or any Subsidiary) to issue, repurchase, redeem or
otherwise acquire, or make any payment in respect of, any outstanding
Subsidiary Securities.
3.7 FINANCIAL STATEMENTS. The consolidated balance sheets of the
Company, the Subsidiaries and the Excluded Subsidiaries as of December 31, 1993,
December 31, 1994 and December 31, 1995 and the related consolidated statements
of income and cash flows for each of the years ended December 31, 1993, December
31, 1994 and December 31, 1995, previously delivered to Buyer, present fairly,
in all material respects, the consolidated financial position of the Company,
the Subsidiaries and the Excluded Subsidiaries as of the dates thereof and their
consolidated results of operations for the periods then ended in conformity with
generally accepted accounting principles applied on a consistent basis
consistent with Seller's past practices. Notwithstanding the foregoing, such
consolidated balance sheets do not reflect an accrual for straight-line rent.
3.8 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule 3.8,
5.1 or 5.6 or as contemplated by this Agreement (including but not limited to
the provisions of Sections 5.1, 5.5, 5.6, 7.4, 7.5, 7.8 and 7.9), since the
Balance Sheet Date, the Business has been conducted in the ordinary course
consistent with past practices and there has not been:
(a) any event, occurrence, development or state of circumstances or
facts which has had or would reasonably be expected to have a Material
Adverse Effect on the Company, other than any resulting from or
attributable to (i) the transactions contemplated by this Agreement and
(ii) changes in general economic conditions that have not had a
materially more adverse effect on the Company and the Subsidiaries, taken
as a whole, than on similar retail businesses;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to the Shares, or any repurchase, redemption or
other acquisition by the Company or any Subsidiary of any outstanding
shares of capital stock or other securities of, or other ownership
interests in, the Company or any Subsidiary, other than any distribution
in the ordinary course consistent with past practice or in connection
with the repayment or cancellation of any intercompany debt, advance or
other balance;
(c) any amendment of any material term of any outstanding security of
the Company or any Subsidiary;
(d) any incurrence, assumption or guarantee by the Company or any
Subsidiary of any indebtedness for borrowed money, other than (i) any
such indebtedness between the Company and any Subsidiary or between
Subsidiaries and (ii) intercompany indebtedness between Seller and its
Affiliates, on the one hand, and the Company and the Subsidiaries, on
the other hand;
(e) any creation or assumption by the Company or any Subsidiary of
any Lien on any asset, other than in the ordinary course of business
consistent with past practices;
<PAGE> 26
(f) any making of any loan, advance or capital contributions to or
investment in any Person, other than (i) loans, advances or capital
contributions to or investments between the Company and any Subsidiary or
between Subsidiaries and (ii) intercompany indebtedness between Seller
and its Affiliates, on the one hand, and the Company and the
Subsidiaries, on the other hand;
(g) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the Business or assets of the
Company or any Subsidiary which, individually or in the aggregate, has
had or would have a Material Adverse Effect on the Company;
(h) any transaction or commitment made, or any contract or agreement
entered into, by the Company or any Subsidiary relating to its assets or
the Business (including the acquisition, disposition or lease of any
assets) or any relinquishment by the Company or any Subsidiary of any
contract or other right, in either case, material to the Company and the
Subsidiaries, taken as a whole, other than (i) transactions and
commitments in the ordinary course of business consistent with past
practices and (ii) those contemplated by this Agreement;
(i) any change in any method of accounting or accounting practice by
the Company or any Subsidiary, except for any change required by reason
of a concurrent change in generally accepted accounting principles;
(j) any (i) employment, deferred compensation, severance, retirement or
other similar agreement entered into with any director, officer or
employee of the Company or any Subsidiary (or any amendment to any such
existing agreement), (ii) grant of any severance or termination pay to
any director, officer, employee, consultant or agent of the Company or
any Subsidiary, or (iii) increase in compensation or other benefits paid
or payable to any director, officer, employee, consultant or agent
of the Company or any Subsidiary, except in each case in the ordinary
course of business consistent with past practice and which have not had
and would not have a Material Adverse Effect on the Company;
(k) any labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to
organize any employees of the Company or any Subsidiary, which employees
were not subject to a collective bargaining agreement at the Balance
Sheet Date, or any lockouts, strikes, slowdowns, work stoppages or
threats thereof by or with respect to any employees of the Company or any
Subsidiary;
(l) any material capital expenditures, other than expenditures for
repair and maintenance of Stores or the distribution centers and
warehouses of the Company and the Subsidiaries in the ordinary
course of business;
(m) any sale, transfer, license or other disposition of any Company
Intellectual Property Rights, other than in the ordinary course of
business;
(n) any canceled or compromised debt or claim, other than (i) between
the Company and any Subsidiary or between Subsidiaries and (ii) between
the Seller and its Affiliates, on the one hand, and the Company and the
Subsidiaries, on the other hand;
<PAGE> 27
(o) any settlement of, or agreement to settle, any material claim,
action, cause of action, suit, arbitration, proceeding or investigation,
other than in connection with a Closed Store Lease; or
(p) any acquisition of capital stock of any Person or any assets
material in amount and constituting a business, or any merger,
consolidation or other business combination affecting the Company and the
Subsidiaries or the entering into of an agreement for such an
acquisition, merger, consolidation or other business combination.
3.9 NO UNDISCLOSED MATERIAL LIABILITIES. There are no liabilities
of the Company or any Subsidiary of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, other than:
(i) liabilities provided for in the Balance Sheet or disclosed in the
notes thereto;
(ii) liabilities incurred in the ordinary course of business
consistent with past practice since the Balance Sheet Date;
(iii) liabilities disclosed in Schedule 3.9; and
(iv) other undisclosed liabilities which, individually or in the
aggregate, are not material to the Company and the Subsidiaries,
taken as a whole.
3.10 LABOR MATTERS. (a) The Company and the Subsidiaries have
complied and are complying with all federal, state and local laws, rules,
regulations and policies of a material nature respecting employment and
employment practices (including but not limited to compensation for or
termination of employment) and have not and are not engaged in any unfair labor
practice or unlawful discriminatory act or any other act which violates in any
material respect any of such laws, rules, regulations or policies. Except as
disclosed in Schedules 3.10 and 3.12, there is no pending or, to the knowledge
of the Seller, threatened charge or complaint by or against the Company or any
Subsidiary before the Equal Employment Opportunity Commission, any other
federal governmental authority relating to labor or employee matters or any
similar state or local governmental authority, or any other charge or complaint
pending between the Company or any Subsidiary, on the one hand, and any of
their respective employees, on the other hand, except for charges and
complaints with individual employees arising in the ordinary course of business
that have not had and would not have a Material Adverse Effect on the Company.
Neither the Company nor any Subsidiary is a party to, or subject to, any
collective bargaining or other similar agreement with any labor union or other
similar association representing employees of the Company and the Subsidiaries,
nor is any collective bargaining agreement currently being negotiated by
Seller, the Company or any Subsidiary with respect to any employees of the
Company or any Subsidiary, nor has any labor union within the last 12 months
invoked the process of the National Labor Relations Board, or any similar state
or local agency, seeking to represent any of the Company's or any Subsidiary's
employees or demand recognition as the collective bargaining representative of
any such employees, and, to the knowledge of Seller, no movement to designate a
collective bargaining agent to represent any such employees, is being conducted
or is threatened. No employee of Seller or any of its Affiliates devotes his
or her business time primarily to the affairs of the Company or any Subsidiary.
<PAGE> 28
(b) Except as disclosed in Schedule 3.10, the employment by the
Company or any Subsidiary of any individual (whether or not a party to a
written employment agreement) is at-will and may be terminated for any reason
whatsoever not inconsistent with applicable law without penalty or liability of
any kind other than expenses or liabilities payable or reimbursable to such
individuals (including but not limited to accrued vacation pay and severance
payable pursuant to a Company severance policy) in the ordinary course of
business consistent with Seller's past practices.
(c) Neither the Company nor any Subsidiary maintains, participates in
or is otherwise subject to any grievance procedure or other dispute resolution
mechanism under which it is obligated to adjust or resolve employee grievances
or complaints in a manner other than through the exercise of the Company's or
any Subsidiary's own discretion.
3.11 MATERIAL CONTRACTS. (a) Except as disclosed in Schedule ,
neither the Company nor any Subsidiary is a party to or bound by:
(i) any lease or sublease (other than the Closed Store Leases, the
Facility Leases and the Leases) for real or personal property held or
used by the Company or any Subsidiary having an annual cost or
capitalized lease obligation of $200,000 or more;
(ii) any agreement for the purchase or other acquisition of goods,
services, equipment, property or other assets that provides for annual
payments by the Company and the Subsidiaries of $200,000 or more, other
than purchase orders for inventory and other arrangements with suppliers
entered into in the ordinary course of business;
(iii) any sales, distribution or other similar agreement (including but
not limited to any option) providing for the sale by the Company or any
Subsidiary of materials, supplies, goods, services, equipment or
other assets that provides for annual payments to the Company and the
Subsidiaries of $200,000 or more, other than sales, distribution or other
similar agreements entered into in the ordinary course of business;
(iv) any partnership, joint venture or other similar agreement or
arrangement;
(v) any agreement relating to indebtedness for borrowed money or the
deferred purchase price of property other than inventory (in either case,
whether incurred, assumed, guaranteed or secured by any asset), other
than (A) any such agreement between the Company and any Subsidiary or
between Subsidiaries and (B) any such agreement between Seller and its
Affiliates, on the one hand, and the Company and the Subsidiaries, on the
other hand;
(vi) any license, franchise or similar agreement;
(vii) any agency, dealer, sales representative, marketing or other
similar agreement that provides for annual payments by the Company or
any Subsidiary of $200,000 or more;
(viii) any agreement (other than the Closed Store Leases, the Facility
Leases and the Leases) that limits the freedom of the Company or any
Subsidiary to compete in any line of
<PAGE> 29
business or with any Person or in any area or which would so limit
the freedom of the Company or any Subsidiary after the Closing Date;
(ix) any agreement with (A) Seller or any of its Affiliates, (B) any
Person directly or indirectly owning, controlling or holding with power
to vote, 5% or more of the outstanding voting securities of Seller or any
of its Affiliates, (C) any Person 5% or more of whose outstanding voting
securities are directly or indirectly owned, controlled or held with
power to vote by Seller or any of its Affiliates or (D) any
director or officer of Seller or any of its Affiliates or any
"associates" or members of the "immediate family" (as such terms are
respectively defined in Rule 12b-2 and Rule 16a-1 of the 1934 Act) of
any such director or officer;
(x) any agreement with any director or officer of the Company or any
Subsidiary or with any "associate" or any member of the "immediate
family" (as such terms are respectively defined in Rules 12b-2 and 16a-1
of the 1934 Act) of any such director or officer;
(xi) any employment or material consulting agreement and all other plans,
agreements, arrangements or practices which provide compensation or
benefits to any of the directors, officers or employees of the Company or
any Subsidiary, other than any Employee Plan or Benefit Arrangement; or
(xii) any other agreement, commitment, arrangement or plan not made in
the ordinary course of business that is material to the Company and
the Subsidiaries, taken as a whole.
(b) Each agreement, commitment, arrangement, lease (other than the
Closed Store Leases, the Facility Leases and the Leases) or plan disclosed in
Schedule is a valid and binding agreement of Seller, the Company or a
Subsidiary, as the case may be, and is in full force and effect, and neither
Seller, the Company nor any Subsidiary is nor, to the knowledge of Seller, is
any other party thereto in default or breach in any material respect under the
terms of any such agreement, contract, plan, lease, arrangement or commitment.
To the knowledge of Seller, no event has occurred or circumstance exists which
with notice or lapse of time would constitute such a material default or breach,
or permit termination, modification or acceleration by the Company, any
Subsidiary or any other Person or would result in a loss of rights or the
creation of any Lien under any such agreement, commitment, arrangement, lease or
plan. Seller has heretofore delivered to Buyer true and complete copies of each
of the agreements, commitments, arrangements, leases and plans disclosed in
Schedule 3.11.
3.12 LITIGATION. Except as disclosed in Schedule 3.12, as of the
date hereof, there is no action, suit, investigation or proceeding pending
against, or to the knowledge of Seller threatened against or affecting, the
Company or any Subsidiary or any of their respective properties before any
court or arbitrator or any governmental body, agency or official.
3.13 COMPLIANCE WITH LAWS AND COURT ORDERS. Neither the Company nor
any Subsidiary is in violation of, or has since January 1, 1995 violated, any
applicable law, rule, regulation, judgement, injunction, order or decree,
except for such violations as have not had and will not have individually or
in the aggregate a Material Adverse Effect on the Company.
<PAGE> 30
3.14 LEASES. (a) Except as disclosed in Schedule 3.14, Seller has
given Buyer a true and complete copy of each Facility Lease and Lease (other
than month-to-month tenancy arrangements), together with all amendments and
modifications thereto, all of which Leases (including any month-to-month tenancy
arrangements) are listed on Schedule 3.14. Except as disclosed in Schedule
3.14, all of the Stores operated in the Business (other than Stores operated
pursuant to month-to-month tenancy arrangements) are leased by the Company or a
Subsidiary as lessee or sublessee and each Facility Lease and Lease (other than
a month-to-month tenancy arrangement) is a valid and binding agreement of the
Company or a Subsidiary, as the case may be, and is in full force and effect.
The Company and the Subsidiaries are not (and, to the knowledge of Seller, no
other party is) in breach or default in any material respect under any Facility
Lease or Lease, and no event has occurred which constitutes or, with the lapse
of time or the giving of notice or both, would constitute such a material breach
or default by the Company or any Subsidiary thereunder, other than any breach or
default resulting from the transactions contemplated by this Agreement.
(b) As of the Closing Date, except as disclosed in Schedule 3.14, the
Company and the Subsidiaries shall have paid to Landlord under each Facility
Lease and Lease (other than a Terminated Lease) all monies then due and owing
pursuant to the provisions of such Facility Lease or Lease and shall have
fulfilled all material obligations required to be performed by the Company or
any Subsidiary under such Facility Lease or Lease, except for obligations
arising out of or resulting from the transactions contemplated by this
Agreement.
(c) Except as otherwise provided in any Facility Lease or Lease,
neither the Company nor any Subsidiary is (i) subject to any continuous
operating covenants or radius restrictions and (ii) obligated to remodel any of
the premises subject to a Facility Lease or a Lease during the term of such
Facility Lease or Lease.
3.15 PROPERTIES. (a) The Company and the Subsidiaries have good and
marketable title to, or in the case of leased property have valid leasehold
interests in, all property, rights and assets (whether real or personal,
tangible or intangible) reflected on the Balance Sheet or acquired after the
Balance Sheet Date. None of such property or assets is subject to any Liens,
except:
(i) Liens disclosed on the Balance Sheet;
(ii) Liens disclosed in Schedule 3.15;
(iii) Liens for taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on
the Balance Sheet); or
(iv) Liens which do not materially detract from the value or
materially interfere with any present or intended use of such
property, rights or assets.
(b) There are no developments affecting any such property or assets
(whether real or personal) pending or, to the knowledge of Seller threatened,
which might materially detract from the value of such property, rights or assets
or materially interfere with any present or intended use of any such property,
rights or assets, other than any such developments affecting leased property,
rights or assets resulting from the transactions contemplated by this Agreement.
<PAGE> 31
3.16 ERISA REPRESENTATIONS. (a) Schedule identifies each Employee
Plan. Seller has furnished or made available to Buyer copies of the Employee
Plans (and, if applicable, related trust agreements) together with related
summary plan descriptions and the most recent annual report prepared in
connection with any Employee Plan (Form 5500).
(b) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service that covers the applicable provisions of the Code
added by the Tax Reform Act of 1986 and other subsequent legislation covered by
applicable Internal Revenue Service procedures relating to such Employee Plans.
Each Employee Plan has been maintained in substantial compliance with its terms
and with the requirements prescribed by any and all applicable statutes,
orders, rules and regulations, including but not limited to ERISA and the Code.
No Employee Plan is a Title IV Plan or a Multiemployer Plan.
(c) Schedule 3.16 identifies each Benefit Arrangement. Seller has
furnished or made available to Buyer copies or descriptions of each Benefit
Arrangement. Each Benefit Arrangement has been maintained in substantial
compliance with its terms and with the requirements prescribed by any and all
applicable statutes, orders, rules and regulations.
3.17 ENVIRONMENTAL MATTERS. Except as disclosed in Schedule ,
(i) no notice, demand, request for information or complaint has been
received by Seller, the Company or any Subsidiary and no penalty has
been assessed against the Company or any Subsidiary with respect to any
(A) alleged material violation by the Company or any Subsidiary of
any Environmental Law, (B) alleged material failure by the Company or
any Subsidiary to have any permit, certificate, license, approval,
registration or authorization required under any Environmental Law in
connection with the conduct of the Business or (C) alleged material
liability of the Company or any Subsidiary as a potentially responsible
party in connection with any site listed on the National Priorities
List;
(ii) the Company has not created any condition that requires
remediation under Environmental Laws except for any such condition that
would not reasonably be expected to result, individually or in
the aggregate, in a Material Adverse Effect on the Company;
(iii) the Company and the Subsidiaries are in compliance with all
applicable Environmental Laws, except for such noncompliance which
would not, individually or in the aggregate, have a Material Adverse
Effect on the Company;
(iv) the Company and the Subsidiaries have obtained all environmental,
health and safety permits, licenses or approvals necessary for the
operation of the Business, and all such permits, licenses or
approvals are in good standing, and the Company and each Subsidiary is
in compliance with all terms and conditions of such permits, licenses
or approvals, except where the failure to obtain such permits, licenses
or approvals, the failure of such permits, licenses or approvals to be
in good standing or the failure to comply with such
<PAGE> 32
terms and conditions would not, individually or in the aggregate,
have a Material Adverse Effect on the Company; and
(v) none of the Company or the Subsidiaries or any of their respective
currently owned or leased properties is subject to any on-going
investigation, order, judicial or administrative proceeding, judgment,
decree or settlement relating to (A) any Environmental Law
(including, any liability thereunder), (B) any remediation activity or
(C) any Release of Hazardous Substances, which would reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect on the Company.
3.18 INTELLECTUAL PROPERTY. (a) Schedule contains a list of all
material Intellectual Property Rights owned or licensed by the Company or any
Subsidiary ("Company Intellectual Property Rights"), specifying as to each, as
applicable: (i) the nature of such Intellectual Property Right; (ii) the owner
of such Intellectual Property Right; (iii) the jurisdictions by or in which
such Intellectual Property Right has been issued or registered, including the
respective registration numbers and registration dates, as well as the dates of
any renewals filed in connection therewith; (iv) the jurisdictions in which an
application for such issuance or registration has been filed with respect to
such Intellectual Property Right, including the respective application numbers
and filing dates; and (v) all licenses, sublicenses, consents and other
agreements as to which the Company or any Subsidiary is a party, and pursuant
to which any Person is authorized to use such Intellectual Property Right or
which otherwise relates to any such Intellectual Property Rights, including the
identity of all parties thereto, a description of the nature and subject matter
thereof, the applicable royalty and any advances, the term thereof and the
territory covered thereby. Copies of all such licenses heretofore have been
delivered to the Purchaser.
(b) Except as disclosed in Schedule 3.18, all Company Intellectual
Property Rights are owned solely by the Company or a Subsidiary or licensed to
the Company or a Subsidiary under an exclusive perpetual license not requiring
payment of any royalty or fee (other than in the case of licenses of software
in the ordinary course of business and other than intercompany royalty fees).
Except as disclosed in Schedule 3.18, there is no material license or other
contractual obligation under which the Company or any Subsidiary is liable as
licensor with respect to any Company Intellectual Property Rights and neither
the Company nor any Subsidiary has granted any material license to any third
party with respect to any Company Intellectual Property Rights. Except as
disclosed in Schedule 3.18 and to the Seller's knowledge, the use or sale by
the Company and the Subsidiaries of any products or services in the Business
and use by the Company and the Subsidiaries of the Company Intellectual
Property Rights does not infringe and has not infringed any rights of any third
party, and no activity of any third party infringes upon the rights of the
Company or any Subsidiary with respect to any of the Company Intellectual
Property Rights. Except as disclosed in Schedule 3.18, no action alleging or
relating to any such infringement against the rights of the Company or any
Subsidiary or any third parties is currently pending or, to the knowledge of
Seller, threatened.
(c) (i) Each of the registrations obtained in connection with such
Intellectual Property Rights as disclosed in Schedule 3.18 has been validly
issued and remains in force; (ii) all filings required to have been made in
order to maintain such registrations have been duly and timely made; and (iii)
all fees required to have been paid in order to maintain such registrations
have been duly and timely paid.
(d) (i) Except as disclosed in Schedule 3.18, since January 1, 1995,
neither the Company nor
<PAGE> 33
any Subsidiary has been a defendant in any unsettled action, suit, investigation
or proceeding relating to, or otherwise has been notified of, any alleged
claim of infringement of any other Person's Intellectual Property Rights by the
Company or any Subsidiary, whether or not such claim of infringement involves
the Company Intellectual Property Rights; and (ii) except as disclosed in
Schedule 3.18, to the knowledge of Seller, neither the Company nor any
Subsidiary has engaged in any activity which would amount to or give rise to any
claim of an infringement of any other Person's Intellectual Property Rights.
(e) (i) Except as disclosed in Schedule 3.18, since January 1, 1995,
neither the Company or any Subsidiary has been a plaintiff in any unsettled
action, suit, investigation or proceeding relating to any of the Company
Intellectual Property Rights; and (ii) except as disclosed in Schedule 3.18,
Seller has no knowledge of any continuing infringement or other unlawful use of
any of the Company Intellectual Property Rights by any other Person.
(f) Except as disclosed in Schedule 3.18 or the agreements referred
to therein, no Company Intellectual Property Right is subject to any
outstanding judgment, injunction, order, decree or agreement restricting the
use thereof by the Company or any Subsidiary or restricting the licensing or
sale thereof by the Company or any Subsidiary to any Person.
(g) Neither the Company nor any Subsidiary has entered into any
agreement to indemnify any third party against any charge of infringement of
any Intellectual Property Right, other than as may be provided in the
agreements disclosed in Schedule 3.18.
3.19 INSURANCE COVERAGE. All material properties of the Company and
the Subsidiaries are covered by valid and currently effective insurance policies
issued in favor of the Company and the Subsidiaries or are self-insured in
amounts that are consistent with Seller's customary business practices. All
insurance coverages required under the Leases and Facility Leases are in force
under valid and currently effective insurance policies. Schedule 3.19 contains a
summary of all policies or binders of insurance by which the Company or any
Subsidiary (or any risk of the Business) is insured (the "Insurance Policies")
together with (i) the name of the insurer and the names of the principal insured
and each named insured and (ii) the policy number and period of coverage, the
type, scope (including an indication of whether the coverage is on a claims
made, occurrence or other basis) and amounts (including a description of how
deductibles, retentions, aggregates and retroactive premium adjustments or other
loss-sharing arrangements are calculated and operate) of coverage. Seller has
given Buyer access to true and complete copies of all Insurance Policies and
fidelity bonds relating to the assets, Business, operations, employees, officers
or directors of the Company and the Subsidiaries. Except as disclosed in
Schedule 3.8, there is no claim by or on behalf of the Company or any Subsidiary
pending under any of such Insurance Policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such Insurance
Policies or bonds or in respect of which such underwriters have reserved their
rights. All premiums payable under all such Insurance Policies and bonds have
been paid timely and Seller, the Company and the Subsidiaries have otherwise
complied in all material respects with the terms and conditions of all such
Insurance Policies and bonds. The insurance currently maintained by Seller on
behalf of the Company and the Subsidiaries provides coverage in kind and amount
reasonably necessary to protect against the risks inherent or associated with
the Business.
<PAGE> 34
3.20 LICENSES AND PERMITS. Schedule contains a list of each
material license, franchise, permit or other similar authorization affecting,
or relating in any way to, the assets or Business (the "Permits") together with
the name of the government agency or entity issuing such Permit. The Company
and the Subsidiaries have been duly granted and continue to hold, and as of the
Closing Date will hold, all Permits necessary for the conduct of the Business,
except for such Permits the failure to hold would not have a Material Adverse
Effect on the Company. Except as disclosed in Schedule , such Permits are
valid and in full force and effect and none of the Permits will be terminated
or impaired or become terminable, in whole or in part, as a result of the
transactions contemplated hereby except as would not reasonably be expected to
have a Material Adverse Effect on the Company. Neither Seller, the Company nor
any Subsidiary has received written notice that any governmental authority or
agency will revoke, cancel, rescind, materially modify or refuse to renew in
the ordinary course of business any of the Permits, except for those Permits
the revocation, rescission, modification or refusal to renew would not
reasonably be expected to, individually or in the aggregate, have a Material
Adverse Effect on the Company.
3.21 FIXED ASSETS. All of the Stores are equipped and complete with
all fixtures, leasehold improvements, furnishings, machinery, equipment, signs
and other tangible personal property reasonably necessary for the operation of
the Stores in accordance with the Company's customary business practices. Such
assets are in normal working condition consistent with their age and useful
lives and shall be in the same condition on the Closing Date, subject to
ordinary wear and tear and damage due to fire or other casualty.
3.22 FINDERS' FEES. Except for Financo, Inc. and Morgan Stanley &
Co. Incorporated whose fees will be paid by Seller, there is no investment
banker, broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of Seller, the Company, any Subsidiary or any
Seller Subsidiary who might be entitled to any fee or commission in connection
with the transactions contemplated by this Agreement.
<PAGE> 35
3.23 ACCOUNTS. Schedule 3.23 contains a list of each bank or similar
account for the deposit of cash or securities maintained by or on behalf of the
Company or any Subsidiary and the name of the bank or other financial
institution, the account name and number, and the individuals with signing
authority for such account.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the date hereof and as
of the Closing Date that, except as disclosed in any of the Schedules hereto:
4.1 CORPORATE EXISTENCE AND POWER. Each of Buyer and CSC Ohio is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all corporate powers and all
material governmental licenses, authorizations, permits, consents and approvals
required to carry on its business as now conducted.
4.2 CORPORATE AUTHORIZATION. The execution, delivery and performance
by Buyer of this Agreement are within the corporate powers of Buyer and have
been duly authorized by all necessary corporate action on the part of Buyer.
This Agreement constitutes a valid and binding agreement of Buyer enforceable
in accordance with its terms, except as (i) the enforceability hereof may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
the enforcement of creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability. The execution, delivery and performance by CSC Ohio of the Note
are within the corporate powers of CSC Ohio and have been duly authorized by
all necessary corporate action on the part of CSC Ohio. The Note, when issued
and delivered at the Closing in accordance with the terms hereof, will
constitute a valid and binding obligation of CSC Ohio enforceable in accordance
with its terms, except as (i) the enforceability hereof may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
4.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Buyer of this Agreement and the execution, delivery and
performance by CSC Ohio require no approval, consent, waiver, authorization or
other action by or in respect of, or filing, registration or recording with,
any governmental body, agency or official except for (i) satisfaction of the
requirements of the HSR Act, (ii) compliance with any applicable requirements
of the Exchange Act and (iii) any such approval, consent, waiver, authorization
or other action or filing, registration or recording as to which the failure to
make or obtain would not, individually or in the aggregate, have a Material
Adverse Effect on Buyer or CSC Ohio, as the case may be.
4.4 NON-CONTRAVENTION. The execution, delivery and performance by
Buyer of this Agreement and the execution, delivery and performance by CSC Ohio
of the Note do not and will not (i) violate the Charter or bylaws of Buyer or
CSC Ohio, (ii) assuming compliance with the matters referred to in Section
<PAGE> 36
4.3, violate any applicable law, rule, regulation, judgment, injunction, order
or decree, or (iii) require any approval, consent, waiver, authorization or
other action by, or filing, registration or recording with, any Person under,
constitute a breach or default under, or give rise to any right or obligation of
Buyer or to a modification of the terms or conditions of any right or obligation
to which Buyer or CSC Ohio is entitled under, any agreement or other
instrument binding upon Buyer or CSC Ohio, except to the extent that any such
approval, consent, waiver, authorization or other action, default, right or
modification would not individually or in the aggregate, have a Material Adverse
Effect on Buyer or CSC Ohio, as the case may be.
4.5 FINANCING. Buyer has received and delivered to Seller a letter
from (i) PNC Bank, Ohio, National Association, (ii) National City Bank, (iii)
National City Bank, Columbus and (iv) Bank One Columbus, N.A. dated as of the
date hereof (the "Commitment Letter"), with respect to debt financing (the
"Financing") in an amount sufficient to enable Buyer or its designee to
purchase the Shares and make any other payments to be made by Buyer or its
designee under this Agreement. Buyer has also received and delivered to Seller
a letter from Merrill Lynch Capital Corporation dated as of the date hereof
(the "Bridge Commitment Letter"), with respect to bridge financing (the "Bridge
Financing"). The terms and conditions of the Commitment Letter and the Bridge
Commitment Letter have not been altered or amended in a manner that would have
an adverse effect on Buyer's ability to perform its obligations under this
Agreement and the Commitment Letter and the Bridge Commitment Letter remain in
full force and effect (unless superseded by definitive documentation that would
not have an adverse effect upon Buyer's ability to perform its obligations
under this Agreement). As of the date hereof, Buyer knows of no facts or
circumstances that are reasonably likely to result in any of the conditions set
forth in the Commitment Letter or the Bridge Commitment Letter not being
satisfied.
4.6 PURCHASE FOR INVESTMENT. Buyer is purchasing the Shares for
investment for its own account and not with a view to, or for sale in
connection with, any distribution thereof. Buyer (either alone or together
with its advisors) has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in the Shares and is capable of bearing the economic risks of such
investment.
4.7 LITIGATION. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of Buyer threatened against or
affecting, Buyer or any of Buyer's Subsidiaries before any court or arbitrator
or any governmental body, agency or official (i) in which there is a reasonable
possibility of an adverse decision which would have a Material Adverse Effect
on Buyer or (ii) which in any manner challenges or seeks to prevent, enjoin,
alter or materially delay the transactions contemplated by this Agreement and
which has a substantial likelihood of success on the merits.
4.8 FINDERS' FEES. There is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of Buyer or any Buyer Subsidiary who might be entitled to any fee or commission
from Seller or any of its Affiliates upon consummation of the transactions
contemplated by this Agreement.
4.9 NET WORTH. As of February 3, 1996, the consolidated net worth of
Buyer and its Subsidiaries was $389,564,000.
<PAGE> 37
ARTICLE 5
COVENANTS OF SELLER
Seller agrees as follows:
5.1 CONDUCT OF THE COMPANY. Except as otherwise contemplated by this
Agreement or disclosed in Schedule 5.1, from the date hereof until the Closing
Date, Seller will cause the Company and the Subsidiaries to conduct the
Business in the ordinary course consistent with past practice and to use their
reasonable best efforts to preserve intact their business organizations and
relationships with third parties and to keep available the services of their
present officers and employees. Without limiting the generality of the
foregoing, except as otherwise contemplated by this Agreement, from the date
hereof until the Closing Date, without the prior written consent of Buyer,
Seller will not permit the Company or any Subsidiary to:
(i) adopt or propose any change to its Charter or bylaws;
(ii) merge or consolidate with any other Person or acquire a material
amount of assets of any other Person;
(iii) sell, lease, license or otherwise dispose of any material assets
or property except (A) pursuant to existing contracts or
commitments and (B) in the ordinary course consistent with past
practice;
(iv) fail to maintain the Company's and the Subsidiaries' books and
records in the ordinary course of business;
(v) fail to maintain in good repair, subject to ordinary wear and tear,
the premises, fixtures, machinery, furniture and equipment of the
Company and the Subsidiaries in a manner consistent with Seller's past
practices;
(vi) hire any new employee of the Company or any Subsidiary for an
annual salary in excess of $50,000;
(vii) except as provided by Sections 5.6 and 7.4, enter into, amend in
any material respect, extend or terminate any Facility Lease or Lease or
permit any renewal notice period or option to lapse with respect to
any Facility Lease or Lease;
(viii) purchase or otherwise acquire any real property;
(ix) make any significant decisions regarding merchandise markdowns or
promotional activities, or any purchases of inventory in excess of $15
million (whether in one purchase transaction or a series of purchase
transactions of the same or a similar type of inventory);
<PAGE> 38
(x) make any material capital expenditures, other than expenditures for
repair and maintenance of Stores or the distribution centers and
warehouses of the Company and the Subsidiaries in the ordinary course of
business;
(xi) enter into any agreement with a vendor providing for
payments to the Company or any Subsidiary in return for an exclusive
arrangement with such vendor; or
(xii) agree or commit to do any of the foregoing.
Seller will not, and will not permit the Company and its Subsidiaries
to, (A) take or agree or commit to take any action that would make any
representation and warranty of Seller hereunder inaccurate in any respect at, or
as of any time prior to, the Closing Date or (B) omit or agree or commit to omit
to take any action necessary to prevent any such representation or warranty from
being inaccurate in any respect at any such time.
5.2 ACCESS TO INFORMATION. From the date hereof until the Closing
Date, Seller (i) will give, and will cause the Company and each Subsidiary to
give, Buyer, its counsel, financial advisors, auditors, prospective lenders and
other authorized representatives reasonable access during normal business hours
to the offices, properties, books and records of the Company and the
Subsidiaries and to the books and records of Seller relating to the Company and
the Subsidiaries, (ii) will furnish, and will cause the Company and each
Subsidiary to furnish, to Buyer, its counsel, financial advisors, auditors,
prospective lenders and other authorized representatives such financial and
operating data and other information relating to the Company or any Subsidiary
as such Persons may reasonably request, including but not limited to (A) daily
and weekly sales reports of the Company and the Subsidiaries currently prepared
in the ordinary course of business, (B) unaudited monthly consolidated
statements of income of the Company and the Subsidiaries prepared in conformity
with Seller's past practices for internal use and (C) unaudited quarterly
consolidated balance sheets and statements of income of the Company and the
Subsidiaries prepared in conformity with Seller's past practices, and (iii)
will instruct the employees, counsel and financial advisors of Seller, the
Company and the Subsidiaries to cooperate with Buyer in its investigation of
the Company and the Subsidiaries. Notwithstanding the foregoing, Buyer shall
not have access to personnel records of the Company or any Subsidiary relating
to individual performance or evaluation records, medical histories or other
information which in Seller's good faith opinion is sensitive or the disclosure
of which could subject Seller to risk of liability.
5.3 NOTICES OF CERTAIN EVENTS. Seller shall promptly notify Buyer in
writing of:
(i) any notice or other communication received from any Person alleging
that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any notice or other communication received from any governmental
or regulatory agency or authority in connection with the
transactions contemplated by this Agreement;
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or
involving or otherwise affecting the Company or any Subsidiary that, if
pending on the date of this Agreement, would have been required to have
been disclosed pursuant to Section or that relate to the consummation
of the transactions contemplated by this Agreement; and
<PAGE> 39
(iv) any development which would have a Material Adverse Effect on the
Company and any breach of any representation or warranty of
Seller contained in this Agreement; PROVIDED that no such disclosure
shall be deemed to amend any Schedule or cure any such breach or
provide an exception to any such representation or warranty.
5.4 RESIGNATIONS. Seller will deliver to Buyer the resignations of
all officers and directors of the Company and each Subsidiary who will be
officers, directors or employees of Seller or any of its Affiliates after the
Closing Date from their positions with the Company or any Subsidiary at or
prior to the Closing Date.
5.5 INTERCOMPANY ACCOUNTS AND AGREEMENTS. As of the Closing, no
intercompany accounts reflecting intercompany transactions between Seller and
its Affiliates, on the one hand, and the Company and the Subsidiaries, on the
other hand, will be outstanding and any agreements relating to such
intercompany accounts shall have been terminated.
5.6 STORE OPENINGS, REMODELINGS AND RELOCATIONS. To the extent
reasonably in the control of Seller, the Company or any Subsidiary, Seller
shall cause the Company and the Subsidiaries to proceed with the plans and
preparations for new stores and the remodeling or relocation of certain
existing Stores during calendar year 1996, in the locations and in conformity
with the schedule of openings, remodelings and relocations and the budgets
related thereto disclosed in Schedule 5.6. The terms and conditions of leases,
agreements for the construction, build-out, remodeling or relocation shall, to
the extent not otherwise agreed to as of the date hereof, be subject to the
consent of Buyer, which consent shall not be unreasonably conditioned, delayed
or withheld.
5.7 OTHER OFFERS. From the date hereof until the Closing Date or
termination hereof, Seller will not, and will cause the Company and the
Subsidiaries and their respective directors, officers, employees and
representatives not to, directly or indirectly, take any action to solicit,
initiate or encourage any Acquisition Proposal or in any manner discuss,
consider or accept any Acquisition Proposal. For purposes of this Agreement,
"Acquisition Proposal" means any offer or proposal for, or any indication of
interest in, a business combination involving the Company and the Subsidiaries
or the acquisition of any equity interest in, or a material portion of the
assets of, the Company or any Subsidiary, other than the transactions
contemplated by this Agreement. Seller shall promptly notify Buyer of any
Acquisition Proposal, which notice shall include the identity of all relevant
parties thereto and the terms and conditions of such Acquisition Proposal, or
any change in the terms and conditions of any such Acquisition Proposal, unless
Seller is otherwise prohibited from disclosing the identity of such parties or
the terms and conditions of such Acquisition Proposal pursuant to an existing
contractual arrangement.
5.8 RISK OF LOSS. The risk of loss of the assets of the Company and
the Subsidiaries shall remain with Seller until the Closing Date. If any Store
or any Distribution Center, as the case may be, is damaged by fire or other
casualty prior to the Closing Date, Seller shall assign to Buyer (i) all
insurance proceeds for such Store or such Distribution Center which relate to
the assets of the Company and the Subsidiaries located at such Store or such
Distribution Center and (ii) the business interruption insurance proceeds, if
any, for such Store or such Distribution Center which are attributable to the
period
<PAGE> 40
beginning on the Closing Date and continuing thereafter. To the extent
the Company and the Subsidiaries are self-insured, Seller shall pay to Buyer
that amount needed to restore the Store or the Distribution Center, as the case
may be, and the assets of the Company and the Subsidiaries related to such
Store or such Distribution Center to the same condition which such Store or
such Distribution Center and such assets were in prior to such casualty;
provided that to the extent any such amount is taken into account in connection
with the preparation of the Closing Balance Sheet and the calculation of Net
Book Value, Seller shall no longer be obligated to pay such amount to Buyer
pursuant to this Section 5.8.
5.9 CONFIDENTIALITY. From and after the Closing Date, Seller and its
Affiliates will hold in confidence and not use, and will use their best efforts
to cause their respective officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold in confidence and not use, unless
compelled to disclose by judicial or administrative process of by other
requirements of law (including but not limited to the rules and regulations of
the Internal Revenue Service or any comparable foreign or state agency or
authority), all confidential documents and information concerning the Company
and the Subsidiaries (including information provided pursuant to Section 6.2),
and all information relating to Buyer, as may be received from Buyer, except to
the extent that such information can be shown to have been (i) in the case of
information relating to Buyer, previously known on a nonconfidential basis by
Seller, (ii) in the public domain through no fault of Seller or (iii) later
lawfully acquired by Seller from sources other than Buyer, the Company or any
Subsidiary. Seller shall be liable for any breach by any such Person of such
obligations. The obligation of Seller and its Affiliates to hold any such
information in confidence shall be satisfied if they exercise the same care
with respect to such information as they would take to preserve the
confidentiality of their own similar information.
5.10 ACCOUNTS. From the Closing Date, all monies and bank or similar
accounts for the deposit of cash or securities maintained by or on behalf of
the Company or any Subsidiary shall be held by, and accessible only to, the
Company or such Subsidiary and the respective officers thereof.
5.11 NO SOLICITATION OR EMPLOYMENT. Except as provided by applicable
law, from the date hereof to the date two years after the Closing Date, neither
Seller nor any of its Affiliates shall solicit to employ or employ any
individual who is an employee of the Company or any Subsidiary on the date
hereof, or at any time following the date hereof, and who on or prior to the
Closing Date occupies a home office position (other than a secretarial or
clerical position) or a management position, unless (i) such individual shall
have been, or received notice that he or she will be, involuntarily terminated
by the Company or any Subsidiary or (ii) at least six months shall have elapsed
following the cessation of such individual's employment (other than as a result
of involuntary termination) with Buyer or any of its Affiliates.
5.12 BOOKS AND RECORDS; PERSONNEL. Seller acknowledges and
agrees that from and after the Closing the Company will be entitled to own and
possess, subject to the next succeeding sentence, all documents, books,
records, agreements and financial data of any sort relating to the Company, the
Subsidiaries or the Business. Seller agrees to deliver and cause its
Affiliates to deliver, prior to the Closing, all such books and records in
their possession to the Company or, to the extent such books and records are
not readily separable from the books and records of Seller or any of its
Affiliates relating to their businesses other than the Business, true and
complete copies of such books and records.
<PAGE> 41
5.13 USE OF CERTAIN NAMES AND MARKS. Seller acknowledges and confirms
that (i) from and after the Closing Date, neither Seller nor any of its
Affiliates has or shall have any rights in the Company Intellectual Property
Rights and (ii) neither Seller nor any of its Affiliates will contest the
ownership or validity of any rights of Buyer or the Company in or to any of the
Company Intellectual Property Rights, or registrations (or applications for
registration) thereof. Neither Seller nor any of its Affiliates shall have any
right, from and after the Closing Date, to use or exploit any of the Company
Intellectual Property Rights, or any name confusingly similar thereto.
ARTICLE 6
COVENANTS OF BUYER
Buyer agrees that:
6.1 CONFIDENTIALITY. Prior to the Closing Date and after any
termination of this Agreement, Buyer and its Affiliates will hold in confidence
and not use, and will use their best efforts to cause their respective officers,
directors, employees, accountants, counsel, consultants, advisors and agents to
hold in confidence and not to use, unless compelled to disclose by judicial or
administrative process or by other requirements of law, all confidential
documents and information concerning the Company or any Subsidiary furnished to
Buyer or its Affiliates in connection with the transactions contemplated by this
Agreement, except to the extent that such information can be shown to have been
(i) previously known on a nonconfidential basis by Buyer, (ii) in the public
domain through no fault of Buyer or (iii) later lawfully acquired by Buyer from
sources other than Seller, the Company or any Subsidiary and except that such
Person may use such information for purposes relating to consummation of the
transactions contemplated hereby; PROVIDED that Buyer may disclose such
information to its officers, directors, employees, accountants, counsel,
consultants, advisors and agents in connection with the transactions
contemplated by this Agreement and to its lenders in connection with obtaining
the financing for the transactions contemplated by this Agreement so long as
such Persons are informed by Buyer of the confidential nature of such
information and are directed by Buyer to comply with the foregoing obligations.
Buyer shall be liable for any breach by any such Person of such obligations. The
obligation of Buyer and its Affiliates to hold any such information in
confidence shall be satisfied if they exercise the same care with respect to
such information as they would take to preserve the confidentiality of their own
similar information. If this Agreement is terminated, Buyer and its Affiliates
will, and will use their best efforts to cause their respective officers,
directors, employees, accountants, counsel, consultants, advisors and agents to,
destroy or deliver to Seller, upon request, all documents and other materials,
and all copies thereof, obtained by Buyer or its Affiliates or on their behalf
from Seller, the Company or any Subsidiary in connection with this Agreement
that are subject to such confidence.
6.2 ACCESS. Buyer will cause CSC Ohio, the Company and each
Subsidiary, on and after the Closing Date, to afford promptly to Seller and its
agents reasonable access during normal business hours to their properties,
books, records, employees and auditors to the extent necessary to permit Seller
to determine any matter relating to its rights and obligations hereunder or to
any period ending on or before the Closing Date; PROVIDED that any such access
(i) does not unreasonably interfere with the normal conduct of the Business and
(ii) is reasonably related to such matter (including but not limited to the
<PAGE> 42
preparation of any Tax Returns). Seller shall reimburse Buyer, CSC Ohio, the
Company or any Subsidiary for the reasonable out-of-pocket expenses incurred by
such Person in connection therewith.
6.3 NOTICES OF CERTAIN EVENTS. Buyer shall promptly notify Seller in
writing of:
(i) any notice or other communication received from any Person alleging
that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any notice or other communication received from any governmental
or regulatory agency or authority in connection with the
transactions contemplated by this Agreement;
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or
involving or otherwise affecting Buyer that, if pending on the date of
this Agreement, would have been required to have been disclosed pursuant
to Section 4.7 or that relate to the consummation of the transactions
contemplated by this Agreement; and
(iv) any development which would have a Material Adverse Effect on
Buyer or which could reasonably be expected to have an adverse effect on
the Financing and any breach of any representation or warranty of
Buyer contained in this Agreement; provided that no such disclosure
shall be deemed to amend any Schedule or cure any such breach or provide
an exception to any such representation or warranty.
6.4 ASSUMPTION OF LEASES. Buyer agrees to assume and pay, perform and
discharge when due all liabilities and obligations arising under the Facility
Leases and the Leases from and after the Closing Date.
6.5 FINANCING. Buyer will use, and will cause CSC Ohio to use, their
respective best efforts to obtain the Financing, including the Bridge
Financing. In the event that any portion of the Financing or the Bridge
Financing becomes unavailable, regardless of the reason therefor, Buyer will
use, and will cause CSC Ohio to use, their respective best efforts to obtain
alternative financing from other sources on and subject to substantially the
same terms and conditions as the portion of the Financing or the Bridge
Financing that has become unavailable. Buyer shall use, and shall cause CSC
Ohio to use, their respective best efforts to (i) satisfy at or prior to the
Closing Date all requirements of the agreements related to the Financing and
the Bridge Financing (or any alternative financing) which are conditions to
closing under such agreements and to drawing down the proceeds of the Financing
and the Bridge Financing (or any such alternative financing), (ii) defend all
lawsuits or other legal proceedings challenging such agreements related to the
Financing or the Bridge Financing (or any alternative financing) or the
consummation of the transactions contemplated thereby and (iii) lift or rescind
any injunction or restraining order or other order adversely affecting the
ability of the parties to consummate the transactions contemplated thereby.
ARTICLE 7
COVENANTS OF BUYER AND SELLER
<PAGE> 43
Buyer and Seller agree as follows:
7.1 REASONABLE BEST EFFORTS. Subject to the terms and conditions of
this Agreement, Buyer and Seller will use their reasonable best efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary or desirable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement. Seller and Buyer agree, and
Seller, prior to the Closing, and Buyer, after the Closing, agree to cause the
Company and each Subsidiary, to execute and deliver such other documents,
certificates, agreements and other writings and to take such other actions as
may be necessary or desirable in order to consummate or implement expeditiously
the transactions contemplated by this Agreement.
Buyer agrees to cause CSC Ohio to execute and deliver all documents,
certificates, agreements and other writings and to take such other actions as
may be necessary or desirable in order to consummate or implement expeditiously
the Financing and the Bridge Financing.
7.2 CERTAIN FILINGS. (a) Seller and Buyer shall cooperate with one
another (i) in determining whether any action by or in respect of, or filing
with, any governmental body, agency, official or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (ii) in taking such actions or
making any such filings, furnishing information required in connection therewith
and seeking timely to obtain any such actions, consents, approvals or waivers.
(b) Promptly upon execution and delivery of this Agreement, each of
Seller and Buyer will prepare and file, or cause to be prepared and filed, with
the appropriate governmental authorities, a notification with respect to the
transactions contemplated by this Agreement pursuant to the HSR Act. Each of
Seller and Buyer will promptly provide all additional information requested, and
take all other actions necessary or appropriate, to comply with notification
requirements under the HSR Act and to cause the expiration of all waiting
periods under the HSR Act.
7.3 PUBLIC ANNOUNCEMENTS. Seller and Buyer agree not to issue any
press release or make any public statement with respect to this Agreement or the
transactions contemplated hereby without the approval of the other, which
approval shall not be unreasonably withheld, and, except as may be required by
applicable law or any listing agreement with any national securities exchange,
will not issue any such press release or make any such public statement prior to
receipt of such approval.
7.4 CERTAIN MATTERS RELATING TO LEASE CONSENTS.
(a) If prior to the first anniversary of the Closing Date, neither
Seller nor Buyer has received any written objection from a lessor or sublessor
(a "Landlord") under a Lease for any Store indicating that a consent or other
approval (a "Consent") of such Landlord is required under such Lease in
connection with the sale of the Shares to Buyer pursuant to this Agreement, a
Consent shall be deemed to have been delivered with respect to such Lease (a
"Delivered Lease"). If prior thereto Seller, Buyer, the Company or any
Subsidiary
<PAGE> 44
has received any such written objection from a Landlord, such Lease shall
not be considered a Delivered Lease until (a) two years have elapsed from the
Closing Date without the commencement of legal proceedings by such Landlord
against Seller, Buyer, the Company or any Subsidiary resulting from the sale of
the Shares to Buyer pursuant to this Agreement or (b) such Landlord withdraws
its objections in writing or legal proceedings having been commenced within two
years after the Closing Date are discontinued or otherwise resolved against such
Landlord without further right of appeal on the part of such Landlord. If legal
proceedings are commenced against Seller, Buyer, the Company or any Subsidiary
regarding any such Consent within two years of the Closing Date, Buyer shall be
responsible for defending such action and Buyer and Seller shall share equally
the cost and expense of such defense. If legal proceedings are commenced
against Seller, Buyer, the Company or any Subsidiary regarding any such Consent
more than two years after the Closing Date, Buyer shall be responsible for
defending such action at Buyer's sole cost and expense. Seller shall promptly
forward to Buyer any written objection or other similar notice received by
Seller from any Landlord.
(b) For each Lease determined to be a Terminated Lease prior to
the Closing Date, Seller's liability to Buyer for each such Terminated Lease
shall, notwithstanding any provision of this Agreement to the contrary, be
limited to the Lease Book Value and, in connection therewith, the Lease Book
Value of such Terminated Lease shall be taken into account in calculating the
Purchase Price pursuant to Section 2.01; PROVIDED that if Buyer cannot take
possession of a Store as of the Closing Date as a result of an injunction or
restraining order resulting from the sale of the Shares to Buyer pursuant to
this Agreement and such injunction or order is later lifted, such Lease will no
longer be a Terminated Lease and Buyer shall, within five Business Days after
such injunction or order is lifted, pay in cash to Seller an amount equal to
the Lease Book Value of such Lease.
(c) For each Lease determined to be a Terminated Lease after the
Closing Date, Seller shall, within five Business Days after Buyer has vacated
the Store pertaining to such Terminated Lease, pay in cash to Buyer an amount
equal to the Lease Book Value of such Terminated Lease; PROVIDED that, at such
time as the aggregate Contribution of Leases determined to be Terminated Leases
exceeds $5 million (including Leases with negative Contribution as a deduction
therefrom), Seller shall, in respect of the Terminated Lease that caused the
aggregate Contribution of Leases determined to be Terminated Leases to exceed
$5 million and each subsequent Terminated Lease, within five Business Days
after Buyer has vacated the Store pertaining to such Terminated Lease, pay in
cash to Buyer an amount equal to 50% of the present value (applying a discount
rate equal to the Reference Rate) of the Contribution of such Terminated Lease
for the remainder of the current term of such Terminated Lease (including any
option thereunder existing on the date hereof); and PROVIDED FURTHER that, at
such time as the aggregate Contribution of Leases determined to be Terminated
Leases exceeds $5 million (including Leases with negative Contribution as a
deduction therefrom), Seller shall, within five Business Days after receipt of
written notice of such event from Buyer, pay in cash to Buyer an additional
amount equal to the difference between (i) the aggregate amount of payments
previously made by Seller to Buyer in respect of the Lease Book Value of
Terminated Leases and (ii) an amount equal to the sum of 50% of the present
value (applying a discount rate equal to the Reference Rate) of the
Contribution of each such Terminated Lease for the remainder of the term of
such Terminated Lease (including any option thereunder existing on the date
hereof) in effect immediately prior to the termination of such Terminated
Lease. Buyer and Seller agree that, for purposes of the calculation of any
payment pursuant to this Section 7.4(c), (x) the Contribution of a Terminated
Lease that is a New Store Lease shall be deemed to be equal to the Lease Book
Value of such New Store Lease, (y) the Contribution of a Terminated Lease that
is less than zero shall be deemed to be equal to zero and (z) the current term
of a Terminated Lease that is a Designated Month-to-Month Lease shall be equal
to five years.
(d) (i) Except as otherwise provided in this Agreement, Buyer's only
obligation with respect to a Terminated Lease which Buyer does not take
possession of as of the Closing Date shall be to accept delivery of the
inventory from the Store relating to such Terminated Lease; PROVIDED that the
cost of
<PAGE> 45
shipping such inventory from the Store subject to the Terminated Lease to Buyer
shall be shared equally by Seller and Buyer.
(ii) Except as otherwise provided in this Agreement, Buyer's only
obligations with respect to a Terminated Lease which Buyer must vacate on or
after the Closing Date shall be (A) to remove the inventory from the Store
relating to such Terminated Lease and (B) deliver possession of such Store to
Landlord as soon as practicable, broom clean and in a condition substantially
equivalent to the condition in which such Store was delivered to Buyer. Seller
shall be responsible for any other modifications to the Store required under
the Terminated Lease, including restoration of the Store to its pre-lease
condition and remedying conditions caused by vacating such Store, such as nail
holes, screw holes, paint chips, scratches and dents.
(e) If, at any time subsequent to the Closing Date, any Landlord
provides as a condition to the delivery of a Consent with respect to the
applicable Lease (other than a Delivered Lease) (i) a Release Payment or (ii) a
Rent Increase, Seller shall, upon written notice thereof delivered to Seller by
Buyer at any time within 30 days following the date Buyer, the Company or any
Subsidiary enters into an agreement (including but not limited to any amendment
to such Lease or a new lease which replaces such Lease) with such Landlord
providing for such Release Payment or such Rent Increase, as the case may be,
pay to Buyer in cash an amount equal to (x) in the case of a Release Payment,
50% of such Release Payment, or (y) in the case of a Rent Increase, 50% of the
present value (applying a discount rate equal to the Reference Rate) of the Rent
Increase for the remainder of the current term of the applicable Lease; PROVIDED
that, in the event of a Rent Increase resulting from an increase in the Original
Percentage Rent, for purposes of the calculation in this clause (y), the amount
of such Rent Increase shall be deemed to be equal to the difference in rent that
would have been payable for the most recent 12-month period ending prior to the
Closing Date had such increase in Original Percentage Rent been in effect under
such Lease. In no event shall the amount required to be paid by Seller pursuant
to this Section 7.4(e) exceed the Lease Book Value of the applicable Lease.
Upon payment by Seller of any amount required to be paid by it pursuant to this
Section 7.4(e) with respect to any Lease, such Lease shall be deemed to be a
Delivered Lease and Seller shall have no further obligation of any kind
whatsoever with respect to such Lease.
(f) (i) If, at any time prior to the Closing Date, any Landlord
provides as a condition to the delivery of a Consent with respect to the
applicable Lease (other than a Delivered Lease) (A) a Release Payment or (B) a
Rent Increase, Seller shall obtain the consent of Buyer prior to causing the
Company or any Subsidiary to enter into an agreement (including but not limited
to any amendment to such Lease or a new lease which replaces such Lease) with
such Landlord providing for such Release Payment or such Rent Increase, as the
case may be, which consent of Buyer shall not be unreasonably conditioned,
delayed or withheld; PROVIDED that if Buyer does not so consent, the applicable
Lease shall be deemed to be a Terminated Lease. Seller may otherwise enter
into, or cause the Company or any Subsidiary to otherwise enter into, any such
agreement with any Landlord to obtain the Consent of such Landlord with respect
to the applicable Lease, so long as such agreement does not provide for a
Release Payment or a Rent Increase or other action not permitted by this
Agreement, and such Lease shall be deemed to be a Delivered Lease.
(ii) If Buyer consents to such Release Payment or such Rent Increase,
as the case may be, Seller shall, on the Closing Date, pay to Buyer in cash an
amount equal to (A) in the case of a Release Payment, 50% of such Release
Payment or (B) in the case of a Rent Increase, 50% of the present value
(applying a discount rate equal to the Reference Rate) of the Rent Increase for
the remainder of the current term of the applicable Lease; PROVIDED that, in the
event of a Rent Increase resulting from an increase in the Original Percentage
Rent, for purposes of the calculation in this clause (B), the amount of
<PAGE> 46
such Rent Increase shall be deemed to be equal to the difference in rent that
would have been payable for the most recent 12-month period ending prior to the
Closing Date had such increase in Original Percentage Rent been in effect under
such Lease. Upon payment by Seller of any amount required to be paid by it
pursuant to this Section 7.4(f)(ii) with respect to any Lease, such Lease shall
be deemed to be a Delivered Lease and Seller shall have no further obligation of
any kind whatsoever with respect to such Lease.
(g) Buyer agrees that, if any Landlord provides as a condition to the
delivery of a Consent with respect to the applicable Lease that Buyer, the
Company or any Subsidiary give an assurance (either orally or in writing) that
such Person will comply with the terms and conditions of such Lease, Buyer
shall, or shall cause the Company or the relevant Subsidiary to, give such
assurance to such Landlord.
(h) Each of Buyer and Seller agree to keep the other generally apprised
of the status of any matters that are the subject of this Section 7.4.
7.5 DESIGNATED CLOSED STORE LEASES AND EXCLUDED SUBSIDIARIES. Prior to
the Closing Date, Seller shall cause the Indianapolis Lease and the Designated
Closed Store Leases and the Excluded Subsidiaries disclosed in Schedule 7.5 to
be contributed, distributed or otherwise transferred or assigned to Seller or
one of its Affiliates; PROVIDED that, to the extent any such contribution,
distribution, transfer or assignment is prohibited by a judgment, injunction,
order or decree or by applicable law, Buyer and Seller shall use their best
efforts to implement any lawful arrangement designed to effect the intent of
such parties hereunder.
7.6 REIMBURSEMENT BY THE PARTIES. To the extent that Seller, on the
one hand, or Buyer, the Company or any Subsidiary, on the other hand, receives
any payment after the Closing which is properly payable to the other party, it
shall promptly pay over such payment to the other party.
7.7 INFORMATION. For so long as MRC is a guarantor under any Facility
Lease or Lease, Buyer shall, within 30 days after the end of each March, June,
September and December, deliver to Seller a schedule of the Leases then
outstanding in respect of which MRC is a guarantor, including a list of such
Leases and the remaining term (including any option(s)) and the applicable rent
and any other amounts payable under such Leases. Prior to the Closing Date,
Seller shall prepare and deliver to Buyer a schedule setting forth such
information as of March 31, 1996. The provisions of Section 6.2 (including
expense reimbursement) shall apply to the matters covered by this Section 7.7.
7.8 LITIGATION. (a) Seller shall indemnify Buyer against and defend
and hold Buyer harmless from any and all Damages incurred or suffered by Buyer
arising out of (i) all matters disclosed in item 1 of Schedule 3.10 and Schedule
3.12 (each such Schedule as updated as of the Closing Date pursuant to this
Section 7.8), (ii) any suit, action, charge or complaint relating to (x) any
labor or employment matter (including but not limited to discrimination,
employment practice or workmen's compensation matters) arising from occurrences
prior to the Closing Date or (y) any product liability claim arising from
products sold prior to the Closing Date, and (iii) any suit, action, charge or
complaint brought by any person ingressing, egressing or situated upon or in any
Store, Distribution Center or Regional Office arising from occurrences related
thereto prior to the Closing Date. On the Closing Date, Seller shall deliver to
Buyer
<PAGE> 47
a schedule updating the information set forth in item 1 of Schedule 3.10 and
Schedule 3.12 as of the Closing Date.
(b) Buyer and Seller hereby agree that, from and after the Closing
Date, Seller shall have the right to assume and take control of, in the name and
on behalf of the Company and the Subsidiaries, at Seller's sole cost and
expense, the actions disclosed in Schedule 3.12. Buyer hereby agrees to cause
the Company or any Subsidiary to promptly execute and deliver any document,
certificate, agreement or other writing and to take such other actions as may be
necessary or desirable in connection therewith. Any amounts recovered by Seller
in respect of such actions shall, to the extent attributable to the period prior
to the Closing Date, be solely for the account of Seller and, to the extent
attributable to the period from and after the Closing Date, be solely for the
account of the Company and the Subsidiaries.
(c) Buyer agrees to (i) give, and to cause the Company and the
Subsidiaries to give, Seller, its counsel and other authorized representatives
reasonable access during normal business hours to the employees, offices,
properties, books and records of the Company and the Subsidiaries reasonably
related to the investigation, defense or pursuit of the matters referred to in
Sections 7.8(a) and (b) and (ii) instruct the employees of the Company and the
Subsidiaries to cooperate with and assist Seller, its counsel and other
authorized representatives in the investigation and defense or pursuit of any
such matters, including but not limited to participating in depositions or
appearing as witnesses. Seller shall reimburse Buyer, the Company or any
Subsidiary or any of their respective employees for the reasonable out-of-pocket
expenses incurred by any such Person in connection therewith.
7.9 GUARANTEES. Buyer and Seller hereby agree that, in connection with
any new lease or sublease to be entered into by the Company or any Subsidiary
from the date hereof to the Closing Date, Buyer and Seller shall enter into a
guarantee arrangement with the landlord whereby Seller or one of its
Subsidiaries shall be the guarantor of such lease until the Closing Date and,
assuming the Closing shall have occurred on the Closing Date, Buyer or one of
its Subsidiaries shall be the guarantor of such lease from and after the Closing
Date and Seller or such Subsidiary of Seller shall be released from any and all
liabilities and obligations under such guarantee arrangement as of the Closing
Date. In connection with any renewal or extension of, or the exercise of any
option under, any Lease from the date hereof to the Closing Date, Buyer and
Seller shall use their best efforts to substitute the existing MRC guarantee of
such Lease with the guarantee arrangement described in the previous sentence of
this Section 7.9.
7.10 MATERIAL CONTRACTS. The parties recognize that several of the
material contracts disclosed in Schedule 3.11 will need to be assigned by
Seller to the Company or a Subsidiary prior to the Closing Date and that such
assignment may require the consent of the counterparty to such contract.
Seller shall use its best efforts to obtain any such consent prior to the
Closing Date. To the extent that any such consent is not obtained as of the
Closing Date, Buyer and Seller shall use their best efforts, at Seller's sole
cost and expense, to implement any lawful arrangement designed to effect the
intent of the parties hereunder.
ARTICLE 8
TAX MATTERS
<PAGE> 48
8.1 TAX REPRESENTATIONS. Seller represents and warrants to Buyer as of
the date hereof and as of the Closing Date that, except as set forth in the
Balance Sheet (including the notes thereto) or on Schedule , to Seller's
knowledge, (i) all material Returns required to be filed on or before the date
hereof with respect to any Pre-Closing Tax Period by, or with respect to the
Company or any Subsidiary have been duly and timely filed (taking into account
extensions); (ii) no position is reflected in a Return referred to in clause (i)
for which the applicable limitation period has not expired (and for which a
closing agreement has not been entered into) which (A) was not, at the time such
Return was filed, supported by substantial authority (as determined for purposes
of Section 6662 of the Code, or any predecessor provision, and any comparable
provisions of applicable foreign, federal, state, or local tax statutes, rules
or regulations) and (B) would have a Material Adverse Effect on the Company if
decided against the taxpayer; (iii) the Company and the Subsidiaries have timely
paid, withheld or made provision for all Taxes shown as due and payable on any
Return and have timely paid, withheld, or made provision for all material Taxes,
whether or not shown on any Return; (iv) there is no action, suit, proceeding,
investigation, audit or claim now proposed or pending against or with respect to
the Company or any Subsidiary in respect of any material Tax; (v) the Company
and each Subsidiary is a member of the Seller Group, and the Seller Group files
a consolidated federal Income Tax Return; (vi) since 1982, neither the Company
nor any Subsidiary has at any time been a member of an affiliated group filing a
consolidated federal Income Tax Return other than a group, the common parent of
which is Seller; (vii) Seller has made available to Buyer correct and complete
copies of all portions of federal Income Tax Returns and examination reports
which pertain to the Company and the Subsidiaries, and statements of
deficiencies assessed against or agreed to by any of the Company and the
Subsidiaries for any Tax period ending after December 30, 1992; (viii) Schedule
8.1 lists any statute of limitations in respect of Taxes the Company or any
Subsidiary has waived or any extension of time agreed to by the Company or any
Subsidiary, with respect to a Tax audit, examination, assessment or deficiency,
in each case, which shall not have expired on or prior to the Closing Date; (ix)
neither the Company nor any Subsidiary has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be deductible
under Code Sections 280G or 162(m); and (x) no taxing jurisdiction has since
1992 claimed in writing that Returns that the Company and the Subsidiaries are
not (in fact) filing should be filed, or that Taxes of a type not (in fact)
being paid to such jurisdiction should be paid.
8.2 TAX COVENANTS. (a) Seller and Buyer agree to make a timely,
effective and irrevocable election under Section 338(h)(10) of the Code and
under any comparable statutes in any other jurisdiction (other than Puerto Rico
or any other jurisdiction outside of the United States) with respect to the
Company and each of the Subsidiaries (the "Section 338(h)(10) Election"), and to
file such election in accordance with applicable regulations. Seller and Buyer
agree to cooperate (and cause their respective subsidiaries to cooperate) in all
respects for the purpose of effectuating a timely and effective Section
338(h)(10) Election, including without limitation, the execution and filing of
any forms or returns. The Section 338(h)(10) Election shall properly reflect
the Price Allocation (as hereinafter defined). Within 150 days after the
Closing Date, Buyer shall deliver to Seller a statement (the "Allocation
Statement") allocating the modified ADSP (as such term is defined in Treasury
Regulations Section 1.338(h)(10)-1) among the assets of the Company and the
Subsidiaries in accordance with the Treasury regulations promulgated under
Section 338(h)(10). Seller shall have the right to review the Allocation
Statement. If within 30 days after receipt of the Allocation Statement Seller
notifies Buyer in writing that the allocation of one or more items reflected in
the Allocation Statement is not a reasonable allocation, Buyer and Seller will
negotiate in good faith to resolve such dispute. If Buyer and Seller fail to
resolve such dispute within 30 days, the Tax Accountants shall determine whether
the allocation was reasonable and, if not reasonable, shall appropriately revise
the Allocation Statement. The costs, fees and expenses of the
<PAGE> 49
Tax Accountants shall be borne equally by Buyer and Seller. If Seller does not
respond within 30 days, or upon resolution of the disputed items, the allocation
reflected on the Allocation Statement (as such may have been adjusted) shall be
the "Price Allocation" which shall be binding on the parties hereto. Seller and
Buyer agree to act in accordance with the Price Allocation in the preparation
and filing of any Return.
(b) Buyer covenants that it will not cause or permit the Company, any
Subsidiary or any Affiliate of Buyer (i) to take any action on the Closing Date
(A) other than as contemplated by this Agreement or any other agreement or
document contemplated by this Agreement or (B) other than in the ordinary course
of business, including but not limited to the distribution of any dividend or
the effectuation of any redemption that could give rise to any Tax liability of
the Seller Group or to any loss of Seller or the Seller Group under this
Agreement or (ii) except as provided in Section 8.2(c), to make or change any
Tax election (other than the making of the Section 338(h)(10) Election), amend
any Return or take any position on any Return, that results in any increased Tax
liability, including Tax increases resulting from the reduction of any Tax
attribute. Buyer agrees that Seller is to have no liability for any Tax
resulting from any action, referred to in the preceding sentence, of the
Company, Buyer or any Affiliate of Buyer, and agrees to indemnify and hold
harmless Seller and its Affiliates against any such Tax and any loss, cost and
reasonable out-of-pocket expenses incurred by Seller or any of its Affiliates as
a result of any assertion, assessment or imposition by any Taxing Authority of
any of the above-described types of Taxes (any such loss, cost and expense
herein referred to as a "Loss").
(c) With respect to Income Tax Returns for a Tax period of the
Company or any Subsidiary that includes (but does not end on) the Closing Date,
the Buyer may cause or permit the Company or any Subsidiary to make or change
any Tax election or accounting method. If it is "more likely than not" (within
the meaning of Treasury Regulation Section 1.6662-4(d)(2)) that the Tax election
or accounting method used by the Company or any Subsidiary prior to the Closing
was a proper election or method, Buyer shall indemnify and hold Seller and its
Affiliates harmless against any Tax resulting from such action. If the Tax
election or accounting method used by the Company or any Subsidiary prior to the
Closing does not meet the "more likely than not" standard referred to in the
preceding sentence, but was supported by "substantial authority" (within the
meaning of Treasury Regulation Section 1.6662-4(d)(3)), then Buyer shall
indemnify and hold harmless Seller and its Affiliates against 50 percent of any
Tax resulting from such action. At the time such Return is delivered to Seller
pursuant to Section 8.2(h), Buyer shall notify Seller in writing (i) if any Tax
election or accounting method in effect for the Company or any Subsidiary has
been changed, (ii) if in Buyer's view such prior election or method did not meet
the "more likely than not" standard or lacked "substantial authority" and (iii)
the cost to Seller of the change of such election or method. If Seller
disagrees with any position taken by Buyer in such written notice, the parties
shall proceed in good faith to resolve the matter and, if they are unable to do
so within 10 Business Days, the Tax Accountants shall resolve the disputed items
within a reasonable time, taking into account the deadline for filing such
Return. The costs, fees and expenses of the Tax Accountants shall be borne
equally by Buyer and Seller.
(d) Buyer shall promptly pay or shall cause prompt payment to be
made to Seller of all refunds of Taxes (except refunds of Taxes reflected on a
Return that does not include Seller or any of its Affiliates and which is
attributable to carrybacks of tax attributes from a Post-Closing Tax Period to a
Pre-Closing Tax Period) and interest thereon received by, or credited to the Tax
liability of, Buyer, any Affiliate of Buyer, the Company, or any Subsidiary
attributable to Taxes paid by Seller, the Company or any Subsidiary (or any
predecessor of Affiliate of Seller) with respect to any Pre-Closing Tax Period
and which is not reflected on the Closing Balance Sheet, adjusted as appropriate
to reflect Final Net Book Value.
<PAGE> 50
(e) All transfer, documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest) incurred in
connection with the transactions contemplated by this Agreement ("Transfer
Taxes") shall be borne by the party on whom such Tax is imposed under the
relevant law, except that the aggregate liability for any New York State Real
Property Transfer Gains Tax, New York State Real Estate Transfer Tax, New York
City Real Property Transfer Tax shall be shared equally by Buyer and Seller. The
party that is required by applicable law to make the filings, reports, returns
or payments with respect to any Transfer Tax shall do so, and the other party
shall cooperate with respect thereto as necessary. Within a reasonable period
prior to the date on which a Transfer Tax that the parties share equally is
required to be paid, the parties shall agree on the amount of such Transfer Tax
and the basis on which the amount of such Transfer Tax is to be computed and the
party that is not making the payment to the Taxing Authority shall compensate
the paying party in accordance with this Section 8.2(e) prior to the date on
which such Transfer Tax is required to be paid.
(f) Seller shall include the income of the Company and the
Subsidiaries in Seller's federal consolidated Income Tax Return, and shall file
all state, foreign and local Income Tax Returns of the Company and the
Subsidiaries, for all Tax periods ending on or before the Closing Date and shall
be responsible for remitting all Taxes reflected on such Income Tax Returns.
(g) With respect to Income Tax Returns referred to in Section (f)
for the Tax period ending on the Closing Date, Buyer shall cause the Company and
the Subsidiaries to prepare and provide to Seller one or more packages of
information materials as are reasonably necessary for the purpose of preparing
each such Income Tax Return (the "Tax Packages"). Each Tax Package shall be
completed in all material respects in accordance with the standards that Seller
has established for its other subsidiaries. If Buyer reasonably believes that
such standards differ materially from Seller's past practices for the Company
and the Subsidiaries, Buyer shall provide written notice to Seller setting forth
in detail the specific differences. If within 10 Business Days after receipt of
such notice Seller notifies Buyer that it disagrees that such standards differ
materially from Seller's past practices, Buyer and Seller will negotiate in good
faith to resolve such dispute. If Buyer and Seller fail to resolve such dispute
within 10 days, the Tax Accountants shall determine whether such standards
differ materially from Seller's past practices for the Company and the
Subsidiaries. Such determination shall be binding upon the parties hereto. The
costs, fees and expenses of the Tax Accountants shall be borne equally by Buyer
and Seller. If it is agreed or determined that such standards differ materially
from Seller's past practices for the Company and the Subsidiaries, Seller shall
(at Seller's option) either bear all reasonable costs of preparing such Tax
Packages in excess of those that would have been incurred had they been prepared
in a manner consistent with Seller's past practices for the Company and the
Subsidiaries or prepare such additional materials as may be necessary at its
expense. Buyer shall use reasonable efforts to deliver the Tax Packages to
Seller as soon as practicable after the Closing date, but in no event later than
the date that is eight months after the Closing Date. Within 30 days after the
filing of such Income Tax Returns, Seller shall provide Buyer with copies of
each separate company pro forma Income Tax Return and any other Income Tax
Return pertaining exclusively to the Company and the Subsidiaries.
(h) Buyer shall prepare and file, or cause to be prepared and filed,
on a timely basis all Income Tax Returns required to be filed by the Company and
each Subsidiary for any Tax period of the Company or any Subsidiary that
includes (but does not end on) the Closing Date and shall be responsible for
remitting all Taxes reflected on such Returns (subject to reimbursement to the
extent provided in Section 8.5 below). Except as provided in Section 8.2(c),
any such Return shall be prepared in a manner consistent with past practice and
without a change of any election or any accounting method and shall be submitted
by Buyer to Seller (together with schedules, statements and, to the extent
requested by Seller, supporting documentation) at least 45 days prior to the due
date (including extensions) of such Return.
<PAGE> 51
Seller shall have the right to review all work papers and procedures used to
prepare any such Return. If Seller, within 10 Business Days after delivery of
any such Return, notifies Buyer in writing that it objects to any items in such
Return or to any position taken by Buyer in the notification described in
Section 8.2(c), the parties shall proceed in good faith to resolve the disputed
items and, if they are unable to do so within 10 Business Days, the disputed
items shall be resolved (within a reasonable time, taking into account the
deadline for filing such Return) by the Tax Accountants; PROVIDED that if the
Tax Accountants shall determine that two or more alternative positions with
respect to the matter in question are equally supported by applicable law, then,
at Buyer's option, either (i) Seller's position shall be taken on the relevant
Return and Seller shall pay to Buyer any additional Tax shown on such Return
resulting from such position to the extent it relates (pursuant to Section
8.5(b)) to the Post-Closing Tax Period or (ii) Buyer's position shall be taken
on the relevant Return and Buyer shall pay to Seller any additional Tax shown on
such Return resulting from such position to the extent it relates (pursuant to
Section 8.5(b)) to the Pre-Closing Tax Period; and PROVIDED FURTHER that if a
disputed item is subject to the provisions of Section 8.2(c) as well as the
provisions of this Section 8.2(h), the provisions of Section 8.2(c) shall
govern. Upon resolution of all disputed items, the relevant Return shall be
adjusted to reflect such resolution and shall be binding upon the parties
without further adjustment. The costs, fees and expenses of the Tax Accountants
shall be borne equally by Buyer and Seller.
(i) The Estimated Net Book Value and the Closing Balance Sheet shall
each include accruals for Miscellaneous Taxes owing for the Pre-Closing Tax
Period. Seller shall prepare or cause to be prepared and file or cause to be
filed all Miscellaneous Tax Returns due on or before the Closing Date (taking
into account extensions) and shall be responsible for remitting all
Miscellaneous Taxes reflected on such Miscellaneous Tax Returns. Copies of such
Miscellaneous Tax Returns shall be maintained by the Company and the
Subsidiaries. Buyer shall prepare and file or cause to be prepared and filed in
accordance with the procedures and methods set forth in Section 8.2(h) all
Miscellaneous Tax Returns due after the Closing Date (taking into account
extensions) and shall remit all Taxes reflected on such Returns (subject to
reimbursement to the extent provided in Section 8.5 below). Buyer shall, within
a reasonable period after each month end, submit to Seller a schedule in
reasonable detail outlining the Miscellaneous Returns filed during such month
which include Taxes for the Pre-Closing Tax Period, and the amount of Taxes paid
with respect to the Pre-Closing Tax period. Seller, at its expense may at
reasonable times audit the Miscellaneous Tax Returns including the Pre-Closing
Tax Period at any time prior to December 31, 1997. If Seller, in connection
with such audit, and no later than June 30, 1998, notifies Buyer that its
allocation of Miscellaneous Taxes to the Pre-Closing Tax Period is excessive,
the parties shall proceed in good faith to resolve the matter and, if they are
unable to do so within 10 business days, the disputed matter shall be resolved
(within a reasonable time) by the Tax Accountants and such resolution shall be
binding upon the parties. The costs, fees and expenses of the Tax Accountants
shall be borne equally by Buyer and Seller.
(j) Any Return prepared by Seller with respect to a Pre-Closing Tax
Period, pursuant to Section 8.2(f) or (i), shall be prepared in a manner
consistent with past practice and without a change of any election or any
accounting method.
(k) Notwithstanding the first sentence of Section 8.2(a), with respect
to each Subsidiary which on or before the Closing Date will have done business
in Puerto Rico (a "Puerto Rico Subsidiary"), Seller (i) may, at its option,
prior to the Closing Date, cause each Puerto Rico Subsidiary to distribute its
undistributed earnings and profits estimated through the Closing
<PAGE> 52
Date, and to withhold and remit any associated withholding Taxes and (ii)
shall, if necessary, reflect on the Closing Balance Sheet (adjusted as
appropriate to reflect Final Net Book Value), in addition to all other accruals,
a liability for Puerto Rico taxes equal to the undistributed earnings and
profits of each Puerto Rico Subsidiary calculated through the Closing Date
multiplied by the Puerto Rico withholding tax rate (in effect on the Closing
Date) which is imposed on distributions of earnings and profits; PROVIDED that
if Seller does not elect the option provided by clause (i), Seller may request
that Buyer make, and if so requested Buyer shall make, an election under Puerto
Rico law comparable to the election under Section 338 of the Code (the "Section
1115 Election"); and PROVIDED FURTHER that Buyer shall not be obligated to
comply with such request unless such request is received by Buyer at least 30
days prior to the date which Seller reasonably believes is the date by which the
Section 1115 Election must be filed with the appropriate Puerto Rico Taxing
Authority. If a Section 1115 Election is made and either Seller obtains a
favorable ruling from the appropriate Puerto Rico Taxing Authority that earnings
and profits are reduced or published rules or regulations are reasonably clear
that earnings and profits are reduced (in either case, the "Section 1115
Authority"), the accrual on the Closing Balance Sheet (adjusted as appropriate
to reflect Final Net Book Value) referred to in clause (ii) shall be reduced
proportionately to the extent that earnings and profits accumulated through the
Closing Date by any Puerto Rico Subsidiary are reduced as a result of the
Section 1115 Election, and Buyer shall promptly refund to Seller an amount equal
to the reduction in such accrual; PROVIDED that Seller shall indemnify Buyer for
any Tax resulting from the Section 1115 Election, other than any Tax resulting
from a reduction in the basis of any asset held by a Puerto Rico Subsidiary; and
PROVIDED FURTHER that if the Section 1115 Election is made without any Section
1115 Authority, Buyer shall be under no obligation to refund any amounts to
Seller under this Section 8.2(k) until it is reasonably clear that Section 1115
Authority exists. In addition, with respect to each Puerto Rico Subsidiary,
Seller (i) may, at its option, cause each Puerto Rico Subsidiary to pay all its
estimated but unpaid interest and royalty payments, calculated through the
Closing Date, and withhold and remit any associated withholding Taxes and (ii)
shall, if necessary, reflect on the Closing Balance Sheet (adjusted as
appropriate to reflect Final Net Book Value), in addition to all other accruals,
a liability for Puerto Rico Taxes equal to the sum of (x) the accrued and unpaid
interest of each Puerto Rico Subsidiary, calculated through the Closing Date,
multiplied by the Puerto Rico withholding Tax rate (in effect on the Closing
Date) which is imposed on interest payments and (y) the accrued and unpaid
royalty payments of each Puerto Rico Subsidiary, calculated through the Closing
Date, multiplied by the Puerto Rico withholding Tax rate (in effect on the
Closing Date) which is imposed on royalty payments. If a dispute arises between
Buyer and Seller pursuant to this Section 8.2(k), Buyer and Seller shall
negotiate in good faith to resolve it. If Buyer and Seller fail to resolve such
dispute within 10 days, such dispute shall be referred to the Tax Accountants
for resolution. The costs, fees and expenses of the Tax Accountants shall be
borne equally by Buyer and Seller.
8.3 TERMINATION OF EXISTING TAX SHARING AGREEMENTS. Any and all
existing Tax sharing agreements (written or unwritten, formal or informal)
between the Company or any Subsidiary and any member of the Seller Group shall
be terminated as of the Closing Date. After such date neither the Company, any
Subsidiary, Seller nor any Affiliate of Seller shall have any further rights or
liabilities thereunder.
8.4 COOPERATION ON TAX MATTERS. Seller and Buyer shall reasonably
cooperate, and shall cause their respective Affiliates, agents, auditors,
representatives, officers and employees reasonably to cooperate, in preparing
and filing all Tax Returns (including amended returns and claims for refund),
including maintaining and making available to each other all records necessary
in connection with Taxes and in resolving all disputes and audits with respect
to all taxable periods relating to Taxes. Buyer and Seller agree to retain or
cause to be retained all books and records pertinent to the Company and the
Subsidiaries until the applicable period for assessment under applicable law
(giving effect to any and all extensions or waivers) has expired, and to abide
by or cause the abidance with all record retention agreements entered into with
any taxing authority. Buyer, Seller, the Company and the Subsidiaries agree to
give the other reasonable notice prior to transferring, discarding or destroying
any such books relating to Tax
<PAGE> 53
matters and, if Seller so requests, the Company or any Subsidiary shall allow
Seller to take possession of such books and records. Buyer and Seller shall
cooperate with each other in the conduct of any audit or other proceedings
involving the Company or any Subsidiary for any Tax purposes and each shall
execute and deliver such powers of attorney and other documents as are necessary
to carry out the intent of this Section 8.4. For any Income Tax Return of the
Company or any Subsidiary that Seller is responsible for filing and that
requires the signature of an officer of the Company or such Subsidiary, Seller
shall present a completed Income Tax Return for the signature of an appropriate
officer designated by the Company or such Subsidiary. Seller shall give such
officer any support for the Tax Return reasonably requested by such officer.
The officer shall sign the return and deliver it to Seller as soon as reasonably
practicable.
8.5 INDEMNIFICATION BY SELLER. (a) Seller hereby indemnifies Buyer
against and agrees to hold it harmless from any (i) Tax Loss, and (ii) Tax
attributable to the Section 338(h)(10) Election, other than any Tax imposed for
a Post-Closing Tax Period which is attributable to the Price Allocation;
PROVIDED that Seller shall have no liability for the payment of any Tax or Loss
for which Buyer explicitly assumes ultimate responsibility pursuant to this
Article 8.
(b) For purposes of this Section , in the case of any Taxes that are
imposed on a periodic basis and are payable for a Tax period that includes (but
does not end on) the Closing Date, the portion of such Tax related to the
portion of such Tax period ending on the Closing Date shall (i) in the case of
any Taxes other than Taxes based upon or related to income, sales, gross
receipts, wages, capital expenditures or expenses, be deemed to be the amount of
such Tax for the entire Tax period multiplied by a fraction the numerator of
which is the number of days in the Tax period ending on the Closing Date and the
denominator of which is the number of days in the entire Tax period, and (ii) in
the case of any Tax based upon or related to income, sales, gross receipts,
wages, capital expenditures or expenses, be deemed equal to the amount which
would be payable if the relevant Tax period ended on the Closing Date. Any Tax
credits relating to a Tax period that begins before and ends after the Closing
Date shall be taken into account as though the relevant Tax period ended on the
Closing Date. All determinations necessary to give effect to the foregoing
allocations shall be made in a manner consistent with prior practice of the
Company and the Subsidiaries, provided that such prior practice is "more likely
than not" (within the meaning of Treasury Regulation Section 1.6662-4(d)(2) a
proper practice. If at least 45 days prior to the payment of any Tax subject to
this Section 8.5(b) Buyer shall notify Seller in writing that in Buyer's view
such practice does not meet the "more likely than not" standard and Seller
disagrees, the matter shall be resolved in accordance with the provisions of
Section 8.2(c).
(c) If as a result of an adjustment Seller makes a payment to any
Taxing Authority in respect of a Miscellaneous Tax of the Company with respect
to any Pre-Closing Tax Period, then Buyer shall promptly pay to Seller an amount
equal to such payment made by Seller; PROVIDED that no such payment shall be
made by Buyer if Buyer has incurred a Tax Loss in connection with Miscellaneous
Taxes; and PROVIDED FURTHER that any payment by Buyer pursuant to this Section
8.5(c) shall be treated as a payment by Buyer of a Miscellaneous Tax for a
Pre-Closing Tax Period.
(d) Subject to Section 8.7, Seller shall pay Buyer the amount of any
Tax Loss for which Seller is responsible pursuant to this Section not later
than 20 days after receipt by Seller of written notice from Buyer stating that a
Tax Loss has been incurred by Buyer, any of its Affiliates or, effective upon
the Closing, the Company or any Subsidiary and the amount thereof and of the
indemnity payment requested.
<PAGE> 54
(e) If any claim or demand for Taxes in respect of which indemnity
may be sought pursuant to this Section 8.5 (other than Taxes shown as due on a
Return pursuant to Section 8.2(e), (h) or (i)) is asserted in writing against
Buyer, any of its Affiliates the Company or any Subsidiary, Buyer shall promptly
notify Seller of such claim or demand within sufficient time that would allow
Seller to timely respond to such claim or demand, and shall give Seller such
information with respect thereto as Seller may reasonably request. Seller may
discharge, at any time, its indemnification obligation under this Section 8.5 by
paying to Buyer the amount of the applicable Tax Loss, calculated on the date of
such payment. Seller may, at its own expense, participate in and, upon notice
to Buyer, assume the defense of any such claim, suit, action, litigation or
proceeding (including any Tax audit). If Seller assumes such defense and if the
relevant claim, suit, action, litigation or proceeding relates to a taxable
period that includes (but does not end on) the Closing Date, Buyer shall have
the right (but not the duty) to participate in the defense thereof and to employ
counsel, at its own expense, separate from the counsel employed by Seller.
Whether or not Seller chooses to defend or prosecute any claim, all of the
parties hereto shall cooperate in the defense or prosecution thereof. Seller
shall not be liable under this Section 8.5, for (i) any Tax claimed or demanded
by any taxing authority, the payment of which was made without Seller's prior
written consent unless Seller refused to participate in the proceedings and
assume the defense, or (ii) any settlements entered into without the consent of
Seller, or resulting from any claim, suit, action, litigation or proceeding in
which Seller was not permitted an opportunity to participate. Notwithstanding
anything herein to the contrary, Buyer may, at its own expense, initiate a
challenge to any real property assessment relating to a Pre-Closing Tax Period.
8.6 INDEMNIFICATION BY BUYER. Buyer hereby indemnifies Seller against
and agrees to hold it harmless from any Taxes and Loss for which Buyer is
responsible pursuant to Section 8.2(b), (c), (e) or (h). Other than with
respect to Taxes shown as due on a Return pursuant to Section 8.2(e) or (h),
Seller agrees to give prompt notice to Buyer of the assertion of any claim, or
the commencement of any action or proceeding, in respect of which indemnity may
be sought under this Article 8. Buyer may participate in and assume the defense
of any such suit, action or proceeding at its own expense. If Buyer assumes
such defense, Seller shall have the right (but not the duty) to participate in
the defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by Buyer. Whether or not Seller chooses to defend or prosecute
any claim, the parties hereto shall cooperate in the defense or prosecution
thereof.
8.7 MISCELLANEOUS TAX MATTERS. Notwithstanding any other provision of
this Agreement, (i) Buyer shall not make a demand for payment from Seller of any
Tax Loss, nor shall Seller make a demand for payment from Buyer of any Tax or
Loss, unless the demand for payment includes claims for an aggregate amount of
at least $2,000, and (ii) the provisions of Sections 11.4(a) and 11.5 shall not
apply to claims for indemnity under this Article 8.
ARTICLE 9
EMPLOYEES AND EMPLOYEE BENEFITS
9.1 EMPLOYEES. With respect to each individual who, as of the Closing
Date, is employed (including persons absent from active service by reason of
illness, disability or leave of absence, whether paid or unpaid) by the Company
or any Subsidiary ("Transferred Employees"), Buyer shall cause the Company to
continue the employment of each Transferred Employee. The employee benefit
plans and
<PAGE> 55
arrangements maintained by Buyer (other than Buyer's defined benefit pension
plan, participation in which was frozen as of April 1, 1994) shall give full
credit for purposes of eligibility and vesting (and in connection with any such
severance or vacation plan or policy, for purposes of determining the level of
benefit) for any service of a Transferred Employee with Seller, the Company and
the Subsidiaries.
9.2 QUALIFIED PLANS. (a) Seller shall retain all liabilities and
obligations in respect to benefits accrued by Transferred Employees under
Seller's ESOP. As soon as practicable after the Closing Date, Seller shall take
such action as may be necessary, if any, to permit each Transferred Employee to
exercise his rights under Seller's ESOP to effect an immediate distribution of
such Transferred Employee's full account balances under Seller's ESOP or to
effect a tax-free rollover of the taxable portion of the account balances into
Buyer's 401(k) Plan (a "Direct Rollover") or to an individual retirement
account. Seller and Buyer shall work together in order to facilitate any such
distribution or rollover and to effect a Direct Rollover for those participants
who elect to roll over their account balances directly into Buyer's 401(k) Plan;
PROVIDED that nothing contained herein shall obligate Buyer's 401(k) Plan to
accept a Direct Rollover in a form other than cash.
(b) On the Closing Date, or as soon as practicable thereafter, Buyer
shall take all action necessary, if any, to qualify Buyer's 401(k) Plan under
the applicable provisions of the Code and shall make any and all filings and
submissions to the appropriate governmental authorities required to be made by
it in connection with any Direct Rollover.
(c) As soon as practicable after the Closing Date, Buyer shall take all
necessary action, if any, and shall make any and all filings and submissions to
the appropriate governmental agencies required to be made by it, in connection
with the transfer of assets described below. As soon as practicable following
the issuance of indemnities satisfactory to Seller, Seller shall cause the
trustee of Seller's 401(k) Profit Sharing Plan to transfer (the "Account Balance
Transfer") to the trustee under the trust agreement forming a part of Buyer's
401(k) Plan, in the form of cash or, to the extent provided by Section 9.2(d),
notes (or such other form as may be agreed to by Seller and Buyer) the full
account balances of Transferred Employees under Seller's 401(k) Profit Sharing
Plan (which account balances will have been credited with appropriate earnings
attributable to the period from the Closing Date to the date of the Account
Balance Transfer), reduced by any necessary benefit or withdrawal payments to or
in respect of Transferred Employees occurring during the period from the Closing
Date to the date of the Account Balance Transfer; PROVIDED that Seller shall be
under no obligation to effect a distribution or payment under Seller's 401(k)
Profit Sharing Plan prior to the Account Balance Transfer in respect of a
Transferred Employee (who either terminates employment after the Closing Date
but prior to the Account Balance Transfer or is seeking such distribution or
payment in connection with a hardship withdrawal) if the required distribution
and payment forms have not been received by Seller prior to the last day of the
month preceding the month in which the Account Balance Transfer occurs. In
consideration for the Account Balance Transfer, Buyer shall, effective as of the
date of such transfer, assume all of the obligations of Seller in respect of the
account balances accumulated by Transferred Employees under Seller's 401(k)
Profit Sharing Plan (exclusive of any portion of such account balances which are
paid or otherwise withdrawn prior to the date of such transfer).
(d) As part of the Account Balance Transfer, Seller shall cause the
trustee of Seller's 401(k) Profit Sharing Plan to transfer to the trustee of
Buyer's 401(k) Plan any outstanding notes attributable to loans made to
Transferred Employees under the terms of Seller's 401(k) Profit Sharing Plan.
Upon receipt of such notes, the trustee of Buyer's 401(k) Plan shall re-amortize
the remaining principal balance
<PAGE> 56
of each affected Transferred Employee's account based on the remaining term of
such loan and the original interest rate.
(e) The benefits to which an executive officer of Seller who is a
Transferred Employee as of the Closing Date may be entitled under any deferred
compensation or supplemental executive retirement plan of Seller or any
performance based restricted stock award of Seller shall remain liabilities of
Seller and shall not be liabilities of Buyer.
9.3 OTHER EMPLOYEE PLANS AND BENEFIT ARRANGEMENTS. (a) Buyer and
Seller hereby agree that any amounts payable (i) within six months of the
Closing Date under the severance arrangements disclosed in item no. 2 in
Schedule 3.10 shall be shared equally by Buyer and Seller and (ii) under the
retention arrangements disclosed in item no. 3 in Schedule 3.10 shall be borne
solely by Seller. Seller shall, within five Business Days after receipt of
written notice from Buyer that any such amounts have been paid (which notice
shall include reasonable evidence thereof), pay in cash to Buyer an amount equal
to (x) in the case of clause (i) above, 50% of such amounts, and (y) in the case
of clause (ii) above, 100% of such amounts.
(b) Seller shall retain all obligations and liabilities under the
Employee Plans and Benefit Arrangements in respect of any employee or prior
employee (including any beneficiary or dependent thereof) who is not a
Transferred Employee.
(c) With respect to Transferred Employees, Seller shall retain all
obligations and liabilities relating to or arising under the Employee Plans or
Benefit Arrangements which are attributable to benefits accrued or otherwise
payable on or prior to the Closing Date, except that with respect to any
Transferred Employee who, on the Closing Date, is absent by reason of disability
or salary continuation, Buyer shall assume and be liable for any payments
attributable to the period beginning on the Closing Date.
(d) Except as otherwise provided in Section 9.3(a), Buyer shall be
responsible for all claims for severance benefits or wrongful termination
claims made by Transferred Employees who are discharged by Buyer, the Company
or any Subsidiary on or after the Closing Date and, in connection therewith,
Buyer hereby agrees to provide, or cause the Company to provide, severance
benefits equivalent to those provided under the Company's severance plan
disclosed in Schedule 3.16 to any Transferred Employee discharged by the
Company or any Subsidiary within six months of the Closing Date. In addition,
Seller shall have no obligations with respect to any act or omissions of Buyer,
the Company or any Subsidiary and their respective officers, agents and
employees relating to Transferred Employees which occur on or after the Closing
Date. Buyer shall indemnify and hold Seller harmless from any Damages with
respect to, arising from or pursuant to any complaint, charge or grievance made
by any such Transferred Employee with respect to any action or activities of
Buyer, the Company or any Subsidiary on or after the Closing Date.
(e) Except as otherwise provided in Sections 9.2, 9.3(a), 9.3(b),
9.3(c) and 9.4, Seller shall have no liability or responsibility under the
Employee Plans or Benefit Arrangements after the Closing Date with respect to
Transferred Employees (and dependents and beneficiaries thereof).
(f) Buyer shall cause the Company to retain all obligations relating to
vacation and personal holidays to which each Transferred Employee is entitled as
of the Closing Date under the applicable Employee Plans and Benefit Arrangements
in effect on the Closing Date. Subject to the foregoing, Buyer's vacation and
holiday policies and practices may be made applicable to Transferred Employees
for the period commencing immediately after the Closing Date. For purposes of
preparing the Closing Balance
<PAGE> 57
Sheet and calculating Net Book Value pursuant to Section 2.3, there shall
only be taken into account a pro rata accrual of any liability relating to
vacation and personal holidays to which Transferred Employees are entitled for
the period from January 1, 1996 to but not including the Closing Date.
(g) Buyer shall not, as of the Closing Date, assume any Employee
Plan or Benefit Arrangement. Except as may be provided elsewhere in this
Section 9.3, Buyer shall have no liability or responsibility to any Transferred
Employee with respect to any benefits payable under any Employee Plan or Benefit
Arrangement. On the Closing Date, subject to the requirements of Section 9.1,
each Transferred Employee shall be eligible to participate in Buyer's employee
plans and benefit arrangements under the terms and conditions of such plans and
arrangements. In addition, Buyer shall have no obligations with respect to any
acts or omissions of Seller, or its officers, agents or employees relating to
Transferred Employees which occur prior to the Closing Date. Seller shall
indemnify and hold Buyer harmless from any Damages with respect to, arising from
or pursuant to any complaint, charge or grievance made by any such Transferred
Employee with respect to any acts or omissions of Seller prior to the Closing
Date.
9.4 INSURANCE COVERAGE. (a) As of the Closing Date, Buyer agrees to
provide insurance coverage (including medical and life insurance) to Transferred
Employees who, after taking into account the provisions of Section 9.1, meet the
eligibility requirements of Buyer's employee plans and benefit arrangements
("Buyer's Benefit Plans"). Any pre-existing conditions of Transferred Employees
as of the Closing Date shall be waived under Buyer's Benefit Plans. Buyer and
Seller agree to establish reasonable rules pursuant to which expenses incurred
prior to the Closing Date by Transferred Employees shall be recognized
under Buyer's Benefit Plans for purposes of deductibles, co-payments and
maximum liability rules. To the extent requested by Buyer in writing prior to
the Closing Date, and for a period of not longer than 60 days after the Closing
Date (the "Transition Period"), Seller agrees to continue to provide, at the
Buyer's expense, medical and dental insurance coverage and claims processing
services for Transferred Employees under the Employee Plans and Benefit
Arrangements providing for such insurance and services, to the extent
permissible under the applicable Employee Plans and Benefit Arrangements. Such
continuation of coverage and services shall not affect the allocation of
liabilities and obligations set forth in this Article 9. Any incurred, but
unpaid, claims of Transferred Employees existing on the Closing Date shall be
submitted for processing in accordance with the terms of the applicable
Employee Plans or Benefit Arrangements and shall be the responsibility of
Seller. Any claims of Transferred Employees incurred during the Transition
Period shall be submitted for processing within 12 months following the date
incurred and shall be the responsibility of Buyer.
(b) Not less than 10 Business Days prior to the Closing Date, Buyer
shall deliver to Seller a list of the Transferred Employees who as of the
Closing Date will not meet the eligibility requirements of Buyer's medical
plans. Seller shall have the responsibility of complying with the continuation
coverage requirements of Section 4980B of the Code in respect of such
Transferred Employees. Seller shall provide Buyer with all information
reasonably requested by Buyer which is necessary for Buyer to determine which
Transferred Employees, if any, will not meet the eligibility requirements of
Buyer's medical plans as of the Closing Date.
9.5 THIRD PARTY BENEFICIARIES. No provision of this Article shall
create any third party beneficiary rights in any employee or former employee of
the Company (including any beneficiary or dependent thereof) in respect of
continued employment or resumed employment, and no provision of this Article
shall create any rights in any such persons in respect of any benefits that may
be provided, directly or indirectly, under any employee benefit plan or
arrangement.
<PAGE> 58
ARTICLE 10
CONDITIONS TO CLOSING
10.1 CONDITIONS TO OBLIGATIONS OF BUYER AND SELLER. The obligations
of Buyer and Seller to consummate the Closing are subject to the satisfaction
of the following conditions:
(i) No provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation of the
Closing.
(ii) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated.
(iii) All actions by or in respect of or filings with any governmental
body, agency, official or authority required to permit the consummation of the
Closing shall have been taken, made or obtained.
10.2 CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to
consummate the Closing is subject to the satisfaction of the following further
conditions:
(i) (A) Seller shall have performed in all material respects all of
its obligations hereunder required to be performed by it on or
prior to the Closing Date, (B) the representations and warranties of
Seller contained in this Agreement (other than Section 3.12 and the
second sentence of Section 3.10) and in any certificate or other
writing delivered by Seller pursuant hereto shall be true in all
material respects at and as of the Closing Date as if made at and as of
such date, it being understood that, for purposes of this Section 10.2,
where any such representation or warranty already includes a Material
Adverse Effect or materiality exception, the materiality exception in
this clause (B) shall not apply, and (C) Buyer shall have received a
certificate signed by an officer of Seller to the foregoing effect.
(ii) If the Closing Date is a Business Day, Buyer or its designee
shall have received certificates for the Shares duly endorsed or
accompanied by stock powers duly endorsed in blank, with any required
transfer stamps affixed thereto and in form proper for transfer, and,
if the Closing Date is not a Business Day, Seller shall have deposited
certificates representing the Shares with the Escrow Agent pursuant to
the terms of the Escrow Agreement.
(iii) Buyer shall have received an opinion of counsel of Seller, dated
the Closing Date, covering the matters described in Exhibit B.
(iv) Buyer shall have received all documents it may reasonably request
relating to the existence of Seller, the Company and the Subsidiaries
and the authority of Seller for this Agreement, all in form and
substance reasonably satisfactory to Buyer.
(v) Buyer shall have received the letters of resignation required
pursuant to Section 5.4.
<PAGE> 59
(vi) Buyer or CSC Ohio shall have obtained the Financing (or any
alternative financing), unless Buyer or CSC Ohio shall have failed
to have obtained such financing exclusively as a result of Buyer's or
CSC's failure to pay any fees or expenses required to be paid by Buyer
or CSC Ohio in connection therewith.
10.3 CONDITIONS TO OBLIGATION OF SELLER. The obligation of Seller to
consummate the Closing is subject to the satisfaction of the following further
conditions:
(i) (A) Buyer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Closing Date, (B) the representations and warranties of Buyer contained
in this Agreement and in any certificate or other writing delivered by
Buyer pursuant hereto shall be true in all material respects at and as
of the Closing Date as if made at and as of such date, it being
understood that, for purposes of this Section 10.3, where any such
representation or warranty already includes a Material Adverse Effect
or materiality exception, the materiality exception in this clause (B)
shall not apply,and (C) Seller shall have received a certificate signed
by an officer of Buyer to the foregoing effect.
(ii) If the Closing Date is a Business Day, Seller shall have received
the Cash Consideration and the Note and, if the Closing Date is not
a Business Day, Buyer or its designee shall have deposited the Cash
Consideration and the Note with the Escrow Agent pursuant to the terms
of the Escrow Agreement.
(iii) Seller shall have received an opinion of counsel to or counsel
of Buyer, dated the Closing Date, covering the matters described
in Exhibit C.
(iv) Seller shall have received all documents it may reasonably
request relating to the existence of Buyer and the authority
of Buyer for this Agreement, all in form and substance reasonably
satisfactory to Seller.
ARTICLE 11
SURVIVAL; INDEMNIFICATION
11.1 SURVIVAL. The covenants, agreements, representations and
warranties of the parties hereto contained in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection
herewith shall survive the Closing until 18 months after the Closing Date;
PROVIDED that (i) the representations and warranties contained in Section 3.17
shall survive for three years after the Closing Date, (ii) the covenants and
agreements contained in Articles , , and 7 shall survive for the respective
periods set forth therein, (iii) the covenants, agreements, representations and
warranties contained in Section 3.16 and Articles and shall survive until
expiration of the statute of limitations applicable to the matters covered
thereby (giving effect to any waiver, mitigation or extension thereof), if
later, and (iv) the representations and warranties set forth in Section 3.5(c)
and the first sentence of Section 3.6(b) shall survive indefinitely; and
PROVIDED FURTHER that no representation or warranty shall survive the Closing
if the party to whom such representation or warranty is made has knowledge of
facts on the Closing Date that would cause such representation or warranty not
to be true on such date. No covenant, agreement,
<PAGE> 60
representation or warranty contained in this Agreement shall survive after the
time at which it would otherwise terminate pursuant to the preceding sentence
unless notice of the inaccuracy or breach thereof shall have been given to the
party against whom such indemnity may be sought prior to such time.
11.2 INDEMNIFICATION. (a) Seller hereby indemnifies Buyer, its
Affiliates and their respective directors and officers against and agrees to
hold them harmless from any and all damage, loss, liability and expense
(including without limitation reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any action, suit or
proceeding) ("Damages") incurred or suffered by Buyer, the Company or any
Subsidiary arising out of any misrepresentation or breach of warranty, covenant
or agreement made or to be performed by Seller pursuant to this Agreement
(other than pursuant to Article 8) or any Damages under the Worker Adjustment
Retraining Notification Act incurred in connection with any employment loss
occurring prior to the Closing Date; PROVIDED that (i) Seller shall not be
liable under this Section unless the aggregate amount of Damages with respect
to all matters referred to in this Section exceeds an amount equal to 2% of
the Purchase Price and then only for the aggregate amount of Damages that
exceeds 1% of the Purchase Price and (ii) Seller's maximum liability under this
Section shall not exceed an amount equal to the Purchase Price; and PROVIDED
FURTHER that any Damages incurred or suffered by Buyer, the Company or any
Subsidiary arising out of fraud or any misrepresentation or breach of warranty,
covenant or agreement contained in the second sentence of Section 3.10 or in
Section 3.12, 3.14(b), 3.16, 3.22, 5.5, 5.8, 7.4, 7.5, 7.6, 7.8 or 9.3 shall
not be subject to the limitation on Damages set forth in clause (i) of the
proviso above.
(b) Buyer hereby indemnifies Seller against and agrees to hold it
harmless from any and all Damages incurred or suffered by Seller arising out of
any misrepresentation or breach of warranty, covenant or agreement made or to
be performed by Buyer pursuant to this Agreement (other than pursuant to
Article 8); PROVIDED that (i) Buyer shall not be liable under this Section
11.2(b) unless the aggregate amount of Damages with respect to all matters
referred to in Section 11.2(b) exceeds an amount equal to 2% of the Purchase
Price and then only for the aggregate amount of Damages that exceeds 1% of the
Purchase Price and (ii) Buyer's maximum liability under Section 11.2(b) shall
not exceed an amount equal to the Purchase Price; and PROVIDED FURTHER that any
Damages incurred or suffered by Seller arising out of fraud or any
misrepresentation or breach of warranty, covenant or agreement contained in
Section 4.8, 6.5, 7.4, 7.6, 7.7, 7.8, 7.9 or 9.3 shall not be subject to the
limitation on Damages set forth in clause (i) of the proviso above.
(c) Any and all payments pursuant to Sections 7.4 and 11.2 and Article
8 shall be deemed for all purposes to be adjustments to the Purchase Price.
11.3 LEASE INDEMNITY. Notwithstanding anything to the contrary in
this Agreement (including without limitation Section 11.2), Buyer hereby
indemnifies each of Seller and MRC against and agrees to hold each of Seller
and MRC harmless from any and all Damages incurred or suffered by Seller or MRC
arising out of Buyer's, the Company's or any Subsidiary's failure to pay all
monies due and owing pursuant to the provisions of any Facility Lease or Lease
(other than a Terminated Lease) on or after the Closing Date, or by reason of
Buyer's, the Company's or any Subsidiary's breach of any of the other terms,
covenants and conditions of any Facility Lease or Lease occurring on or after
the Closing Date.
11.4 PROCEDURES; EXCLUSIVITY. (a) The party seeking indemnification
under Section or 11.3 (the "Indemnified Party") agrees to give prompt notice
to the party against whom indemnity is sought (the "Indemnifying Party") of the
assertion of any claim, or the commencement of any suit, action or proceeding
<PAGE> 61
in respect of which indemnity may be sought under such Section; PROVIDED that,
if a claim for indemnification under Section 11.2 or 11.3 is based upon the
claim, demand, action or assertion of a third party, such notice shall be given
within 10 Business Days after the Indemnified Party has received from such
third party written notice of such claim, demand, action or assertion. The
Indemnifying Party may, and at the request of the Indemnified Party shall,
participate in and control the defense of any such suit, action or proceeding
at its own expense. The Indemnifying Party shall not be liable under Section
11.2 or 11.3 for any settlement effected without its consent of any claim,
litigation or proceeding in respect of which indemnity may be sought hereunder.
(b) After the Closing, Article 8 and Sections , 11.3, 11.4 and 11.5
will provide the exclusive remedy for any misrepresentation or breach of
warranty, covenant or other agreement (other than those contained in Sections ,
2.4, 5.9, 5.11 and ), or other claim arising out of this Agreement or the
transactions contemplated hereby. Without limiting the generality of the
foregoing, Buyer and, effective at the Closing, the Company and its
Subsidiaries, hereby waive all rights for contribution or any other rights of
recovery (except as otherwise provided in Section 11.2) with respect to any
Damages arising under or relating to Environmental Laws, whether now or
hereafter in effect, that it might have by statute or otherwise against Seller
or any of its Affiliates.
11.5 LIMITATION OF INDEMNIFICATION. Notwithstanding the foregoing
provisions of this Article 11, an Indemnifying Party's obligation to indemnify
an Indemnified Party shall be subject to the following limitations:
(i) No indemnification shall be required to be made by Buyer or Seller
to the extent that the Damages incurred or suffered by the Indemnified
Party have been taken into account in connection with the preparation
of the Closing Balance Sheet and the calculation of Final Net Book
Value.
(ii) No indemnification shall be required to be made by Buyer or
Seller with respect to any claim for indemnity which individually
is less than $2,000.
(iii) The Damages required to be paid by the Indemnifying Party
pursuant to this Article 11 shall be reduced to the extent of any
amounts actually received by the Indemnified Party after the Closing
Date pursuant to the terms of any insurance policies covering such
Damages.
(iv) Each of the parties agrees that to the extent the other party
indemnifies it from any claim for Damages, the Indemnified Party
shall assign its rights to such claim to the Indemnifying Party to the
extent of any amounts actually received by the Indemnified Party from
the Indemnifying Party.
11.6 NO CIRCULAR RECOVERY. Seller hereby agrees that it will not make
any claim for indemnification against Buyer, the Company or any Subsidiary by
reason of the fact that it or any of its officers, directors, agents or other
representatives was a controlling person, director, officer, employee, agent or
other representative of the Company or any Subsidiary or was serving as such
for another person at the request of the Company or any Subsidiary of the
Company (whether such claim is for losses of any kind or otherwise and whether
such claim is pursuant to any statute, Charter, bylaw, contractual obligation
or otherwise) with respect to any action, suit, claim or proceeding brought by
Buyer or any of its Affiliates
<PAGE> 62
against Seller (whether such action, suit, claim or proceeding is pursuant to
this Agreement, applicable law or otherwise).
ARTICLE 12
TERMINATION
12.1 GROUNDS FOR TERMINATION. This Agreement may be terminated at
any time prior to the Closing:
(i) by mutual written agreement of Seller and Buyer;
(ii) by either Seller or Buyer if the Closing shall not have been
consummated on or before June 1, 1996;
(iii) by either Seller or Buyer if there shall be any law or regulation
that makes consummation of the transactions contemplated hereby
illegal or otherwise prohibited or if consummation of the transactions
contemplated hereby would violate any nonappealable final order, decree
or judgment of any court or governmental body having competent
jurisdiction;
(iv) by Seller, if any representation or warranty of Buyer contained
in this Agreement shall prove to be inaccurate in any material respect
at the time when made (it being understood that, for purposes of
this subsection (iv), where any such representation or warranty already
includes a Material Adverse Effect or materiality exception, the
materiality exception in this subsection (iv) shall not apply) and
Buyer shall refuse or fail after written notice to correct such
representation or warranty within 45 days of such written notice;
PROVIDED that Seller may not terminate this Agreement pursuant to this
subsection (iv) if Buyer continues in good faith to use its best
efforts to correct any such representation or warranty, and such
correction is capable of being performed prior to June 1, 1996;
(v) by Buyer, if any representation or warranty of Seller contained in
this Agreement shall prove to be inaccurate in any material respect at
the time when made (it being understood that, for purposes of this
subsection (v), where any such representation or warranty already
includes a Material Adverse Effect or materiality exception, the
materiality exception in this subsection (v) shall not apply) and
Seller shall refuse or fail after written notice to correct such
representation or warranty within 45 days of such written notice;
PROVIDED that Buyer may not terminate this Agreement pursuant to this
subsection (v) if Seller continues in good faith to use its best
efforts to correct any such representation or warranty, and such
correction is capable of being performed prior to June 1, 1996;
(vi) by Seller, if there shall be any material breach or violation of
any material covenant or agreement herein to be performed by Buyer
and such breach or violation is not capable of cure prior to June 1,
1996;
(vii) by Buyer, if there shall be any material breach or violation of
any material covenant or agreement herein to be performed by Seller
and such breach or violation is not capable of cure prior to June 1,
1996;
<PAGE> 63
(viii) by Buyer, if, prior to the Closing Date, Leases accounting for
Contribution of more than $5 million (including Leases with negative
Contribution as a deduction therefrom) are determined to be Terminated
Leases; PROVIDED that, for purposes hereof, the Contribution of a New
Store Lease shall be deemed to be zero.
The party desiring to terminate this Agreement shall give notice of
such termination to the other party.
12.2 EFFECT OF TERMINATION. If this Agreement is terminated as
permitted by Section 12.1, termination shall be without liability of any party
(or any stockholder, director, officer, employee, agent, consultant or
representative of such party) to any other party to this Agreement; PROVIDED
that if such termination shall result from the willful failure of Buyer or
Seller to fulfill a condition to the performance of the obligations of the
other party, failure to perform a covenant of this Agreement or breach by such
party of any representation or warranty or agreement contained herein, such
party shall be fully liable for any and all Damages incurred or suffered by the
other party as a result of such failure or breach. The provisions of Sections
5.9, 6.1, 12.2, 12.3, 13.1, 13.2, 13.3, 13.5, 13.6, 13.9, 13.10 and 13.12 shall
survive any termination hereof pursuant to Section 12.1.
12.3 TERMINATION FEE. In the event that (i) Seller shall breach the
provisions of Section 5.7, (ii) this Agreement is terminated other than (A) as
permitted by Section 12.1 (other than as a result of a breach by Seller of the
provisions of Section 5.7) or (B) as a result of the willful failure of Buyer
to fulfill a condition to the performance of the obligations of Seller, failure
of Buyer to perform a covenant of this Agreement or breach by Buyer of any
representation or warranty or agreement contained herein and (iii) within 24
months of the breach referred to in clause (i) there is a consummation of a
transaction involving the acquisition of all or substantially all of the
capital stock or the assets or the business of the Company and the
Subsidiaries, whether by direct purchase, merger, consolidation or other
combination), immediately upon consummation of such transaction, Seller shall
pay, or cause the Company to pay, to Buyer an amount in cash equal to (x)
$10,000,000 plus (y) Buyer's reasonable out-of-pocket expenses incurred in
connection with the transactions contemplated by this Agreement. Any amounts
due under this Section 12.3 shall be in the nature of liquidated damages and
not in the nature of a penalty. Notwithstanding anything in this Agreement to
the contrary, the provisions of this Section 12.3 shall be the sole and
exclusive remedy of Buyer in the event of a breach by Seller of the provisions
of Section 5.7.
ARTICLE 13
MISCELLANEOUS
13.1 NOTICES. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile transmission) and
shall be given,
<PAGE> 64
if to Buyer, to:
Consolidated Stores Corporation
300 Phillipi Road
P.O. Box 28512
Columbus, Ohio 43228-0512
Attention: Chief Financial Officer
Telecopier: (614) 278-6666
and
Attention: General Counsel
Telecopier: (614) 278-6763
with a copy to:
Benesch, Friedlander, Coplan & Aronoff P.L.L.
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Telecopier: (216) 363-4588
Attention: Michael K. Wager, Esq.
if to Seller, to:
Melville Corporation
One Theall Road
Rye, New York 10580
Attention: Chief Financial Officer
Telecopier: (914) 925-4022
and
Attention: General Counsel
Telecopier: (914) 925-4042
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopier: (212) 450-4800
Attention: Dennis S. Hersch, Esq.
<PAGE> 65
All such notices, requests and other communications shall be deemed
received (i) on the date of receipt by the recipient thereof if delivered
personally, by facsimile transmission or overnight courier service and received
prior to 5 p.m. in the place of receipt and such day is a Business Day in the
place of receipt or (ii) three days after having been deposited in the United
States mail, certified or registered, return receipt requested, postage
prepaid. Otherwise, any such notice, request or communication shall be deemed
not to have been received until the next succeeding Business Day in the place
of receipt.
13.2 AMENDMENTS AND WAIVERS. (a) Any provision of this Agreement may
be amended or waived if, but only if, such amendment or waiver is in writing
and is signed, in the case of an amendment, by each party to this Agreement, or
in the case of a waiver, by the party against whom the waiver is to be
effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
13.3 EXPENSES. Except as otherwise expressly provided herein, all
costs and expenses incurred in connection with this Agreement shall be paid by
the party incurring such cost or expense.
13.4 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; PROVIDED that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto. Notwithstanding the foregoing,
Buyer may assign its rights hereunder to one or more wholly owned Subsidiaries
of Buyer, but such assignment shall not relieve Buyer of its obligations
hereunder.
13.5 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the law of the State of New York, without regard to the
conflicts of law rules of such state.
13.6 JURISDICTION. Except as otherwise expressly provided in this
Agreement, any suit, action or proceeding seeking to enforce any provision of,
or based on any matter arising out of or in connection with, this Agreement or
the transactions contemplated hereby shall only be brought in the United States
District Court for the Southern District of New York or any other New York
State court sitting in New York County, and each of the parties hereby consents
to the jurisdiction of such courts (and of the appropriate appellate courts
therefrom) in any such suit, action or proceeding and irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such suit, action or
proceeding in any such court or that any such suit, action or proceeding which
is brought in any such court has been brought in an inconvenient forum.
Process in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that service of
process on such party as provided in Section 13.1 shall be deemed effective
service of process on such party.
<PAGE> 66
13.7 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have
received a counterpart hereof signed by the other party hereto (which
counterpart may be a facsimile copy of the original executed counterpart).
13.8 THIRD PARTY BENEFICIARIES. No provision of this Agreement is
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
13.9 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter thereof and
supersedes all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter thereof. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by either party hereto. Neither
this Agreement nor any provision hereof is intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.
13.10 VALIDITY OF PROVISIONS. Should any provision of this Agreement
be declared by any court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions shall not be affected thereby. If any
provision of this Agreement shall be held to be partially invalid and
unenforceable, then that portion which is not held to be invalid or
unenforceable shall be deemed enforceable to the maximum extent permitted by
law.
13.11 SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
13.12 FORCE MAJEURE. In the event that Buyer or Seller shall be
delayed or hindered in or prevented from doing or performing any act or thing
required by this Agreement by reason of strikes, lock-outs, casualties, acts of
God, labor troubles, inability to procure materials, governmental laws or
regulations, riots, insurrection, war or other causes beyond its reasonable
control (except for a lack of funds or an inability to obtain financing), then
the delayed party shall not be liable or responsible for any such delay, and
the doing or performing of such act or thing shall be excused for the period of
the delay, and the period for performance of any such act shall be extended for
a period equivalent to the period of such delay.
13.13 FURTHER ASSURANCES. At any time and from time to time, each
party hereto, without further consideration, shall cooperate, take such further
action and consideration, shall cooperate, take such further action and execute
and deliver such further instruments and documents as may be reasonably
requested by any other party in order to carry out the provisions and purposes
of this Agreement.
<PAGE> 67
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
MELVILLE CORPORATION
By: ____________________________
Name:
Title:
CONSOLIDATED STORES CORPORATION
By: ____________________________
Name:
Title:
<PAGE> 68
Exhibit A
SENIOR SUBORDINATED NOTE TERM SHEET
<PAGE> 69
Exhibit B
MATTERS TO BE COVERED IN THE OPINION OF
COUNSEL OF MELVILLE CORPORATION
-------------------------------
(a) Each of Seller, the Company, Southdale, Mall of America, CW
Kay-Bee, K&K Kay-Bee and Toy & Hobby is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers and all material governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted. Each of the Company, Southdale, Mall of
America, CW Kay-Bee, K&K Kay-Bee and Toy & Hobby is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where such qualification is necessary, except for those jurisdictions where
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect on the Company.
(b) The execution, delivery and performance by Seller of this
Agreement are within Seller's corporate powers and have been duly authorized by
all necessary corporate action on the part of Seller. This Agreement
constitutes a valid and binding agreement of Seller enforceable in accordance
with its terms, except as (i) the enforceability hereof may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
(c) The execution, delivery and performance by Seller of this
Agreement require no approval, consent, waiver, authorization or other action
by or in respect of, or filing, registration or recording with, any
governmental body, agency, or official, except for (i) satisfaction of the
requirements of the HSR Act, which requirements have been satisfied, (ii)
compliance with any applicable requirements of the Exchange Act and (iii) any
such approval, consent, waiver, authorization or other action or filing,
registration or recording as to which the failure to make or obtain would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
(d) The execution, delivery and performance by Seller of this
Agreement do not and will not (i) violate the Charter or bylaws of Seller, the
Company or any Subsidiary, (ii) assuming compliance with the matters referred
to in paragraph (c) above, violate any applicable law, rule, regulation,
judgment, injunction, order or decree, (iii) to the best knowledge of such
counsel, require any approval, consent, waiver, authorization or other action
by, or filing, registration or recording with, any Person under, constitute a
breach or default under, or give rise to any right of termination, cancellation
or acceleration of any right or obligation of the Company or any Subsidiary or
to a modification of the terms or conditions of any right or obligation to
which the Company or any Subsidiary is entitled under, any agreement or other
instrument (other than any Facility Lease or Lease) binding upon the Company or
any Subsidiary or any license, franchise, permit or other similar authorization
held by the Company or any Subsidiary, or (iv) to the best knowledge of such
counsel, result in the creation or imposition of any Lien on, or the forfeiture
of, any asset of the Company or any Subsidiary, except, in the case of clauses
(ii), (iii), and (iv), to the extent that any such violation, failure to obtain
any such approval, consent, waiver, authorization or other action, default,
right, modification, Lien or forfeiture would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
(e) The authorized capital stock of the Company consists of 100
shares of Common Stock, of which 10 shares are issued and outstanding. The
Shares have been duly authorized and validly issued
<PAGE> 70
and are fully paid and non-assessable. Seller is the record and beneficial
owner of the Shares, to the best knowledge of such counsel, free and clear of
any Lien and any other limitation or restriction (including any restriction on
the right to vote, sell or otherwise dispose of the Shares). To the best
knowledge of such counsel, there are no other outstanding Company Securities
and no outstanding obligations of the Company or any Subsidiary (including but
not limited to pursuant to any Charter of bylaw provision of the Company or any
Subsidiary) to issue, repurchase, redeem or otherwise acquire, or make any
payment in respect of, any Company Securities.
(f) All of the outstanding capital stock of each of Southdale, Mall
of America, CW Kay-Bee, K&K Kay-Bee and Toy & Hobby is owned by the Company,
directly or indirectly, to the best knowledge of such counsel, free and clear
of any Lien and any other limitation or restriction (including any restriction
on the right to vote, sell or otherwise dispose of such capital stock).
(g) Except as disclosed in Schedule 3.12 of the Stock Purchase
Agreement (as amended as of the Closing Date), there is no action, suit,
investigation or proceeding pending against, or to the best knowledge of such
counsel threatened against or affecting, the Company or any Subsidiary or any
of their respective properties before any court or arbitrator or any
governmental body, agency or official.
(h) To the best knowledge of such counsel, neither the Company nor
any Subsidiary is in violation of, or has since January 1, 1995 violated, any
applicable law, rule, regulation, judgement, injunction, order or decree,
except for such violations as have not had and will not have individually or in
the aggregate a Material Adverse Effect on the Company.
Counsel may rely on corporate records, certificates of public
officials and corporate officers and opinions of local counsel for purposes of
rendering an opinion.
To the extent the opinion involves matters governed by the laws of
jurisdictions other than the State of New York and the Federal law of the
United States of America, counsel may assume that the laws of such
jurisdictions are the same in substantive effect as the laws of the State of
New York.
<PAGE> 71
Exhibit C
MATTERS TO BE COVERED IN THE OPINION OF
COUNSEL OF CONSOLIDATED STORES CORPORATION
------------------------------------------
(a) Each of Buyer and CSC Ohio is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all corporate powers and all material governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted.
(b) The execution, delivery and performance by Buyer of this
Agreement are within the corporate powers of Buyer and have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement constitutes a valid and binding agreement of Buyer enforceable in
accordance with its terms, except as (i) the enforceability hereof may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
the enforcement of creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability. The execution, delivery and performance by CSC Ohio of the Note
are within the corporate powers of CSC Ohio and have been duly authorized by
all necessary corporate action on the part of CSC Ohio. The Note, when issued
and delivered at the Closing in accordance with the terms of the Stock Purchase
Agreement, will constitute a valid and binding obligation of CSC Ohio
enforceable in accordance with its terms, except as (i) the enforceability
hereof may be limited by bankruptcy, insolvency, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (ii) the
availability of equitable remedies may be limited by equitable principles of
general applicability.
(c) The execution, delivery and performance by Buyer of this
Agreement and the execution, delivery and performance by CSC Ohio of the Note
require no approval, consent, waiver, authorization or other action by or in
respect of, or filing, registration or recording with, any governmental body,
agency or official except for (i) satisfaction of the requirements of the HSR
Act, which requirements have been satisfied, (ii) compliance with any
applicable requirements of the Exchange Act and (iii) any such approval,
consent, waiver, authorization or other action or filing, registration or
recording as to which the failure to make or obtain would not, individually or
in the aggregate, have a Material Adverse Effect on Buyer or CSC Ohio, as the
case may be.
(d) The execution, delivery and performance by Buyer of this
Agreement and the execution, delivery and performance by CSC Ohio of the Note
do not and will not (i) violate the Charter or bylaws of Buyer or CSC Ohio or
(ii) assuming compliance with the matters referred to in paragraph (c) above,
violate any applicable law, rule, regulation, judgment, injunction, order or
decree.
(e) There is no action, suit, investigation or proceeding pending
against, or to the best knowledge of such counsel threatened against or
affecting, Buyer or any of Buyer's Subsidiaries before any court or arbitrator
or any governmental body, agency or official (i) in which there is a reasonable
possibility of an adverse decision which would have a Material Adverse Effect
on Buyer or (ii) which in any manner challenges or seeks to prevent, enjoin,
alter or materially delay the transactions contemplated by this Agreement and
which has a substantial likelihood of success on the merits.
Counsel may rely on corporate records, certificates of public
officials and corporate officers and opinions of local counsel for purposes of
rendering an opinion. To the extent the opinion involves matters
<PAGE> 72
governed by the laws of jurisdictions other than the State of Ohio and the
Federal laws of the United States of America, counsel may assume that the laws
of such jurisdictions are the same in substantive effect as the laws of the
State of Ohio.
