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): August 23, 1994
PETRIE STORES CORPORATION
(Exact Name of Registrant as Specified in Charter)
New York 1-6166 36-213-7966
(State or Other Jurisdiction of (Commission) (I.R.S. Employer
Incorporation) File Number) Identification No.)
70 Enterprise Avenue, Secaucus, New Jersey 07084
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (201) 866-3600
N/A
(Former Name or Former Address, if Changed Since Last Report)
Item 5. Other Events
On August 23, 1994, Petrie Stores Corporation, a New
York corporation (the "Company"), entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement") with
WP Investors, Inc., a Delaware corporation ("WP").
Pursuant to the Stock Purchase Agreement, WP and one or
more of its non-affiliated designees (collectively, the
"Buyer") will purchase the shares of common stock (the
"Stock Purchase") in a Delaware subsidiary of the Company
("Retail Holding Company"), to which all of the retail
operations of the Company will have been transferred
prior to the closing date of the Stock Purchase. The
purchase price will be $190 million in cash (the
"Purchase Price"). The closing of the Stock Purchase is
conditioned upon, among other things, the closing of the
Company's share exchange transaction with Toys "R" Us,
Inc., a Delaware corporation ("Toys"), pursuant to an
Acquisition Agreement between the Company and Toys, dated
as of April 20, 1994 (the "Toys Agreement"). The Toys
Agreement provides that the Company will transfer all of
the common stock, par value $.10 per share, of Toys
("Toys Shares") held by the Company and its subsidiaries
and cash to Toys in exchange for Toys Shares with an
equivalent value, less approximately $115 million. The
closing of the transaction with Toys is conditioned upon,
among other things, the disposition of the Company's
retail operations in a manner to be determined by the
Company's Board of Directors and the Company receiving a
private letter ruling from the Internal Revenue Service
to the effect that the transactions contemplated by the
Toys Agreement will not give rise to the recognition by
the Company, its shareholders or Toys of a material
amount of taxable income (the "IRS Ruling"). The
Company's obligations under both agreements are also
conditioned upon, among other things, the Company
reducing its contingent liabilities, primarily retail
lease guarantees, to less than $200 million and the
approval of the transactions contemplated by both
agreements by the holders of two-thirds of the Company's
outstanding common shares. As part of the Stock Purchase,
Buyer will assume a substantial portion of the Company's
liabilities and the Company will retain certain
contingent liabilities. Promptly after the closing of the
transaction with Toys and the Stock Purchase, the Company
will liquidate and distribute to its shareholders all of
the Toys Shares received in the exchange, except an
amount to be held in a liquidating trust to cover the
Company's contingent liabilities at the closing of the
Toys transaction. The Buyer's obligations to close the
Stock Purchase are conditioned upon, among other things,
its receipt of financing and the Company's receipt of
sufficient consents from landlords. The Stock Purchase
may be terminated if it is not consummated by January 31,
1995.
Milton Petrie, Chairman of the Board of Directors of
the Company, who owns approximately 60% of the
outstanding and 54% of the fully diluted Shares, by act
of his attorneys-in-fact, has agreed to vote his Shares
in favor of the Stock Purchase pursuant to a Voting
Agreement and Proxy, dated as of August 23, 1994, between
Mr. Petrie and WP. Mr. Petrie is also party to a Voting
Agreement and Proxy with Toys, dated as of April 20,
1994, pursuant to which, by act of his attorneys-in-fact,
he has agreed to vote his Shares in favor of the
transactions contemplated by the Toys Agreement.
A copy of the Stock Purchase Agreement, dated August
23, 1994, is filed as Exhibit 10.1 to this Report and is
incorporated herein by reference. A copy of the Voting
Agreement and Proxy, dated August 23, 1994, is filed as
Exhibit 99.1 to this Report and is incorporated herein by
reference. A copy of the Press Release, dated August 23,
1994, announcing the signing of the Stock Purchase
Agreement is filed as Exhibit 99.2 to this Report and is
incorporated herein by reference. Copies of the Toys
Agreement, dated April 20, 1994, and the Voting Agreement
and Proxy, dated April 20, 1994, were previously filed as
exhibits to the Company's Current report on Form 8-K,
filed April 22, 1994, and are incorporated herein by
reference.
Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits
(c) Exhibits
Exhibit No. Description
10.1 Stock Purchase Agreement, dated as of August 23,
1994.
99.1 Voting Agreement and Proxy, dated as of
August 23, 1994.
99.2 Press Release, issued August 23, 1994.
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
thereunto duly authorized.
Dated: August 26, 1994
PETRIE STORES CORPORATION
By: /s/ Peter A. Left
Name: Peter A. Left
Title: Vice Chairman, Chief
Operating Officer,
Chief Financial Officer
and Secretary
Exhibit Index
Exhibit Description
10.1 Stock Purchase
Agreement, dated as of
August 23, 1994.
99.1 Voting Agreement and
Proxy, dated as of
August 23, 1994.
99.2 Press Release, issued
August 23, 1994.
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
PETRIE STORES CORPORATION
AND
WP INVESTORS, INC.
Dated as of August 23, 1994
_____________________________________________________________
TABLE OF CONTENTS
ARTICLE I
SALE OF STOCK
1.1. The Sale . . . . . . . . . . . . . . . . .
ARTICLE II
THE CLOSING
2.1. Time and Place of Closing . . . . . . . .
2.2. Deliveries by Seller . . . . . . . . . . .
2.3. Deliveries by Buyer . . . . . . . . . . .
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1. Corporate Organization; Etc. . . . . . .
3.2. Capitalization . . . . . . . . . . . . .
3.3. Authority Relative to this Agreement . .
3.4. Consents and Approvals; No Violations . .
3.5. Reports . . . . . . . . . . . . . . . . .
3.6. No Undisclosed Liabilities . . . . . . .
3.7. Absence of Certain Changes . . . . . . .
3.8. No Default . . . . . . . . . . . . . . .
3.9. Litigation . . . . . . . . . . . . . . .
3.10. Taxes . . . . . . . . . . . . . . . . . .
3.11. Employee Benefit Plans; ERISA . . . . . .
3.12. Store Names . . . . . . . . . . . . . . .
3.13. Environmental Matters . . . . . . . . . .
3.14. Labor Relations . . . . . . . . . . . . .
3.15. Brokers and Finders . . . . . . . . . . .
3.16. Transfer of Assets and Liabilities . . .
3.17. Transfer of Employee Benefit Plans
and Arrangements . . . . . . . . . . .
3.18. Toys Acquisition Agreement . . . . . . .
3.19. Ruling Request . . . . . . . . . . . . .
3.20. Real Property . . . . . . . . . . . . . .
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1. Organization; Etc. . . . . . . . . . . . .
4.2. Authority Relative to this Agreement . . .
4.3. Consents and Approvals; No Violations . .
4.4. Acquisition of Stock for Investment . . .
4.5. Brokers and Finders . . . . . . . . . . .
ARTICLE V
COVENANTS OF THE PARTIES
5.1. Conduct of Business of the Company . . . .
5.2. No Solicitation . . . . . . . . . . . . .
5.3. Access to Information . . . . . . . . . .
5.4. Reasonable Efforts . . . . . . . . . . . .
5.5. Limitation of Seller's Liabilities . . . .
5.6. Minimum Net Worth . . . . . . . . . . . .
5.7. Public Announcements . . . . . . . . . . .
5.8. Employee Matters . . . . . . . . . . . . .
5.9. Financing Participation . . . . . . . . .
5.10. Toys Agreement . . . . . . . . . . . . . .
5.11. Buyer's Designee . . . . . . . . . . . . .
5.12. Working Capital Pledge; Excluded
Liabilities . . . . . . . . . . . . . .
5.13. Inventory Audit . . . . . . . . . . . . .
5.14. Collective Bargaining Agreements;
Withdrawal Liability . . . . . . . . . .
5.15 Store Lease Transfers . . . . . . . . . .
5.16 Additional Covenants Regarding Leases . .
5.17 Excluded Liabilities . . . . . . . . . . .
5.18 Additional Covenant Regarding
Employee Benefit Plans . . . . . . . . .
ARTICLE VI
TAX MATTERS
6.1. Tax Returns, Payments of Taxes, Transfer
Taxes, Refunds and Withholding . . . . .
6.2. Control of Contest . . . . . . . . . . .
6.3. Access to Information and Retention of
Records . . . . . . . . . . . . . . . .
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE STOCK PURCHASE
7.1. Conditions to Each Party's Obligations to
Consummate the Stock Purchase . . . . .
7.2. Further Conditions to Seller's Obliga-
tions . . . . . . . . . . . . . . . . .
7.3. Further Conditions to Buyer's Obliga-
tions . . . . . . . . . . . . . . . . .
ARTICLE VIII
TERMINATION AND ABANDONMENT
8.1. Termination . . . . . . . . . . . . . . .
8.2. Procedure and Effect of Termination . . .
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1. Non-Survival of Representations and
Warranties . . . . . . . . . . . . . .
9.2. Amendment and Modification . . . . . . .
9.3. Extension; Waiver . . . . . . . . . . . .
9.4. Entire Agreement; Assignment; Alternate
Structure . . . . . . . . . . . . . . .
9.5. Validity . . . . . . . . . . . . . . . .
9.6. Notices . . . . . . . . . . . . . . . . .
9.7. Governing Law . . . . . . . . . . . . . .
9.8. Descriptive Headings . . . . . . . . . .
9.9. Counterparts . . . . . . . . . . . . . .
9.10. Expenses . . . . . . . . . . . . . . . .
9.11. Parties in Interest . . . . . . . . . . .
9.12. No Waivers . . . . . . . . . . . . . . .
9.13. Specific Performance . . . . . . . . . .
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of August
23, 1994 (this "Agreement"), by and between Petrie Stores
Corporation, a New York corporation ("Seller"), and WP
Investors, Inc., a Delaware corporation ("Buyer").
WHEREAS, Seller and Toys "R" Us, Inc., a
Delaware corporation ("Toys"), are parties to an
Acquisition Agreement, dated April 20, 1994 (the "Toys
Agreement"), which contemplates (i) the disposition of
all of the Seller's retail stores and operations (the
"Retail Operations"), (ii) the exchange with Toys of cash
and all the shares of common stock, par value $.10 per
share (the "Toys Shares"), held by Seller and its
subsidiaries for Toys Shares (the "Exchange") and (iii)
the establishment of a liquidating trust and escrow (the
"Liquidating Trust") and the complete liquidation and
dissolution of Seller (collectively, the "Toys
Transaction");
WHEREAS, Seller owns all of the issued and
outstanding shares of common stock (the "Shares") of a
Delaware subsidiary of Seller to which Seller intends to
transfer the Retail Operations (the "Company");
WHEREAS, Seller desires to sell to Buyer, and
Buyer desires to purchase from Seller, all of the Shares,
upon the terms and subject to the conditions set forth
herein;
WHEREAS, simultaneously with the execution and
delivery hereof, a shareholder of Seller is executing and
delivering to Buyer a voting agreement and proxy (the
"Shareholder Proxy"); and
NOW, THEREFORE, in consideration of the
foregoing and the mutual representations, warranties,
covenants and agreements contained herein, the parties
hereto agree as follows:
ARTICLE I
SALE OF STOCK
1.1. The Sale. Subject to adjustment as
provided in Section 5.11 hereof, upon the terms and
subject to the conditions of this Agreement, at the
Closing (as hereinafter defined), Seller will sell,
convey, assign, transfer and deliver to Buyer and its
Designee (as defined in Section 5.11 hereof), and Buyer
and its Designee will purchase, acquire and accept from
Seller, 79% of the Shares and 21% of the Shares,
respectively, in consideration for which, at the Closing,
Buyer and the Designee will pay to Seller $150.1 million
and $39.9 million, respectively (by wire transfer of
immediately available funds to an account or accounts
designated by Seller prior to the Closing) (the "Purchase
Price"). The transactions contemplated by this Section
1.1 are sometimes herein referred to as the "Stock
Purchase."
ARTICLE II
THE CLOSING
2.1. Time and Place of Closing. Upon the
terms and subject to the conditions of this Agreement,
the closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices
of Skadden, Arps, Slate, Meagher & Flom, 919 Third
Avenue, New York, New York 10022 at 9:30 a.m. on the
business day following the date on which all of the
conditions to each party's obligations hereunder have
been satisfied or waived (which, at Buyer's reasonable
request, need not be prior to October 31, 1994), or at
such other place or time as the parties may agree. The
date on which the Closing actually occurs and the
transactions contemplated hereby become effective is
referred to herein as the "Closing Date."
2.2. Deliveries by Seller. At the Closing,
Seller will deliver the following to Buyer:
(a) Stock certificates representing the
Shares, accompanied by stock powers duly endorsed in
blank or accompanied by duly executed instruments of
transfer;
(b) The resignations of all members of the
Board of Directors of the Company and each of its
subsidiaries as requested by Buyer;
(c) The stock book, stock ledger, minute book
and corporate seal of the Company; and
(d) All other documents, instruments and
writings required to be delivered by Seller at or prior
to the Closing Date pursuant to this Agreement.
2.3. Deliveries by Buyer. At the Closing,
Buyer will deliver the following to Seller:
(a) The Purchase Price in accordance with
Section 1.1 hereof; and
(b) All other documents, instruments and
writings required to be delivered by Buyer at or prior to
the Closing Date pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer
as follows:
3.1. Corporate Organization; Etc. Each of the
Seller and its subsidiaries is a corporation duly
organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has
all requisite power and authority to own, lease and
operate its properties and to carry on its business as
now being conducted, except where the failure to have
such power or authority would not individually or in the
aggregate have a material adverse effect on the assets,
properties, liabilities, businesses, operations or
financial condition of Seller and its subsidiaries taken
as a whole, without taking into account the Toys Shares
(a "Material Adverse Effect"). Each of the Seller and
its subsidiaries is duly qualified or licensed and in
good standing to do business in each jurisdiction in
which the property owned, leased or operated by it or the
nature of the business conducted by it makes such
qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified
or licensed and in good standing would not in the
aggregate have a Material Adverse Effect. Seller has
made or will make available to Buyer accurate and
complete copies of the charter and by-laws, as currently
in effect, of Seller and each of its subsidiaries. The
Company is a wholly owned subsidiary of Seller.
3.2. Capitalization.
(a) All of the outstanding shares of capital
stock of the Company are and at all times on or prior to
the Closing will be, directly or indirectly owned by
Seller. All the issued and outstanding Shares are
validly issued, fully paid and nonassessable and free of
preemptive rights or any other Encumbrances (as defined
below) whatsoever. Except as set forth above, there are
not, and at the Closing there will not be, any shares of
capital stock of the Company issued or outstanding or any
subscriptions, options, warrants, calls, rights,
convertible securities or other agreements or commitments
of any character obligating the Company or any other
person or entity to issue, transfer or sell any of its
securities.
(b) Except as disclosed in Section 3.2 of the
disclosure schedule delivered by Seller to Buyer (the
"Disclosure Schedule"), Seller does not own, directly or
indirectly, any capital stock or other equity securities
of any corporation or have any direct or indirect equity
or ownership interest in any business. All of the
outstanding shares of capital stock of each of Seller's
subsidiaries have been validly issued and are fully paid
and nonassessable and are owned by either Seller or
another of its subsidiaries free and clear of all
Encumbrances. Except as set forth in Schedule 3.2 of the
Disclosure Schedule there are not now, and at the Closing
there will not be, any outstanding subscriptions,
options, warrants, puts, calls, rights, convertible
securities or other agreements, commitments (including
pursuant to any employee benefit plan or arrangement) of
any character relating to the issued or unissued capital
stock or other securities of Seller or any of Seller's
subsidiaries, or otherwise obligating Seller, any such
subsidiary or any other person or entity to issue,
transfer, sell, purchase, redeem, convert, exchange,
register or vote any such securities. There are not now,
and at the Closing there will not be, any voting trusts
or other agreements or understandings to which Seller or
any of its subsidiaries is a party or is bound with
respect to the voting of the capital stock of Seller or
any of its subsidiaries. Except as set forth above or in
Section 3.2 of the Disclosure Schedule, there are no
persons or entities (other than its subsidiaries) in
which Seller or any of its subsidiaries has any voting
rights or equity interests.
(c) The consummation of the Stock Purchase
will convey to Buyer good title to the Shares, free and
clear of all Encumbrances of any nature whatsoever,
except for those created by Buyer. For purposes of this
Agreement, the term "Encumbrances" means any lien, claim,
charge, proxy, security interest, mortgage, pledge,
easement, conditional sale or other title retention
agreement, defect in title, preemptive or subscriptive
right, restriction on transfer, covenant or other
encumbrance or restriction of any kind.
3.3. Authority Relative to this Agreement.
The Seller has full corporate power and authority to
execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and
validly authorized by all requisite corporate action and
no other corporate proceedings on the part of Seller are
necessary to authorize this Agreement or to consummate
the transactions so contemplated. The consummation of
the Stock Purchase does not require any approval by the
shareholders of Seller. This Agreement has been duly and
validly executed and delivered by Seller and, assuming
this Agreement has been duly authorized, executed and
delivered by Buyer, constitutes a valid and binding
agreement of Seller, enforceable against Seller in
accordance with its terms. The Board of Directors of
Seller has approved this Agreement and the transactions
contemplated hereby (including the execution and delivery
of the Shareholder Proxy) for purposes of Section 912 of
the New York Business Corporation Law.
3.4. Consents and Approvals; No Violations.
Except for applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
and the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") no declaration,
registration, qualification or filing with or notice to,
no permit, authorization, consent or approval of, and no
waiver or order from, any domestic or foreign
Governmental Body, is necessary for the consummation by
Seller of the transactions contemplated by this
Agreement. For purposes of this Agreement, the term
"Governmental Body" shall mean any court, government
(federal, state, local or foreign) (for all purposes of
this Agreement, "foreign" shall include the Commonwealth
of Puerto Rico and the U.S. Virgin Islands), department,
commission, board, bureau, agency, official or other
regulatory, administrative or governmental authority.
Neither the execution and delivery of this Agreement by
Seller nor the consummation by the Seller of the
transactions contemplated hereby nor compliance by Seller
with any of the provisions hereof will (a) conflict with
or result in any breach of any provision of the charter
or by-laws of Seller, the Company or any of their
respective subsidiaries, (b) except as set forth in
Section 3.4 of the Disclosure Schedule (with or without
due notice or lapse of time or both), result in a
violation or breach of, or constitute a default (or give
rise to any right of termination, amendment,
renegotiation, cancellation or acceleration) under, or
require any approval or consent under, or result in any
increase in any payment required by, or the loss,
revocation, impairment, suspension or forfeiture of any
rights, privileges or benefits under, or result in the
creation or imposition of any Encumbrance upon any of the
respective properties, assets or businesses of Seller or
any of its subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, contract, agreement or
other instrument or obligation to which Seller or any of
its subsidiaries is a party or by which any of them or
any of their properties or assets may be bound or (c)
assuming that the filings referred to in the first
sentence of this Section 3.4 are duly and timely made,
violate any order, writ, injunction, decree, statute,
treaty, rule or regulation applicable to Seller, any of
its subsidiaries or any of their properties or assets,
except (x) that Seller makes no representations in this
Section 3.4 as to the leases relating to the Retail
Operations and (y) in the case of (b) or (c) for
violations, breaches or defaults which, in the aggregate,
are not reasonably likely to have a Material Adverse
Effect or prevent or delay the consummation of the
transactions contemplated hereby.
3.5. Reports. The Seller has filed all
required forms, reports and documents with the Securities
and Exchange Commission (the "SEC") since February 2,
1991 (collectively, the "SEC Reports"), all of which (as
they may have been amended prior to the date hereof) have
complied in all material respects with all applicable
requirements of the Securities Act of 1933, as amended
(the "Securities Act") and the Exchange Act. None of
such forms, reports or documents (as they may have been
amended prior to the date hereof), including, without
limitation, any financial statements or schedules
included therein, taken together with the related notes,
contained any untrue statement of a material fact or
omitted to state a material fact required to be stated
therein or necessary in order to make the statements
therein not misleading. Each of the balance sheets
(including the related notes and schedules) included in
the SEC Reports fairly presents the consolidated
financial position of the Seller and its consolidated
subsidiaries as of the respective dates thereof, and the
other related statements (including the related notes and
schedules) included therein fairly present the results of
operations, changes in shareholders' equity and the
changes in cash flows of the Seller and its consolidated
subsidiaries for the respective fiscal years, except, in
the case of interim financial statements, for normal
year-end audit adjustments. Each of the financial
statements (including the related notes and schedules)
included in the SEC Reports has been prepared in
accordance with generally accepted accounting principles
("GAAP") consistently applied during the periods
involved, except as otherwise noted therein.
3.6. No Undisclosed Liabilities. Except as
set forth in Section 3.6 of the Disclosure Schedule and
except with respect to the excluded liabilities set forth
in Section 3.16 of the Disclosure Schedule, neither
Seller nor any of its subsidiaries has any obligation or
liabilities that would be required by GAAP to be
reflected or reserved against in the balance sheet of
Seller and its consolidated subsidiaries (and the related
notes thereto) as if materiality with respect to such
balance sheet was determined without reference to the
Toys Shares except (a) liabilities reflected or reserved
against in the balance sheet (and the related notes
thereto) of Seller and its consolidated subsidiaries as
of January 29, 1994, and (b) liabilities (absolute,
accrued, contingent or otherwise) which were incurred
since January 29, 1994 in the ordinary course of business
and which, in the aggregate, are not reasonably likely to
have a Material Adverse Effect.
3.7. Absence of Certain Changes. Except as set
forth in the SEC Reports filed prior to the date hereof
or on Section 3.7 of the Disclosure Schedule, since
January 29, 1994, neither Seller nor any of its
subsidiaries has (a) suffered any Material Adverse
Effect, except such (x) which occurred prior to the date
hereof and generally affect the industry in which Seller
operates or (y) which relate to the Toys Shares, or (b)
conducted its business in any material respect not in the
ordinary course of business consistent with past
practice, except in connection with the transactions
contemplated hereby and by the Toys Transaction, or (c)
taken any action that, if taken after the date hereof,
would constitute a breach of Section 5.1 hereof.
3.8. No Default. Neither Seller nor any of
its subsidiaries is in default or violation (and no event
has occurred which with notice or the lapse of time or
both would constitute a default or violation) of any
term, condition or provision of (a) its charter or its
by-laws, (b) except as set forth in Section 3.8 of the
Disclosure Schedule, any note, bond, mortgage, deed of
trust, indenture, license, agreement or other instrument
or obligation to which Seller or any of its subsidiaries
is now a party or by which they or any of their
properties or assets may be bound or (c) any order, writ,
injunction, decree, statute, rule or regulation
applicable to Seller or any of its subsidiaries, which
defaults or violations, in the case of clause (b) or (c),
would, in the aggregate, have a Material Adverse Effect
or which would prevent or delay the consummation of the
transactions contemplated hereby.
3.9. Litigation. Except as disclosed in the
SEC Reports filed prior to the date hereof, there is no
action, suit, proceeding or, to the best knowledge of the
Seller, investigation, pending or, to the best knowledge
of the Seller, threatened involving Seller or any of its
subsidiaries, at law or in equity, or before any
Governmental Body, which in the aggregate would
reasonably be expected to have a Material Adverse Effect.
Except as set forth in Section 3.9 of the Disclosure
Schedule, the businesses of Seller and its subsidiaries
are not being conducted in violation of any applicable
law, ordinance, rule, regulation, decree or order of any
domestic or foreign court or governmental entity, except
for violations which in the aggregate do not and would
not have a Material Adverse Effect.
3.10. Taxes. Except as set forth in the
Section 3.10 of the Disclosure Schedule:
(a) Seller or its subsidiaries have (i) within
the time and manner prescribed by law, filed all material
returns, declarations, reports, estimates, information
returns and statements (collectively, "Tax Returns")
required to be filed by Seller or its subsidiaries, other
than those Tax Returns the failure of which to be filed
would not have a Material Adverse Effect, and all such
Tax Returns were true, complete and accurate in all
material respects, and (ii) timely paid in full all Taxes
that were shown as due and payable on such Tax Returns.
There is no audit or other examination with respect to
Taxes of Seller or its subsidiaries the adverse outcome
of which would have a Material Adverse Effect, except as
reserved against on Seller's consolidated balance sheet
as of January 29, 1994.
(b) Neither of Seller nor any of its
subsidiaries has received any written notice of
deficiency or proposed assessment from any governmental
authority responsible for the collection or
administration of Taxes (a "Taxing Authority") with
respect to liabilities for Taxes which has not been fully
paid or finally settled other than a notice of deficiency
or proposed assessment for an amount of Taxes that would
not have a Material Adverse Effect.
(c) All Taxes that Seller or any of its
subsidiaries is required by law to withhold or to collect
for payment have been duly withheld and collected, and
all such Taxes that are required to be paid or remitted
to any Taxing Authority have been paid or remitted to the
proper Taxing Authority, other than those Taxes, the
failure of which to be so withheld, collected or remitted
would not have a Material Adverse Effect.
(d) There are no liens with respect to Taxes
upon any of the assets of Seller or any of its
subsidiaries other than for Taxes not yet due and
payable.
(e) Neither Seller nor any of its subsidiaries
has made any payments, or will be obligated to make any
payments as a result of the transactions described
herein, that would not be deductible under Section 280G
of the Internal Revenue Code of 1986, as amended (the
"Code").
(f) For purposes of this Agreement, "Taxes"
shall mean all taxes, charges, fees, levies or other
assessments, including, without limitation, all net
income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, estimated,
stamp, property or other taxes or charges, together with
any interest and penalties, additions to tax or
additional amounts imposed by any Taxing Authority.
3.11. Employee Benefit Plans; ERISA.
(a) Except as disclosed in Section 3.11 of the
Disclosure Schedule, there is no accumulated funding
deficiency, whether or not waived, within the meaning of
Section 302 of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and Section 412 of the
Code, with respect to any Controlled Group Plan (as
hereinafter defined) that is subject to such Sections.
Except as disclosed in Section 3.11 of the Disclosure
Schedule each Controlled Group Plan (as hereinafter
defined) is and has been operated in material compliance
with the presently applicable provisions of ERISA and the
Code. Neither Seller, nor the Company nor any Controlled
Group (as hereinafter defined) member has incurred any
liability under Title IV of ERISA to the Pension Benefit
Guaranty Corporation in connection with any Controlled
Group Plan which is subject to Title IV of ERISA which
has not been fully paid prior to the date hereof, other
than liability for premiums due the Pension Benefit
Guaranty Corporation (the "PBGC"), which premiums have
been or will be paid when due. Except as set forth in
Section 3.11 of the Disclosure Schedule, as of the most
recent valuation date, the assets of each Seller Plan
subject to Title IV of ERISA equal or exceed the current
liabilities thereunder based on actuarial assumptions
used in the last valuation of such assets and
liabilities, and with respect to all Controlled Group
Plans, Seller, the Company and Controlled Group members
have timely made all contributions, premiums, or payments
required, by law or by the terms of the Controlled Group
Plan or any agreement. Except as set forth in Section
3.11 of the Disclosure Schedule, the Internal Revenue
Service (the "IRS") has issued, with respect to each
Seller Plan intended to be tax qualified under Sections
401(a) and 501(a) or Section 501(c)(9) of the Code, a
letter determining that such Plan is qualified and its
related trust is exempt from United States Federal Income
Tax under Sections 401(a) and 501(a) of the Code or
Section 501(c)(9), respectively, and there has been no
occurrence since the date of any such determination
letter which has adversely affected such qualification
and each Seller Plan which is intended to be qualified
under Puerto Rico law or the Code is so qualified.
Except as set forth in Section 3.11 of the Disclosure
Schedule, no Controlled Group Plan is a "multiemployer
plan" (as defined in Section 3(37) of ERISA). No
withdrawal has occurred and no withdrawal liability has
been incurred by or asserted against Seller, the Company
or any member of the Controlled Group with respect to any
Controlled Group Plan which is a multiemployer plan.
Attached to Section 3.11 of the Disclosure Schedule are
copies of the most recent correspondence from all
Controlled Group Plans that are multiemployer plans
regarding the potential withdrawal liability under Part 1
of Subtitle E of Title IV of ERISA with respect to such
plans. As of the date of this Agreement, neither Seller
nor any member of its Controlled Group has increased, or
agreed to increase, its contributions to the District 65
Plan (as defined in Section 5.14(a) hereof) above the
amount currently stated in the applicable collective
bargaining agreement with respect to the District 65
Plan.
(b) Section 3.11 of the Disclosure Schedule
lists all Controlled Group Plans. With respect to all
Seller Plans, accurate and complete copies of the Seller
Plans and the summary descriptions, the most recent
determination letters, annual reports on IRS Form 5500
and actuarial reports for the last 3 years, if
applicable, collective bargaining agreements or other
such contracts, and current ruling letter with respect to
the tax-exempt status of any voluntary employees'
beneficiary association ("VEBA") which is implementing
such plan, have been made available to the Buyer.
(c) Each Controlled Group Plan that is a
"group health plan" (as defined in Section 4980B of the
Code) has been operated in material compliance with
Section 4980B of the Code at all times. Except as
provided in Section 3.11 of the Disclosure Schedule and
except as required by Section 4980B of the Code, the
Seller, the Company and their respective subsidiaries do
not maintain any plan that provides medical benefits or
life insurance benefits in respect of any employees or
former employees of Seller beyond their retirement.
Except as set forth in Section 3.11 of the Disclosure
Schedule, no Seller Plan provides for severance pay,
unemployment compensation or any similar payment with
respect to any current or former employee, officer,
director, or agent of Seller. The consummation of the
transactions contemplated by this Agreement will not: (i)
entitle any such individual to severance pay,
unemployment compensation or other similar payment; (ii)
accelerate the time of payment or vesting of any amount;
(iii) increase the amount of compensation due to any such
individual; or (iv) constitute a "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of
the Code). Except as set forth in Section 3.11 of the
Disclosure Schedule, each Seller Plan to which ERISA
section 4044 applies either permits distribution of
residual amounts to the employer in accordance with ERISA
section 4044(d) or may be amended to permit such
distribution.
(d) For purposes of this Agreement,
"Controlled Group Plans" shall mean, collectively, all
employee plans, practices and arrangements, including
without limitation, all employee benefit plans (within
the meaning of Section 3(3) of ERISA), employee pension
benefit plans, programs, arrangements or agreements, all
health, medical, welfare, disability, life insurance,
bonus, severance pay and other employee benefit or fringe
benefit plans sponsored, maintained or to which
contributions are made by (i) Seller or the Company or
(ii) any other organization which is a member of a
controlled group of organizations (within the meaning of
Sections 414(b), (c), (m) or (o) of the Internal Revenue
Code of 1986, as amended (the "Code"), of which the
Seller or the Company is a member (the "Controlled
Group"). Each Controlled Group Plan sponsored,
maintained by or to which Seller or the Company or its
subsidiaries has at any time contributed is referred to
individually as a "Seller Plan" or collectively as
"Seller Plans."
(e) None of the Seller, the Company or, to the
knowledge of Seller, any other party, has engaged in a
transaction with respect to a Seller Plan in connection
with which Seller, the Company, Buyer, or any trustee or
administrator of any Seller Plan or any such trust could
be subject to either a material liability or civil
penalty assessed pursuant to Section 409, 502(i) or
502(l) of ERISA or a material tax imposed pursuant to
Section 4975 or 4976 of the Code which has not been
satisfied in full. Except as set forth in Section 3.11
of the Disclosure Schedule, no event has occurred that
would subject Seller, the Company or Buyer to any
material liability with respect to a Seller Plan for any
penalty or tax arising under Section 4971, 4972, 4977,
4979, 4980, 4980B or 6652 of the Code or any liability
under Section 502 of ERISA. Except as set forth in
Section 3.11 of the Disclosure Schedule, no reportable
event (within the meaning of Section 4043 of ERISA) has
occurred or is expected to occur with respect to any
Seller Plan subject to Title IV of ERISA. Except as
disclosed in Section 3.11 of the Disclosure Schedule,
there are no actions, suits or claims (other than routine
claims for benefits in the ordinary course) with respect
to Seller Plans pending, or to the knowledge of Seller or
the Company, threatened, and Seller and the Company have
no knowledge of any facts which could give rise to any
such actions, suits or claims (other than routine claims
for benefits in the ordinary course with respect to
Seller Plans).
(f) The Seller and each subsidiary is in
compliance in all material respects with the requirements
of the Workers Adjustment and Retraining Notification Act
("WARN") and have no liabilities pursuant to WARN.
(g) Each Seller Plan which is intended to meet
the requirements of Section 501(c)(9) of the Code
provides no disqualified benefit (as such term is defined
in Code Section 4976(b)). Each Seller Plan which is a
welfare benefit plan (as defined in ERISA Section 3(1))
may be amended or terminated at any time.
3.12. Store Names. Section 3.12 of the
Disclosure Schedule sets forth a list of all material
trademarks used by Seller and its subsidiaries in
connection with the Retail Operations (the "Store
Names"). As of the Closing, the Company and its
subsidiaries will own or possess adequate licenses or
other rights to use all Store Names. No claim is pending
or, to the best knowledge of Seller, threatened to the
effect that the rights of the Seller or any of its
subsidiaries in or to any Store Name is invalid or
unenforceable, except for such claims as would not
reasonably be expected to, in the aggregate, have a
Material Adverse Effect. No contract, agreement or
understanding between the Seller or any of its
subsidiaries and any party exists which would impede or
prevent the use by the Company, its subsidiaries and
their successors of the entire right, title and interest
of the Seller and its subsidiaries in and to any of the
Store Names, except for such contracts, agreements or
understandings which would not, in the aggregate, have a
Material Adverse Effect.
3.13. Environmental Matters. Except as set
forth in Section 3.13 of the Disclosure Schedule:
(a) Seller and its subsidiaries hold, and are
in substantial compliance with, all material permits,
licenses and government authorizations required for
Seller and its subsidiaries to conduct their respective
businesses under local, state, federal and foreign laws
and regulations relating to pollution and the discharge
of materials into the environment ("Environmental Law"),
and Seller and its subsidiaries are otherwise in
compliance with all applicable Environmental Law, except
where the failure to be in compliance would not have a
Material Adverse Effect.
(b) Neither Seller nor any of its subsidiaries
has received any written request for information, or has
been notified that it is a potentially responsible party,
under the federal Comprehensive Environmental Response,
Compensation, and Liability Act or any similar local,
state or foreign law with respect to any on-site or off-
site location. There is no Environmental Claim pending
or, to the knowledge of Seller, threatened, against
Seller or any of its subsidiaries or against any person
or entity whose liability for such Environmental Claim
Seller or any of its subsidiaries has assumed by contract
or operation of law or for which any of Seller or its
subsidiaries may otherwise be liable.
(c) Neither Seller nor any of its subsidiaries
is subject to any judgment, decree or order relating to
substantial compliance with, or the cleanup of regulated
substances under, any applicable Environmental Law. None
of Seller or any of its subsidiaries has Treated, Stored
or, to Seller's knowledge, Disposed of significant
amounts of any Hazardous Waste (as such capitalized terms
are respectively defined in the Resource Conservation and
Recovery Act, 42 U.S.C. SECTION 6901 et seq.) on the subject
properties.
(d) For purposes of this Agreement,
"Environmental Claim" means any claim, action or cause of
action, of any person alleging potential liability
(including, without limitation, potential liability for
any investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property
damages, personal injuries or penalties) arising out of,
based on or resulting from (i) the presence, or release
into the environment, of any Material of Environmental
Concern at any location, whether or not owned or operated
by Seller or any of its subsidiaries or (ii) any
violation or alleged violation of any Environmental Law.
(e) For purposes of this Agreement, "Materials
of Environmental Concern" means chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum and
petroleum products.
3.14. Labor Relations. Section 3.14 of the
Disclosure Schedule sets forth all collective bargaining
agreements and amendments thereto, including by contract,
memorandum or side letter, to which the Seller or any of
its subsidiaries is a party, and any arbitration or court
decision that materiality affects the terms of any such
agreement or amendment. All payments and contributions
required under such collective bargaining agreements and
the amendments thereto, including but not limited to,
wages, vacation, sick leave and holiday pay, and for
employee benefits, including but not limited to, health
and retirement benefits, have been made in all material
respects in accordance with such collective bargaining
agreements as amended. Except as set forth in Section
3.14 of the Disclosure Schedule, there is no unfair labor
practice complaint or other proceeding against Seller or
any of its subsidiaries pending before the National Labor
Relations Board or any other federal, state or local
administrative agency that deals with employment or
employee safety-related matters which, if adversely
decided, is reasonably likely to have a Material Adverse
Effect. There is no labor strike, work stoppage or
arbitration or any other proceeding pending or involving
or, to the knowledge of Seller, threatened against Seller
or any of its subsidiaries which is reasonably likely to
have a Material Adverse Effect. To Seller's knowledge,
there are no organizing efforts by any union or other
group seeking to represent any employees of Seller or any
of its subsidiaries.
3.15. Brokers and Finders. Neither Seller nor
any of its subsidiaries has employed any broker or finder
or incurred any liability for any investment banking
fees, brokerage fees, commissions or finders' fees in
connection with the transactions contemplated by this
Agreement, except for the fees and expenses payable to
Bear Stearns & Co. Inc. for investment banking services,
which will be paid by Seller.
3.16. Transfer of Assets and Liabilities. By
the Closing, Seller will, in a manner reasonably
acceptable to Buyer and in a manner which does not result
in a material step-down in the basis of such assets or
properties, have transferred to the Company or its
subsidiaries all of the assets and rights held by the
Seller and its subsidiaries as of immediately prior to
such transfer, subject to all of the liabilities and
obligations of Seller and its subsidiaries, other than
the Shares and the Toys Shares and other than the
liabilities and obligations set forth on Schedule 3.16
(the "Excluded Liabilities"). As a result of such
transfer, the Company and its subsidiaries will hold all
of the assets and rights held by Seller and its
subsidiaries immediately prior to such transfer, other
than the Shares and the Toys Shares (the "Excluded
Assets") and will hold all of the liabilities and
obligations of Seller and its subsidiaries, other than as
set forth in Schedule 3.16. The parties hereto
acknowledge that the receipt of a favorable private
letter ruling from the IRS (the "IRS Ruling") is a
condition to the consummation of the Toys Transaction.
The parties hereby covenant and agree that they will take
such steps as are necessary, including but not limited to
amending this Agreement to provide that certain of the
assets to be conveyed to the Company as contemplated
herein will be so conveyed immediately after the Closing,
to ensure that the IRS Ruling will be issued, provided,
however, that any such steps will be effected in a manner
that will not adversely affect Buyer or the Company in a
material respect and otherwise reasonably satisfactory to
Buyer. Notwithstanding the foregoing, Seller makes no
representation as to the transfer of the Leases.
3.17. Transfer of Employee Benefit Plans and
Arrangements. By the Closing, (a) the Seller will have
transferred to the Company or its subsidiaries all the
employees of the Seller, (b) the Seller will have caused
the Company to assume all of the employment agreements
between the Seller and any employee employed as of the
Closing Date; (c) the Seller will have amended all of the
Seller Plans so that (i) the Company shall be the
"sponsor" or the "employer" with respect to all such
Plans and, to the extent permitted by the applicable law,
the Seller will cease to be the "sponsor" or the
"employer" with respect to such Plans, and (ii) the
Seller will have transferred to the Company or its
subsidiaries all of the assets and rights of the Seller
and its subsidiaries, subject to all of the obligations
of the Seller and its subsidiaries, with respect to such
Plans and (d) the Seller shall cause the Company or its
subsidiaries to assume all of the obligations of the
Seller and its subsidiaries, including but not limited to
the obligation to make contributions, with respect to any
multiemployer plans with respect to which the Seller or
its subsidiaries has such obligations.
3.18. Toys Acquisition Agreement. Each
representation and warranty of Seller in the Toys
Agreement was true and correct in all material respects
when made.
3.19. Ruling Request. All representations and
statements of fact included in the request for the IRS
Ruling (and any supplements or amendments thereto) (the
"Ruling Request"), to the extent that they relate to the
Seller or its subsidiaries, are true, complete and
accurate in all material respects.
3.20. Real Property.
(a) Section 3.20 of the Disclosure Schedule
sets forth (i) the location, parties, term, renewal
options and certain other information for those leases or
subleases of real property entered into for use in
connection with the Retail Operations to which Seller or
any of its subsidiaries is a party, whether as lessee,
lessor, sublessee or sublessor (such leases and
subleases, as so amended, modified, or supplemented are
hereinafter collectively referred to as the "Leases", and
the properties demised under the Leases are hereinafter
collectively referred to as the "Leased Properties"), and
(ii) those Leased Properties whereby the Seller or any of
its subsidiaries has entered into an agreement permitting
concessions or subtenants to operate thereon. Such
Section of the Disclosure Schedule accurately sets forth
in all material respects the information contained
therein. True, complete and correct copies of the Leases
(as amended, modified or supplemented to the date hereof)
have been made available to Buyer. Seller or (if
indicated on the Disclosure Schedule) one of its
subsidiaries, as the case may be, holds its leasehold
interest in each of the Leased Properties substantially
in accordance with the provisions of the applicable Lease
and free of all Encumbrances on such leasehold interest,
except for Permitted Encumbrances (as defined in clause
(e) below). Except as set forth in the Disclosure
Schedule, to the knowledge of Seller, (i) all of the
Leases are valid, binding and enforceable agreements, and
are in full force and effect and grant in all material
respects the leasehold estates or rights of occupancy or
use they purport to grant, subject to the Permitted
Encumbrances; (ii) the current use and occupancy of the
Leased Properties conform in all material respects to,
and Seller has received no written notice of any material
violation of, any applicable laws, statutes, rules,
regulations and ordinances that might reasonably be
expected to materially detract from or interfere with the
present use, occupancy, or operation of the applicable
Leased Property to the extent the same is an obligation
of Seller pursuant to the applicable Lease; and (iii)
there are no pending or threatened condemnation
proceedings with respect to any of the Leased Properties.
Except as identified in Section 3.20 of the Disclosure
Schedule, Seller has received no notice of any material
existing defaults (either on the part of the Seller or
any of its subsidiaries, or to the knowledge of the
Seller, any other party thereto) under any Lease, and no
event has occurred (either on the part of the Seller or
its subsidiaries, or to the knowledge of Seller, any
other person or entity) which could reasonably be
expected to result (other than in the ordinary course of
business) in the modification, amendment or termination
of any Lease or a material increase in the rent payable
thereunder, except for any of the foregoing which could
not reasonably be expected, individually or in the
aggregate, to have a material adverse effect on the
applicable Lease or on any Leased Property.
(b) Section 3.20 of the Disclosure Schedule
sets forth all real property used in connection with the
Retail Operations of which Seller or any of its
subsidiaries is the record or beneficial owner, and such
real property is hereinafter referred to as the "Owned
Real Property". Except as disclosed in the Disclosure
Schedule, (i) to the best of Seller's knowledge, Seller
or one of its subsidiaries, as the case may be, holds fee
title to the Owned Real Property, free of all
Encumbrances other than Permitted Encumbrances; (ii) to
the best of Seller's knowledge, all improvements on the
Owned Real Property, and the current use and occupancy
thereof, conform in all material respects to, and Seller
has received no written notice of any material violation
of, any applicable zoning and other land use ordinances,
and building codes or other applicable laws, statutes,
rules, regulations and ordinances that might reasonably
be expected to materially detract from or interfere with
the present use, occupancy or operation of the applicable
Owned Real Property; and (iii) no condemnation or eminent
domain proceeding against any of the Owned Real Property
is pending or, to Seller's knowledge, threatened.
(c) Except as set forth in Section 3.20 of the
Disclosure Schedule, none of the Owned Real Property or
the Leased Properties is subject to any material lease,
sublease, license or other agreement in which Seller
grants to any other person any right to the use,
occupancy or enjoyment of the Owned Real Property or the
Leased Property or any part thereof. The Owned Real
Property and the Leased Properties together constitute
all interests in real property necessary to operate
Seller's retail business substantially in the manner that
it has been operated by Seller prior to the Closing.
(d) Section 3.20 of the Disclosure Schedule
sets forth (i) all of the Leases that require a Landlord
Consent (as defined in Section 5.15(a) hereof) to the
direct or indirect transfer of such Leases to the Company
and/or the change of control of the Company upon the
Closing of the Stock Purchase on the Closing Date or
otherwise in connection with the Toys Transaction
(hereinafter, the Stock Purchase and the Toys Transaction
are collectively referred to as the "Purchase
Transaction"), and (ii) all of the Leases that are
Guaranteed Leases (as defined in Section 5.15(a) hereof).
(e) As used herein, "Permitted Encumbrances"
shall mean, collectively, (i) all statutory or other
liens for taxes or assessments which are not yet due or
the validity of which is being contested in good faith by
appropriate proceedings; (ii) all mechanics',
materialmen's, carriers', workers' and repairers' liens,
and other similar liens imposed by law, incurred in the
ordinary course of business, which allege unpaid amounts
that are less than 30 days delinquent or which are being
contested in good faith by appropriate proceedings; and
(iii) all other defects in title or Encumbrances which do
not materially detract from or materially interfere with
the present use, occupancy or operation of the asset
subject thereto or affected thereby.
(f) For all purposes under this Agreement,
Section 3.20 of the Disclosure Schedule shall be deemed
to be amended to delete any Leases that expire in
accordance with their terms (or otherwise terminate, with
Buyer's prior written consent) between the date hereof
and the Closing Date, provided that nothing in this
subparagraph (f) is intended to modify any of Seller's
obligations under Section 5.1(g) hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller
as follows:
4.1. Organization; Etc. Buyer is duly
organized, validly existing and in good standing under
the laws of the jurisdiction of its organization and has
all requisite power and authority to own, lease and
operate its properties and to carry on its business as
now being conducted, except where the failure to have
such power or authority is not, in the aggregate,
reasonably likely to have a Material Adverse Effect.
4.2. Authority Relative to this Agreement.
Buyer has all requisite authority and power to execute
and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby by Buyer have been duly
and validly authorized by all required action on the part
of Buyer and no other proceedings on the part of Buyer
are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and
delivered by Buyer and, assuming this Agreement has been
duly authorized, executed and delivered by Seller,
constitutes a valid and binding agreement of Buyer,
enforceable against Buyer in accordance with its terms.
4.3. Consents and Approvals; No Violations.
Except for applicable requirements of the HSR Act, no
declaration, registration, qualification or filing with
or notice to, and no permit, authorization, consent or
approval of, and no waiver or order from, any public body
or authority is necessary for the consummation by Buyer
of the transactions contemplated by this Agreement.
Neither the execution and delivery of this Agreement by
Buyer nor the consummation by Buyer of the transactions
contemplated hereby nor compliance by Buyer with any of
the provisions hereof will (a) conflict with or result in
any breach of any provision of the charter, by-laws or
similar organizational documents of Buyer, (ii) result in
a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give
rise to any right of termination, amendment,
renegotiation, cancellation or acceleration) under, or
require any approval or consent under, or result in any
increase in any payment required by, or the loss,
revocation, impairment, suspension or forfeiture of any
rights, privileges or benefits under, or result in the
creation or imposition of any Encumbrance upon any of the
respective properties, assets or businesses of Buyer or
any of its subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, contract, agreement or
other instrument or obligation to which Buyer or any of
its subsidiaries is a party or by which any of them or
any of their properties or assets may be bound or (c)
assuming that the filing referred to in the first
sentence of this Section 4.3 is duly and timely made,
violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Parent, any of its
subsidiaries or any of their properties or assets, except
in the case of (b) and (c) for violations, breaches or
defaults which are not in the aggregate reasonably likely
to have a Material Adverse Effect or prevent or delay the
consummation of the transactions contemplated hereby.
4.4. Acquisition of Stock for Investment.
Buyer is acquiring the Shares for investment and not with
a view toward, or for sale in connection with, any
distribution thereof, nor with any present intention of
distributing or selling such Shares except for any of the
foregoing that would not require registration under the
Act. Buyer agrees that the Shares may not be sold,
transferred, offered for sale, pledged, hypothecated or
otherwise disposed of without registration under the
Securities Act and/or any applicable state securities
laws, except pursuant to an exemption from such
registration under such Act and such laws.
4.5. Brokers and Finders. Neither Buyer nor
any of its subsidiaries has employed any investment
banker, broker or finder or incurred any liability for
any investment banking fees, brokerage fees, commissions
or finders' fees in connection with the transactions
contemplated by this Agreement, except for fees and
expenses payable to Financo, Inc. and Merrill Lynch & Co.
for investment banking services, which will be paid by
Buyer.
ARTICLE V
COVENANTS OF THE PARTIES
5.1. Conduct of Business of the Company.
Except as contemplated by this Agreement, in connection
with the Toys Transaction and the transactions
contemplated thereby, as set forth in Section 5.1 of the
Disclosure Schedule or with the prior consent of Buyer,
during the period from the date of this Agreement to the
Closing Date, each of Seller and its subsidiaries will
use all reasonable efforts (a) to conduct its business
and operations in the ordinary course of business
consistent with past practice and (b) to preserve intact
its properties, assets and business organizations, to
keep available the services of its officers and employees
and to maintain satisfactory relationships with
customers, suppliers, distributors and others having
commercially beneficial business relationships with it,
in each case in the ordinary course of business
consistent with past practice. Without limiting the
generality of the foregoing, Seller will and will cause
its subsidiaries to, during the period from the date of
this Agreement to the Closing Date, consult and cooperate
with Buyer with respect to any pending union contracts or
collective bargaining agreements, and Seller will not,
and will cause its subsidiaries not to, modify or enter
into any collective bargaining agreements or amendments
thereto, which would contain any greater restrictions
than are contained in the collective bargaining
agreements and amendments thereof listed on Schedule 3.14
to the Disclosure Schedule on the employer's right to
close, remove or consolidate its operations or to
subcontract or outsource bargaining unit work, or to lay
off employees or to enhance the provisions regarding
severance pay in such agreements or amendments. Without
limiting the generality of the foregoing, and except as
otherwise provided in this Agreement or the transactions
contemplated hereby or as required pursuant to the Toys
Agreement or as set forth in Section 5.1 of the
Disclosure Schedule, Seller will not, and will cause its
subsidiaries not to, prior to the Closing, without the
prior consent of Buyer:
(a) declare, set aside or pay any dividend or
distribution on any shares of common stock of the Seller,
other than regular quarterly cash dividends not in excess
of $.05 per share, or on any shares of common stock of
any subsidiaries of Seller which are not wholly-owned
subsidiaries;
(b) redeem, purchase or otherwise acquire any
outstanding Shares;
(c) amend its charter or by-laws (or other
comparable charter or governing documents);
(d) incur any indebtedness for borrowed money
or issue any long-term debt securities or assume,
guarantee or endorse the obligations of any other
Persons, except for indebtedness incurred in the ordinary
course of business consistent with past practice, and
except that Seller may borrow funds and pledge Toys
Shares for the purpose of financing its working capital
and capital expenditures in the ordinary course of
business so long as the aggregate outstanding amount
secured by such pledges does not, at any time, exceed
during any period the amounts set forth in Section 5.1 of
the Disclosure Schedule for such period (the "Working
Capital Pledge");
(e) (i) increase in any manner the rate or
terms of compensation of any of its directors, officers
or other employees, except as are contractually required
or which have been agreed to or granted prior to the date
hereof, (ii) pay or agree to pay any pension, retirement,
allowance or other employee benefit not required or
permitted by any existing Plan, Benefit Arrangement or
other agreement or arrangement to any such director,
officer or employee, whether past or present or (iii)
terminate, amend or modify any Seller Plan or enter into
any employee benefit plan, program or arrangement or any
employment, severance, consulting or similar agreement,
arrangement or plan; provided, however, that Seller and
its subsidiaries may, after consulting with Buyer (but
without any requirement to obtain Buyer's consent), in
their discretion, amend such contracts or agreements
prior to the Closing Date to increase the contribution
rate to the District 65 Plan to 7% of the compensation of
all employees covered by such contracts or agreements,
such amendments to be effective as of July 1, 1994;
(f) except in the ordinary course of business
consistent with past practice, (i) sell, transfer or
otherwise dispose of, any of its material property or
assets, (ii) mortgage or encumber any of its material
property or assets, except for the Working Capital
Pledge, or (iii) acquire or purchase any material
securities or assets of any person or entity or enter
into any material joint venture or partnership;
(g) enter into other material agreements,
commitments or contracts, except agreements, commitments
or contracts made in the ordinary course of business
consistent with past practice or, except as expressly
permitted by Section 5.15(a) hereof, enter into any new
Lease, or amend, modify, terminate or exercise or waive
any renewal option under, or otherwise waive any material
right under, any existing Lease;
(h) change in any material respect any of the
accounting principles or practices used by it (except as
required by GAAP) or any of its cash management practices
or inventory management or purchasing practices;
(i) sell, transfer or otherwise dispose of any
of its property or assets to Toys or any affiliate
thereof other than the Excluded Assets or sell, transfer
or dispose of any Toys Shares, other than as permitted by
Section (d), above; or
(j) agree to take any of the foregoing
actions.
5.2. No Solicitation. Seller agrees that none
of it, any of its affiliates, any of its officers or
directors, any of the officers or directors of any of its
affiliates or any of the employees, agents or
representatives (including, without limitation, any
investment banker, attorney or accountant) of Seller or
any of such affiliates, officers or directors, shall
continue, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation
of any proposal or offer with respect to a merger,
acquisition, consolidation or similar transaction
involving, or any sale, lease or other disposition of,
all or any significant portion of the Retail Operations,
or the assets or any equity securities of Seller or any
of its affiliates (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal") or
engage in any negotiations concerning, or provide any
confidential information or data to, or have any
discussions with, any person relating to an Acquisition
Proposal.
5.3. Access to Information.
(a) From the date of this Agreement to the
Closing, Seller will (i) give Buyer and its authorized
representatives reasonable access to all books, records,
stores, offices and other facilities and properties of
Seller and its subsidiaries, (ii) permit Buyer to make
such inspections thereof as Buyer may reasonably request
and (iii) cause its officers to furnish Buyer with such
financial and operating data and other information with
respect to the business and properties of Seller and its
subsidiaries as Buyer may from time to time reasonably
request; provided, however, that any such access shall be
conducted at a reasonable time and in such a manner as is
consistent with the past behavior of the parties and will
not interfere unreasonably with the operation of the
business of Seller or its subsidiaries. Seller will
consult with Buyer as to Seller's proxy statement to be
distributed to Seller's stockholders in connection with a
stockholders meeting to be convened to consider the
approval of the Toys Transaction (the "Stockholders
Meeting"). Seller will cooperate with Buyer with respect
to Buyer's efforts to seek financing for the transactions
contemplated hereby.
(b) All such information and access shall be
subject to the terms and conditions of the letter
agreement dated November 17, 1993 (the "Confidentiality
Agreement"), between Buyer and Seller.
5.4. Reasonable Efforts. Subject to the terms
and conditions herein provided, each of the parties
hereto agrees to use all reasonable efforts to take, or
cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make
effective the transactions contemplated by this
Agreement, including, without limitation, making all
required filings and applications, complying with or
responding to any requests by governmental agencies and,
in the case of Seller, promptly calling the Stockholders
Meeting. If at any time after the Closing Date any
further action is necessary or desirable to carry out the
purposes of this Agreement, the parties hereto shall take
or cause to be taken all such necessary action,
including, without limitation, the execution and delivery
of such further instruments and documents as may be
reasonably requested by the other party for such purposes
or otherwise to consummate and make effective the
transactions contemplated hereby. At the Closing, if
Toys shall simultaneously therewith execute and deliver
the indemnification agreement attached as Exhibit B to
the Toys Agreement, Seller and Buyer shall execute and
deliver to Toys an indemnification agreement
substantially in the form set forth as Exhibit A to the
Toys Agreement, with such changes therein as the parties
and Toys shall agree, and subject to the execution by
Seller and Buyer of a mutually acceptable cross indemnity
agreement to reflect the intent of the provisions of
Section 5.5 hereof.
5.5. Limitation of Seller's Liabilities.
Except as otherwise provided in Sections
5.12(c), 5.14, 5.18 and Article VI:
(a) From and after the Closing Date, each of
the Company and its subsidiaries shall, and hereby does,
release, indemnify and hold Seller and the Liquidating
Trust and each nonemployee director, other director in
his capacity as such, and trustee thereof harmless from
all obligations or liabilities whatsoever relating to the
business, properties, assets, liabilities or obligations
of the Company and its subsidiaries, including, but not
limited to, obligations or liabilities relating to the
Leases, but not including the Excluded Liabilities
(including the costs of defense thereof and reasonable
attorneys' fees and expenses) that are alleged or
asserted against or might otherwise be imposed on Seller
or the Liquidating Trust or any of such persons. The
Company and its subsidiaries will execute such additional
agreements or instruments as may be requested by Seller,
the Liquidating Trust or any of such persons in order to
further evidence or implement the Company's and its
subsidiaries' obligations under this Section 5.5. The
Company and its subsidiaries will cooperate in good faith
and will take such actions as Seller, the Liquidating
Trust or any such persons reasonably request in
connection with the foregoing, so long as none of the
Company and its subsidiaries is obligated to spend any
funds in connection therewith and such actions will not
have an adverse effect on the business of the Company and
its subsidiaries .
(b) From and after the Closing Date, the
Seller or the Liquidating Trust, as the case may be,
hereby does release, indemnify and hold harmless each of
Buyer and the Company and its subsidiaries and each of
its respective nonemployee directors and each other
director in his capacity as such from all Excluded
Liabilities (including the costs of defense thereof and
reasonable attorneys' fees and expenses) that are alleged
or asserted against or might otherwise be imposed on
Buyer or any such persons. Seller or the Liquidating
Trust, as the case may be, will execute such additional
agreements or instruments as may be requested by Buyer in
order to further evidence or implement Seller's and the
Liquidating Trust's obligations under this Section 5.5.
Seller or the Liquidating Trust, as the case may be, will
cooperate in good faith and will take such actions as
Buyer reasonably requests in connection with the
foregoing, so long as neither Seller nor the Liquidating
Trust is obligated to spend any funds in connection
therewith and such actions will not have an adverse
effect on Seller or the Liquidating Trust, as the case
may be.
5.6. Minimum Net Worth. At the Closing and
for a period of one year following the Closing, (a) Buyer
will or will cause the Company and its subsidiaries, or a
subsidiary of Buyer which agrees to be bound (on terms
reasonably acceptable to Seller) by this Agreement (as
applicable, the "Guarantor"), to maintain, on a
consolidated basis, a minimum net worth of not less than
$150,000,000 (as determined in accordance with GAAP, but
excluding goodwill), and (b) Buyer will not take, or
cause to be taken, any actions that would have the effect
of reducing the net worth of the Company and its
subsidiaries below or, if applicable, the Guarantor below
$150,000,000, including, without limitation, declaring
dividends, except, in the case of either clause (a) or
(b), to the extent a reduction of such minimum net worth
results from losses incurred from continuing operations
during such one year period.
5.7. Public Announcements. Seller and Buyer
will consult with each other before issuing any press
release or otherwise making any public statements with
respect to the transactions contemplated by this
Agreement, and shall not issue any such press release or
make any such public statement prior to such
consultation, except as may be required by law or by
obligations pursuant to any listing agreement with any
national securities exchange.
5.8. Employee Matters. Immediately following
the Closing Date, the employees of the Company as of the
Closing Date ("Employees") shall be employed on
substantially the same terms and conditions as, and shall
be covered by benefit plans or arrangements which, in the
aggregate, provide substantially equivalent benefits as
were provided to the Employees immediately prior to the
Closing Date. Such Employees shall receive credit for
past service with the Company, the Seller or its
subsidiaries for purposes of eligibility, participation,
vesting, benefit accrual or entitlement under any such
benefit plans and arrangements, including, but not
limited to, satisfaction of any preexisting condition
exclusion under any such plan providing health care
coverage. Nothing in this Section 5.8 will require the
Buyer, the Company or any of its subsidiaries to maintain
any plan or arrangement in effect, to continue to provide
any level of benefits after the Closing or to maintain
the employment of any Employee after the Closing.
5.9. Financing Participation. Any financing
procured by the Buyer to purchase the Shares pursuant to
this Agreement and to consummate the transactions
contemplated hereby shall include an equity contribution
by E.M. Warburg, Pincus & Co., Inc. and/or one or more of
its affiliates in the amount of not less than $100
million; provided, however, such equity contribution may
be reduced to the extent not necessary for the
satisfaction of the condition set forth in Section
7.3(d).
5.10. Toys Agreement. Seller agrees that it
will not terminate the Toys Agreement or otherwise act or
fail to take any action thereunder if the purpose for
such termination, action or failure to act is the
avoidance of its obligations hereunder.
5.11. Buyer's Designee. (a) Buyer shall
designate one or more third parties not affiliated with
E.M. Warburg, Pincus & Co., Inc. (the "Designee") which
will purchase an aggregate of 21% of the Shares at the
Closing for $39.9 million, such that the aggregate price
paid by such parties and Buyer will be $190 million.
Such Designee will purchase such Shares on the same terms
and conditions as Buyer, as if such party had also been
Buyer, and all references herein to Buyer shall be deemed
references to Buyer and such Designee. Each such
Designee will enter into an agreement reasonably
satisfactory to the Seller to effect the foregoing.
(b) Under no circumstances shall any person or
entity be named as a Designee if the result would be to
cause E.M. Warburg, Pincus & Co., Inc. or any of its
affiliates to be treated as a single employer with the
Company or any of its subsidiaries within the meaning of
Section 4001(b)(1) of ERISA.
(c) The number of Shares to be purchased by
Buyer (including any assignee of Buyer pursuant to
Section 9.4 hereof, but not including any Designee) shall
be decreased and the number of Shares to be purchased by
the Designees shall be increased to the extent Buyer, in
its sole discretion, deems necessary to prevent E.M.
Warburg, Pincus & Co., Inc. or any of its affiliates from
being treated as a single employer, within the meaning of
Section 4001(b)(1) of ERISA, with the Company or any of
its subsidiaries.
5.12. Working Capital Pledge; Excluded
Liabilities.
(a) At, or substantially simultaneously with,
the Closing, Buyer will or will cause the Company to
repay the Company's Working Capital Pledge as of the
Closing Date. Buyer and Seller will cooperate in
connection therewith including without limitation by
providing that to the extent that there is indebtedness
owed to the Seller by the Company or any of its
subsidiaries such indebtedness shall be contributed by
Seller to the capital of the Company or such respective
subsidiary immediately prior to the Closing.
(b) At the Closing, Seller shall either, at
its option (i) pay to the Company an amount equal to the
amount of any Excluded Liabilities paid, incurred or
assumed by the Company or any of its subsidiaries or paid
by the Seller or any of its other subsidiaries on or
prior to the Closing Date or (ii) decrease the Purchase
Price by such amount.
(c) Notwithstanding anything in Section 5.1(d)
to the contrary, Seller may incur indebtedness to redeem
or repurchase the Convertible Subordinated Debentures
(the "Special Indebtedness"); provided however that all
obligations (including all interest, costs, fees and
expenses in connection therewith) shall be treated as
Excluded Liabilities for all purposes hereof and shall be
the sole responsibility of Seller and provided further
that Buyer shall be satisfied that such incurrence of the
Special Indebtedness and redemption or repurchase of the
Convertible Subordinated Debentures shall not adversely
affect Buyer, the Company or the subsidiaries or
interfere with the transactions contemplated hereby.
5.13. Inventory Audit. The Company shall
have an audit of its inventory at August 27, 1994. Such
inventory audit shall be performed by David Berdon & Co.,
certified public accountants ("Seller's Accountants"), in
accordance with generally accepted auditing standards.
Inventory shall be valued at that date in accordance with
GAAP applied on a basis consistent with past GAAP
practices used in the Company's year-end financial
statements. A full and complete physical inventory shall
be conducted as a part of this inventory audit at August
27, 1994, except that layaway inventory shall not be
counted nor shall it be included in the value of
inventory at August 27, 1994. Ernst & Young, independent
public accountants ("Buyer's Accountants") and
representatives of Buyer's financing sources shall be
entitled to observe such physical inventory taking and
meet with Seller's Accountants regarding the scope of
their work and shall have access to all workpapers of
Seller's Accountants in connection with the inventory
audit at August 27, 1994. Seller shall deliver a report
indicating the value of the inventory and the results of
the physical inventory by no later than October 7, 1994
and Seller's Accountants shall make available their
workpapers on such audit to Buyer as promptly as
practical, but in any event by no later than October 9,
1994. Such audit is being done solely for the
information of Buyer and the results of such audit shall
have no consequences under this Agreement, other than a
determination by Buyer as to the satisfaction of the
conditions set forth in Article VII.
5.14. Collective Bargaining Agreements;
Withdrawal Liability.
(a) As of the Closing Date, the Company shall
assume all collective bargaining agreements to which
Seller is a party (the "Collective Bargaining
Agreements") and all of the rights, duties,
responsibilities and obligations of Seller thereunder,
including, without limitation, Seller's obligation to
make continuing contributions to the District 65 Security
Plan Pension Fund and any successors thereto (the
"District 65 Plan") and to pay any District 65
Liabilities (as defined below).
(b) If, at any time (whether or not prior to
the date hereof or the Closing Date) on or before the
Cutoff Date (as defined below), (i) the Company or any of
its subsidiaries withdraws from the District 65 Plan in a
"partial withdrawal" or "complete withdrawal" (as those
terms are defined in Title IV of ERISA and the
regulations thereunder (collectively, "Title IV")), (ii)
there is a "mass withdrawal" from or a "termination" of
the District 65 Plan (as those terms are defined in Title
IV), (iii) there is a failure to meet the minimum funding
standard under Section 412 of the Code with respect to
the District 65 Plan for any plan year that begins before
the Closing Date, which failure is not waived by the IRS,
or (iv) the District 65 Plan is in "reorganization" or is
"insolvent" during a plan year or any portion of a plan
year (as those terms are defined in Title IV), then there
shall be an adjustment to the Purchase Price as set forth
in subsection (c) below, based upon the extent to which
payments are made by the Company or any of its
subsidiaries or, after the Closing Date, any member of
its Controlled Group (as defined in Section 3.11) with
respect to the following amounts (the "District 65
Liabilities"): (A) any liability with respect to the
District 65 Plan under Title IV with respect to an event
described in clause (i) or clause (ii) above, which event
occurs on or before the Cutoff Date; provided, however,
that if an event described in clause (i) occurs on or
before the Cutoff Date and an event described in clause
(ii) occurs after the Cutoff Date, then such liability
shall be determined without regard to such event
described in clause (ii); (B) any excise tax pursuant to
Section 4971 of the Code with respect to an event
described in clause (iii) above, which tax is imposed on
or before the Cutoff Date; (C) any contributions or other
payments that are required to be made with respect to any
plan year that ends on or before the Cutoff Date as a
result of an event described in clause (iv) above, to the
extent such contributions or payments exceed the amount
that would have been required to be contributed or paid
had no event described in clause (iv) above occurred; (D)
any amounts paid to the District 65 Plan or the Pension
Benefit Guaranty Corporation in settlement of any claim
for payments described in clause (A) or clause (C) or in
consideration for an agreement permitting the complete or
partial withdrawal of the Company or any of its
subsidiaries from the District 65 Plan; or (E) any
amounts paid to the Internal Revenue Service in
settlement of any claim for payments described in clause
(B). The "Cutoff Date" means the end of the fifth full
plan year of the District 65 Plan (as in effect as of the
date of this Agreement) following the Closing Date (the
"Original Cutoff Date") or such later date to which it is
extended pursuant to the next sentence. The Cutoff Date
shall be extended by the length of any period beginning
on or before the Original Cutoff Date during which the
District 65 Plan is insolvent or in reorganization, but
in no event shall the Cutoff Date, as extended, be later
than 12 months from the Original Cutoff Date.
(c) Purchase Price Adjustment. (i) To the
extent of the first $10 million of payments made with
respect to the District 65 Liabilities, there shall be no
adjustment to the Purchase Price pursuant to this Section
5.14.
(ii) After the first $10 million of
payments have been made with respect to the District 65
Liabilities, Seller shall pay to Buyer (including the
Designees), as an adjustment to the Purchase Price, $0.75
for each $1.00 of payments made with respect to District
65 Liabilities in excess of $10 million and less than or
equal to $60 million. Such adjustment to the Purchase
Price shall be paid to the Designees and the other Buyers
in proportion to their respective shares of the Purchase
Price, and shall be payable as and when payments with
respect to the District 65 Liabilities are made, except
to the extent that Seller makes arrangements satisfactory
to Buyer for prepayment of such adjustment (including
without limitation by the defeasance of such adjustment
to the Purchase Price with obligations of the U.S.
government). The adjustment to the Purchase Price shall
be payable regardless of whether any District 65
Liability is incurred as a result of any action (or
inaction) by the Company, the Buyer or any of their
respective subsidiaries and Controlled Group members;
provided, that Buyer shall consult with Seller before
Buyer, the Company or any of their respective Controlled
Group members voluntarily withdraws from the District 65
Plan (but without any requirement to obtain Seller's
consent).
(iii) After $60 million of payments have
been made with respect to the District 65 Liabilities,
there shall be no further adjustment to the Purchase
Price pursuant to this Section 5.14.
(d) If this Agreement shall be terminated
without the consummation of the Closing, Seller shall
indemnify Buyer, the Designees, all members of their
respective Controlled Group, and all of their respective
affiliates and hold them harmless from and against any
liabilities arising out of or relating to the District 65
Plan, including without limitation any liabilities that
would have been District 65 Liabilities if the Closing
had been consummated.
(e) Except to the extent of the Seller's
obligation to pay the adjustment to the Purchase Price
provided for above, after the Closing, the Company and
its subsidiaries shall indemnify Seller and hold it
harmless from and against any liability assumed by the
Company pursuant to Section 5.14(a) above, as well as for
reasonable costs and expenses incurred by Seller in
connection therewith.
5.15. Store Lease Transfers.
(a) Prior to the Closing, Seller shall use
good faith and reasonable efforts (i) to transfer,
directly or indirectly, each of the Leases to the Company
by assignment or stock transfer, (ii) to obtain any fully
executed, written consents and approvals from the
Landlords under the Leases (each, a "Landlord") that may
be required with respect to such direct or indirect
transfer of the Leases to the Company and otherwise in
connection with the consummation of the Purchase
Transaction (each, a "Landlord Consent"), and (iii) to
obtain sufficient Guaranty Releases (hereinafter defined)
so as not to give rise to a right of Seller to terminate
the Toys Agreement pursuant to Section 10.1.10 thereof.
A "Guaranty Release" shall mean an instrument that
releases Seller and any subsidiary of Seller that will be
merged into Seller in connection with the Toys
Transaction from their respective liabilities under any
Lease (each, a "Guaranteed Lease") in which Seller or any
such subsidiary is the tenant and/or has delivered a
guaranty, surety agreement or similar instrument to the
Landlord under such Lease. Seller shall promptly provide
Buyer with (i) copies of all fully executed and delivered
Landlord Consents and Guaranty Releases after the same
shall have been received by Seller, and (ii) any
additional information as may be reasonably requested by
Buyer with respect to the status of Seller's efforts to
obtain such Landlord Consents and Guaranty Releases prior
to or following the Closing Date, including, without
limitation, copies of any written status reports prepared
by Jones Lang Wootton Realty Advisors. In no event shall
Seller, without Buyer's prior written consent, enter into
any Landlord Consent or Guaranty Release that results in
or effects a new real estate transaction or a Lease
amendment, modification or supplement or a waiver of any
provisions of a Lease (each, a "Lease Change"), other
than any Lease Change relating to the tenant's ability to
transfer a Lease or be released from liability that is no
less favorable to the tenant than the original Lease
provision regarding Lease transfers or releases.
(b) Both before and after the Closing, Buyer
and Seller shall cooperate with each other in attempting
to obtain additional Landlord Consents and Guaranty
Releases, however, neither party shall be obligated to
expend any sums or incur any additional obligations in
connection therewith.
(c) If Seller anticipates that it may not
obtain certain Landlord Consents prior to the Closing
Date, Seller shall so notify Buyer, and Seller and Buyer
shall endeavor in good faith to reach agreement as to how
to proceed with respect to each such Lease for which a
Landlord Consent has not been obtained by the Closing
Date (each, a "Non-Consented Lease"). Seller agrees
that, upon Buyer's request, Seller or the Liquidating
Trust shall retain (or cause an appropriate subsidiary to
retain), for a period of time requested by Buyer after
the Closing, any tenant's interest in a Non-Consented
Lease in order to prevent an immediate default under such
Non-Consented Lease, if and only to the extent that such
action is consistent with the consummation of the Toys
Transaction. In such event, Seller shall enter into an
interim management, license, occupancy or use agreement
with the Company (or a subsidiary thereof) that would
entitle the Company (or a subsidiary thereof), to the
greatest extent possible, to exercise and enjoy all of
the substantive rights and privileges of the lessee under
the Non-Consented Leases (or certain of them) and to
receive the income therefrom during the period that
Seller, the Liquidating Trust or an appropriate
subsidiary is holding the Non-Consented Leases in
question. At the end of the term of such management or
other agreement, or at such earlier time as the Company
(or its subsidiary) shall elect by written notice to
Seller, Seller shall cause the Non-Consented Lease or
Non-Consented Leases in question to be transferred to the
Company or one of its subsidiaries.
5.16. Additional Covenants Regarding Leases.
(a) In furtherance and not in limitation of
Section 5.5 hereof, Buyer will cause Guarantor or the
Company and its subsidiaries, as applicable, to:
(i) to the extent required to obtain a
Landlord Consent and/or a Guaranty Release either
before or after the Closing, execute (A) an assignment
and assumption of lease agreement pursuant to which
the Company or one of its subsidiaries assumes the
obligations of the Tenant under any Lease and is
otherwise in form and substance reasonably acceptable
to Buyer, the Company and its subsidiaries, and (B) a
guaranty agreement with respect to each of the
Guaranteed Leases in existence on the date hereof or
which are entered into with Buyer's consent between
the date hereof and the Closing, such guaranty to be
executed by a Guarantor meeting the requirements of
Section 5.6 hereof and to be substantially in the
standard form approved by Buyer prior to the date
hereof, or in the form of the existing guaranty of
such Lease except to the extent such existing guaranty
contains representations, covenants or other terms or
provisions either (A) with which the Company or its
applicable subsidiary would be reasonably unable to
comply, or (B) which would be reasonably expected to
be breached upon consummation of the Purchase
Transaction; and
(ii) refrain from exercising a renewal
option or otherwise extending the term of a Guaranteed
Lease without first obtaining a Guaranty Release
therefor; provided, however, in the event a Guaranty
Release is not obtained and Buyer, the Company or its
applicable subsidiary wishes to exercise a renewal
option or otherwise extend the term of the Guaranteed
Lease, then Buyer, the Company or its applicable
subsidiary shall have the option of providing as
security to Seller prior to any renewal of a
Guaranteed Lease an irrevocable letter of credit in an
amount and in such form as is reasonably satisfactory
to Seller or such other form of security as is
reasonably satisfactory to Seller and for which Buyer
evidences to Seller's reasonable satisfaction that
such form of security (whether it is a letter of
credit or otherwise) can in no way be affected by the
bankruptcy, reorganization or insolvency of Buyer, the
Company, or its subsidiaries or otherwise be attached
by creditors of the same.
(b) Seller agrees that, from and after the
Closing Date, and upon the request and at the sole cost
and expense of the Company or the applicable subsidiary,
Seller shall take such reasonable actions as may be
necessary to prevent a default under a Non-Consented
Lease to the extent such actions are not susceptible of
being taken by the Company, provided that such actions
shall not otherwise materially adversely affect Seller or
have an adverse effect on the Toys Transaction.
5.17. Excluded Liabilities. On or prior
to the Closing Date, Seller shall provide in a manner
reasonably satisfactory to Buyer for the payment in full
by Seller and the Liquidating Trust to Buyer, the Company
and its subsidiaries of the Excluded Liabilities (to the
extent not previously paid) in a manner adequate to
provide for the collection of the Excluded Liabilities,
taking into account the assets and other liabilities of
the Liquidating Trust (which in the case of the Excluded
Liabilities arising pursuant to Section 5.14 shall
include the provision for the payment in full by means of
an irrevocable letter of credit, a holdback of a portion
of the Purchase Price, a first priority, perfected lien
in collateral with adequate assurances as to value or
comparable security or other comparable arrangements
reasonably acceptable to Buyer).
5.18. Additional Covenant Regarding Employee
Benefit Plans. The Seller will reimburse the Company for
any costs and expenses (including, without limitation,
contributions to the Petrie Stores Corporation 401(k)
Savings Plan ("Savings Plan") and attorneys' fees)
incurred by the Company which are reasonably necessary,
in accordance with a written opinion of Company's legal
counsel, to ensure that the facts set forth in Section
3.11 of the Disclosure Schedule with respect to the
exclusion of employees based in Puerto Rico from coverage
under the Savings Plan do not result in disqualification
of the Savings Plan; provided, however, that in no case
will the amount paid by the Seller pursuant to this
Section 5.18 exceed a total of $250,000.
ARTICLE VI
TAX MATTERS
6.1. Tax Returns, Payments of Taxes, Transfer
Taxes, Refunds and Withholding.
(a) Seller shall prepare and file, or cause to
be prepared and filed, on a timely basis, all Tax Returns
of or which include the Company or any subsidiaries of
the Company (including any amendment thereto), that are
due to be filed (giving effect to any extension of time
to file) on or prior to the Closing Date and shall pay
all Taxes shown as due on such Tax Returns. Except as
otherwise provided in subsection (b) hereof, without
relieving Seller of its obligation to file any Tax Return
under the Code subsequent to the Closing, Buyer shall
prepare and file or shall cause to be prepared and filed
on a timely basis, all Tax Returns of the Company or any
subsidiaries of the Company that are due to be filed
after the Closing Date and shall pay, or shall cause to
be paid, all Taxes shown as due on such Tax Returns.
(b) Seller and the Liquidating Trust shall,
and hereby do, indemnify and hold Buyer, the Company and
the Company's subsidiaries harmless against (x) the
failure to be true in any material respect of any
representations and statements of fact included in the
Ruling Request, to the extent that they relate to the
Seller or its subsidiaries, and (y) (i) Taxes of Seller
or its subsidiaries or any reduction in losses,
deductions, credits or similar items of tax benefit but
excluding any reduction in the tax basis of assets ("Tax
Benefits") of the Company or any of its subsidiaries
arising from the transfer, as contemplated by Section
3.16 hereof, to the Company and its subsidiaries of
assets and liabilities of Seller and certain of its
subsidiaries and the stock of other subsidiaries of
Seller and (ii) any Taxes of Seller or its subsidiaries
or any reduction in Tax Benefits of the Company or its
subsidiaries arising out of or relating to (A) the Toys
Shares or the Toys Transaction, and (B) the sale or other
disposition by Seller of any Toys Common Stock or stock
or assets of the Seller or its subsidiaries subsequent to
the Closing not acquired or owned subsequent to the
Closing by Buyer, Company or Company's subsidiaries.
Buyer and the Company shall, and hereby do, indemnify and
hold Seller and the Liquidating Trust harmless against
any and all other Taxes imposed on the Seller, the
Company, or any subsidiaries of the Company, whether or
not such Taxes arose prior or subsequent to the Closing,
except Taxes imposed upon Seller or subsidiaries of
Seller subsequent to Closing that are attributable to any
taxable period after the Closing Date. For purposes of
the preceding sentence, the taxable period to which any
Tax is deemed to be attributable will be determined by
treating the period ending on the Closing Date as a
separate taxable period for purposes of all Taxes.
(c) All transfer Taxes (including, but not
limited to, all stamp duties in respect of the transfer
or sale of all the stock of the Company or its
subsidiaries) incurred in connection with the
transactions contemplated by this Agreement, other than
those Taxes described in subsection (b) hereof, will be
borne equally by Buyer and Seller. The party required by
law to do so will, at its own expense, file all necessary
Tax Returns and other documentation with respect to any
such transfer Taxes, and, if required by applicable law,
the other party will join in the execution of any such
Tax Return or other documentation.
(d) Any refund of Taxes that is received by
Buyer, the Company, or any of the Company's subsidiaries
with respect to a Tax for which Seller is liable pursuant
to subsection (b) hereof shall be for the account of
Seller, and to the extent that Buyer, the Company or any
of the Company's subsidiaries receive any such refund
after the Closing Date with respect to any such Tax, the
recipient shall pay Seller the amount of such refund
within 30 calendar days after the receipt thereof. Any
refund of Taxes of the Company or any of its subsidiaries
for which Seller is not liable pursuant to subsection (b)
hereof or any reduction in the tax liability of Seller
attributable to any adjustment of tax liability or tax
attributes (including basis adjustments of assets) of the
Company or its subsidiaries for taxable periods for which
Buyer has indemnified Seller that is received by Seller,
Toys or the Liquidating Trust shall be for the account of
Buyer, and Seller shall pay to Buyer the Company or to
the appropriate subsidiary of the Company the amount of
such refund or reduction in tax liability within 30
calendar days after the receipt thereof.
(e) Seller shall not make an election under
Treasury Reg. SECTION 1.1502-20(g) to reattribute losses of the
Company or its subsidiaries to Seller as a result of the
disposition of the Company and its subsidiaries to Buyer
pursuant to this Agreement.
(f) Seller and Buyer agree that for tax
purposes the Purchase Price plus any relevant liabilities
assumed or taken subject to shall be allocated among the
stock or any assets transferred to the Company pursuant
to Section 3.16 in accordance with the allocation
schedule ("Allocation Schedule") proposed by Buyer prior
to Closing which in the event that the Allocation
Schedule gives rise to an indemnity obligation of Seller
to Buyer pursuant to Section 6.1(b)(y)(i), is reasonably
acceptable to Seller. Buyer, Company and Seller shall
each report the transactions contemplated hereby for
federal income tax and all other tax purposes (including,
without limitation, for purposes of Section 1060 of the
Code) and on a timely filed Form 8594 in a manner
consistent with the Allocation Schedule.
6.2. Control of Contest.
(a) Buyer shall have the right, at its own
expense, to control any audit or examination by any
Taxing Authority, to initiate any claim for refund or
file any amended Tax Return, and to contest, resolve and
defend against any assessment, notice of deficiency, or
other adjustment or proposed adjustment of Taxes for all
taxable periods of the Company and its subsidiaries;
provided, however, that Seller (or the Liquidating Trust
or any agent or successor thereof) shall have the
exclusive right to contest, resolve or defend against any
assessment, notice of deficiency, or other proposed
adjustment of Taxes with respect to any liability for Tax
for which Seller is liable pursuant to subsection 6.1(b)
hereof. No party shall have the right to agree to any
assessment, deficiency, settlement, or other adjustment
of Taxes that would adversely affect the interest of
another party without such other party's written consent,
which consent shall not be unreasonably withheld.
(b) Buyer shall forward promptly, and shall
cause the Company and all of its subsidiaries to forward
promptly, to Seller (or the Liquidating Trust) all
written notifications and other communications received
by Buyer, the Company, or any of its subsidiaries,
relating to any liability for Taxes for which Seller is
liable pursuant to subsection 6.1(b) hereof. Seller (or
the Liquidating Trust) shall promptly forward to Buyer or
to the Company all written notifications and other
communications received by the Seller (or the Liquidating
Trust) relating to any other liability for Taxes. The
failure by either party to provide, or to cause any other
party to provide, any such written notice or other
communication to the other party (the "Indemnifying
Party") shall relieve the Indemnifying Party from its
obligation for indemnification with respect to the
subject matter of any such communication or notification
not forwarded if and only to the extent that the
Indemnifying Party incurs additional expenses or Tax
liabilities or is otherwise damaged by such failure be
provided with such communication or notice.
6.3. Access to Information and Retention of
Records.
(a) Buyer, the Company, and the Company's
subsidiaries shall provide Seller with the right, at
reasonable times and upon reasonable notice, to have
access to, and to copy and use, any records or
information and personnel which may be relevant for the
preparation of any Tax Returns, any audit or other
examination by any Taxing Authority, the filing of any
claim for a refund of Tax or for the allowance of any Tax
Credit, or any judicial or administrative proceedings
relating to a liability for Taxes for which Seller is
responsible pursuant to subsection 6.1(b) hereof.
(b) For a period of seven years from the
Closing Date, the Buyer, the Company, and the Company's
subsidiaries shall not dispose of or destroy any of the
business books or records of the Company and the
Company's subsidiaries relating to Taxes for which Seller
is responsible pursuant to subsection 6.1(b) hereof, and
thereafter shall not dispose of or destroy any such books
or records without first offering by written notice to
turn over possession thereof to Seller (or to the
Liquidating Trust or any agent or successor thereof) at
least thirty (30) days prior to the proposed date of such
disposition or destruction.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE STOCK PURCHASE
7.1. Conditions to Each Party's Obligations to
Consummate the Stock Purchase. The respective
obligations of each party to consummate the Stock
Purchase is subject to the satisfaction of the following
conditions:
(a) No statute, rule, regulation, executive
order, decree, or injunction shall have been enacted,
entered, promulgated or enforced by any court or
governmental entity which remains in effect and prohibits
or restricts the consummation of the Stock Purchase; and
(b) Any waiting period applicable to the Stock
Purchase under the HSR Act shall have terminated or
expired.
7.2. Further Conditions to Seller's
Obligations. The obligations of Seller to consummate the
Stock Purchase are further subject to satisfaction or
waiver of the following conditions:
(a) The Company and its subsidiaries or the
Guarantor, as applicable, shall have, and immediately
following the Closing shall continue to have, on a
consolidated basis, a minimum net worth of not less than
$150,000,000 as determined in accordance with GAAP, but
excluding goodwill;
(b) The representations and warranties of
Buyer contained herein shall be true and correct in all
material respects as of the date hereof and at and as of
the Closing Date as though such representations and
warranties were made at and as of such date (except as
otherwise provided in this Agreement);
(c) Buyer shall have performed and complied in
all material respects with all agreements, obligations,
covenants and conditions required by this Agreement to be
performed or complied with by it on or prior to the
Closing;
(d) Seller shall have received a private
letter ruling from the Internal Revenue Service in a form
reasonably satisfactory to Seller, to the effect that the
Toys Transaction will not give rise to the recognition by
Seller or its shareholders of a material amount of
taxable income and the representations made by Toys in
the request for such ruling shall be true and correct in
all material respects;
(e) All conditions to the consummation of the
Toys Agreement shall have been, or shall substantially
simultaneously be, satisfied or waived; and
(f) The shareholders of Seller shall have
approved the disposition of the Retail Operations by the
affirmative vote of two-thirds of all outstanding shares
of Seller entitled to vote thereon.
7.3. Further Conditions to Buyer's
Obligations. The obligation of Buyer to effect the
transactions contemplated hereby are further subject to
the satisfaction or waiver of the following conditions:
(a) Seller shall have obtained sufficient
Landlord Consents to enable Seller to cause or have
caused the following number of Leases to be directly or
indirectly transferred to the Company and the Shares of
the Company to be transferred to Buyer without causing a
default under such transferred Leases (either because
Landlord Consents were obtained or consent of the
Landlords to such transactions were not required):
(i) Leases for Winkelman's Stores (hereinafter
defined) that generated, in the aggregate, at least
80% of the total Adjusted Store Sales (hereinafter
defined) for all Winkleman's Stores and at least 80%
of the total Adjusted Store Contributions (hereinafter
defined) for all Winkelman's Stores (in each case
excluding revenues from the sale of shoes);
(ii) Leases for G&G Stores (hereinafter
defined) that generated, in the aggregate, at least
80% of the total Adjusted Store Sales for all G&G
Stores and at least 80% of the total Adjusted Store
Contributions for all G&G Stores; and
(iii) Leases for Petrie Core Stores
(hereinafter defined) that generated, in the
aggregate, at least 80% of the total Adjusted Store
Sales for all Petrie Core Stores and at least 80% of
the total Adjusted Store Contributions for all Petrie
Core Stores.
"G&G Stores" and "Winkleman's Stores" as used herein
shall mean the Stores designated as such on Section 3.20
of the Disclosure Schedule, and "Petrie Core Stores"
shall mean all other stores in said Section of the
Disclosure Schedule. "Adjusted Store Sales" means net
sales for each Store for the fiscal year ended January
30, 1993 as determined in accordance with GAAP and
reported on Seller's store profit and loss statements all
as shown on Section 3.20 of the Disclosure Schedule. For
each Store that opened during or after fiscal year 1993,
Adjusted Store Sales will be the net sales generated by
such Store during the last four fiscal quarters of
operation through July 30, 1994. If such Store has not
been open for four quarters as of July 30, 1994, then
Adjusted Stores Sales for such Store will be the net
sales generated for such shorter stub period through July
30, 1994. "Adjusted Store Contribution" means operating
income for each Store for the fiscal year ended January
30, 1993 as determined in accordance with GAAP and
reported on Seller's store profit and loss statements,
and as adjusted for the addback of all corporate overhead
allocations charged to the Store and the addback of all
depreciation and amortization expenses incurred by the
Store, all as shown on Section 3.20 of the Disclosure
Schedule. For Stores which opened during or after fiscal
year 1993, Adjusted Store Contribution will be computed
through the last four fiscal quarters of operation ended
July 30, 1994. If such Store has not been open for four
quarters as of July 30, 1994, then Adjusted Store
Contribution for such Store will be for such shorter stub
period through July 30, 1994. The total Adjusted Store
Sales and the total Adjusted Store Contributions for a
particular division shall be deemed to be the aggregate
Adjusted Store Sales or Adjusted Store Contributions, as
the case may be, for all Stores in the division in
question that were open as of July 30, 1994, and Adjusted
Store Sales and Adjusted Store Contribution of any Store
not remaining open through July 30, 1994 shall be
disregarded for purposes of this Section 7.3(a).
In addition to meeting the condition set forth
above in this Section 7.3(a), Seller shall have obtained
any consents which may be required to transfer all of the
Owned Real Property and Leased Properties other than the
Stores (e.g. warehouses, distribution centers and
offices), excluding the office lease for space in the
building commonly known as the Eastern Columbia Building
located in Los Angeles, California in the event Seller
fails to obtain a Landlord Consent therefor, despite
having acted in good faith and used reasonable efforts to
obtain such Landlord Consent.
(b) The representations and warranties,
including as to the transfer of assets and rights to the
Company and its subsidiaries as contemplated by Section
3.16 hereof, of Seller contained herein shall be true and
correct in all material respects as of the date hereof
and at and as of the Closing Date as though such
representations and warranties were made at and as of
such date (except as otherwise provided in this
Agreement);
(c) Seller shall have performed and complied
in all material respects with all agreements,
obligations, covenants and conditions required by this
Agreement to be performed or complied with by it on or
prior to the Closing;
(d) Buyer shall have obtained equity financing
to purchase the Shares, to provide for liabilities and
otherwise to consummate the transactions contemplated by
this Agreement on terms and from investors acceptable to
Buyer in its sole discretion. Buyer shall have obtained
a working capital facility for the Company and any other
debt financing necessary to consummate the transactions
contemplated hereby in an amount and on terms and from
financial institutions satisfactory to Buyer in its sole
discretion;
(e) Either (i) Seller shall have received a
private letter ruling from the Internal Revenue Service
in a form reasonably satisfactory to Buyer, to the effect
that the Toys Transaction will not give rise to the
recognition by Seller or its shareholders of a material
amount of taxable income, and the representations made by
Seller and Toys in the request for such private letter
ruling (and any supplements or amendments thereto) shall
be true and correct in all material respects or (ii) in
the event that such ruling has not been received and
Seller has waived the condition set forth in Section
7.2(d) hereof, Seller shall have covenanted pursuant to
an agreement reasonably satisfactory to Buyer that it
will not consummate the Toys Transaction or any other
transaction involving the direct or indirect disposition
of all or any portion of the Toys Shares (whether or not
intended to be a tax-free reorganization with respect to
Seller) within the taxable year of Seller in which the
Closing occurs except with the consent of Buyer, such
consent not to be unreasonably withheld; and
(f) Buyer shall be reasonably satisfied that
Seller shall have made or will make adequate provision
for its remaining liabilities and obligations, including
the Excluded Liabilities and the amount to be held in
escrow and trust in connection with Seller's liquidation;
Buyer shall be reasonably satisfied with all
determinations made pursuant to Sections 8.2.1 and 8.2.2
of the Toys Agreement.
ARTICLE VIII
TERMINATION AND ABANDONMENT
8.1. Termination. This Agreement may be
terminated at any time prior to the Closing Date:
(a) by mutual written consent of Seller and
Buyer;
(b) by Seller or Buyer at any time after
January 31, 1995 (or such later date to which the Toys
Agreement (or another substantially equivalent agreement
with Toys) shall have been extended if Buyer notifies
Seller within five business days of notice after January
1, 1995 of such extension that this Agreement shall be so
extended, unless Seller, within five business days of
Buyer's notice reasonably determines that there is a
substantial likelihood that Buyer will not be able to
satisfy the condition set forth in Section 7.3(d) hereof)
if the Closing shall not have occurred by such date;
(c) by Seller within 10 days of the
termination of the Toys Agreement, provided that if
Seller does not so terminate following the termination of
the Toys Agreement, the conditions set forth in Sections
7.2(d) and (e) hereof shall thereupon be deemed waived by
Seller; or
(d) by Seller or by Buyer, if any governmental
entity of competent jurisdiction shall have issued an
order, decree or ruling or taken other action
restraining, enjoining or otherwise prohibiting the
transactions contemplated hereby and such order, decree,
ruling or other action shall have become final and
nonappealable.
8.2. Procedure and Effect of Termination. In
the event of termination of this Agreement and
abandonment of the transactions contemplated hereby by
the parties hereto pursuant to Section 8.1 hereof, this
Agreement shall forthwith become null and void and of no
further effect, without any liability on the part of any
party or its directors, officers, employees, agents or
stockholders, other than the provisions of Section
5.3(b), 5.14(d) and 9.10. Nothing in this Section 8.2
shall relieve any party from any liability for any
willful breach of this Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1. Non-Survival of Representations and
Warranties. Each and every representation and warranty
contained in this Agreement shall expire with, and be
terminated and extinguished by, the Closing or the
termination of this Agreement pursuant to Section 8.1
hereof, and thereafter neither Seller nor Buyer nor any
officer, director, employee, shareholder or
representative thereof shall be under any liability
whatsoever with respect to any such representation or
warranty. This Section 9.1 shall have no effect upon any
other obligation of the parties hereto, whether to be
performed before or after the Closing.
9.2. Amendment and Modification. This
Agreement may be amended or modified at any time by the
parties hereto, pursuant to an instrument in writing
signed by both parties.
9.3. Extension; Waiver. At any time prior to
the Closing Date, the party entitled to the benefit of
any respective term or provision hereof may (a) extend
the time for the performance of any of the obligations or
other acts of the other party hereto, (b) waive any
inaccuracies in the representations and warranties
contained herein or in any document, certificate or
writing delivered pursuant hereto or (c) waive compliance
with any obligation, covenant, agreement or condition
contained herein. Any agreement on the part of either
party to any such extension or waiver shall be valid only
if set forth in an instrument in writing signed on behalf
of the party entitled to the benefits of such extended or
waived term or provision.
9.4. Entire Agreement; Assignment; Alternate
Structure. This Agreement (a) constitutes the entire
agreement between the parties hereto with respect to the
subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral,
between the parties hereto with respect to the subject
matter hereof (other than the Confidentiality Agreement)
and (b) shall not be assigned by operation of law or
otherwise by either party hereto without the prior
written consent of the other party, provided, however,
that Seller may assign its rights and obligations
hereunder to the Liquidating Trust provided further that
Buyer may assign its rights and obligations hereunder so
long as such assignment does not cause a default under
any Leases or have an adverse effect on the condition set
forth in Section 7.3(a) hereof, and subject to the
limitation set forth in Section 5.11, provided that no
such assignment shall relieve Buyer of its obligations
hereunder. In addition, the parties shall cooperate in
considering alternative structures for the transactions
contemplated hereby, including by way of example,
structuring the Stock Purchase as a merger or similar
transaction or structuring the Stock Purchase as the
purchase of shares of common stock and preferred stock,
provided that any such alternative structure is
reasonably acceptable to such parties. In the event of
such a modification of the structure, the parties shall
execute an appropriate amendment to this Agreement
(including representations, warranties, covenants and
other pertinent provisions to the extent appropriate in
light of such other structure) providing for such
alternative structure and for other provisions consistent
with the foregoing.
9.5. Validity. The invalidity or
unenforceability of any term or provision of this
Agreement in any situation or jurisdiction shall not
affect the validity or enforceability of the other terms
or provisions hereof or the validity or enforceability of
the offending term or provision in any other situation or
in any other jurisdiction.
9.6. Notices. Unless otherwise provided
herein, all notices and other communications hereunder
shall be in writing and shall be deemed given upon
receipt by the other parties at the following addresses
or telecopy numbers:
(a) if to Seller, to
Petrie Stores Corporation
70 Enterprise Avenue
Secaucus, NJ 07094
Telecopy: (201) 866-2355
Attention: Peter A. Left
with a copy to
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telecopy: (212) 735-2001
Attention: Alan C. Myers
(b) if to Buyer, to
WP Investors, Inc.
c/o E.M. Warburg, Pincus & Co.
466 Lexington Avenue
New York, NY 10017
Telecopy: (212) 878-9351
Attention: Errol M. Cook
with a copy to
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Telecopy: 212-403-2000
Attention: Stephanie J. Seligman
9.7. Governing Law. This Agreement shall be
governed by, enforced under and construed in accordance
with the laws of the State of New York, without giving
effect to any choice or conflict of law provision or rule
thereof.
9.8. Descriptive Headings. The descriptive
headings herein are inserted for convenience of reference
only and shall in no way be construed to define, limit,
describe, explain, modify, amplify, or add to the
interpretation, construction or meaning of any provision
of, or scope or intent of, this Agreement nor in any way
affect this Agreement.
9.9. Counterparts. This Agreement may be
executed in any number of counterparts, each of which
shall be deemed an original, but all of which together
shall constitute one and the same instrument.
9.10. Expenses. Whether or not this Agreement
and the transactions contemplated hereby are consummated,
all costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the
party incurring such expenses. Notwithstanding the
foregoing, if this Agreement is terminated pursuant to
Sections 8.1 following the occurrence of one of the
following: (i) a material breach by Seller, (ii)
Seller's failure to obtain the lease consents
contemplated by Section 7.3(a), (iii) the IRS not having
issued the private letter ruling contemplated by Section
7.2(d), (iv) the failure to be satisfied of any of the
conditions set forth in Section 7.3(b), (c) or (e)(ii),
(v) the failure to be satisfied of the condition set
forth in Section 7.2(f) (unless waived by Seller), (vi)
the failure to be satisfied of any of the conditions set
forth in Section 7.2(e) unless such condition shall not
be satisfied due to the Disposition (as defined in the
Toys Agreement) not being consummated as contemplated by
Section 9.1.5 of the Toys Agreement, (vii) the failure to
be satisfied of the condition set forth in Section
7.3(d), unless the termination of this Agreement is at
least 45 days following the later of (A) the receipt of
the private letter ruling contemplated by Section 7.2(d)
(or the waiver by Seller of such condition) and (B) the
time Seller notifies the Buyer that it has waived the
termination right set forth in Section 10.1.10 of the
Toys Agreement or (viii) the termination of the Toys
Agreement, unless (x) the termination of this Agreement
is at least 45 days following the later of (A) the
receipt of the private letter ruling contemplated by
Section 7.2(d) (or the waiver by Seller of such
condition) and (B) the time Seller notifies the Buyer
that it has waived the termination right set forth in
Section 10.1.10 of the Toys Agreement, (y) provided that
the preceding clause (x) shall not apply if prior to the
termination of this Agreement, Buyer shall have waived
the condition set forth in Section 7.3(d) upon at least
three business days notice (delivered following the
termination of such 45 day period) that Seller will
terminate this Agreement, then, so long as Buyer is not
in material breach of its obligations hereunder, Seller
shall, promptly following such termination, reimburse
Buyer for its reasonable, documented out-of-pocket
expenses, paid, incurred or assumed, by or on behalf of
Buyer or its affiliates (including, without limitation,
fees and expenses of its advisors, financing sources,
counsel and accountants) in connection with or relating
to the transactions contemplated hereby, provided,
however, that Buyer has not been previously reimbursed
for such expenses and that the amount payable under this
Section 9.10 shall not exceed $5 million, provided, that
if Seller so consents in connection with commitment or
similar fees paid to Buyer's financing sources, the
aggregate amount payable under this Section 9.10 may be
up to, but shall not exceed, $6 million.
9.11. Parties in Interest. This Agreement
shall be binding upon and inure solely to the benefit of
each party hereto and nothing in this Agreement, express
or implied, is intended by or shall confer upon any other
person (other than the Liquidating Trust) any rights,
benefits or remedies of any nature whatsoever under or by
reason of this Agreement, provided that the persons named
in Section 5.5 may enforce the provisions of such section
against Buyer and Seller and the Liquidating Trust, as
the case may be.
9.12. No Waivers. Except as otherwise
expressly provided herein, no failure to exercise, delay
in exercising, or single or partial exercise of any
right, power or remedy by any party, and no course of
dealing between the parties, shall constitute a waiver of
any such right, power or remedy. No waiver by either
party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or
not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such
occurrence. No waiver shall be valid unless in writing
and signed by the party against whom such waiver is
sought to be enforced.
9.13. Specific Performance. The parties
hereto agree that if any of the provisions of this
Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable
damage would occur, no adequate remedy at law would exist
and damages would be difficult to determine, and that the
parties shall be entitled to specific performance of the
terms hereof and immediate injunctive relief, in addition
to any other remedy at law or equity.
IN WITNESS WHEREOF, each of the undersigned has
caused this Agreement to be signed by its duly authorized
officer as of the date first above written.
PETRIE STORES CORPORATION
By: /s/ Allan Laufgraben
_______________________
Name: Allan Laufgraben
Title: President - CEO
WP INVESTORS, INC.
By: /s/ Reuben S. Leibowitz
__________________________
Name: Reuben S. Leibowitz
Title: Vice President
VOTING AGREEMENT AND PROXY
VOTING AGREEMENT AND PROXY, dated as of August 23,
1994, between WP Investors, Inc., a Delaware corporation (the
"Buyer"), and MILTON PETRIE, the record and beneficial owner
(the "Shareholder") of 28,111,274 shares (the "Shares") of
common stock of Petrie Stores Corporation, a New York
corporation (the "Seller").
Concurrently herewith, the Buyer and the Seller are
entering into a stock purchase agreement (the "Purchase
Agreement"), pursuant to which, among other things, the Seller
intends to sell the shares of the Company (as such term is
defined in the Purchase Agreement) to Buyer and one or more of
its designees (the "Transaction").
As a condition to its willingness to enter into the
Purchase Agreement, the Buyer has requested that the
Shareholder execute and deliver this Agreement to the Buyer.
As an inducement for the Buyer to enter into the Purchase
Agreement, the Shareholder is executing and delivering this
Agreement to the Buyer.
Capitalized terms used but not defined herein shall
have the meanings specified in the Purchase Agreement.
Accordingly, in consideration of the premises and the
agreements set forth herein and for other good and valuable
consideration, receipt of which is hereby acknowledged, the
parties hereby agree as follows:
1. Voting Agreement. The Shareholder shall vote
the Shares, or execute a consent with respect to the Shares, in
favor of the Transaction at any annual, special or adjourned
meeting of the Seller's shareholders called by the Board of
Directors for the purpose of voting on, or at which any vote is
THIS DOCUMENT CONTAINS AN IRREVOCABLE PROXY
taken related to, the Transaction, any consent in lieu of any
such meeting or otherwise.
2. Proxy. (a) The Shareholder grants to the Buyer
an irrevocable proxy and irrevocably makes, constitutes and
appoints the Buyer, and any designees of the Buyer, as the
attorney and proxy of the Shareholder, with full power of
substitution, to exercise all voting, consent and other rights
to approve the Transaction and to defeat any other proposal
which the Buyer believes would be reasonably likely to
interfere with or impede the Transaction with respect to the
Shares in respect of any annual, special or adjourned meeting
of the Seller's shareholders called by the Board of Directors
for the purpose of voting on, or at which any vote is taken
related to, the Transaction, as such attorney and proxy or his
designee or substitute shall in his sole discretion deem
proper. The Shareholder hereby revokes all prior powers of
attorney and proxies appointed by the undersigned at any time
with respect to the Shares to the extent inconsistent with this
Agreement, except that the powers of attorney jointly granted
to Bernard Petrie, Joseph H. Flom, Jerome A. Manning and Albert
Ratner, pursuant to the power of attorney executed on March 15,
1983, shall remain in effect, such attorneys-in-fact agreeing
hereby to exercise such powers in accordance with this
Agreement, and except that the Voting Agreement and Proxy with
Toys "R" Us, Inc., a Delaware corporation ("Toys"), dated as of
April 20, 1994 (the "Toys Proxy") shall remain in effect. Toys
by its execution and delivery hereof consents to the grant of
this proxy and power of attorney and to the execution and
delivery of this Voting Agreement and Proxy and, as long as the
Toys Proxy and the Toys Agreement remain in effect and Toys has
not received notice that the Purchase Agreement has been
terminated, further agrees to exercise and to refrain from
exercising its powers pursuant to the Toys Proxy so that the
Shares may be voted in accordance with this Agreement and as
contemplated by Section 1 of the Toys Proxy.
(b) This power of attorney and proxy is coupled
with an interest in the Shares and is irrevocable, shall not be
terminated by any act of the Shareholder or by operation of
law, by death, disability or incompetence of the Shareholder,
by lack of appropriate power or authority, or by the occurrence
of any other event or events and shall be binding on all
beneficiaries, heirs at law, legatees, distributes, successors,
assigns and legal representatives of the Shareholder. If after
the execution of this Agreement the Shareholder shall die or
become incapacitated, cease to have appropriate power or
authority, or if any other such event or events shall occur,
the Buyer is nevertheless authorized and directed to vote the
Shares in accordance with the terms of this Agreement as if
such death, incapacity, lack of appropriate power or authority
or other event or events had not occurred and regardless of
notice thereof.
(c) The proxy granted herein shall expire at
the earlier of (i) the termination of the Purchase Agreement in
accordance with its terms, or (ii) the Closing under the
Purchase Agreement.
3. Agreement Not to Sell Shares. (a) Except as
permitted by Sections 3(b) and (c) below, the Shareholder will
not (i) directly or indirectly, sell, transfer, assign, pledge,
hypothecate or otherwise dispose of or encumber any Shares, or
enter into any contract, option, agreement or other arrangement
with respect to the foregoing, other than this Agreement and
the Toys Proxy; (ii) directly or indirectly, solicit,
encourage, participate in or initiate discussions or
negotiations with, or provide information to, any person or
entity concerning any direct or indirect sale or other
disposition of the Shares; (iii) take any action which could
reasonably result in preventing the consummation of the
transactions contemplated by the Purchase Agreement; or (iv)
take any action that would have the effect of preventing or
disabling the Shareholder from performing the Shareholder's
obligations under this Agreement. Any shares of common stock
of the Seller (or any other voting securities of the Seller or
securities convertible into shares of common stock or other
voting securities of the Seller) acquired by the Shareholder
prior to the Closing Date shall be included in the Shares
subject to this Agreement.
(b) Notwithstanding Section 3(a) above, the
Shareholder and/or his legal representatives, as applicable,
may sell, transfer or otherwise dispose of, for any purpose,
(i) prior to approval of the Transaction by the shareholders of
the Seller at the Shareholders Meeting, up to 1,500,000 Shares;
provided, that the Shareholder shall continue to own at least a
majority of the shares of common stock of the Seller on a fully
diluted basis and (ii) following the approval by the Seller's
shareholders of the Transaction at the Shareholders Meeting, a
number of Shares which, when added to the number of Shares
sold, transferred or otherwise disposed of pursuant to clause
(i) above, will equal 4,000,000 Shares; provided, that if the
Shareholder dies, his legal representatives may sell, transfer
or otherwise dispose of, after the approval by the Seller's
shareholders of the Transaction at the Shareholders Meeting, a
number of Shares as shall be deemed advisable by the Seller's
legal representatives in connection with the administration of
the Shareholder's estate, including the timely payment of any
or all estate taxes; provided, further, that any charitable
trust, foundation, organization or similar entity to which any
Shares are transferred shall agree to be bound by this
Agreement. Notwithstanding the foregoing, (x) if, after
approval of the Transaction at the Shareholders Meeting,
another meeting of the Seller's shareholders shall be called
for the purpose of voting on the Transaction or any other
proposal which the Buyer believes would be reasonably likely to
interfere with or impede the Transaction, or any consent in
lieu thereof shall be solicited, clause (ii) above and the
proviso immediately following it shall be suspended, as to any
Shares then subject to this Agreement, until the Transaction
shall have been approved or such other proposal shall have been
defeated; and (y) no sale, transfer or other disposition under
this Section 3(b) shall be permitted if it would cause any
representation contained in the Ruling Request or the Private
Letter Ruling to be inaccurate.
(c) Notwithstanding Section 3(a) above, the
Shareholder may pledge any number of Shares to finance the
Shareholder's living, charitable and other customary expenses
in one or more bona fide loan transactions, so long as (x) the
pledge agreement provides that any such Shares prior to
foreclosure thereon and sale thereof pursuant to such pledge
agreement shall continue to be subject to this Agreement (other
than Section 3(a) above) and (y) any Shares as to which the
pledgee has so foreclosed shall be taken into account in
determining compliance with this Section 3.
(d) A copy of each pledge agreement relating to
Shares and of each agreement by a charitable trust, foundation,
organization or similar entity referred to in Section 3(b)
above shall be delivered to the Buyer promptly upon the pledge
or transfer of such Shares, as the case may be.
(e) Upon the sale, transfer, assignment,
pledge, hypothecation or other disposition of any Shares in
compliance with Sections 3(b) and (c) above, such Shares shall
cease to be subject to this Agreement except as expressly
provided therein.
4. Legend. Each certificate evidencing the Shares
shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A VOTING AGREEMENT DATED AS OF AUGUST 23,
1994 BETWEEN WP INVESTORS, INC. AND THE SHAREHOLDER."
The legend set forth above shall be removed from the
certificates evidencing any shares which cease to be Shares in
accordance with this Agreement or upon the termination of this
Agreement pursuant to Section 2(c) above.
5. Delivery of Reports, Etc. The Shareholder shall
deliver to the Buyer a copy of any report, opinion,
recommendation, assessment, summary, compilation or other
document relating to the liabilities of the Seller and its
subsidiaries and prepared for or on behalf of or addressed to
the Shareholder or the Shareholder's attorneys-in-fact and not
previously delivered to the Buyer by the Seller. At the
Buyer's request, the Shareholder or such attorneys-in-fact, as
the case may be, shall cause the party preparing any such
document to provide a letter permitting the Buyer to rely
thereon as though it were addressed to the Buyer.
6. Miscellaneous.
6.1. Binding Effect; No Assignment. This
Agreement shall be binding upon and inure solely to the benefit
of the parties hereto and their respective successors and legal
representatives, heirs and assigns. This Agreement may not be
assigned by either party hereto without the consent of the
other party; provided, however, that Buyer may assign its
rights and obligations hereunder to E.M. Warburg, Pincus & Co.,
Inc. ("Warburg Pincus") and/or one or more persons or entities
affiliated with Warburg Pincus.
6.2. Entire Agreement; Modification and Waiver.
This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreements,
representations and understandings of the parties, both written
and oral. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by the
parties hereto. The waiver by a party of a breach of any
provision of this Agreement shall not operate as or be
construed as a waiver of any subsequent breach thereof.
6.3. Notices. All notices, requests, demands
and other communications hereunder shall be in writing and
shall be deemed to have been given if delivered personally or
sent by cable, telegram, telecopier or telex to the parties at
the following addresses or at such other addresses as shall be
specified by the parties by like notice, each party hereto
agreeing that any notice to any one party shall also be
delivered to all other parties:
(i) if to the Shareholder, to:
Bernard Petrie
633 Battery Street
San Francisco, California 94111
Joseph H. Flom
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Jerome A. Manning
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004 and
Albert Ratner
Forest City Enterprises
10800 Brookpark
Cleveland, Ohio 44130
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Alan C. Myers, Esq.
Facsimile: (212) 735-2000
(ii) if to Buyer, to:
WP Investors, Inc.
c/o E.M. Warburg, Pincus & Co., Inc.
466 Lexington Avenue
New York, New York 10017
Attention: Errol M. Cook
Facsimile: (212) 878-9351
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Stephanie J. Seligman
Facsimile: (212) 403-2000
(iii) if to Toys, to:
Toys "R" Us, Inc.
395 W. Passaic Street
Rochelle Park, New Jersey 07662
Attention: Louis Lipschitz
Chief Financial Officer
Facsimile: (201) 845-0973
with a copy to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention: Andre Weiss, Esq.
Facsimile: (212) 593-5955
6.4. Governing Law. This Agreement shall
be governed in all respects, including validity,
interpretation and effect, by the laws of the State of
New York applicable to agreements made and to be
performed entirely within such State.
6.5. Counterparts. This Agreement may be
executed by the parties hereto in one or more
counterparts which together shall constitute a single
agreement.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement on the date first above written.
WP INVESTORS, INC.
By: /s/ Reuben S. Leibowitz
Name: Reuben S. Leibowitz
Title: Vice President
MILTON PETRIE
By: /s/ Bernard Petrie
Bernard Petrie, as Attorney-in-Fact
By: /s/ Joseph H. Flom
Joseph H. Flom, as Attorney-in-Fact
By: /s/ Jerome A. Manning
Jerome A. Manning, as Attorney-in-Fact
By: /s/ Albert Ratner
Albert Ratner, as Attorney-in-Fact
Consented and Agreed:
TOYS "R" US, INC.
By: /s/ Louis Lipschitz
Name: Louis Lipschitz
Title: Senior V.P. Finance and CFO
PETRIE STORES CORPORATION
70 Enterprise Avenue
Secaucus, NJ 07094
(201) 866-3600
FOR IMMEDIATE RELEASE
PETRIE STORES AGREES TO SELL RETAIL OPERATIONS TO
INVESTOR GROUP FOR $190 MILLION
Secaucus, New Jersey, August 23, 1994 -- Petrie
Stores Corporation (NYSE: PST) announced today that it
has entered into a definitive agreement to sell its
retail operations to an investor group led by E.M.
Warburg, Pincus & Co., Inc. for $190 million in cash. The
investor group includes the existing senior management of
Petrie Stores and Verna Gibson, former President of The
Limited Stores, a division of The Limited, Inc.
Petrie Stores' obligations are conditioned on, among
other things, the closing of its share exchange
transaction with Toys "R" Us (NYSE: TOY). In April,
Petrie Stores announced that it had entered into a
definitive agreement with Toys "R" Us to exchange
approximately 40 million Toys "R" Us common shares and
cash for newly issued Toys "R" Us common shares. Under
the terms of that agreement, the newly issued Toys "R" Us
stock will equal the value of the stock and cash
transferred to Toys "R" Us, less approximately $115
million. The transaction with Toys "R" Us is conditioned
on the disposition of Petrie Stores' retail operations
and on Petrie Stores receiving a ruling from the Internal
Revenue Service that the transaction will be tax-free to
Petrie Stores, Toys "R" Us and Petrie Stores'
shareholders. Petrie Stores' obligations under both
agreements are also conditioned on, among other things,
reducing its contingent liabilities, primarily retail
lease guarantees, to less than $200 million and the
approval of holders of two-thirds of Petrie Stores'
outstanding common shares.
Milton Petrie, Chairman of the Board of Directors of
Petrie Stores, who owns approximately 60% of the
outstanding and 54% of the fully diluted Petrie Stores'
common shares, has agreed to vote his shares in favor of
both transactions.
As part of the transaction, the acquiring company
will assume a substantial portion of Petrie Stores'
liabilities and Petrie Stores will retain certain
contingent liabilities. Promptly after the closing of
the Toys "R" Us transaction and the sale of the retail
operations, Petrie Stores will liquidate and distribute
to its shareholders all of the shares of Toys "R" Us
stock received in the exchange, except an amount to be
held in a liquidating trust covering such contingent
liabilities at closing.
The closing of both transactions is anticipated to
occur later this year. The acquiring company's
obligations are conditioned on, among other things, the
receipt of financing and the receipt of sufficient
consents from landlords. The sale transaction may be
terminated if it is not consummated by January 31, 1995.
This is neither an offer to sell, nor a solicitation
of offers to purchase, any securities. The Toys "R" Us
stock will be distributed only pursuant to an effective
registration statement. A proxy statement describing the
transactions in greater detail will be distributed to
Petrie Stores' shareholders.
Petrie is one of the largest women's specialty
retailing chains in the country -- with more than 1700
stores in all 50 states, Puerto Rico and the U.S. Virgin
Islands, and the District of Columbia. The trade names of
its stores include Marianne, G&G, Rave, Jean Nicole,
Winkelman's, Stuarts, and M.J. Carroll.
###
Contact: Mary Ann Dunnell
212/484-6721
