SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 28, 1995
Commission file number 33-27126
PEEBLES INC.
Virginia 54-0332635
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
One Peebles Street
South Hill, Virginia 23970-5001
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (804) 447-5200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X .
No .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-
affiliates of the registrant $12,365,675 (determined by including all
shares of Peebles common stock owned by persons, (1) who hold less than 10%
of the outstanding shares of common stock and (2) are not an executive
officer of the registrant. Aggregate value is based upon the estimated fair
value of common stock as of January 28, 1995.)
As of April 4, 1995, 2,942,690 shares of common stock of Peebles Inc.
were outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference
and the Part of the Form 10-K into which the document is incorporated: (1)
Any annual report to security holders; (2) Any proxy or information
statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c)
under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes.
NONE
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Peebles operates 58 specialty department stores offering merchandise
for the entire family and selected decorative home accessories. Founded in
1891, the Company operates primarily in smaller communities in ten
southeastern and mid-Atlantic states. Peebles positions itself as the
leading fashion retailer in these communities, which typically do not have
a traditional mall-based department store, and locates its stores in the
primary shopping destinations in its markets. Peebles offers its customers
consistent value by providing a broad assortment of moderately priced
national brands supplemented with quality private label merchandise.
Peebles' attractive stores and visual presentation, advertising and
promotional programs further reinforce its image as the market's fashion
leader.
References to 1990, 1991, 1992, 1993 and 1994 relate to the fiscal
years of the Company ending February 2, 1991, February 1, 1992, January 30,
1993, January 29, 1994 and January 28, 1995, respectively. Each of these
fiscal years includes 52 weeks.
OPERATING STRATEGY
The following are key elements to Peebles operating strategy:
FOCUS ON SMALL MARKETS. Peebles locates its stores in smaller
communities that typically do not have a traditional mall-based
department store, thereby limiting competition and allowing Peebles to
be the leading fashion retailer in these communities. The Company
believes its ability to successfully operate in markets with as few as
5,000 households is an important competitive advantage over large
department stores, which generally cannot profitably operate in such
markets. Peebles has operated in small communities for over 100 years
and understands its markets and customers.
OPERATE SMALL STORES WITH LOWER COST STRUCTURE. Peebles, with its
focus on small communities, operates stores that are significantly
smaller than the traditional full-line department store. Peebles'
stores average 32,000 square feet and vary in size from 8,000 to
65,000 square feet. The Company operates profitably despite its
smaller stores and lower sales per square foot compared with other
department store companies due to its high gross margins, emphasis on
cost control and centralized operations.
DELIVER FASHION TO SMALL COMMUNITIES. Peebles strives to provide its
customers with a shopping experience similar to that found in a
traditional mall-based department store, although with fewer
merchandise categories. The Company emphasizes a broad selection of
moderately-priced national brands and private label merchandise, which
generally is not available through other retailers in the market.
Peebles' attractive stores and visual presentation, advertising and
promotional programs further reinforce its image as the market's
fashion leader.
OFFER VALUE TO CUSTOMERS. Peebles emphasizes value pricing and is
less promotional than traditional department stores. It is the
Company's strategy to use lower initial mark-ons and promote less,
thereby maintaining a high level of credibility with its customers.
Peebles' commitment to providing value to its customers is integral to
creating repeat customers, a critical ingredient for success in
smaller markets.
CENTRALIZE OPERATIONS, BUT TAILOR MERCHANDISE LOCALLY. Peebles
believes that centralized decision-making, controls and support
functions are critical to its cost-efficient operations and enable the
Company's store personnel to maximize the time devoted to selling. In
contrast, Peebles employs a decentralized approach in merchandising
its individual stores. The merchandise mix is tailored to individual
stores to cater to local tastes and preferences based on customer and
sales associate feedback and sales trends. Buyers and store
associates work together to optimize the use of Peebles' smaller
selling spaces to meet customer demand and maximize sales.
ADAPT TO LOCAL REAL ESTATE OPPORTUNITIES. Smaller stores and a
flexible store format give the Company the ability to locate in a
variety of new or existing sites. As a result, Peebles' growth is not
dependent upon the development of new malls. Peebles attempts to
position its stores in the primary shopping destination in its
markets, which are typically strip shopping centers co-anchored by
leading discount, grocery and drug retailers. The Company also
operates successfully in enclosed malls and downtown locations.
EXPANSION STRATEGY
The Company has expanded by opening new stores, acquiring and
converting stores and groups of stores, and remodeling or relocating
existing stores. The Company anticipates expanding its operations through
the following:
OPENING NEW STORES. The Company intends to open eight new stores in
1995 and nine new stores in 1996. As of April 4, 1995 the Company has
signed seven leases for stores scheduled to open in 1995, representing
approximately 164,000 in total square footage. The Company's new
stores will be located in existing and contiguous markets where it can
realize distribution efficiencies and where the Peebles concept and
merchandise mix will correspond to local demographics. The Company
explores a wider range of real estate options than retailers which
rely only on new shopping center development, and actively considers
space vacated by other retailers.
REMODELING AND RELOCATING STORES. In addition to new store growth,
the Company has an ongoing remodeling program, both upgrading existing
stores and reallocating selling space to provide its customers a
pleasant, fashion-oriented shopping environment for the merchandise
mix for that market. Since January 30, 1993, the Company has
remodeled nine stores and plans to remodel two stores in 1995. The
Company also expects to relocate selected stores to the desired
shopping destination in that market.
ACQUISITIONS. The Company believes that from time to time
opportunities may arise for the acquisition of individual stores or
groups of stores. In 1993, the Company acquired one store and in
1988, the Company acquired ten stores in Kentucky and Tennessee,
adding to its then existing base of 38 stores. The Company is
continually evaluating acquisitions of both individual stores and
groups of stores.
PEEBLES STORES
Peebles stores are designed and managed to create an appealing
shopping experience, foster customer convenience and maximize operating
efficiency. The Company's stores range in size from 8,000 to 65,000 square
feet and average 32,000 square feet, which is significantly smaller than
the traditional full-line department store. The Company does not have a
standard store format and instead adapts its stores to existing real estate
opportunities. The Company's stores feature a bright, modern and
accessible layout with an emphasis on the visual presentation of
merchandise. The store layout is designed to draw the customer through the
store, creating opportunities for cross-selling.
The Company targets communities with between 10,000 and 25,000
households. According to Company estimates, as of January 28, 1995,
approximately 60% of the Company's stores are located in towns with fewer
than 20,000 households. Peebles can operate profitably in a community with
as few as 5,000 households. The Company enters larger markets and suburban
areas with 25,000 to 40,000 households where the customer base and
competitive factors exhibit characteristics similar to markets where the
Company's operating strategy has proven successful. The Company prefers to
locate its stores in strip shopping centers and enclosed malls where other
anchors such as a leading grocery, discount and drug retailers will create
a destination shopping location. Of the 58 stores currently in operation,
35 are located in strip shopping centers, 18 in enclosed malls and five in
downtown locations.
MERCHANDISING
The Company's merchandise, approximately 80% of which is apparel, is
targeted to middle income customers shopping for their families and homes.
The Company has fewer departments than a traditional full-line department
store, but strives to carry a wide assortment of merchandise within its
targeted categories in order to appeal to a broad range of customers. To
position itself as the primary fashion retailer in the community with
merchandise not found elsewhere in the market, the Company emphasizes
moderately-priced national brands, supplemented by a limited selection of
prestige brand names and a selection of quality private label merchandise.
Peebles merchandise is fashion responsive rather than fashion forward,
limiting the Company's inventory exposure. The Company's stores carry
apparel for the entire family, accessories and cosmetics, and decorative
home accessories.
Management believes that brand name merchandise is a significant
attraction to its customers and intends to continue emphasizing such
merchandise in its stores. For example, the Company carries nationally
branded cosmetics in as many of its stores as possible because Peebles is
typically the only retailer in the community where consumers can purchase
that merchandise. While the gross margins on cosmetics are typically lower
than the Company's average gross margin, the availability of this
merchandise generates store traffic which facilitates the sale of higher
margin merchandise.
In 1994, a majority of the merchandise sold by the Company was
nationally branded merchandise. Key brands featured by the Company
include:
Ladies . . . . . Liz Claiborne, Etienne Aigner, Alfred Dunner,
Jones Apparel, Koret, Monet, Napier, Aris,
Playtex, Forecaster, Byer of California, Vanity
Fair, Judy Bond, Norton McNaughton, Fritzi of
California
Men's . . . . . . Levi, Jantzen, Haggar, Arrow, Van Heusen,
Champion, Swank
Young Men's and
Juniors . . . . . Bugle Boy, Guess, Esprit, B.U.M. Equipment, Union Bay,
Lee, Rampage, Bongo, Zeppelin, Duck Head
Children's . . . . Oshkosh B'Gosh, HealthTex, Buster Brown, Baby
Togs, William Carter
Shoes . . . . . . Nike, Reebok, Brown Shoe, Keds, Fila, LA Gear,
Nunn Bush
Home . . . . . . . Fieldcrest, Springs, Arch, World Bazaars,
Mikasa, Crystal Dean
Cosmetics. . . . . Estee Lauder, Elizabeth Arden, Fashion Fair,
Calvin Klein, Parfums International
As a complement to its national brand merchandise, the Company offers
private label merchandise in selected departments to give its customers a
wider range of products. Management believes that its private label
merchandise provides value to the Peebles customer by offering a quality
merchandise alternative at prices lower than national brands. In addition,
private label merchandise often has higher gross margins than brand name
merchandise and allows the Company to avoid direct price competition.
In order to efficiently utilize its smaller selling space, Peebles
tailors the merchandise selection at individual stores. The Company
utilizes its knowledge of its markets and customers developed over 104
years along with input from the store managers and sales associates to
allocate merchandise to the stores. The Company also maintains an
inventory tracking system which provides daily information as to sales and
inventory levels by store, department, vendor, class, style, size and
color. Based on this information, the Company analyzes market trends,
identifies fast or slow moving merchandise and makes reordering and pricing
decisions on a daily basis.
Peebles emphasizes value pricing and is less promotional than the
traditional department store. It is the Company's pricing strategy to use
lower initial mark-ons and promote less, thereby maintaining a high level
of credibility with its customers. Peebles' commitment to providing value
to its customers is integral to creating repeat customers, a critical
ingredient for success in smaller markets. Peebles utilizes its "Our
Price" program with approximately 30% of the Company's merchandise. With
this program, the Company has even lower initial mark-ons on certain
national brand name products which are considered to be less fashion
sensitive such as jeans, socks and underwear. Products in this program are
marketed through special point of sale displays and are featured in the
Company's advertising.
ADVERTISING AND PROMOTION
The Company's advertising and promotion strategy is designed to
support its marketing goals of providing quality merchandise at value-
oriented prices and reinforces the Company's image as the leading fashion
retailer in its markets. Peebles utilizes a direct mail program, which in
part employs information obtained from its charge card program to target
mailings to its charge card holders. The Company emphasizes newspaper
advertising and mailers rather than television and radio, due to the size
and nature of the markets served. Peebles uses both black and white
advertisements and full color mailers to highlight promotional items and
events as well as products in its "Our Price" program.
In addition, the Company's advertising and promotional staff organizes
special events at the stores and arranges for all Grand Opening and Grand
Reopening events. In 1995, the Company became an associate sponsor of a
racing team in the NASCAR Busch Grand National stock car racing series,
which the Company believes will increase its exposure in both existing and
potential markets.
The Company's net advertising expenses in 1992, 1993 and 1994 were
2.5%, 2.7% and 2.5% of net sales, respectively, which the Company believes
is lower than traditional department stores due to emphasis on an everyday
fair price policy and a less promotional strategy.
PURCHASING AND DISTRIBUTION
The Company employs 22 buyers and seven merchandise managers who are
responsible for most merchandising decisions including purchasing, pricing,
sales promotions, inventory allocations and markdowns. While these
decisions are made centrally, the Company endeavors to refine its
merchandise assortment to appeal to the customers in each market. Peebles'
buying staff has developed specific knowledge with regard to purchasing,
inventory and promotions for the Company's smaller sized stores. The
merchandising group participates in an incentive plan based on gross margin
dollars generated and inventory turnover.
The Company places special emphasis on maintaining all merchandise in
stock, particularly advertised and basic merchandise, to build and maintain
credibility with its customers. By monitoring unit sale information by
store, buyers are able to quickly determine the styles, colors and sizes of
merchandise to be reordered and distributed to individual stores.
The Company purchases its merchandise from approximately 1,275
suppliers and is not dependent on any single source of supply. The Company
is a member of Frederick Atkins, Inc., an international cooperative buying
service. This cooperative offers members merchandise purchasing
opportunities, which the Company has taken advantage of particularly in
connection with its imported private label merchandise. During 1992, 1993,
and 1994, Frederick Atkins, Inc. was the Company's largest supplier,
accounting for retail purchases totaling approximately 17.4%, 17.0% and
17.7%, respectively. The Company believes it has a good relationship with
Frederick Atkins, Inc. and is not aware of a situation in which Frederick
Atkins, Inc. would not continue to supply the Company. In the event such a
situation arose, the Company believes that it could avoid significant
disruptions in its purchasing process or significant changes to its
merchandise mix through the use of other resources.
Virtually all merchandise is shipped directly from vendors to the
Company's distribution center where it is inspected, sorted, marked,
ticketed, packed and held in bins for each individual store. The Company
does not warehouse merchandise and has a goal of processing goods through
the distribution center in three days. Merchandise is shipped to each
store an average of twice a week on Company-owned trucks.
The Company's distribution center is located on 31 acres in South
Hill, Virginia, adjacent to the Company's headquarters and close to major
interstates. In 1992, the Company renovated and expanded the distribution
center from 85,000 square feet to its current 117,000 square feet and
further automated its distribution process, including an extensive network
of conveyors and recycling equipment. The distribution center currently
operates one eight hour shift daily. In 1996, the Company plans to add an
additional 30,000 square feet to the distribution center. Management
believes the cost of this expansion will be approximately $2.5 million and
that, with such expansion, the distribution center can service 110 stores.
STORE OPERATIONS
The Company has structured its store operations to maintain what
management believes are key operating advantages including a thorough
knowledge of its customer base, the ability to share information between
the stores, and cost efficient operations through centralized decision
making.
Peebles performs as many functions as possible at the corporate level
so that store level management and sales associates can spend most of their
time with customers. Non-sales store personnel are kept to a minimum due
to control functions performed at the corporate offices, including sales
associate scheduling, customer credit and marking merchandise. All stores
utilize a minimum 85% of their total payroll hours in a selling capacity.
Peebles encourages the participation of all store level management and
sales associates in decision making, and management regularly solicits
input and suggestions from its employees who are closest to the customer.
In addition to its management information systems, Peebles stays in close
contact with store operations through its eight regional managers. Each
store manager reports to a regional manager, who also manages a store.
Regional managers visit their stores at least once a month to review
merchandise presentation, personnel training and performance, enforcement
of the Company's security procedures and adherence to Company operating
procedures. The regional managers meet quarterly to share information.
The Company conducts a management training program, which coordinates
instruction at the Company's corporate headquarters facility with on-the-
job experience. The Company stresses promotion from within, and
substantially all of the current store managers have been selected in this
manner. Approximately 45% of the store managers have been with the Company
ten or more years.
Most stores typically employ several assistant managers and
approximately 30 sales associates, a number of whom are part-time. All
Peebles' store personnel, including assistant store managers and sales
associates, participate in incentive plans. The Company uses periodic
productivity reports and personal reviews to apprise each employee of his
or her performance.
PEEBLES CHARGE CARD
In 1992, 1993 and 1994, 42.9%, 42.0% and 40.4%, respectively, of net
sales were made using the Company's proprietary credit card. As of January
28, 1995, the Company had approximately 593,300 credit card accounts, of
which 169,400 were billed accounts.
Peebles' charge card sales represent an important element in its
marketing strategy because the Company believes that Peebles charge card
holders generally constitute its most loyal and active customers.
Information regarding purchases by the Company's credit card customers is
recorded at the stores' point-of-sale terminals and transmitted directly to
the Company's data processing center. This information is used to bill
accounts as well as to provide marketing information regarding purchasing
habits and merchandise preferences. The Company uses this data to develop
segmented advertising and promotional programs to reach specific groups of
customers who have established purchasing patterns for certain brands,
departments and store locations.
Peebles administers all aspects of its credit card program, and
decisions with respect to the opening of new accounts, extensions of
"instant credit," adjustments to bills and responses to customer inquiries
are made by Company-trained associates located at Peebles' headquarters.
Management believes this in-house credit program provides the Company with
an important customer relations advantage over competing retailers which
administer their credit programs from remote processing locations or
contract for such services from unrelated third parties.
The Company's credit plans provide for the option of paying in full
within 28 days of the billed date with no finance charge or with revolving
credit terms. Terms of the short-term revolving charge accounts require
customers to make minimum monthly payments in accordance with prescribed
schedules. Peebles bears the risk of the collecting its credit card
receivables. In the last two years, Peebles' credit card program had a
positive impact on net income.
The following table presents a summary of information relating to the
Company s charge card sales and receivables (in thousands):
<TABLE>
PERIOD-END ALLOWANCE
NET BAD DEBT EXPENSES FOR DOUBTFUL ACCOUNTS
% OF PERIOD-END TOTAL % OF TOTAL
YEARS SALES AMOUNT SALES CUSTOMER RECEIVABLES AMOUNT RECEIVABLES
<S> <C> <C> <C> <C> <C> <C>
1992..... $60,443 $822 1.4 $27,805 $1,100 4.0
1993..... 63,696 696 1.1 29,329 950 3.2
1994..... 67,651 640 1.0 29,642 930 3.1
</TABLE>
MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems provide the daily
financial and merchandising information to make timely and effective
pricing decisions and for inventory control. The Company is able to
allocate its inventory effectively as a result of its management
information systems and can tailor the merchandise mix to meet the
individual customer demands at each store.
The Company maintains central management information and data
processing systems at its corporate headquarters. Each of its stores is
equipped with compatible point-of-sale registers, which are polled every
evening by the central system to gather sales, accounts receivable and
inventory information.
The Company's management information and data processing systems
primarily use internally developed software. The Company believes this
allows management to more closely control the quality, suitability and
expense of management information systems and data processing. The Company
continues to make selected improvements in computer hardware technology as
well as enhancements to software applications as needed.
EMPLOYEES
At January 28, 1995, the Company had 997 full-time employees and 1,344
part-time employees. None of the Company's employees is covered by a
collective bargaining agreement. The Company considers its employee
relations to be good.
COMPETITION
The retail industry is highly competitive, with selection, price,
quality, service, location and store environment being the principal
competitive factors. The Company competes with national and local retail
stores, specialty apparel chains, department stores, discount stores and
mail order merchandisers, many of which have substantially greater
financial and marketing resources than the Company. Demographic changes
may alter the character of the Company's markets, which can result in
increased competition from other retailers.
TRADEMARKS
The Peebles name is registered as a trademark and a servicemark of the
Company. Additionally, the Company has registered several merchandise
labels as trademarks under which it sells quality merchandise such as Cape
Classic, Private Expressions, Meherrin River Outfitters, Harmony Grove
and Sonoma Bay.
REGULATION
The Company is subject to federal, state and local laws and
regulations affecting retail department stores generally. The Company
believes that it is in substantial compliance with these laws and
regulations.
ITEM 2. PROPERTIES.
All but one of the Company's stores are leased, and most of the leases
contain renewal options. The stores range in size from 8,000 square feet
to 65,000 square feet, and average 32,000 square feet. The following table
indicates the location of the Company's stores in operation as of April 4,
1995:
DELAWARE
Rehoboth Beach
Seaford
KENTUCKY
Hopkinsville
Madisonville
MARYLAND
Bowie
Chestertown
Easton
Eldersburg
Elkton
Lexington Park
Prince Frederick
Salisbury
Waldorf
NEW JERSEY
Rio Grande
NEW YORK
Geneva
NORTH CAROLINA
Aberdeen
Charlotte
Eden
Jacksonville
Monroe
Roxboro
Statesville
PENNSYLVANIA
Gettysburg
SOUTH CAROLINA
Conway
Florence
Georgetown
Myrtle Beach
TENNESSEE
Columbia
Cookeville
Dyersburg
Hermitage
Murfreesboro
VIRGINIA
Ashland
Blackstone
Christiansburg
Colonial Heights
Covington
Danville
Emporia
Front Royal
Hayes
Hampton
Hopewell
Lawrenceville
Leesburg
Lexington
Luray
Manassas
Norfolk
Onley
Richmond
Rocky Mount
Smithfield
South Hill
Warrenton
Waynesboro
Williamsburg
Woodbridge
Store leases provide for a base rent of between $1.00 and $6.00 per
square foot per year. Most leases also have formulas requiring the payment
of additional rent based on a percentage of net sales above specified
levels. In 1992, 1993 and 1994, the Company's aggregate rental payments on
operating leases were approximately $5.6 million, $6.0 million and $6.4
million, respectively.
The Company's corporate headquarters and distribution center
facilities are located in South Hill, Virginia. The Company owns the
property subject to deeds of trust and security interests granted in
connection with the Company's credit agreement. The Company believes the
location provides the Company with adequate undeveloped space to expand the
corporate headquarters, distribution center or both to meet future growth
requirements.
ITEM 3. LEGAL PROCEEDINGS.
The Company is from time to time involved in routine litigation. The
Company believes that none of the litigation in which it is currently
involved is material to its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
MARKET INFORMATION
There is no existing market for the Common Stock, nor is the Common
Stock listed on any exchange. All currently outstanding shares of common
stock were issued pursuant to exemptions from registration under the
Securities Act of 1933, as amended (the "Act"), and any resales of such
shares of Common Stock can only be made pursuant to an effective
registration statement or an exemption from the registration requirements
of the Act.
HOLDERS
As of April 4, 1995, there were 94 holders of Common Stock.
DIVIDENDS
The Company does not currently pay any dividends on its Common Stock.
The Company's credit agreement prohibits the payment of dividends absent
the consent of the Bank. Accordingly, the Company does not currently
intend to declare any dividends to the holders of the Common Stock in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected historical financial data for Peebles for the
five fiscal years ended January 28, 1995 are derived from the Company's
audited financial statements. The Company's recapitalization (the
"Recapitalization") was effective on January 31, 1992. The data should be
read in conjunction with the financial statements, related notes and other
financial information included herein.
<TABLE>
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND SELECTED OTHER DATA)
Fiscal Years Ended
February 2, February 1, January 30, January 29, January 28,
1991 1992(1) 1993 1994 1995
<S> <C> <C> <C> <C> <C>
POST
RECAPITALIZATION
Income Statement Data:
Net sales............. $138,736 $140,044 $140,943 $151,772 $167,662
Cost of sales................ 82,412 85,706 84,033 91,134 98,066
Gross margin................. 56,324 54,338 56,910 60,638 69,596
Selling, general and
administrative expenses.... 34,670 37,977 37,717 40,320 45,205
Depreciation and amortization. 5,823 5,634 5,557 6,029 6,729
Revaluation of goodwill...... -- 26,315 (2) -- -- --
Operating income (loss)...... 15,831 (15,588) 13,636 14,289 17,662
Other income (expenses)...... 42 135 (145) (1) 131
Interest expense............. 20,568 19,277 4,981 4,248 4,569
Income (loss) before
income taxes (benefit)
and extraordinary item......... (4,695) (34,730) 8,510 10,040 13,224
Income taxes (benefit)....... (1,068) (1,275) 3,952 4,513 5,747
Income (loss) before
extraordinary item......... (3,627) (33,455) 4,558 5,527 7,477
Extraordinary item....... -- 33,563 (3) -- -- --
Net income (loss)............ $(3,627) $ 108 $ 4,558 $ 5,527 $ 7,477
Net income (loss) per share.. N/M* N/M* $ 1.56 $ 1.88 $ 2.54
Average common stock and
common stock equivalents outstanding 2,156 18,582 2,918,352 2,932,905 2,940,281
Selected Other Data:
Net sales per store (000's) (4) $ 2,855 $ 2,857 $ 2,744 $ 2,962 $ 3,189
Selling sq. ft. per store (4) 25,000 25,000 25,000 26,000 26,000
Net sales per selling sq. ft. (5) $114 $110 $111 $116 $117
Comparable store net sales
increase (decrease) (4) (7.0%) (5.0%) (2.0%) 4.3% 4.6%
Number of stores
(end of period) 50 50 49 54 58
Total selling sq. ft.
(end of period) 1,263,000 1,290,000 1,276,000 1,385,000 1,510,000
Capital expenditures (000's) $3,255 $2,862 $6,137 $7,372 $8,454
<CAPTION>
Balance Sheet Data: February 2, February 1, January 30, January 29, January 28,
1991 1992 1993 1994 1995
POST
RECAPITALIZATION
<S> <C> <C> <C> <C> <C>
Working capital $(41,062) $ 42,441 $ 41,226 $ 44,348 $ 49,872
Net property and equipment 18,688 18,435 20,823 24,903 28,951
Total assets................. 175,182 145,565 137,543 143,727 148,954
Total debt (6)........... 143,287 60,086 44,662 46,207 41,955
Stockholders' equity (7)..... 5,111 62,938 68,537 74,530 82,234
</TABLE>
_____________________
* Not meaningful.
(1) On January 31, 1992, the Company completed the Recapitalization.
(2) Revaluation of goodwill is a result of the Recapitalization.
(3) Reflects a gain on the exchange of debt related to the
Recapitalization.
(4) Only reflects data for comparable stores. Comparable stores for the
current year are those stores which were open for the entire period in
the immediately preceding year.
(5) Net sales per selling square feet per store is based on stores open
one full year.
(6) Includes the long-term portion of the capital lease obligations and
the current portion of long-term debt.
(7) Stockholders' equity was adjusted as of February 1, 1992 to reflect
the Recapitalization, including the elimination of a deficit in
retained earnings of $10,477.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following management's discussion and analysis provides
information with respect to the results of operations for the three fiscal
years ended January 28, 1995.
1994 COMPARED TO 1993
Net sales increased $15.9 million, or 10.5%, to $167.7 million in 1994
from $151.8 million in 1993. $6.2 million of the increase was attributable
to comparable store sales growth, which increased 4.6% over the prior year.
Management attributes the increase in comparable store sales primarily to
the Company's ability to tailor its merchandise mix to individual stores.
$5.0 million of the increase was attributable to the inclusion of a full
year of operation in 1994 of the five stores opened during 1993. The
remaining $4.7 million of this increase is from the opening of five new
stores in 1994, partially offset by the closing of one store, increasing
the total number of stores from 54 to 58. Sales also increased due to
better overall economic conditions in the Company's markets.
Gross margin increased $8.9 million, or 14.8%, in 1994 as compared to
1993, and the gross margin percent improved to 41.5% from 40.0%. $6.4
million of this increase was attributable to the increase in net sales and
$2.5 million was due to an improvement in gross margin percent. The gross
margin percent increased due to a LIFO benefit of $0.2 million in 1994 as
compared to a charge of $1.1 million in 1993. The remaining increase in
gross margin percent was due to lower markdowns during the 1994 Christmas
season as a result of the timing of promotions.
Selling, general and administrative expenses increased $4.9 million,
or 12.1%, and, as a percentage of net sales, increased to 27.0% in 1994
from 26.6% in 1993. The increase in expenses was primarily due to the
increase in net sales. The increase as a percentage of net sales was due
to the increased number of new stores that typically have higher occupancy,
payroll and advertising expenses as a percentage of net sales as compared
to mature stores. This increase was also due to higher compensation
expense associated with performance-based management incentive plans.
Depreciation and amortization expense increased $0.7 million, or
11.6%, and as a percentage of net sales was 4.0% for both periods. The
increase in dollars was due to the new stores opened in 1994, a full year's
depreciation on new stores opened in 1993 and a full year's depreciation on
the 1993 expansion of the distribution center.
As a result of each of the above factors, operating income increased
$3.4 million, or 23.6%, to $17.7 million in 1994 from $14.3 million in
1993.
Interest expense increased $0.3 million, or 7.6%, but as a percentage
of net sales, decreased to 2.7% in 1994 from 2.8% in 1993. This increase
was due to increases in the prime interest rate during the year, which
caused the interest rate under the Company's credit agreement (the "Credit
Agreement") to increase. This increase was partially offset by lower
amounts outstanding under the Credit Agreement.
Income taxes increased $1.2 million. The Company's effective tax rate
decreased to 43.5% in 1994 from 45.0% in 1993. The effective tax rate
declined because non-deductible amortization expense in 1994 was
proportionately lower relative to income before taxes. The effective tax
rate is higher than statutory rates because of the non-deductible
amortization expense.
As a result of the above factors, net income increased $2.0 million,
or 35.3%, to $7.5 million in 1994 from $5.5 million in 1993.
1993 COMPARED TO 1992
Net sales increased $10.9 million, or 7.7%, to $151.8 million for 1993
from $140.9 million for 1992. $3.3 million of the increase was
attributable to comparable store sales growth, which increased 4.3% over
the prior year. Management attributes the increase in comparable store
sales primarily to the Company's ability to tailor its merchandise mix to
individual stores. $3.3 million of the increase was attributable to the
inclusion of a full year of operation in 1993 of the one store opened
during 1992. The remaining $4.3 million of this increase is from the
opening of five new stores in 1993, increasing the total number of stores
from 49 to 54. Comparable store sales in the fourth quarter of 1993
increased 9.0% in comparison with the prior year compared to 2.0%
comparable store sales increase for the first three quarters of 1993
compared to the prior year. Sales also increased in 1993 due to better
overall economic conditions in the Company's markets.
Gross margin increased $3.7 million, or 6.6%, in 1993 compared to 1992
and the gross margin percent decreased to 40.0% from 40.4%. The increase
in dollars was attributable to the increase in net sales, which was
partially offset by a decline in gross margin percent. The decrease in
gross margin percent was primarily attributable to a higher LIFO charge of
$1.1 million in 1993 compared to $0.3 million in 1992. Additionally, the
initial markup on merchandise as part of the Company's increased emphasis
on its everyday fair price program was lower in comparison to the prior
year.
Selling, general and administrative expenses increased $2.6 million,
or 6.9%, and as a percentage of net sales decreased to 26.5% in 1993 from
26.8% in 1992. All of the increase in expenses was due to the increase in
net sales. The decrease as a percentage of sales was primarily due to
increased operating efficiency.
Depreciation and amortization expense increased $0.5 million, or 8.5%,
and as a percentage of net sales was 3.9% for both periods. The increase
in dollars was due to the new stores opened in 1993, and a full year's
depreciation on a new store opened in 1992.
As a result of the above factors, operating income increased $0.7
million, or 4.8%, to $14.3 million in 1993 from $13.6 million in 1992.
Interest expense decreased $0.7 million, or 14.7%, and as a percentage
of net sales, decreased from 3.6% in 1992 to 2.8% in 1993. The decrease in
dollars was due to lower average amounts outstanding under the Company's
Credit Agreement during the first half of 1993 and lower interest rates.
Income taxes increased $0.6 million. The Company's effective tax rate
decreased to 45.0% in 1993 from 46.4% in 1992. The effective tax rate
declined because non-deductible amortization expense in 1993 was
proportionately lower relative to income before taxes. The effective tax
rate is higher than statutory rates because of the non-deductible
amortization expense.
As a result of the above factors, net income increased $1.0 million,
or 21.2% to $5.5 million in 1993 from $4.6 million in 1992.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for capital expenditures
in connection with both the Company's new store expansion and remodeling
program and for working capital needs. The Company's primary sources of
funds are cash flow from continuing operations, borrowings under the Credit
Agreement and trade accounts payable. The Company's inventory levels
typically build throughout the fall, peaking during the Christmas selling
season, while accounts receivable peak during December and decrease during
the first quarter. Capital expenditures typically occur evenly throughout
the first three quarters of each year.
Net cash provided by operating activities amounted to $21.3 million,
$5.8 million, and $13.1 million in 1992, 1993 and 1994, respectively.
These amounts represent primarily net income plus depreciation and
amortization, partially offset by increases in working capital, including
increases of merchandise inventory of $5.8 million and $2.9 million in 1993
and 1994.
Net cash used in investing activities was $5.9 million, $7.5 million,
and $8.7 million in 1992, 1993 and 1994, respectively. These amounts
reflect $1.5 million, $2.6 million and $2.6 million of capital expenditures
relating to new store openings and $2.6 million, $1.7 million and $3.4
million relating to store remodelings, respectively. In 1993 and 1994, the
Company made capital expenditures of $2.1 million relating to the expansion
of the distribution center. Net cash provided by financing activities was
$1.7 million in 1993, and net cash used in financing activities was $15.5
million and $4.1 million in 1992 and 1994, respectively. The net cash used
in 1992 reflects reduction of the Company's indebtedness as a result of the
recapitalization, which closed on January 31, 1992.
The Company's capital expenditures in 1995 are expected to total
approximately $9.3 million. In 1995, the capital expenditures reflect the
opening of eight stores, the relocation of two stores and the remodeling of
two stores. As of March 1995, the Company had signed seven new leases all
of which are scheduled to open in 1995. In 1996, the Company expects to
open nine stores, relocate two stores and remodel two stores. The Company
expects to continue to lease its stores, and the average new store is
anticipated to average approximately 22,500 square feet but may vary
depending on the market and real estate availability. Based on experience
in 1993 and 1994, the Company estimates that the cost of opening a new
store will include capital expenditures of approximately $425,000 for
leasehold improvements and fixtures and approximately $425,000 for initial
inventory, approximately one-third of which is normally financed through
vendor credit. Accounts receivable for new stores typically build to 15%
of net sales or approximately $300,000 within 24 months of the store
opening. The Company may also incur capital expenditures to acquire
existing stores.
Under the Company's Credit Agreement the Company may borrow up to the
lesser of (i) $76.0 million less the aggregate amount outstanding under the
term portion of the Credit Agreement and the aggregate amount of
outstanding letters of credit, or (ii) a borrowing base which is a
percentage of eligible accounts receivable and inventory. The borrowing
base formula is adjusted to accommodate seasonal working capital
requirements. The term facility requires quarterly payments of principal
of $0.5 million on April 30, July 31, October 31, and January 31 of each
year. The Credit Agreement expires on February 1, 1997.
Amounts outstanding under the Company's revolving facility were $25.1
million, $30.0 million and $28.6 million at year end 1992, 1993 and 1994,
respectively. The maximum amount of borrowings outstanding under the
revolving credit facility at any month end during 1992, 1993 and 1994 was
$38.1 million, $36.7 million and $35.5 million, respectively.
SEASONALITY AND QUARTERLY RESULTS
During 1993, and 1994, the Company realized 34.0% and 32.9%,
respectively, of its net sales in the fourth quarter, and 56.4% and 54.7%,
respectively, of its net income. Set forth below is certain summary
information with respect to the Company's operations for the eight most
recent quarters:
<TABLE>
1993 1994
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars
in Millions)
Net sales $29.5 $33.4 $37.3 $51.6 $34.8 $36.8 $41.0 $55.1
Operating
income 2.2 2.5 2.6 7.0 2.3 3.3 3.3 8.8
Net income 0.7 0.8 0.9 3.1 0.8 1.3 1.3 4.1
</TABLE>
IMPACT OF INFLATION
The Company does not believe that inflation has had a material effect
on its results of operations during the past three fiscal years. Peebles
uses the retail inventory method applied on a LIFO basis in accounting for
its inventories. Under this method, the cost of products sold reported in
the financial statements approximates current costs and thus reduces the
likelihood of a material impact from increasing costs. However, there can
be no assurance that the Company's business will not be impacted by
inflation in the future.
RECENT DEVELOPMENTS
On April 4, 1995, Peebles announced that it has signed an agreement to
be acquired by PHC Retail Holding Company ("PHC Retail"), an affiliate of
Kelso & Company, Inc., an investment firm located in New York City. The
transaction provides for the merger of a subsidiary of PHC Retail into
Peebles and the receipt of cash by shareholders of Peebles. The closing is
subject to a number of conditions, including regulatory and shareholder
approval, and is expected to be completed in May.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information with respect to this Item is contained in the financial
statements and the financial statement schedule of Peebles indicated in the
Indices on Pages F-0 and S-1 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company's executive officers and directors, their ages, positions
and years with the Company are as follows:
27
<TABLE>
YEARS
NAME AGE POSITION WITH THE COMPANY
<S> <C> <C> <C>
Michael F. Moorman 52 Chairman of the Board, President and Chief
Executive Officer 31
Ronnie W. Palmore 46 Senior Vice President, Merchandising and Assistant 22
Secretary
Russell A. Lundy, Sr. 59 Senior Vice President, Stores 41
E. Randolph Lail 39 Senior Vice President, Finance, Chief Financial 7
Officer, Secretary and Treasurer
Marvin H. Thomas, Jr. 39 Senior Vice President, Operations 16
William C. DeRusha 45 Director 3
Malcolm S. McDonald 56 Director 3
Wellford L. Sanders, Jr. 49 Director 3
</TABLE>
Michael F. Moorman has been Chairman of the Board and a Director of
the Company since September 1989, Chief Executive Officer of the Company
since May 1989 and President of the Company since June 1988. Prior thereto,
Mr. Moorman served as Chief Financial Officer and Treasurer of the Company
from August 1989 to June 1992 and Secretary of the Company from August 1989
to June 1990. Mr. Moorman has been employed by the Company in various
positions since 1964. Mr. Moorman has been a director of the Company since
1977.
Ronnie W. Palmore has been Senior Vice President, Merchandising of the
Company since September 1989 and Assistant Secretary of the Company since
1988. Mr. Palmore served as Senior Vice President, Stores of the Company
from June 1988 to August 1989 and has been employed by the Company in
various positions since 1973.
Russell A. Lundy, Sr. has been Senior Vice President, Stores of the
Company since September 1989. Mr. Lundy served as Vice President, Stores
of the Company from 1984 to August 1989 and has been employed by the
Company in various positions since 1954.
E. Randolph Lail has been Senior Vice President, Finance of the
Company since June 1993, Chief Financial Officer and Treasurer of the
Company since June 1992 and Secretary of the Company since June 1990. Mr.
Lail served as Vice President, Finance of the Company from June 1990 to
June, 1993 and as Controller of the Company from January 1988 to June
1990. Mr. Lail is a Certified Public Accountant and has been employed by
the Company since January 1988.
Marvin H. Thomas, Jr. has been Senior Vice President, Operations of
the Company since June 1993. Mr. Thomas served as Vice President,
Operations of the Company from June 1990 to June 1993 and Vice President,
Merchandise Manager of the Company from May 1988 to June 1990. Mr. Thomas
has been employed by the Company in various positions since 1979.
William C. DeRusha has been a Director of the Company since March
1992. Mr. DeRusha is Chairman of the Board and Chief Executive Officer of
Heilig-Meyers Company. Mr. DeRusha is a director of Heilig-Meyers Company,
Best Products Co. Inc. and Signet Banking Corporation.
Malcolm S. McDonald has been a Director of the Company since April
1992. Mr. McDonald is President and Chief Operating Officer of Signet
Banking Corporation and President and Chief Executive Officer of Signet
Bank/Virginia. From July 1988 to April 1990, Mr. McDonald was Vice Chairman
of Signet Bank/Maryland and Signet Bank/Virginia. Prior to July 1988, Mr.
McDonald was Vice Chairman of Signet Banking Corporation and Chairman of
Signet Bank, N.A. Mr. McDonald is a director of Signet Banking Corporation
and American Trading and Production Company.
Wellford L. Sanders, Jr. has been a Director of the Company since
February 1992. Mr. Sanders is a partner in the law firm of McGuire, Woods,
Battle & Boothe, L.L.P. Mr. Sanders is a director of Catherines Stores
Corporation and General Medical Corporation.
Executive officers of Peebles are elected annually and serve at the
discretion of the Board of Directors.
DIRECTORS COMPENSATION
Each director who is not an employee of the Company is paid an annual
retainer of $20,000, payable quarterly in arrears, and is reimbursed for
expenses incurred in attending meetings of the Board of Directors.
AGREEMENTS TO INDEMNIFY.
Peebles has entered into agreements with each of the directors and
officers of Peebles pursuant to which Peebles agrees to indemnify such
director or officer from claims, liabilities, damages, expenses, losses,
costs, penalties or amounts paid in settlement incurred by such director or
officer and arising out of his capacity as a director, officer, employee
and/or agent of the corporation of which he is a director or officer to the
maximum extent provided by applicable law. In addition, such director or
officer shall be entitled to an advance of expenses to the maximum extent
authorized or permitted by law to meet the obligations indemnified against.
Such agreements also obligate the Company to purchase and maintain
insurance for the benefit and on behalf of its directors and officers
insuring against all liabilities that may be incurred by such director or
officer, in or arising out of his capacity as a director, officer, employee
and/or agent of the Company.
ITEM 11. Executive Compensation
The following tables set forth a summary of compensation paid by the
Company to its five highest paid executive officers (the "Named
Executives") during 1992, 1993 and 1994.
<TABLE>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS PAYOUT
NUMBER OF
OTHER ANNUAL OPTIONS/ LONG-TERM
NAME AND SALARY BONUS COMPENSATION WARRANTS INCENTIVE PLAN
PRINCIPAL POSITION YEAR ($) (1) ($) (2) ($)(3)(4)(7) GRANTED(5) PAYOUTS ($)(6)
<S> <C> <C> <C> <C> <C> <C>
MICHAEL F. MOORMAN
Chairman of the Board, 1994 $248,025 $189,235 $ -- 75,000 $ --
President and Chief 1993 232,796 345,282 103,010 84,327 170,569
Executive Officer 1992 214,121 488,099 209,835 7,200 --
RONNIE W. PALMORE
Senior Vice President, 1994 134,950 68,211 -- 20,250 --
Merchandising and 1993 129,964 117,169 32,235 26,860 68,227
Assistant Secretary 1992 117,987 148,361 69,222 2,680 --
RUSSELL A. LUNDY, SR. 1994 109,849 49,534 -- 14,250 --
Senior Vice President, 1993 104,472 90,292 22,255 18,679 37,525
Stores 1992 98,816 102,407 49,154 2,100 --
E. RANDOLPH LAIL
Senior Vice President, 1994 88,544 43,961 1,998 14,250 --
Finance, CFO, 1993 77,588 53,207 14,837 12,107 22,174
Secretary and Treasurer 1992 67,741 72,505 33,795 1,260 --
MARVIN H. THOMAS, JR. 1994 76,846 28,958 1,900 10,856 --
Senior Vice President, 1993 69,482 50,103 15,710 12,107 22,174
Operations 1992 62,716 66,905 33,955 1,260 --
</TABLE>
_______________________________________
(1) Salary amounts for 1993 and 1994 include tax-deferred contributions of
compensation to the Company's 401(K) Profit Sharing Plan (the "401-K
Plan"), adopted in October 1993. Salary compensation contributed to
the 401-K Plan during 1993 and 1994 for each of the Named Executives
is Mr. Moorman $2,207 and $2,185; Mr. Palmore $0 and $2,129; Mr. Lundy
$980 and $1,958; Mr. Lail $608 and $1,621, and Mr. Thomas $666 and
$1,425.
(2) Bonus amounts for each of the Named Executives include the accrued
bonus paid under the Company's annual incentive plans in 1992, 1993
and 1994. The 1994 bonus amounts include tax-deferred contributions
of compensation to the 401-K Plan for each of the Named Executives as
Mr. Moorman, $6,809, Mr. Palmore, $2,639, Mr. Lundy, $1,806, Mr. Lail
$1,033, and Mr. Thomas $971. Additionally, bonus amounts include the
fair market value of shares granted under the Peebles Inc. 1991
Stock/Warrant plan (the "1991 Plan") in 1992 and 1993.
(3) The benefits to be received by each of the Named Executives as a
result of grants of discounted warrants under the 1991 Plan were
excluded in 1993 because the warrants were exchanged for stock
options on June 9, 1993 under the 1993 Stock Option Plan (the "1993
Plan"). The amounts shown for 1993 represent tax gross-up payments to
cover the executive s tax withholding obligations resulting from the
corresponding stock grants under the 1991 Plan.
(4) In 1992, each Named Executive received a grant of discounted warrants
and a tax gross-up payment to cover the executive's tax withholding
obligations resulting from the grant of the discounted warrants and a
corresponding grant of shares under the 1991 Plan. The value of the
discount on warrants granted and the tax gross-up payments to the
Named Executives is Mr. Moorman, $57,600 and $152,235; Mr. Palmore,
$21,440 and $47,782; Mr. Lundy, $16,800 and $32,354; Mr. Lail, $10,080
and $23,715; and Mr. Thomas, $10,080 and $23,875. The discounted
warrants were later exchanged for options in 1993 pursuant to the 1993
Plan.
(5) Option/warrant grants in 1993 to the Named Executives do not include
any grants of warrants under the 1991 Plan. The warrants granted in
1992 were exchanged for stock options under the 1993 Plan. In 1993
and 1994, the stock options were granted to certain members of senior
management under the 1993 Plan.
(6) The cash incentive payouts under the Company's long-term incentive
plan were based upon performance versus established goals for the
three year period from 1991 to 1993.
(7) The amounts in 1994 shown reflect the current value of the benefit to
Mr. Lail and Mr. Thomas, respectively, of the portion of the premium
paid by the Company with respect to split dollar insurance
arrangements (see "Employment Agreements"). The benefit was
determined by calculating the time value of money (including the
applicable long term federal funds rate) of the premium paid by the
Company in 1994 ($11,210 for Mr. Lail and $9,650 for Mr. Thomas) for
the period from February 1, 1994 to January 31, 1995.
OPTION GRANT TABLE. The following table sets forth the options granted by
the Company to Named Executives during 1994.
<TABLE>
OPTIONS GRANTED IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE
UPON EXERCISE AT THE END OF
INDIVIDUAL GRANTS 10 YEAR OPTION TERM IF THERE IS
% OF TOTAL
OPTIONS OPTIONS FAIR 0% 5% 10%
GRANTED GRANTED TO EXERCISE OR MARKET VALUE COMPOUND COMPOUND COMPOUND
NAME AND IN 1994 EMPLOYEES IN BASE PRICE ON DATE OF EXPIRATION GROWTH GROWTH GROWTH
PRINCIPAL POSITION (1) 1994 (2) ($/SH) GRANT($/SH) DATE ($) (3) ($) (3) ($) (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MICHAEL F. MOORMAN 75,000 34.4% $23.75 $23.75 FEB. 8, $0 $1,120,500 $2,838,750
Chairman of the 2003
Board, President
and Chief Executive
Officer
RONNIE W. PALMORE 20,250 9.3 23.75 23.75 FEB. 8, 0 302,535 766,463
Senior Vice 2003
President,
Merchandising and
Assistant Secretary
RUSSELL A. LUNDY, SR. 14,250 6.5 23.75 23.75 FEB. 8, 0 212,895 539,363
Senior Vice 2003
President,
Stores
E. RANDOLPH LAIL 14,250 6.5 23.75 23.75 FEB. 8, 0 212,895 539,363
Senior Vice 2003
President,
Finance, Chief
Financial Officer,
Secretary
and Treasurer
MARVIN H. THOMAS, JR. 10,856 5.0 23.75 23.75 FEB. 8, 0 163,189 410,900
Senior Vice 2003
President,
Operations.
</TABLE>
_________________________________________
(1) All incentive stock option grants to the Named Executives were made
pursuant to the 1993 Plan and vest in varying equal proportions
over three years.
(2) Assumes a total of 218,206 stock options granted.
(3) The Potential Realizable Values upon exercise of a stock option are
equal to the product of the number of shares underlying the options
and the difference between (i) the respective hypothetical stock
prices on the date of option exercise and (ii) the exercise price
per share of the option. The hypothetical stock prices are equal
to the Company's common stock price per share as of the date of the
option grant compounded annually at the rates of 0%, 5%, and 10%,
respectively, over the ten-year term of the option. The rates of
appreciation used are required by the Securities and Exchange
Commission and do not represent a projection or estimate by the
Company on the potential growth of its common stock. Therefore,
there can be no assurance that the rate of stock price appreciation
presented in this table can be achieved.
OPTION EXERCISE TABLE. The following table sets forth
information concerning the exercise of stock options during 1994 by each of
the Named Executives and the year end value of unexercised options.
OPTIONS EXERCISED IN 1994
<TABLE>
INDIVIDUAL GRANTS
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
VALUE OPTIONS AT YEAR END IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED REALIZED EXERCISABLE/ YEAR END EXERCISABLE/
NAME AND PRINCIPAL POSITION ON EXERCISE (1) ($) UNEXERCISABLE (2) UNEXERCISABLE ($) (3)
<S> <C> <C> <C> <C>
MICHAEL F. MOORMAN 0 $0 25,267/133,958 $0
Chairman of the Board, President
and Chief Executive Officer
RONNIE W. PALMORE 0 0 6,147/40,963 0
Senior Vice President,
Merchandising, Assistant
Secretary
RUSSELL A. LUNDY, SR. 0 0 4,210/28,714 0
Senior Vice President, Stores
E. RANDOLPH LAIL 0 0 4,036/28,719 0
Senior Vice President, Finance
Chief Financial Officer,
Secretary and Treasurer
MARVIN H. THOMAS, JR. 0 0 4,036/18,927 0
Senior Vice President, Operations
</TABLE>
_______________________________________
(1) There were no stock options exercised by the Named Executives in
1994.
(2) The options vest in equal proportions over specified periods. The
first vesting date was February 8, 1994; therefore, the options
shown were exercisable as of the year ended January 28, 1995.
(3) The value of the unexercised options is based on the Company's
common stock price at the end of the 1994 fiscal year. There was
no public market for the Company's common stock as of the end of
1994. The Board of Directors with the assistance of an appraisal
by an independent investment banking firm determined the value of
the common stock was not in excess of the $23.75 exercise price.
Therefore, there are no options in the money.
As of the fiscal year ended January 28, 1995, there were no
projected long-term incentive payouts.
THE 1993 STOCK OPTION PLAN. In April 1993, the stockholders
approved the 1993 Stock Option Plan to replace an equity incentive plan
(the "Equity Incentive Plan"). Both the Equity Incentive Plan and the 1993
Stock Option Plan were designed to provide a long-term incentive to certain
key management personnel. Under the Equity Incentive Plan, 20,000 shares
and 40,000 shares of Common Stock were issued in 1993 and 1992,
respectively, and the Company recorded additional compensation expense of
$792, and $1,590 in 1992 and 1991, respectively. Under the provisions of
the 1993 Stock Option Plan, both incentive stock options and non-qualified
stock options are granted and, as such, 450,000 shares of Common Stock are
reserved for issuance. The Board of Directors has the authority and
complete discretion to, among other things, determine the date of grant,
the recipient employee, the exercise price and the expiration date of the
options to purchase one share of the Common Stock. The options granted
under the 1993 Stock Option Plan have an exercise price equal to the
estimated fair value of the Common Stock on the date of grant, vest ratably
over a three to five year period and expire ten years from the date of
grant.
PENSION PLAN
Peebles maintains a non-contributory qualified defined benefit
pension plan that covers all employees of Peebles who (i) complete 1,000
hours of service during a one-year period with Peebles and (ii) attain age
21 (a "Participant"). Contributions to the plan are determined on an
actuarial basis without allocation to individuals or groups.
Retirement benefits are based on a Participant's years of benefit
service and the earnings during the five consecutive calendar years which
produce the highest average. Earnings are limited to $150,000 in any one
year and years of benefit service are limited to 30. A Participant is
fully vested after completing five years of benefit service.
Benefits are payable to vested Participants at normal retirement
(age 65), early retirement (age 55), upon a vested Participant's permanent
and total disability, or upon a vested Participant's termination of
employment.
The following table shows estimated annual retirement benefits
payable to Participants under the pension plan upon normal retirement at
age 65 under various assumptions as to final average annual earnings, date
of retirement and years of continuous service without regard to the current
earning limit of $150,000.
<TABLE>
Final Years of Service
Average
Salary 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$ 75,000........ $12,285 $16,380 $20,475 $24,570 $ 24,570
100,000........ 17,160 22,880 28,600 34,320 34,320
125,000........ 22,035 29,380 36,725 44,070 44,070
150,000........ 26,910 35,880 44,850 53,820 53,820
175,000........ 31,785 42,380 52,975 63,570 63,570
200,000........ 36,660 48,880 61,100 73,320 73,320
225,000........ 41,535 55,380 69,225 83,070 83,070
250,000........ 46,410 61,880 77,320 92,820 92,820
300,000........ 56,160 74,880 93,600 112,320 112,320
350,000........ 65,910 87,880 109,850 131,820 131,820
400,000........ 75,660 100,880 126,100 151,320 151,320
450,000........ 85,410 113,880 142,350 170,820 170,820
</TABLE>
As of January 28, 1995, the credited years of service for Mr. Moorman,
Mr. Palmore, Mr. Lundy, Sr., Mr. Thomas, Jr. and Mr. Lail were 31, 22, 41,
16 and 7, respectively.
Peebles reserves the right at any time by action of its Board of
Directors to terminate the plan, although it currently has no intention to
do so. If the plan is terminated and appropriately funded at such time,
Peebles will not be required to make any further contributions to the plan
and each participant shall become 100% vested in his benefit under the
plan. Each Participant's benefit will be paid to him after termination of
the plan according to the terms of the plan.
In addition, Peebles also maintains a supplemental executive
retirement plan (the "SERP") for certain designated executives. In 1994,
Mr. Moorman, Mr. Palmore, Mr. Lundy were participants in this plan.
Retirement benefits payable under the SERP are based on 60% of the
participant's earnings (without regard to the current earnings limit of
$150,000) during the five consecutive calendar years which produce the
highest average, reduced by the sum of the participant's qualified defined
benefit pension benefit (computed with regard to the applicable earnings
limit) and the participant's social security benefits.
Benefits under the SERP are fully vested upon the earlier of (1) the
completion of five years of service with the Company beginning with the
date of participation in the SERP, (2) the participant's permanent
disability, or (3) the date on which a change of control occurs.
Retirement benefits are payable to vested participant's at normal
retirement (age 65), early retirement (age 55 with 20 years of service),
upon permanent and total disability, or upon a vested participant's
termination of employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended January 28, 1995, the Company had no formally
established compensation committee. The Board of Directors established
compensation for the Company's officers for such year. Michael F. Moorman,
the sole officer or employee of the Company who is also a member of the
Board of Directors, made recommendations to the Board of Directors
concerning executive compensation but did not otherwise participate in or
vote upon the executive compensation decisions made by the Board of
Directors for such year.
CERTAIN RELATIONSHIPS
Wellford L. Sanders, Jr., a member of the Board of Directors of the
Company, is a partner in the law firm of McGuire, Woods, Battle & Boothe,
L.L.P., which rendered legal services to the Company during 1994.
EMPLOYMENT AGREEMENTS
On March 30, 1995, Peebles entered into change of control agreements
(the "Change of Control Agreements") with nine officers of Peebles
(including each of the Named Executives). The Change of Control Agreements
provide an officer the following benefits if his employment is terminated
by the Company without "Cause" (as defined in the Change of Control
Agreement) or by such officer for "Good Reason" (as defined in the Change
of Control Agreements) during the three-year period following a "Change of
Control" of the Company (as defined below) or in the event such officer
voluntarily terminates his employment during the thirteenth month following
a Change of Control: (i) a lump sum cash payment equal to the officer's
full annual base salary through the date of termination to the extent not
theretofore paid; (ii) a lump sum cash payment equal to the sum of (x) a
bonus payment in an amount equal to the greatest of (A) the average bonus
paid or payable to such officer in respect of the three fiscal years
immediately preceding the fiscal year in which the Change of Control
occurs, (B) 50% of such officer's target bonus for the fiscal year in which
the Change of Control occurs or (C) 50% of such officer's target bonus for
the fiscal year in which the termination occurs (the greatest of (A), (B)
and (C) is hereafter the "Bonus Payment") multiplied by (D) a fraction, the
numerator of which is the number of days in the fiscal year in which such
officer is terminated through his date of termination, and the denominator
of which is 365 or 366, plus (y) any compensation previously deferred by
the officer (other than pursuant to a tax-qualified plan) and any accrued
vacation pay, to the extent unpaid; (iii) a lump sum cash payment equal to
the sum of (x) two times the such officer's highest annual base salary
during the twelve-month period preceding the date of termination, plus (y)
two times the Bonus Payment; (iv) a lump sum cash payment equal to the
actuarial equivalent, determined as of the date of termination, of any
unvested accrued benefit under the Company's Pension Plan; (v) a lump sum
cash payment equal to the value of any unvested portion of employer
contributions made on behalf of such officer to any defined contribution
plan of the Company; and (vi) two years of continued coverage under the
Company's medical, accident, disability and life insurance plans. The
payments set forth in clauses (ii) through (iv) above would be paid in lieu
of any other amount of severance relating to salary or bonus compensation
to be received by such officer upon termination of employment under any
severance plan, policy, employment agreement or arrangement of the Company.
Under the Change of Control Agreements, an officer cannot voluntarily
terminate employment (without Good Reason) during the period of an
attempted Change of Control or the ninety-day period following a Change in
Control. In the event that prior to a Change in Control, an officer is
terminated without Cause at the request of a third party who has indicated
an intention or taken steps reasonably calculated to effectuate a Change of
Control (and subsequently effectuates a Change of Control) or Good Reason
occurs prior to a Change in Control at the request of such a third party,
the officer would receive payments under the Change of Control Agreements
as if such events had occurred following a Change of Control.
A Change in Control is defined in the Change of Control Agreements as
generally: (i) the acquisition of 50% or more of the outstanding common
stock or voting securities of the Company by any person or group (other
than the Company, an employee benefit plan sponsored or maintained by the
Company or any corporation controlled by the Company, any corporation
pursuant to a reorganization, merger or consolidation involving the Company
in which the conditions listed in subclauses (A), (B) and (C) in clause
(iii) below apply, or the officer) (ii) a change in the majority of the
Board (other than changes approved by a majority of the members of the
incumbent Board of Directors as of the date of the Change of Control
Agreements); (iii) stockholder approval of a reorganization, merger or
consolidation of the Company (unless immediately after such transaction,
(A) the Company's stockholders continue to own both more than 50% of the
outstanding common stock and more than 50% of the outstanding voting
securities of the Company, (B) after the reorganization, merger or
consolidation, no person (other than the Company, an employee benefit plan
sponsored or maintained by the Company or any corporation controlled by the
Company, or any person who beneficially owned 50% or more of the
outstanding common stock or voting securities of the Company immediately
prior to the reorganization, merger or consolidation) beneficially owns
either 50% or more of the outstanding common stock or 50% or more of the
outstanding voting securities of the resulting corporation, and (C) a
majority of the Board of Directors has not changed); or (iv) stockholder
approval of a plan of complete liquidation or dissolution of the Company,
or the sale or other disposition of all or substantially all of the assets
of the Company (other than pursuant to a transaction with respect to which
the conditions listed in subclauses (A), (B), and (C) in clause (iii) above
apply).
On March 30, 1995, Peebles entered into employment agreements (the
"Employment Agreements") with fourteen other officers of Peebles. The
Employment Agreements, all of which expire March 29, 1997, provide that if
the officer is terminated for any reason, other than for good cause, he
will be entitled to receive his salary at the rate in effect immediately
before such termination for the balance of the term of the Employment
Agreement. For purposes of the Employment Agreements, good cause is
defined as (a) the commission of a serious crime, or (b) the officer, in
carrying out his duties under the Employment Agreements, is guilty of (i)
willful gross neglect, or (ii) willful gross misconduct resulting in either
case in material harm to the Company or any of its subsidiaries.
In connection with the termination of the Company's 1991 Plan and the
establishment of the 1993 Plan, all optionees under the 1993 Plan entered
into a related agreement whereby the Company became obligated to make
certain cash payments to the optionees, in exchange for their options, upon
a change of control of the Company prior to an underwritten public offering
of shares of the Common Stock or certain other events.
In addition, Mr. Lail and Mr. Thomas participate in split dollar
insurance arrangements with the Company. The executive owns, and therefore
has a vested interest in the cash surrender value of the policy in excess
of the Company's premium investment. At retirement, the executive can
either use the cash value for retirement income or keep the death benefit
or a combination of the two. The Company would recover its cost at
retirement. In the event of a change in control, the executive would have
a nonforfeitable right to the Company's share of the cash surrender value
of the policy.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of Common Stock, as of April 4, 1995, by (a) each
person known by the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock, (b) each of the Company's directors
and Named Executives who owns shares of Common Stock and (c) all directors
and Named Executives of the Company as a group. Unless otherwise noted in
the footnotes to the table, the persons named in the table have sole voting
and investing power with respect to all shares of Common Stock indicated as
being beneficially owned by them.
<TABLE>
Number (1) %(1)
<S> <C> <C>
Kemper Financial Services Inc.(2)... 728,740 24.76%
120 South LaSalle St.
Chicago, Illinois 60603
Jackson National Life Insurance
Company................................ 579,414 19.69
c/o PPM of America
227 West Monroe
Chicago, Illinois 60606
PaineWebber Incorporated............ 377,918 12.84
1285 Avenue of the Americas
New York, New York 10019
California Public Employees
Retirement System................... 308,589 10.49
400 P. Street
Sacramento, California 95812
First Investors Corp.(2)............... 193,276 6.57
120 Wall Street
New York, New York 10005
Apollo Investment Fund, L.P. (3)... 192,868 6.56
c/o Apollo Advisors, L.P.
Two Manhattanville Road
Purchase, NY 10577
Lion Advisors, L.P. (3)(4)........... 192,868 6.56
Two Manhattanville Road
Purchase, NY 10577
Michael F. Moorman.................. 23,706 *
Ronnie W. Palmore.................... 7,068 *
Russell A. Lundy, Sr.................. 4,712 *
E. Randolph Lail....................... 3,036 *
Marvin H. Thomas, Jr................ 3,141 *
William C. DeRusha.................. 0 0
Malcolm S. McDonald................ 0 0
Wellford L. Sanders, Jr.............. 0 0
All directors and Named Executives
as a group (8 persons)............... 41,633 1.41
</TABLE>
____________________
* Less than one percent.
(1) Does not include (i) 435,699 options to purchase shares of Common
Stock, pursuant to the 1993 Plan of which 159,227, 47,110, 32,929,
26,357 and 22,963 were held by Messrs. Moorman, Palmore, Lundy, Lail
and Thomas and 288,586 were held by all Names Executives as a group,
respectively; and (ii) 95 shares issuable upon exercise of the
outstanding warrants described below.
(2) Kemper Financial Services, Inc. and First Investors Corp. manage the
funds in which the shares of Common Stock listed are held.
(3) The managing general partner of Apollo Investment Fund, L.P. is Apollo
Advisors, L.P. which may be deemed to be an affiliate of Lion
Advisors, L.P.
(4) Lion Advisors, L.P. holds the indicated shares for the benefit of an
account under management over which Lion Advisors, L.P. holds
exclusive investment, voting and dispositive power. Lion Advisors,
L.P. and Apollo Advisors, L.P. may be deemed to be affiliates.
PREVIOUSLY OUTSTANDING WARRANTS
Upon completion of the Recapitalization on January 31, 1992, there
were 6,486 warrants (the "Peebles Warrants") to purchase shares of Common
Stock issued and outstanding. These Peebles Warrants are exercisable any
time on or after July 15, 1994 (the "Determination Date") for one share of
Common Stock at the exercise price of zero dollars ($0.00) per share. All
Peebles Warrants issued and outstanding existing on July 15, 1999 will be
deemed automatically exercised. In the event that certain defined
conditions do not occur, the Company is required to repurchase the Peebles
Warrants at the fair market value of the Common Stock at the Determination
Date. Prior to the issuance of common stock, the Peebles Warrants will be
accreted to fair market value and reflected as an adjustment to retained
earnings. As of January 28, 1995, there were 95 warrants outstanding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See "Item 10. Directors and Executive Officers of the Registrant" and
"Item 11. Executive Compensation" for a description of certain
arrangements with respect to present and former executive officers and
directors of Peebles.
(This space intentionally left blank.)
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements.
Information with respect to this Item is contained in
the financial statements indicated on the Indices on Page F-0
of this Annual Report on Form 10-K.
2. Financial statement schedules.
Information with respect to this Item is contained on
Page S-1 of this Annual Report on Form 10-K.
3. Exhibits.
The exhibits listed on the accompanying index to
exhibits are filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K.
NONE
(c) Exhibits.
2.1 Form of Agreement and Plan of Merger dated April 3,
1995 among PHC Retail Holding Company, Peebles
Acquisition Corp. and Peebles Inc., exclusive of
exhibits and schedules. The Registrant hereby
undertakes to furnish to the Commission supplementally
upon request a copy of any omitted exhibit or schedule.
3.1+ Form of Amended and Restated Articles of Incorporation
of Peebles Inc.
3.2+ Form of Amended and Restated Bylaws of Peebles Inc.
3.3 Amendment to Amended and Restated Articles of
Incorporation dated May 3, 1993
4.2* Form of Warrant Agreement between PBL Acquisition Corp.
and the Warrant Agent
4.3* Form of Warrant Certificate (included in the Warrant
Agreement filed as Exhibit 4.2 hereto).
10.1+ Second Amended and Restated Credit Agreement dated
January 31, 1992 by and between NatWest USA Credit
Corp. and Peebles Inc. (the "Credit Agreement").
10.2+ Form of Term Note.
10.3+ Form of Credit Note.
10.4+ Amended and Restated Continuing General Borrower
Security Agreement made January 31, 1992 by and
between Peebles Inc. and NatWest USA Credit Corp.
10.5+ Trademark Security Agreement made January 31, 1992
between Peebles Inc. and NatWest USA Credit Corp.
10.6* Deed of Trust made January 20, 1989 by and among
Peebles Inc., the Trustee party thereto and NatWest
USA Credit Corp.
10.7* Peebles Inc. Qualified Defined Benefit Pension Plan.
10.8 Standard Service Agreement, as amended, dated January 17,
1995 between Frederick Atkins, Incorporated and Peebles Inc.
10.9++ Waiver and Amendment No. 1 dated, January 4, 1993, to the
Credit Agreement.
10.10++ 1993 Stock Option Plan and form of Incentive Stock
Option Agreement.
10.11** Form of Indemnification, Guarantee and Contribution
Agreement dated as of March 13, 1991 among PBL
Acquisition Corp., Peebles Holdings, Inc., Peebles Inc.
and each of the directors and officers of Peebles Inc.
10.12++ Form of Agreement providing for cash payment upon
certain changes of control of the Company.
10.13+++ Waiver and Amendment No. 2, dated March 24, 1993 to the
Credit Agreement.
10.14 Amendment No. 2, dated September 30, 1994 to the Credit
Agreement.
10.15 Form of Change of Control Agreement, dated March 30,
1995 entered into by Peebles and nine senior executives
of Peebles.
10.16 Form of Employment Agreement, dated March 30, 1995
entered into by Peebles and fourteen executives of Peebles.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule
____________________________
* Incorporated by reference from the Registration
Statement of PBL and Peebles on Form S-1 (Registration
No. 33-27126), which was declared effective by the
Commission on July 14, 1989.
** Incorporated by reference from the Form 10-K of PBL and
the Company for the fiscal year ended February 2, 1991.
+ Incorporated by reference from the Form 10-K of the Company
for the fiscal year ended February 1, 1992.
++ Incorporated by reference from the Form 10-K of the
Company for the fiscal year ended January 30, 1993.
+++ Incorporated by reference from the Form 10-K of the
Company for the fiscal year ended January 29, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PEEBLES INC.
(Registrant)
By /s/ Michael F. Moorman Date: April 28, 1995
Michael F. Moorman, President
and Chief Executive Officer
(Principal Executive Officer)
By /s/ E. Randolph Lail Date: April 28, 1995
E. Randolph Lail, Senior Vice President
Finance, CFO, (Principal Financial
and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ Wellford L. Sanders, Jr. Date: April 28, 1995
Wellford L. Sanders, Jr.,
Director
By /s/ William C. DeRusha Date: April 28, 1995
William C. DeRusha, Director
By /s/ Malcolm S. McDonald Date: April 28, 1995
Malcolm S. McDonald, Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE
NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
The Company has furnished to the Commission a copy of its
proxy statement and form of proxy sent to its security holders in
connection with the Company's May 10, 1995 special meeting of
stockholders.
<PAGE>
AUDITED FINANCIAL STATEMENTS
PEEBLES INC.
JANUARY 28, 1995
Report of Independent Auditors..........................F-1
Balance Sheet......................................... F-2
Statement of Income................................... F-3
Statement of Changes in Stockholders' Equity.......... F-4
Statement of Cash Flows............................... F-5
Notes to Financial Statements.......................... F-6
F-0
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Peebles Inc.
We have audited the accompanying balance sheet of Peebles Inc. as of
January 28, 1995 and January 29, 1994, and the related statements of
income, changes in stockholders' equity, and cash flows for each of
the three fiscal years in the period ended January 28, 1995. Our
audits also included the financial statement schedule listed in the
index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Peebles
Inc. at January 28, 1995 and January 29, 1994, and the results of its
operations and its cash flows for each of the three fiscal years in
the period ended January 28, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
Richmond, Virginia
March 9, 1995, except for Note J, as to which the date is April 4, 1995
F-1
<PAGE>
BALANCE SHEET
PEEBLES INC.
(dollars in thousands, except per share amounts)
JANUARY 28, JANUARY 29,
1995 1994
-------------- ------------
ASSETS
CURRENT ASSETS
Cash $ 408 $ 99
Accounts receivable, net 28,812 28,386
Merchandise inventories 44,703 41,652
Prepaid expenses 306 246
Refundable income taxes 778 294
Other 62 554
-------- ---------
TOTAL CURRENT ASSETS 75,069 71,231
PROPERTY AND EQUIPMENT
Fixtures and equipment 43,991 40,569
Land and building 5,751 5,751
Leasehold improvements 368 502
-------- ---------
50,110 46,822
Accumulated depreciation and amortization 21,159 21,919
-------- ---------
28,951 24,903
Buildings under capital leases, net 1,230 1,400
OTHER ASSETS
Excess of cost over net assets
acquired, net 37,111 38,800
Deferred financing costs, net 277 582
Beneficial leaseholds, net 3,345 3,723
Sundry 2,971 3,088
-------- ---------
43,704 46,193
-------- ---------
$148,954 $143,727
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 8,722 $ 7,306
Accrued compensation and other expenses 5,587 5,627
Deferred income taxes 4,472 4,957
Current maturities of long-term debt 5,850 8,538
Other 566 455
-------- ---------
TOTAL CURRENT LIABILITIES 25,197 26,883
LONG-TERM DEBT 34,240 35,602
LONG-TERM CAPITAL LEASE OBLIGATIONS 1,865 2,067
DEFERRED INCOME TAXES 5,416 4,481
COMMON STOCK WARRANTS
Subject to redemption, with an exercise
price of $0.00; issued and outstanding 95
and 6,486 warrants, respectively 2 164
STOCKHOLDERS' EQUITY
Preferred stock--no par value, authorized
1,000,000 shares, none issued or
outstanding -- --
Common stock--par value $.10 per share,
authorized 5,000,000 shares, issued and
outstanding 2,942,690 and 2,933,562,
respectively 294 293
Additional capital 64,390 64,174
Retained earnings:
Accumulated from February 1, 1992,
subsequent to a deficit elimination of
$10,477 on that date 17,550 10,063
-------- ---------
82,234 74,530
-------- ---------
$148,954 $143,727
See notes to financial statements ======== =========
F-2
<PAGE>
STATEMENT OF INCOME
PEEBLES INC.
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
JANUARY 28, JANUARY 29, JANUARY 30,
1995 1994 1993
<S> <C> <C> <C>
NET SALES $ 167,662 $ 151,772 $ 140,943
COSTS AND EXPENSES
Cost of sales 98,066 91,134 84,033
Selling, general and administrative 45,205 40,320 37,717
expenses
Depreciation and amortization 6,729 6,029 5,557
---------- ---------- ----------
OPERATING INCOME 17,662 14,289 13,636
OTHER INCOME (EXPENSE) 131 (1) (145)
INTEREST EXPENSE 4,569 4,248 4,981
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 13,224 10,040 8,510
INCOME TAXES
Current 5,297 3,960 3,447
Deferred 450 553 505
---------- ---------- ----------
5,747 4,513 3,952
---------- ---------- ----------
NET INCOME $ 7,477 $ 5,527 $ 4,558
========== ========== ==========
NET INCOME PER SHARE $ 2.54 $ 1.88 $ 1.56
Average common stock and common ========== ========== ==========
stock equivalents outstanding 2,940,281 2,932,905 2,918,352
========== ========== ==========
</TABLE>
See notes to financial statements
F-3
<PAGE>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
PEEBLES INC.
(dollars in thousands, except per share amounts)
<TABLE>
Common Stock
---------------------
Par Additional Retained
Shares Value Capital Earnings
---------- ------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE FEBRUARY 1, 1992 2,873,562 $ 287 $ 62,651 $ --
Common stock issued in connection
with the Equity Incentive Plan 40,000 4 872 --
Common stock warrants issued in
connection with the Equity
Incentive Plan -- -- 176 --
Common stock warrants redemption
price adjustment -- -- -- (11)
Net income -- -- -- 4,558
---------- ------ -------- -------
BALANCE JANUARY 30, 1993 2,913,562 291 63,699 4,547
Common stock issued in
connection with the Equity
Incentive Plan 20,000 2 475 --
Common stock warrants
redemption price adjustment -- -- -- (11)
Net income -- -- -- 5,527
---------- ------ -------- -------
BALANCE JANUARY 29, 1994 2,933,562 293 64,174 10,063
Common stock issued in
redemption of Common
Stock Warrants 6,391 1 151 10
Common stock issued upon
exercise of common
stock options 2,737 -- 65 --
Net income -- -- -- 7,477
---------- ------ -------- -------
BALANCE JANUARY 28, 1995 2,942,690 $ 294 $ 64,390 $17,550
</TABLE>
See notes to financial statements
F-4
<PAGE>
STATEMENT OF CASH FLOWS
PEEBLES INC.
(dollars in thousands)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
January 28, January 29, January 30,
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,477 $ 5,527 $ 4,558
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 3,677 3,088 2,787
Amortization 3,508 3,376 3,215
Deferred income taxes 450 553 505
Provision for doubtful accounts 620 546 577
LIFO reserve adjustment (182) 1,144 349
Changes in operating assets and
liabilities
Accounts receivable (1,046) (2,066) 949
Merchandise inventories (2,869) (5,802) 2,424
Accounts payable 1,416 (2,420) 2,783
Other assets and liabilities 19 1,819 3,181
-------- -------- --------
NET CASH PROVIDED BY OPERATING 13,070 5,765 21,328
ACTIVITIES
INVESTING ACTIVITIES
Purchase of property and equipment (8,454) (7,372) (5,747)
Other (257) (105) (105)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (8,711) (7,477) (5,852)
FINANCING ACTIVITIES
Proceeds from revolving line of credit
and long-term debt 173,754 163,554 139,305
Reduction in revolving line of credit
and long-term debt (177,804) (161,836) (154,785)
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (4,050) 1,718 (15,480)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH 309 6 (4)
EQUIVALENTS
Cash and cash equivalents
beginning of period 99 93 97
-------- -------- --------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 408 $ 99 $ 93
======== ======== ========
</TABLE>
See notes to financial statements
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PEEBLES INC.
JANUARY 28, 1995
(dollars in thousands, except per share amounts)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION:
Peebles Inc. ("Peebles" or the "Company") is the successor to a
group of related companies that has operated a retail department
store business since 1891 under the name "Peebles". The Company
currently operates 58 department stores in small and medium-sized
communities in ten Southeastern and Mid-Atlantic States.
FISCAL YEAR: The Company's fiscal year ends on the Saturday
nearest January 31. Fiscal years 1994, 1993, and 1992 ended on
January 28, 1995, January 29, 1994, and January 30, 1993,
respectively. Results of operations for each of these years
consisted of fifty-two weeks. References to years relate to
fiscal years rather than calendar years.
QUASI-REORGANIZATION: As a result of a recapitalization of the
Company completed January 31, 1992, a quasi-reorganization was
implemented as of February 1, 1992. An accumulated deficit of
$10,477 was transferred to additional capital.
STATEMENT OF CASH FLOWS: Peebles considers all highly liquid
investments with a maturity of three months or less when
purchased to be cash equivalents. There were no cash equivalents
at January 28, 1995 or January 29, 1994. The issuance of certain
common stock and common stock warrants increased shareholders'
equity by $162, $477 and $1,052 in 1994, 1993 and 1992,
respectively, and accordingly, has been excluded from the
Statement of Cash Flows as a non-cash transaction.
MERCHANDISE INVENTORIES: Merchandise inventories are accounted
for by the retail inventory method applied on a last in, first
out ("LIFO") basis.
PROPERTY AND EQUIPMENT: Property and equipment is stated on the
basis of cost. Depreciation of property and equipment is
provided primarily by the straight-line method over their
estimated useful lives for financial reporting purposes and by
accelerated methods for income tax purposes. The cost of
leasehold improvements is amortized over the shorter of their
economic lives or the terms of the leases by the straight-line
method. Amortization of buildings under capital leases is
computed by the straight-line method over the lease term and is
included in depreciation and amortization expense.
STORE OPENING COSTS: Store opening costs are charged to selling,
general and administrative expenses as incurred.
ADVERTISING COSTS: Advertising costs, charged to selling,
general and administrative expenses as incurred, aggregated
$4,255, $4,089 and $3,460 for 1994, 1993 and 1992, respectively.
EXCESS OF COST OVER NET ASSETS ACQUIRED: The excess of cost over
net assets acquired ("Goodwill") is being amortized on a straight-
line basis over a twenty-five year period. Accumulated
amortization at January 28, 1995 and January 29, 1994 was $5,060
and $3,371, respectively.
DEFERRED FINANCING COSTS: Deferred financing costs are being
amortized by the interest method over a period ending February 1,
1996. Amortization expense of $457, $435, and $445 for deferred
financing costs are included in interest expense for 1994, 1993,
and 1992 respectively. Accumulated amortization at January 28,
1995 and January 29, 1994 was $2,803 and $2,346, respectively.
BENEFICIAL LEASEHOLDS: Amortization is provided by the straight-
line basis over the estimated composite useful lives of the
related leases. Accumulated amortization at January 28, 1995 and
January 29, 1994 was $2,117 and $1,739, respectively.
INCOME TAXES: Deferred income taxes are provided for temporary
differences between income and expense for financial reporting
purposes and for income tax purposes.
NET INCOME PER SHARE: Net Income per share is based on the
weighted-average number of shares and common stock equivalents
outstanding.
F-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS--Continued
PEEBLES INC.
NOTE B--MERCHANDISE INVENTORIES
In connection with an acquisition of the Company in January 1989,
the recorded value of merchandise inventories was increased to
fair value (the "Fair Value Adjustment"). Merchandise
inventories consisted of the following:
January 28, January 29, January 30,
1995 1994 1993
----------- ----------- -----------
Merchandise inventories
at lower of cost (FIFO)
or market $33,332 $30,463 $24,661
Fair Value Adjustment 14,209 14,209 14,530
Reduction in Fair Value
Adjustment -- -- (321)
LIFO reserve (2,838) (3,020) (1,876)
-------- --------- --------
Merchandise inventories
at LIFO cost $44,703 $41,652 $36,994
======== ========= ========
Reduced inventory levels during 1992 resulted in a liquidation of
LIFO inventory quantities carried at costs prevailing in prior
years. This LIFO decrement affected the base year and therefore
resulted in a reduction of the Fair Value Adjustment of $321,
charged to cost of sales in 1992.
NOTE C--ACCOUNTS RECEIVABLE
Accounts receivable are shown net of $930 and $950 representing
the allowance for uncollectible accounts at January 28, 1995 and
January 29, 1994, respectively. The provision for doubtful
accounts was $620, $546, and $577 for 1994, 1993 and 1992,
respectively. Finance charges on credit sales, included as a
reduction of selling, general and administrative expenses,
aggregated $4,818, $4,576 and $4,652, for 1994, 1993 and 1992,
respectively.
As a service to its customers, the Company offers credit through
the use of its own charge card, certain major credit cards and a
layaway plan. The Peebles' customer usually resides in the local
community immediately surrounding the store location. Peebles
stores serve these local customers in Virginia, Maryland, North
Carolina, South Carolina, Tennessee, Kentucky, Delaware, New
Jersey, Pennsylvania and New York. The Company does not require
collateral from its customers.
NOTE D--SUNDRY ASSETS
Sundry consisted of:
January 28, 1995 January 29, 1994
---------------- ----------------
Investment in and advances
to buying office $ 1,694 $ 1,586
Pension asset, net 1,032 1,176
Other 245 326
------- -------
$ 2,971 $ 3,088
======= =======
NOTE E--LONG-TERM DEBT
Long-term debt consisted of the following:
January 28, 1995 January 19, 1994
---------------- ----------------
Senior Revolving Facility $28,550 $30,000
Senior Term Facility 11,340 13,840
Other 200 300
------- -------
40,090 44,140
Less current maturities 5,850 8,538
------- -------
$34,240 $35,602
======= =======
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS--Continued
PEEBLES INC.
NOTE E--LONG-TERM DEBT - Continued
The Senior Revolving Facility ("Revolving Facility") and the
Senior Term Facility ("Term Facility"), together the Second
Amended and Restated Credit Agreement (the "Credit Agreement"),
provide the Company with working capital and funds for capital
expenditures. On September 30, 1994, the Company and its bank
signed Amendment No. 2 to the Credit Agreement (the "Amendment").
The Amendment (i) extended the maturity date of the Credit
Agreement one year to February 1, 1997; (ii) reduced the
quarterly principal payments due under the Term Facility from
$750 to $500; (iii) reduced the annual interest rate from prime
plus 1-1/2% to either prime plus 3/4%, provided certain quarterly
operating criteria are met, or prime plus 1% if the criteria are
not satisfied; (iv) increased allowable annual capital
expenditures from $8.75 to $10.0 million; and (v) increased the
flexibility of certain restrictive debt covenants. The Credit
Agreement remains in full force and effect except where amended.
The operations of the Company from September 30, 1994 through
January 28, 1995 continuously satisfied the criteria of the
Credit Agreement such that interest on outstanding borrowings was
charged at prime plus 3/4%. Restrictive covenant provisions of
the Credit Agreement prohibit payment of cash dividends in any
fiscal year. The Credit Agreement is secured by a first priority
security interest in substantially all the personal property and
certain real property of Peebles.
The amount available for borrowings under the Revolving Facility
is determined by a defined asset based formula with maximum
borrowings limited to $76,000 less amounts outstanding under the
Term Facility. The Company pays a fee of 1/4% per annum on any
unused portion of the Revolving Facility. The Revolving Facility
has no specific paydown provisions. Based on the anticipated
operations of the Company in the succeeding year, $24,800 and
$24,600 were considered long-term obligations at January 28, 1995
and January 29, 1994, respectively, representing the minimum
outstanding balance of the Revolving Facility for an
uninterrupted period extending beyond one year from the balance
sheet date.
Peebles has commitments for letters of credit with a bank which
totaled $462 and $455 at January 28, 1995 and January 29, 1994,
respectively. Approximately $127 expire during 1995, and the
remainder expires August 1, 1998.
During 1994, 1993 and 1992, Peebles made cash interest payments
of $4,091, $3,548, and $4,917, respectively.
Aggregate principal payments on long-term debt for the next five
fiscal years are: 1995--$5,850, 1996--$34,240, 1997, 1998 and
1999--$0.
NOTE F_LEASES
The Company leases substantially all of its store locations under
capital and operating leases with initial terms ranging from 1 to
25 years and renewal options of 1 to 5 years expiring at various
dates through 2033. The following is a summary of assets under
capitalized leases:
January 28, 1995 January 29, 1994
---------------- ----------------
Buildings under capital leases $ 3,018 $ 3,018
Less--accumulated
amortization (1,788) (1,618)
------- -------
$ 1,230 $ 1,400
======= =======
Total rental expense under operating leases was as follows:
1994 1993 1992
---- ---- ----
Minimum $ 5,915 $ 5,479 $ 5,162
Contingent 531 490 412
-------- -------- -------
$ 6,446 $ 5,969 $ 5,574
======== ======== =======
Contingent rentals are based upon a percentage of annual sales in
excess of specified amounts.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS--Continued
PEEBLES INC.
NOTE F--LEASES--Continued
Future minimum lease payments under capital leases and noncancellable operating
leases at January 28, 1995 were as follows:
Capital Operating
Fiscal Year Leases Leases
----------- -------- ---------
1995 $ 487 $ 6,016
1996 487 5,810
1997 487 5,364
1998 377 5,087
1999 377 5,020
Thereafter 1,160 33,235
-------- --------
Total minimum lease payments 3,375 $ 60,532
Less: amounts representing ========
interest (1,308)
--------
Present value of net minimum
lease payments, including
current maturities of $202, with
interest rates ranging from
11.3% to 18.1% $ 2,067
========
NOTE G--COMMON STOCK WARRANTS
On July 15, 1994 (the "Determination Date"), 6,486 warrants to
purchase one share of Peebles common stock, $.10 par value (the
"Common Stock") at the exercise price of zero dollars ($0.00) per
share ("Warrant") became exercisable. Subsequent to the
Determination Date, 6,391 Warrants were redeemed for Common
Stock. Prior to the redemption, outstanding Warrants are
accreted to fair market value and reflected as an adjustment to
retained earnings.
NOTE H--EMPLOYEE BENEFIT PLANS
THE EMPLOYEES RETIREMENT PLAN OF PEEBLES INC.: The Company
provides a defined benefit pension plan which covers
substantially all employees. Participation is dependent on
meeting certain age and service requirements. Benefits are based
on total years of benefit service and the employee's compensation
during the five consecutive calendar years which produce the
highest average. Peebles makes annual contributions to the Plan
equal to the contribution required to satisfy minimum funding
standards under ERISA.
Net periodic pension cost included the following components:
1994 1993 1992
------ ------ ------
Service cost-benefits earned
during the period $ 323 $ 297 $ 263
Interest cost on projected
benefit obligation 448 443 413
Actual return on plan assets 177 (463) (198)
Net amortization and deferral (804) (129) (402)
----- ----- -----
Net periodic pension cost $ 144 $ 148 $ 76
===== ===== =====
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS--Continued
PEEBLES INC.
NOTE H--EMPLOYEE BENEFIT PLANS--Continued
The following table sets forth the Plan's funded status and
amounts recognized in Peebles balance sheet:
January 28, 1995 January 29, 1994
---------------- ----------------
Actuarial present value of
benefit obligations:
Accumulated benefit obligations
including vested benefits of
$4,385 and $4,428, $ (4,737) $ (4,861)
respectively
========== ==========
Projected benefit obligation $ (5,856) $ (6,313)
Plan assets at fair value,
primarily listed stocks and
U.S. Government Treasury Bonds 6,389 6,876
Plan assets in excess of projected ---------- ----------
benefit obligations 533 563
Prior service costs (84) 76
Unrecognized net loss 658 626
Unrecognized net asset (75) (89)
Net pension asset recognized ---------- ----------
in the balance sheet $ 1,032 $ 1,176
========== ==========
In calculating the present value of projected benefit obligations
for 1994 and 1993, a 5.0% weighted average rate of compensation
was used, and weighted-average discount rates of 8.75% and 7.5%,
respectively, reduced the projected benefit obligation by some
$696. The expected long-term rate of return on plan assets was
9% for 1994, 1993, and 1992.
THE PEEBLES INC. 401 (K) PROFIT SHARING PLAN: In October 1993,
the Company adopted a qualified profit sharing and retirement
savings plan, which under Section 401 (k) of the Internal Revenue
Code, allows tax deferred contributions from eligible employees
of up to 12% of their annual compensation. The Company does not
currently contribute to the plan.
THE 1993 STOCK OPTION PLAN: In April 1993, the stockholders
approved the 1993 Stock Option Plan to replace an equity
incentive plan (the "Equity Incentive Plan"). Both the Equity
Incentive Plan and the 1993 Stock Option Plan were designed to
provide a long-term incentive to certain key management
personnel. Under the Equity Incentive Plan, 20,000 shares and
40,000 shares of Common Stock were issued in 1993 and 1992,
respectively, and the Company recorded additional compensation
expense of $792, and $1,590 in 1992 and 1991, respectively. Under
the provisions of the 1993 Stock Option Plan, both incentive
stock options and non-qualified stock options are granted and, as
such, 450,000 shares of Common Stock are reserved for issuance.
The Board of Directors has the authority and complete discretion
to, among other things, determine the date of grant, the
recipient employee, the exercise price and the expiration date of
the options to purchase one share of the Common Stock. The
options granted under the 1993 Stock Option Plan have an exercise
price equal to the estimated fair value of the Common Stock on
the date of grant, vest ratably over a three to five year period
and expire ten years from the date of grant.
Activity under the 1993 Stock Option Plan is as follows:
Shares Under Exercise
Option Price Per
Share
------------- ------------
INITIAL GRANT, FEBRUARY 8, 1993 231,794 $23.75
OUTSTANDING OPTIONS, JANUARY 231,794 23.75
29, 1994
Granted 218,206 23.75
Exercised (2,737) 23.75
Canceled (11,564) 23.75
---------
OUTSTANDING OPTIONS, JANUARY
28, 1995 435,699 23.75
========= =======
EXERCISABLE AT JANUARY 28, 1995 69,636 $23.75
========= =======
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS--Continued
PEEBLES INC.
NOTE I - INCOME TAXES
The provisions for income taxes consisted of the following:
1994 1993 1992
------- ------- -------
Current: Federal $ 4,354 $ 3,273 $ 2,844
State 943 687 603
Deferred: Federal 371 455 422
State 79 98 83
------- ------- -------
$ 5,747 $ 4,513 $ 3,952
======= ======= =======
Income taxes differ from the amounts computed by applying the
applicable federal statutory rates due to the following:
1994 1993 1992
------- ------- ------
Taxes at the federal
statutory rate $ 4,628 $ 3,514 $ 2,893
Increases (decreases):
State income taxes, net
of federal tax 676 518 453
Amortization of purchase
accounting adjustments 574 574 574
Other (131) (93) 32
------ ------ ------
$ 5,747 $ 4,513 $ 3,952
====== ====== ======
Significant components of deferred tax liabilities and assets are as follows:
January 28, 1995 January 29, 1994
---------------- ----------------
Deferred tax liabilities:
Inventory valuation $ 4,830 $ 5,134
Depreciation and amortization 5,122 4,169
Pensions 397 452
Other -- 190
---------- ---------
10,349 9,945
Deferred tax assets:
Net operating loss carryover -- (1,200)
Doubtful accounts (358) (366)
Other (103) (141)
---------- ---------
(461) (1,707)
Valuation allowance -- 1,200
---------- ---------
(461) (507)
---------- ---------
Net deferred tax liabilities $ 9,888 $ 9,438
========== =========
Peebles made cash income tax payments of $6,183, $4,175 and
$3,509 for 1994, 1993 and 1992, respectively.
The Internal Revenue Service has completed its examination of the
Company's federal income tax returns for the fiscal years ended
February 1, 1992, and February 2, 1991, and the Company has
agreed to various adjustments proposed by the government. As a
result of this agreement, which does not materially affect the
Company's financial position or results of operations, the
Company's net operating loss carryover and the associated
valuation allowance have been eliminated.
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS--Continued
PEEBLES INC.
NOTE J - SUBSEQUENT EVENT
On April 4, 1995, the Company announced that it had signed an
agreement to be acquired by PHC Retail Holding Company ("PHC
Retail"), an affiliate of Kelso & Company, Inc., an investment
firm located in New York City. The transaction provides for the
merger of a subsidiary of PHC Retail into Peebles and the receipt
of cash by the shareholders of Peebles. The closing of the
transaction is subject to a number of conditions, including
regulatory and shareholder approval, and is expected to be
completed in May.
NOTE K - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(dollars in thousands) FISCAL QUARTER
First Second Third Fourth
1994 1993 1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales................... $34,767 $29,510 $36,782 $33,423 $41,025 $37,277 $55,088 $51,562
Cost of Sales............... 21,091 17,419 21,461 19,944 24,843 22,673 30,671 31,098
Gross Margin................ 13,676 12,091 15,321 13,479 16,182 14,604 24,417 20,464
Operating Income............ 2,282 2,204 3,304 2,562 3,257 2,560 8,819 6,963
Net Income.................. 825 664 1,331 843 1,230 872 4,091 3,148
Net Income Per Share........ $ .28 $ .23 $ .45 $ .29 $ .42 $ .30 $ 1.39 $ 1.07
</TABLE>
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
PEEBLES INC.
Schedule I. Condensed Financial Information of
Registrant . . . . . . . . . . . . . . . . . N/A
Schedule II. Valuation and Qualifying Accounts . . . . . . S-1
Schedule III. Real Estate and Accumulated Depreciation . . N/A
Schedule IV. Mortgage Loans on Real Estate . . . . . . . . N/A
Schedule V. Supplemental Information Concerning Property-
Casualty Insurance Operations . . . . . . . . N/A
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
PEEBLES INC.
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
DESCRIPTION BALANCE AT BEGINNING DEDUCTIONS - DESCRIBE BALANCE AT END
OF PERIOD CHARGED TO COSTS CHARGED TO OTHER OF PERIOD
AND EXPENSES ACCOUNTS-DESCRIBE
<S> <C> <C> <C> <C> <C>
Year Ended January 28, 1995
Deducted from asset accounts:
Allowance for doubtful accounts $ 950,000 $ 620,000 $640,000 (1) $ 930,000
LIFO Reserve $3,020,281 $ (182,207) $2,838,074
Year Ended January 29, 1994
Deducted from asset accounts:
Allowance for doubtful accounts $1,100,000 $ 546,000 $696,000 (1) $ 950,000
LIFO Reserve $1,876,063 $1,144,218 $3,020,281
Year Ended January 30, 1993
Deducted from asset accounts:
Allowance for doubtful accounts $1,345,000 $ 577,000 $822,000 (1) $1,100,000
LIFO Reserve $1,527,222 $ 348,841 $1,876,063
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. Description Number
2.1 Form of Agreement and Plan of Merger among PHC
Retail Holding Company, Peebles Acquisition Corp.
and Peebles Inc., exclusive of exhibits and schedules.
The Registrant hereby undertakes to furnish to the
Commission supplementally upon request a copy of any
omitted exhibit or schedule.
3.1+ Form of Amended and Restated Articles of Incorporation
of Peebles Inc.
3.2+ Form of Amended and Restated Bylaws of Peebles
Inc.
3.3 Amendment to Amended and Restated Articles of
Incorporation dated May 3, 1993.
4.2* Form of Warrant Agreement between PBL Acquisition Corp.
and the Warrant Agent.
4.3* Form of Warrant Certificate (included in the Warrant
Agreement filed as Exhibit 4.2 hereto).
10.1+ Second Amended and Restated Credit Agreement dated
January 31, 1992 by and between NatWest USA Credit Corp.
and Peebles Inc. (the "Credit Agreement").
10.2+ Form of Term Note.
10.3+ Form of Credit Note.
10.4+ Amended and Restated Continuing General Borrower
Security Agreement made January 31, 1992 by and between
Peebles Inc. and NatWest USA Credit Corp.
10.5+ Trademark Security Agreement made January 31, 1992 between
Peebles Inc. and NatWest USA Credit Corp.
10.6* Deed of Trust made January 20, 1989 by and among Peebles
Inc., the Trustee party thereto and NatWest USA Credit Corp.
10.7* Peebles Inc. Qualified Defined Benefit Pension Plan.
10.8 Standard Service Agreement, as amended, dated January 17, 1995
between Frederick Atkins, Incorporated and Peebles Inc.
the predecessor to Peebles Inc.).
10.9++ Waiver and Amendment No. 1 dated, January 4, 1993, to the
Credit Agreement.
10.10++ 1993 Stock Option Plan and form of Incentive Stock Option
Agreement.
Exhibit Page
No. Description Number
10.11** Form of Indemnification, Guarantee and Contribution
Agreement dated as of March 13, 1991 among PBL
Acquisition Corp., Peebles Holdings, Inc., Peebles Inc.
and each of the directors and officers of Peebles Inc.
10.12++ Form of Agreement providing for cash payment upon certain
changes of control of the Company.
10.13+++ Waiver and Amendment No. 2, dated March 24, 1993 to the
Credit Agreement.
10.14 Amendment No. 2, dated September 30, 1994 to the Credit
Agreement.
10.15 Form of Change of Control Agreement, dated March 30, 1995
entered into by Peebles and nine senior executives of Peebles
10.16 Form of Employment Agreement, dated March 30, 1995.
entered into by Peebles and fourteen executives of Peebles.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule
___________________
* Incorporated by reference from the Registration Statement of PBL and
Peebles on Form S-1 (Registration No. 33-27126), which was declared
effective by the Commission on July 14, 1989.
** Incorporated by reference from the Form 10-K of PBL and the Company
for the fiscal year ended February 2, 1991.
+ Incorporated by reference from the Form 10-K of the Company for
the fiscal year ended February 1, 1992.
++ Incorporated by reference from the Form 10-K of the Company for
the fiscal year ended January 30, 1993.
+++ Incorporated by reference from the Form 10-K of the Company for
the fiscal year ended January 29, 1994.
AGREEMENT AND PLAN OF MERGER
AMONG
PHC RETAIL HOLDING COMPANY
PEEBLES ACQUISITION CORP.
AND
PEEBLES INC.
Dated as of April 3, 1995
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
(Not Part of the Agreement)
Page
ARTICLE I
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Certificate of Incorporation . . . . . . . . . . . . . . . . 1
1.3. By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4. Directors and Officers . . . . . . . . . . . . . . . . . . . 1
1.5. Effective Time . . . . . . . . . . . . . . . . . . . . . . . 2
1.6. Further Assurances . . . . . . . . . . . . . . . . . . . . . 2
1.7. Company Action . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
CONVERSION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . 3
2.1. Company Common Stock . . . . . . . . . . . . . . . . . . . . 3
2.2. Dissenting Shares . . . . . . . . . . . . . . . . . . . . . 4
2.3. Subsidiary Common Stock . . . . . . . . . . . . . . . . . . 4
2.4. Exchange of Shares . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . 7
3.1. Organization . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2. Capitalization . . . . . . . . . . . . . . . . . . . . . . . 7
3.3. Authority Relative to this Agreement . . . . . . . . . . . . 8
3.4. Consents and Approvals; No Violation . . . . . . . . . . . . 8
3.5. Financial Statements and Reports . . . . . . . . . . . . . . 9
3.6. Absence of Undisclosed Liabilities . . . . . . . . . . . . . 10
3.7. Absence of Material Adverse Change . . . . . . . . . . . . . 10
3.8. Finders and Investment Bankers . . . . . . . . . . . . . . . 12
3.9. Severance, Termination, Change in Control and Similar
Agreements . . . . . . . . . . . . . . . . . . . . . . . . 12
3.10. Real Property . . . . . . . . . . . . . . . . . . . . . . . 13
3.11. Title to Personal Property . . . . . . . . . . . . . . . . 14
3.12. Litigation . . . . . . . . . . . . . . . . . . . . . . . . 15
3.13. Compliance with Other Instruments and Laws . . . . . . . . 15
3.14. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.15. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.16. Accounts Receivable . . . . . . . . . . . . . . . . . . . . 19
i
Page
3.17. Inventories . . . . . . . . . . . . . . . . . . . . . . . . 19
3.18. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.19. Intellectual Property . . . . . . . . . . . . . . . . . . . 20
3.20. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.21. Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.22. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND THE SUBSIDIARY . . . . . . . . . . . . . . . . . 23
4.1. Organization . . . . . . . . . . . . . . . . . . . . . . . . 23
4.2. Authority Relative to this Agreement . . . . . . . . . . . . 23
4.3. Consents and Approvals; No Violation . . . . . . . . . . . . 24
4.4. Finders and Investment Bankers . . . . . . . . . . . . . . . 24
4.5. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE V
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.1. Conduct of Business of the Company . . . . . . . . . . . . . 25
5.2. Parachute Payments . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VI
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . 28
6.1. Proxy Statement; Filings . . . . . . . . . . . . . . . . . . 28
6.2. Meeting of the Company's Shareholders . . . . . . . . . . . 29
6.3. Additional Agreements . . . . . . . . . . . . . . . . . . . 30
6.4. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . 30
6.5. Acquisition Proposals . . . . . . . . . . . . . . . . . . . 31
6.6. Access to Information; Confidentiality . . . . . . . . . . . 32
6.7. Officers' and Directors' Insurance;
Indemnification . . . . . . . . . . . . . . . . . . . . . . 32
6.8. Monthly Financial Statements . . . . . . . . . . . . . . . . 34
6.9. Public Announcements . . . . . . . . . . . . . . . . . . . . 34
6.10. Consent of the Parent . . . . . . . . . . . . . . . . . . . 35
ARTICLE VII
CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . 35
7.1. Conditions Precedent to the Obligations of All Parties . . . 35
7.2. Additional Conditions to the Obligation of the Company . . . 36
7.3. Conditions Precedent to Obligations of the Parent and
the Subsidiary . . . . . . . . . . . . . . . . . . . . . . 36
ii
Page
ARTICLE VIII
CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.1. Time and Place . . . . . . . . . . . . . . . . . . . . . . . 38
8.2. Filings at the Closing . . . . . . . . . . . . . . . . . . . 38
ARTICLE IX
TERMINATION AND ABANDONMENT . . . . . . . . . . . . . . . . . . . 38
9.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . 38
9.2. Procedure and Effect of Termination . . . . . . . . . . . . 40
ARTICLE X
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.1. Amendment and Modification . . . . . . . . . . . . . . . . 40
10.2. Waiver of Compliance; Consents . . . . . . . . . . . . . . 40
10.3. Investigations; Survival of Warranties . . . . . . . . . . 41
10.4. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.5. Assignment; Parties in Interest . . . . . . . . . . . . . . 42
10.6. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 42
10.7. Counterparts . . . . . . . . . . . . . . . . . . . . . . . 42
10.8. Interpretation . . . . . . . . . . . . . . . . . . . . . . 43
10.9. Entire Agreement . . . . . . . . . . . . . . . . . . . . . 43
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 3, 1995 (the
"Agreement"), among PHC RETAIL HOLDING COMPANY, a Delaware corporation (the
"Parent"), PEEBLES ACQUISITION CORP., a Delaware corporation and a wholly-
owned subsidiary of the Parent (the "Subsidiary"), and PEEBLES INC., a
Virginia corporation (the "Company").
ARTICLE I
THE MERGER
1.1. The Merger. In accordance with the provisions of this
Agreement, the General Corporation Law of the State of Delaware (the "GCL")
and the Virginia Stock Corporation Act (the "VSCA"), at the Effective Time
(as defined in Section 1.5) (i) the Subsidiary shall be merged with and
into the Company (the "Merger"), and the Company shall be the surviving
corporation (hereinafter sometimes called the "Surviving Corporation") and
shall continue its corporate existence under the laws of the Commonwealth
of Virginia; (ii) the name, identity, existence, rights, privileges,
powers, franchises, properties and assets of the Company shall continue
unaffected and unimpaired; and (iii) the separate existence of the
Subsidiary shall cease, and all of the rights, privileges, powers,
franchises, properties and assets of the Subsidiary shall be vested in the
Company. The name of the Surviving Corporation shall continue to be
"Peebles Inc."
1.2. Certificate of Incorporation. The Certificate of
Incorporation of the Company in effect immediately prior to the Effective
Time shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided therein or by law.
1.3. By-Laws. The By-Laws of the Company in effect immediately
prior to the Effective Time shall be the By-Laws of the Surviving
Corporation until thereafter amended, altered or repealed as provided
therein.
1.4. Directors and Officers. The directors of the Subsidiary
immediately prior to the Effective Time shall be the directors of the
Surviving Corporation and the officers of the Company immediately prior to
the Effective Time shall be the officers of the Surviving Corporation, each
to hold office in accordance with the Certificate of Incorporation and By-
Laws of the Surviving Corporation until his successor is appointed and
qualified or until his earlier death, resignation or removal. Promptly
after the Effective Time, the Parent shall increase the size of the board
of directors of the Surviving Corporation and elect such former directors
of the Company to the board of directors of the Surviving Corporation as
the Parent then chooses.
1.5. Effective Time. The Merger shall become effective
simultaneously with the later of the filing of (i) Articles of Merger with
the State Corporation Commission of the Commonwealth of Virginia (the
"Commission") in accordance with the provisions of Section 13.1-720 of the
VSCA (the "Articles of Merger") and (ii) a Certificate of Merger with the
Secretary of State of the State of Delaware in accordance with Section 252
of the GCL (the "Certificate of Merger"). The Articles of Merger and
Certificate of Merger shall be filed as provided above as soon as
practicable after the Closing (as defined in Section 8.1). The date and
time when the Merger shall become effective is herein referred to as the
"Effective Time."
1.6. Further Assurances. If at any time after the Effective
Time the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (a) to vest, perfect or confirm, of record
or otherwise, in the Surviving Corporation its right, title or interest in,
to or under any of the rights, privileges, powers, franchises, properties
or assets of the Company acquired or to be acquired as a result of the
Merger, or (b) otherwise to carry out the purposes of this Agreement, the
Surviving Corporation and its proper officers and directors or their
designees shall be authorized to solicit in the name of the Company any
third party consents or other documents required to be delivered by any
third party to execute and deliver, in the name and on behalf of the
Company, all such deeds, bills of sale, assignments and assurances and do,
in the name and on behalf of the Company, all such other acts and things
necessary, desirable or proper to vest, perfect or confirm its right, title
or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of the Company acquired or to be acquired
as a result of the Merger and otherwise to carry out the purposes of this
Agreement.
1.7. Company Action. The Company represents that its Board of
Directors (the "Board") has voted to recommend adoption of this Agreement
and authorization of the Merger by the shareholders of the Company at the
meeting of such shareholders to be held as specified in Section 6.2 (the
"Shareholders' Meeting"); provided, however, that subject to Section 6.4,
such recommendation may be withdrawn, modified or amended prior to the
Shareholders' Meeting to the extent (a) the Board deems it necessary to do
so in the exercise of its fiduciary obligations to the Company's
shareholders under applicable law after advice of counsel with respect to
such obligations or (b) the Board determines to proceed with an initial
public offering of the Company Common Stock (as defined below) in lieu of
consummating the Merger and the transactions contemplated by this
Agreement, provided that such initial public offering involves a secondary
offering and at least 52.5% of the Company Common Stock (on a primary, not
fully-diluted basis) will be publicly held after such offering.
ARTICLE II
CONVERSION OF SHARES
2.1. Company Common Stock. (a) Each share of Company common
stock, $.10 par value (the "Company Common Stock"), issued and outstanding
immediately prior to the Effective Time (except for (i) any shares of
Company Common Stock then owned beneficially or of record by the Parent or
the Subsidiary or any other subsidiary of the Parent, (ii) shares of
Company Common Stock held in the treasury of the Company, and
(iii) Dissenting Shares, as defined in Section 2.2) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be
converted into the right to receive $23.00 in cash payable to the holder
thereof, without interest thereon, upon surrender of the certificate
representing such share of Company Common Stock.
(b) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time which is then owned beneficially or
of record by the Parent or the Subsidiary or any other subsidiary of the
Parent shall, by virtue of the Merger and without any action on the part of
the holder thereof, be cancelled and retired and cease to exist, without
any conversion thereof.
(c) Each share of Company Common Stock held in the Company's
treasury immediately prior to the Effective Time shall, by virtue of the
Merger, be cancelled and retired and cease to exist, without any conversion
thereof.
(d) The holders of certificates representing shares of Company
Common Stock issued and outstanding immediately prior to the Effective Time
shall as of the Effective Time cease to have any rights as shareholders of
the Company, except such rights, if any, as they may have pursuant to the
VSCA, and, except as aforesaid, their sole right shall be the right to
receive cash as aforesaid.
2.2. Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock which are
outstanding immediately prior to the Effective Time and which are held by
shareholders who exercise their right to dissent from the Merger when and
in the manner required by Sections 13.1-732 through 13.1-739 of the VSCA
("Dissenting Shares") shall not be converted into or be exchangeable for
the right to receive the consideration provided in Section 2.1(a) of this
Agreement, but the holders thereof shall be entitled to payment from the
Surviving Corporation of the fair value of such shares plus accrued
interest in accordance with the provisions of Sections 13.1-729 through
13.1-739 of the VSCA; provided, however, that the right of a dissenting
shareholder to obtain payment of the fair value of his shares shall
terminate upon the occurrence of any of the following events: (i) the
termination of this Agreement in accordance with Section 9.1; (ii) a court
having jurisdiction permanently enjoining or setting aside the Merger; or
(iii) the withdrawal of such shareholders' demand for payment with the
written consent of the Company. Upon any such termination described in
subsection (iii) of the foregoing sentence, the shares held by such
dissenting shareholder shall thereupon be deemed to have been converted
into and to have become exchangeable for, as of the Effective Time, the
right to receive the consideration provided in Section 2.1(a) of this
Agreement, without any interest thereon.
2.3. Subsidiary Common Stock. Each share of common stock, par
value $.01 per share, of the Subsidiary (the "Subsidiary Common Stock"),
issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder
thereof, be converted into and exchangeable for one fully paid and non-
assessable share of common stock, par value $.01 per share, of the
Surviving Corporation ("Surviving Corporation Common Stock"). From and
after the Effective Time, each outstanding certificate theretofore
representing shares of Subsidiary Common Stock shall be deemed for all
purposes to evidence ownership of and to represent the number of shares of
Surviving Corporation Common Stock into which such shares of Subsidiary
Common Stock shall have been converted. Promptly after the Effective Time,
the Surviving Corporation shall issue to the Parent a stock certificate or
certificates representing 1,000 shares of Surviving Corporation Common
Stock in exchange for the certificate or certificates which formerly
represented shares of Subsidiary Common Stock, which shall be cancelled.
2.4. Exchange of Shares. (a) Promptly after the Effective
Time, the Surviving Corporation or, at the Parent's election, such bank or
trust company as the Parent may determine, acting as exchange agent for the
Merger (the "Exchange Agent"), shall mail to each record holder, as of the
Effective Time, of an outstanding certificate or certificates which
immediately prior to the Effective Time represented shares of Company
Common Stock (the "Certificates") a form letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent) and instructions for use in effecting the surrender of
the Certificates in exchange for payment therefor. Upon surrender to the
Surviving Corporation or to the Exchange Agent, as the case may be, of a
Certificate, together with such letter of transmittal duly executed, the
holder of such Certificate shall be entitled to receive in exchange
therefor cash in an amount equal to the product of the number of shares of
Company Common Stock represented by such Certificate times $23.00, and such
Certificate shall forthwith be cancelled. The Parent shall furnish or
cause to be furnished to the Exchange Agent all funds required to make such
payments. No interest will be paid or accrued on the cash payable upon the
surrender of the Certificates. All payments in respect of shares of
Company Common Stock which are made in accordance with the terms hereof
shall be deemed to have been made in full satisfaction of all rights
pertaining to such shares. With respect to any Certificate alleged to have
been lost, stolen or destroyed, the owner or owners of such Certificate
shall be entitled to the consideration set forth above upon delivery to the
Surviving Corporation or the Exchange Agent, as the case may be, of an
affidavit of such owner or owners setting forth such allegation and a bond
sufficient to indemnify the Parent and the Surviving Corporation against
any claim that may be made against either or both of them on account of the
alleged loss, theft or destruction of any such Certificate or the delivery
of the payment set forth above.
(b) If payment is to be made to a person other than the person
in whose name the Certificate surrendered in exchange therefor is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for
transfer and that the person requesting such payment shall pay any transfer
or other taxes required by reason of the payment to a person other than the
registered holder of the Certificate surrendered or establish to the
satisfaction of the Exchange Agent and the Surviving Corporation that such
tax has been paid or is not applicable.
(c) Until surrendered in accordance with the provisions of this
Section 2.4, from and after the Effective Time, each Certificate (other
than Certificates representing shares of Company Common Stock owned
beneficially or of record by the Parent, the Subsidiary or any other
subsidiary of the Parent and other than Certificates representing shares of
Company Common Stock held in the Company's treasury and Dissenting Shares
in respect of which appraisal rights are perfected) shall represent for all
purposes the right to receive $23.00 in cash multiplied by the number of
shares of Company Common Stock evidenced by such Certificate, without any
interest thereon.
(d) After the Effective Time there shall be no transfers on the
stock transfer books of the Surviving Corporation of the shares of Company
Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation, they shall be cancelled and exchanged for cash as
provided in this Article II.
(e) Each holder of a warrant to purchase shares of Company Com-
mon Stock outstanding immediately prior to the Effective Time under the
Company's Common Stock Warrants (the "Warrants"), whether or not then
exercisable, will be entitled to receive from the Parent or the Surviving
Corporation, as promptly as practicable after the Effective Time, for each
share of Company Common Stock subject to such warrant an amount in cash
equal to $23.00 and, by virtue of the Merger and without any action on the
part of the holder thereof, each such warrant shall be cancelled.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent and the
Subsidiary as follows:
3.1. Organization. (a) The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted. The Company 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 necessary. The Company does not
have any subsidiaries and, except as set forth on Schedule 3.1, the Company
does not own capital stock of or equity interests in any corporation,
partnership, joint venture or other entity. The Company has heretofore
delivered to the Parent accurate and complete copies of the Certificate of
Incorporation and By-Laws of the Company, as amended and in effect on the
date hereof.
3.2. Capitalization. (a) The authorized capital stock of the
Company consists of: (i) 5,000,000 shares of Company Common Stock, of
which, on the date hereof, there are 2,942,690 shares outstanding, 435,699
shares reserved for issuance upon exercise of options outstanding under the
Company's 1993 Stock Option Plan (the "Company Option Plan"), 95 shares
reserved for issuance upon exercise of the Warrants and no shares held in
the Company's treasury and (ii) 1,000,000 shares of preferred stock, no par
value, of which no shares are issued or outstanding or are held in the
Company's treasury. All issued and outstanding shares of Company Common
Stock are duly authorized, validly issued, fully paid, non-assessable and
free of preemptive rights. Schedule 3.2 hereto shows the name of each
holder of a warrant or an option to purchase shares of Company Common
Stock, the number of shares of Company Common Stock subject to all such
options or warrants held by such holder and the per share exercise price
thereof.
(b) Except for (i) options to acquire not more than
435,699 shares of Company Common Stock under the Company Option Plan and
for (ii) the Warrants exercisable into 95 shares of Company Common Stock,
there are not now, and at the Effective Time there will not be, any
options, warrants, calls, subscriptions, or other rights or other
agreements or commitments of any nature whatsoever (either firm or condi-
tional) obligating the Company to issue, transfer, deliver or sell, or
cause to be issued, transferred, delivered or sold, any additional shares
of capital stock or other equity interest of the Company, or any securities
or obligations convertible into or exchangeable for any such capital stock
or other interest, or obligating the Company to grant, extend or enter into
any such agreement or commitment and no authorization therefor has been
given or made. The per share exercise price for the options outstanding
under the Option Plan is in excess of $23.00 per share and the per exercise
price for each outstanding Warrant is zero.
3.3. Authority Relative to this Agreement. The Company has all
requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by the Company and the consum-
mation by the Company of the transactions contemplated hereby have been
duly and validly authorized and approved by the Board. Except for the
approval by the Company's shareholders which is referred to in Section 6.2,
no other corporate action or proceedings on the part of the Company are
necessary to authorize this Agreement or to authorize the consummation of
the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by the Company and constitutes a valid and
legally binding agreement of the Company, enforceable against the Company
in accordance with its terms.
3.4. Consents and Approvals; No Violation. Except for
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), the approval of the Company's
shareholders which is referred to in Section 6.2, and the filing and
recordation of appropriate merger documents as required by the VSCA and the
GCL (i) there is no legal impediment to the Company's consummation of the
transactions contemplated by this Agreement, and (ii) no filing with, and
no permit, authorization, consent or approval of, any public body or
authority or other third party is necessary for the consummation by the
Company of the transactions contemplated by this Agreement. Except as set
forth on Schedule 3.4, neither the execution and delivery of this Agreement
by the Company nor the consummation by the Company of the transactions
contemplated hereby nor compliance by the Company with any of the pro-
visions hereof will (i) conflict with or result in any violation of any
provision of the Certificate of Incorporation or By-Laws of the Company,
(ii) violate any statute, rule, regulation, order, writ, injunction or
decree of any public body or authority by which the Company or any of its
properties is bound, (iii) 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, cancellation or acceleration)
under any contract, agreement, note, bond, mortgage, indenture, license,
lease, franchise, permit or other instrument or obligation to which the
Company is a party, or by which it or any of its properties is bound.
3.5. Financial Statements and Reports. (a) All forms, reports
and documents filed by the Company with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder
(collectively, the "Company Reports") have complied in all material re-
spects with all applicable requirements of the Securities Act and the Ex-
change Act and such rules and regulations and the Company has made all
filings required pursuant to the applicable requirements of such Acts,
rules and regulations, the Certificate of Incorporation of the Company and
any agreement to which the Company is a party or by which it is bound. The
Company has previously furnished to the Parent accurate and complete copies
of all Company Reports filed with respect to fiscal years 1993 and 1994.
None of the Company Reports, including, without limitation, any financial
statements or schedules included therein, at the time filed, contained any
untrue statement of a material fact or omitted to state a material fact re-
quired to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not mis-
leading. The financial statements of the Company included in the Company
Reports were prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as otherwise noted in such
financial statements) and present fairly the financial position, results of
operations and changes in stockholders' equity of the Company as of the
dates and for the periods indicated.
(b) Schedule 3.5(b) hereto sets forth the Company's financial
statements (including a year-end balance sheet, an annual statement of
income and a statement of stockholders' equity) for the year ended Janu-
ary 28, 1995, each of which has been audited by Ernst & Young, L.L.P. The
financial statements referred to in this Section 3.5(b) (collectively, the
"1994 Financial Statements") are true and complete in all material respects
with respect to each item therein, and have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
(except as otherwise noted in the 1994 Financial Statements) and present
fairly the financial position, results of operations and changes in
stockholders' equity of the Company as of and for the periods indicated.
3.6. Absence of Undisclosed Liabilities. The Company does not
have any liabilities, obligations or contingencies of any nature whatsoever
(whether absolute, accrued, contingent or otherwise), except for
liabilities, obligations or contingencies which are accrued or reserved
against on the face of (and not solely in any notes to) the balance sheet
of the Company included in the 1994 Financial Statements (the "Company
Balance Sheet"), or immaterial liabilities which were incurred after the
date of the Company Balance Sheet in the ordinary course of business.
3.7. Absence of Material Adverse Change. Since January 28,
1995, except as specifically set forth in the Company Reports or in
Schedule 3.7, the Company has not
(a) incurred any material obligations, liabilities or
commitments, whether absolute, accrued, contingent or otherwise
(including, without limitation, liabilities as guarantor or otherwise
with respect to obligations of others),
(b) mortgaged, pledged or subjected to any lien, adverse claim,
lease, security interest or other charge or encumbrance (collectively,
"Liens") any of its material assets, tangible or intangible,
(c) acquired or disposed of any material assets or properties, or
entered into any agreement or other arrangement for any such
acquisition or disposition,
(d) forgiven or cancelled any material debts or claims or waived
any rights of material value,
(e) declared, made, paid or set apart any sum for any dividend or
other distribution to the Company's shareholders or purchased or
redeemed any shares of the Company's capital stock or issued or
granted any option, warrant or right to purchase any such capital
stock, or reclassified the Company's capital stock,
(f) authorized the creation or issuance of or issued, sold or
disposed of or created any obligation to issue, sell or dispose of any
shares of the Company's capital stock of any class, any notes, bonds
or other securities, or any options, warrants or rights to purchase
any such shares, notes, bonds or other securities, or any securities
convertible into or exchangeable for such shares, notes, bonds or
other securities,
(g) increased or committed to increase in any manner the
compensation, bonus or bonus opportunity or fringe benefits of any
Employee or consultant (other than salary or wage increases granted in
the ordinary course of business and consistent with past practice),
entered into, adopted or amended any employment, consulting,
retention, change in control, collective bargaining, bonus or other
incentive compensation, profit-sharing, health or other welfare, stock
option or other equity, pension, retirement, vacation, severance, de-
ferred compensation or other employment, compensation or benefit plan,
policy, agreement, trust, fund or arrangement for the benefit of any
Employee or consultant (whether or not legally binding),
(h) entered into any material transaction or contract other than
in connection with the transactions contemplated hereby,
(i) purchased, sold, assigned, pledged or otherwise transferred
or licensed any material tangible assets or any patent, trademark,
trade name, copyright, license, franchise, design or other intangible
assets or property,
(j) amended its Certificate of Incorporation or By-Laws,
(k) changed any accounting methods or practices, including,
without limitation, any change in depreciation or amortization
policies or rates,
(l) solicited any offer from another person or entity for the
purchase or other acquisition of all or any material part of the
shares or assets of the Company,
(m) suffered any damage, destruction or loss (whether or not
covered by insurance) to the tangible assets of the Company adversely
affecting the financial condition, operations, business or prospects
of the Company,
(n) suffered any strike or other material labor trouble adversely
affecting the financial condition, operations, business or prospects
of the Company, or
(o) suffered any loss of employees or customers that adversely
affects the financial condition, operations, business or prospects of
the Company.
3.8. Finders and Investment Bankers. All negotiations relating
to this Agreement and the transactions contemplated hereby have been
carried on without the intervention of any person acting on behalf of the
Company in such manner as to give rise to any valid claim against the
Parent, the Subsidiary or the Company for any broker's or finder's fee or
similar compensation, except for the fee to be paid by the Company to Wheat
First Butcher Singer on the Closing Date with respect to their delivery of
a fairness opinion in connection with the transactions contemplated hereby.
3.9. Severance, Termination, Change in Control and Similar
Agreements. Except as set forth on Schedule 3.9, the Company is not a
party to or bound by any agreement or arrangement for the benefit of any
current or former employee or director providing for any severance,
termination or retention payments or benefits or for any payments or
benefits payable in connection with or as a result of, directly or
indirectly, any change in control of the Company, and, except as provided
in Section 7.1(d), will not be a party to or bound by any such agreement or
arrangement at the Effective Time.
3.10. Real Property. (a) Schedule 3.10(a) contains a complete
and correct list of all real property and all interests in real property
owned by the Company and used in, held for use in connection with,
necessary for the conduct of, or otherwise material to the Company's
business (collectively, the "Owned Real Property"). Schedule 3.10(a) also
sets forth the address and owner of each parcel of Owned Real Property and
describes all improvements thereon. The Company has good, valid and
marketable fee simple title to the Owned Real Property free and clear of
all Liens, other than (i) Liens existing on the date hereof and specif-
ically identified on Schedule 3.10(a), (ii) statutory Liens of carriers,
warehousemen, mechanics and materialmen incurred in the ordinary course of
business for sums not yet due and payable, (iii) statutory Liens for taxes
(x) not yet due and payable or (y) being contested in good faith by appro-
priate proceedings and, in either case, for which adequate reserves are
being maintained in accordance with generally acceptable accounting
principles, and (iv) other imperfections of title or encumbrances that do
not individually, or in the aggregate, materially impair the continued use
and operation of the assets to which they relate in the conduct of the
Company's business as currently conducted and as contemplated to be
conducted (the items referred to in the foregoing clauses (i) through (iv)
are, collectively, "Permitted Liens").
(b) Schedule 3.10(b) contains a complete and correct list of all
leases, subleases, licenses and occupancy agreements (collectively,
"Leases") pursuant to which the Company is the lessee, sublessee, licensee
or occupant of any real property leased or subleased by the Company and
used in, held for use in connection with, necessary for the conduct of, or
otherwise material to the Company's business (collectively, the "Leased
Real Property"). Schedule 3.10(b) also contains a complete and correct
list of all leases, subleases, licenses and occupancy agreements pursuant
to which the Company is the lessor, sublessor or licensor of any part of
the Leased Real Property or the Owned Real Property (collectively, the
"Other Leases"). Schedule 3.10(b) also sets forth the address, landlord
and tenant for each Lease and each Other Lease. The Company has delivered
to the Parent complete and correct copies of the Leases and the Other
Leases. Each Lease and each Other Lease is legal, valid, binding, en-
forceable and in full force and effect.
(c) The Owned Real Property and the Leased Real Property
(collectively, the "Real Property") constitute all the fee and leasehold
interests in real property used in, held for use in connection with,
necessary for the conduct of, or otherwise material to, the Company's
business.
(d) There are no proceedings in eminent domain or other similar
proceedings pending or threatened affecting any portion of the Real
Property. There exists no writ, injunction, decree, order or judgment
outstanding, nor any litigation pending or threatened, relating to the
ownership, lease, use, occupancy or operation by any person of any Real
Property.
(e) The use and operation of the Real Property in the conduct of
the Company's business does not violate in any material respect any
instrument of record or agreement affecting the Real Property. There is no
violation of any covenant, condition, restriction, easement or order of any
governmental authority having jurisdiction over the Real Property or any
other person entitled to enforce the same affecting the Real Property or
the use or occupancy thereof. The Company enjoys peaceful and undisturbed
possession under the Leases for the Leased Real Property.
(f) The Real Property is in full compliance with all applicable
building, environmental, zoning, subdivision and other land use and similar
applicable laws, codes, ordinances, rules, regulations and orders of
governmental authorities (collectively, the "Real Property Laws"), and the
Company has not received any notice of violation or claimed violation of
any Real Property Law. There is no pending or, or to the best knowledge of
the Company, anticipated change in any Real Property Law that will have or
result in a material adverse effect upon the ownership, alteration, use,
occupancy or operation of the Real Property or any portion thereof. No
current use by the Company of the Real Property is dependent on a
nonconforming use or other governmental approval the absence of which would
materially limit the use of such properties or assets in the Company's
business.
3.11. Title to Personal Property. The Company has good title to
all material tangible assets constituting personal property purported to be
owned by it, including, without limitation, all such personal property
reflected on the Company Balance Sheet or acquired after the date thereof,
and has valid leasehold interests in all material personal property leased
by it, in each case free and clear of all Liens except Liens that are not,
in the aggregate, material to the financial condition, operations, business
or prospects of the Company.
3.12. Litigation. There is not any governmental investigation
or inquiry relating to the Company which is pending and to which the
Company is a party or of which the Company has received notice, nor is the
Company party to any action, suit or proceeding which relates to the
transactions contemplated by this Agreement or would, if adversely deter-
mined, result in any material liability to the Company, nor has the Company
received an actual threat of any such action, proceeding, investigation or
inquiry. No such action, proceeding or, to the best of the Company's
knowledge, investigation or inquiry has been pending at any time since
December 31, 1992. There are no citations, fines or penalties heretofore
asserted against the Company under any federal, state, local or foreign law
which remain unpaid, nor has the Company received any notices or any other
communications since December 31, 1992 from any federal, state, local or
foreign agency or other governmental authority with respect to any material
violations or alleged violations of any federal, state, local or foreign
law or regulation.
3.13. Compliance with Other Instruments and Laws. The Company
is not in violation of or default under any term of (a) its Certificate of
Incorporation or By-Laws, (b) any note, bond, mortgage, indenture,
instrument or agreement relating to indebtedness for borrowed money,
(c) any judgment, decree or order of any court or governmental body, or
(d) except as may be set forth in Schedule 3.13, any other material
contract, agreement, license, lease, franchise, permit or other instrument
or obligation to which it is a party or by which it or any of its
properties or assets is bound. The Company is in compliance in all
material respects with all statutes, laws, ordinances, rules, regulations,
permits, concessions, grants, franchises, licenses or other governmental
authorizations or approvals applicable to the operation of its business.
All permits, concessions, grants, franchises, licenses and other
governmental authorizations and approvals material to the conduct of the
businesses of the Company have been duly obtained and are in full force and
effect. There are no proceedings pending or, to the best of the Company's
knowledge, threatened which may result in the revocation, cancellation,
suspension or materially adverse modification thereof. None of such
permits, concessions, grants, franchises, licenses or other governmental
authorizations and approvals will be affected in a manner that would have a
material adverse effect on the financial condition, operations, business or
prospects of the Company by the consummation of the transactions
contemplated by this Agreement.
3.14. Taxes. The Company has duly and timely filed all federal,
state, local and foreign tax returns required to be filed by or with
respect to the Company or any of its assets or business, and all such
returns are true and correct in all material respects. The Company has
duly and timely paid, collected and withheld all taxes, levies, duties,
imposts, assessments, fees and other governmental charges (including any
interest and penalties thereon and additions thereto) ("Taxes") that are or
may be required to be paid, collected or withheld by or with respect to the
Company or any of its assets or business, except for Taxes not yet due and
for which adequate reserves are being maintained in accordance with
generally accepted accounting principles. Except as set forth on Sched-
ule 3.14, no taxing authority is now asserting or, to the best of the
Company's knowledge, threatening to assert against the Company any
deficiency or claim for Taxes. Except as set forth on Schedule 3.14, the
Company (i) has not granted any waiver of any statute of limitations with
respect to, or any extension of a period for the assessment of, any Tax and
(ii) is not currently under, or has not received notice of commencement of,
any audit by any taxing authority, or is not a party to any judicial
proceeding with respect to Taxes. The provision for Taxes reflected in the
Company Balance Sheet is adequate to cover all Taxes accruable through
January 28, 1995 in accordance with generally accepted accounting prin-
ciples. Except as set forth on Schedule 3.14, there is no contract or
agreement (including Tax sharing, allocation and indemnification
agreements) under which the Company has, or may at any time in the future
have, an obligation to contribute to the payment of any portion of any Tax
(or pay any amount computed by reference to any portion of any Tax).
Except as set forth on Schedule 3.14, the Company has not been a member of
any affiliated, consolidated, combined, unitary or similar group for
purposes of filing Tax returns or paying Taxes at any time. Except as set
forth in Schedule 3.14, no written ruling has been received from, and no
closing or other similar agreement has been executed with, any taxing
authority that is presently binding upon the Company or any of its assets
or business. The Company is not and has not been a "United States real
property holding corporation" (as defined in section 897(c)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")) during the
applicable period specified in section 897(c)(1)(A)(ii) of the Code.
Schedule 3.14 sets forth (A) all states, localities and foreign countries
in which the Company is or may be required to file Tax returns or pay Taxes
and (B) all elections with respect to Taxes presently binding upon the
Company. None of the assets of the Company (x) is property required to be
treated as being owned by any other person under the "safe harbor lease"
provisions of former section 168(f)(8) of the Internal Revenue Code of
1954, as amended, and (y) has been financed with or directly or indirectly
secures any bond or debt the interest on which is tax-exempt under section
103(a) of the Code.
3.15. ERISA. Schedule 3.15 hereto contains a true and complete
list of each "employee benefit plan", as such term is defined in section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and each bonus, incentive or deferred compensation, severance,
termination, retention, change in control, employment, stock option or
other equity-based, performance or other employee or retiree benefit or
compensation plan, trust, fund, program, arrangement, agreement, policy or
understanding, whether written or unwritten, that provides or may provide
benefits or compensation in respect of any employee, former employee,
director or former director of the Company or the beneficiaries or
dependents of any person (such employees, former employees, directors,
former directors, beneficiaries and dependents referred to collectively as
the "Employees") or under which any Employee is or may become eligible to
participate or derive a benefit and that is or has been maintained or
established by the Company or any other trade or business, whether or not
incorporated, which, together with the Company, is or would have been at
any date of determination occurring within the preceding six years, treated
as a single employer under section 414 of the Code (such trades and
businesses referred to as the "Related Persons"), or to which the Company
or any Related Person contributes or is or has been obligated or required
to contribute (collectively, the "Plans"). The Company has not
communicated to any Employee any intention or commitment to modify any Plan
or to establish or implement any other employee or retiree benefit or
compensation arrangement.
Each Plan intended to be qualified under section 401(a) of the
Code, and the trust (if any) forming a part thereof, has received a
favorable determination letter from the IRS as to its qualification under
the Code as currently in effect and to the effect that each such trust is
exempt from taxation under section 501(a) of the Code, and nothing has
occurred since the date of such determination letter that could adversely
affect such qualification or tax-exempt status.
Neither the Company nor any Related Person would be liable for
any material amount pursuant to section 4062, 4063 or 4064 of ERISA if any
Plan that is subject to Title IV of ERISA were to terminate as of the date
hereof. Neither the Company nor any Related Person has been involved in
any transaction that could cause the Company to be subject, directly or
indirectly, to liability under section 4069 or 4212 of ERISA. Neither the
Company nor any Related Person has incurred (either directly or indirectly,
including as a result of any indemnification obligation or joint and sev-
eral liability provision of any applicable law) any material liability
under or pursuant to Title I or IV of ERISA or the penalty, excise tax or
joint and several liability provisions of the Code relating to employee
benefit plans and, to the best knowledge of the Company, no event,
transaction or condition has occurred or exists which could result in any
such liability to the Company. Each of the Plans has been operated and
administered in all respects in accordance with all applicable laws,
including but not limited to ERISA and the Code, except where any such
noncompliance would not result in a material liability to the Company.
There are no material pending or, to the best knowledge of the Company,
threatened claims by or on behalf of any of the Plans, by any Employee or
otherwise involving any such Plan or the assets of any Plan (other than
routine claims for benefits). No Plan is a "multiple employer plan" within
the meaning of section 4063 or 4064 of ERISA or a "multiemployer plan"
within the meaning of section 4001(a)(3) of ERISA. Each Plan that is
subject to the minimum funding standards of ERISA or the Code satisfies
such standards under section 412 and 302 of the Code and ERISA,
respectively, and no such Plan has incurred an "accumulated funding
deficiency" within the meaning of such sections, whether or not waived.
All contributions required to have been made by the Company to any Plan
under the terms of any such Plan or pursuant to any applicable collective
bargaining agreement or applicable law (including, without limitation,
ERISA and the Code) have been made within the earliest time prescribed by
any such Plan, agreement or law. No Employee is or may become entitled to
post-employment benefits of any kind by reason of employment with the
Company, including, without limitation, death or medical benefits (whether
or not insured), other than (i) coverage mandated by section 4980B of the
Code, (ii) retirement benefits payable under any Plan intended to qualify
under section 401(a) of the Code or (iii) deferred compensation adequately
reserved against in the Company Balance Sheet or, to the extent not so
reserved, compensation deferred with respect to services rendered after
January 28, 1995 in the ordinary course of the business of the Company.
The consummation of the transactions contemplated by this Agreement will
not result in an increase in the amount of compensation or benefits or the
acceleration of the vesting or timing of payment of any compensation or
benefits payable to or in respect of any Employee, except as expressly
provided in this Agreement. The Company Balance Sheet will properly and
adequately reflect any and all liabilities and obligations of the Company
relating to any period ending on or prior to the date thereof to or in re-
spect of the Employees or the Plans for (A) unpaid compensation, salaries,
wages, vacation and sick pay, disability payments and other payroll items
(including, without limitation, bonus, incentive and deferred compensation)
and (B) unpaid or unfunded contributions, benefits, costs, Pension Benefit
Guaranty Corporation premiums and expenses to or in respect of any Plan.
3.16. Accounts Receivable. Except to the extent expressly
reserved against in the Company Balance Sheet, the accounts and notes
receivable of the Company reflected on the Company Balance Sheet, and such
additional accounts and notes receivable as are reflected on the books of
the Company on the date hereof, including, without limitation, all customer
accounts receivable, have been collected or are good and collectible, free
and clear of any Liens and have arisen only from bona fide transactions in
the ordinary course of business. The Company has delivered to the Parent
an accurate dating of all accounts receivable as of February 25, 1995.
3.17. Inventories. All inventories reflected on the Company
Balance Sheet are (i) in good, useable and marketable condition, (ii) in
conformity with all applicable specifications and requirements of law,
(iii) free of obsolete items, (iv) in quantities not in excess of normal
operating requirements, and (v) valued on a LIFO basis using the retail
LIFO inventory method of accounting in accordance with generally acceptable
accounting principles consistently applied. No writedown in inventory has
been made or should have been made under such generally accepted accounting
principles.
3.18. Insurance. Schedule 3.18 lists all policies of insurance
covering the Company and its properties as maintained by the Company on the
date hereof. Such policies are in full force and effect and all premiums
due thereon have been paid. The Company has complied in all material
respects with the terms and provisions of such policies. No notice of
termination or premium increase has been received under any of the
policies. The insurance coverage provided by such policies (including,
without limitation, as to deductibles and self-insured retentions) is
adequate and suitable for the business and assets of the Company.
3.19. Intellectual Property. (a) For purposes of this Sec-
tion 3.19, the term "Intellectual Property" means the United States and
foreign trademarks, trade names, trade dress, copyrights, and similar
rights, including registrations and applications to register or renew the
registration of any of the foregoing, the United States and foreign letters
patent and patent applications, and inventions, processes, designs,
formulae, trade secrets, know-how, confidential information, computer
software, data and documentation, and all similar intellectual property
rights, tangible embodiments of any of the foregoing (in any medium
including electronic media), and licenses of any of the foregoing.
(b) Schedule 3.19(b) sets forth a complete and correct list of
all Intellectual Property that is owned by the Company, other than its
computer software (the "Owned Intellectual Property", which term includes
all owned computer software). The Owned Intellectual Property constitutes
all Intellectual Property used or held for use in connection with,
necessary for the conduct of, or otherwise material to the Company's
business, except as set forth on Schedule 3.19(b) and except for computer
software licensed to the Company by third parties. Schedule 3.19(b) sets
forth a complete and correct list of all written or oral licenses and
arrangements (i) pursuant to which the use by any person of Intellectual
Property (other than computer software) is permitted by the Company and
(ii) pursuant to which the use by the Company of Intellectual Property
(other than computer software) is permitted by any person (collectively,
together with any of the foregoing relating to computer software, the
"Intellectual Property Licenses"). Immediately after the Closing, the
Company will have the right to use all Intellectual Property described on
Schedule 3.19(b) and all computer software licensed by the Company and will
own all Owned Intellectual Property, free and clear of Liens. All
Intellectual Property Licenses are in full force and effect in accordance
with their terms, and are free and clear of any Liens. Neither the Company
nor any other party is in default under any Intellectual Property License,
and no such default is currently threatened. The conduct of the Company's
business does not infringe the rights of any third party in respect of any
Intellectual Property, except as set forth on Schedule 3.19(b). Except as
set forth on Schedule 3.19(b), none of the Owned Intellectual Property is
being infringed by third parties. Except as set forth on Schedule 3.19(b),
there is no claim or demand of any person pertaining to, or any proceeding
which is pending or threatened that challenges the rights of the Company in
respect of any Owned Intellectual Property or Intellectual Property
License, or that claims that any default exists under any Intellectual
Property License. Except as set forth on Schedule 3.19(b), the Owned
Intellectual Property has been duly registered with, filed in or issued by,
as the case may be, the United States Patent and Trademark Office and
United States Copyright Office or other filing offices, domestic or
foreign, to the extent necessary or desirable to ensure full protection
under any applicable law, and the same remain in full force and effect.
3.20. Contracts. The Company will make available to the Parent
as soon as practicable following the date of this Agreement complete and
correct copies of all written agreements, contracts and commitments,
together with all amendments thereto, and accurate descriptions of all oral
agreements of the following types to which the Company is a party as of the
date hereof:
(a) Mortgages, etc. Mortgages, indentures, security agreements
and other agreements and instruments relating to the borrowing of
money or advances of credit, to the extent that the amounts payable
thereunder or secured thereby exceed $1,000,000;
(b) Partnership. Partnership or joint venture agreements;
(c) Employment. Employment agreements and consulting
agreements;
(d) Collective Bargaining. Collective bargaining agreements;
(e) Bonus Plans, etc. Bonus, profit sharing, compensation,
stock option, pension, retirement, severance, deferred compensation or
other plans, agreements, arrangements, trusts or funds for the benefit
of employees, including all arrangements subject to ERISA;
(f) Sales Agency, etc. Material sales agency, manufacturer's
representative or distributorship agreements, supply agreements
(including all agreements with Frederick Atkins, Inc.), marketing
agreements, advertising agreements, agreements with outside credit
card companies, licenses and other agreements relating to Intellectual
Property, including all Intellectual Property Licenses;
(g) Capital Expenditures. Agreements or commitments for capital
expenditures in excess of $600,000 for any single project (it being
represented and warranted that all agreements or commitments for
capital expenditures do not exceed $9,300,000 in the aggregate);
(h) Keepwell Agreements. Agreements to provide funds or to make
any investment (in the form of a loan, capital contribution or
otherwise) in any entity or business;
(i) Agreements with Affiliates. Agreements or commitments with
any officer or director of the Company or any person who owns more
than 3% of the issued and outstanding shares of Company Common Stock;
and
(j) Other Agreements. All other agreements, contracts and
commitments (excluding purchase orders and sales orders created in the
ordinary course of business), including, without limitation, real
estate leases, written or oral, to which the Company is a party or by
which any of its properties is bound as of the date hereof, any one
(or series) of which in any way involve payments or receipts of more
than $100,000 in the course of the year following the date hereof, and
all Intellectual Property Licenses.
To the best of the Company's knowledge, all of the agreements,
contracts and commitments of the type referred to in this Section 3.20 are
in full force and effect and the Company has received no written notice of
and does not have actual knowledge of a default or event which, with the
lapse of time or notice, or both, would constitute an event of default
thereunder.
3.21. Suppliers. Schedule 3.21 lists the Company's ten largest
suppliers by dollar amount of purchases during the fiscal year ended Janu-
ary 28, 1995. The Company has not received any written or other notice and
has no reason to believe that any such supplier (i) has ceased or will
cease to do business with the Company, (ii) has materially reduced or will
materially reduce its supply arrangements with the Company or (iii) has
sought or is seeking to materially increase the price it will charge the
Company for the products it supplies to the Company.
3.22. Disclosure. This Agreement and each certificate or other
instrument or document furnished by or on behalf of the Company to the
Parent, the Subsidiary or any agent or representative of the Parent or the
Subsidiary pursuant hereto, or in connection herewith, taken as a whole, do
not contain any untrue statement of material fact, or omit to state a
material fact, required to be stated herein or therein, or necessary to
make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. The Company does
not know of any fact (other than matters of a general economic or political
nature that do not affect its business uniquely) that would reasonably be
expected to have, or result in, a material adverse affect on the Company's
business or prospects.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND THE SUBSIDIARY
The Parent and the Subsidiary each jointly and severally
represent and warrant to the Company as follows:
4.1. Organization. Each of the Parent and the Subsidiary is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware and each has all requisite corporate
power and authority to own, lease and operate its properties and to carry
on its business as now being conducted.
4.2. Authority Relative to this Agreement. Each of the Parent
and the Subsidiary has all requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Parent and the Subsidiary and the consummation by the Parent and the
Subsidiary of the transactions contemplated hereby have been duly and
validly authorized and approved by the Boards of Directors of the Parent
and the Subsidiary, respectively, and by the Parent as the sole stockholder
of the Subsidiary, and, immediately prior to the Effective Time, no other
corporate action or proceedings on the part of the Parent or the Subsidiary
will be necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of the Parent and the Subsidiary and
constitutes a valid and binding agreement of the Parent and the Subsidiary,
enforceable against the Parent and the Subsidiary in accordance with its
terms.
4.3. Consents and Approvals; No Violation. Except for
applicable requirements of the HSR Act and filing and recordation of
appropriate merger documents as required by the GCL and the VSCA, no filing
with, and no permit, authorization, consent or approval of, any public body
or authority is necessary for the consummation by the Parent and the
Subsidiary of the transactions contemplated by this Agreement. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby nor compliance by the Parent or the
Subsidiary with any of the provisions hereof will (a) conflict with or
result in any violation of any provision of the Certificate of Incorp-
oration or By-Laws of the Parent or the Subsidiary, (b) violate any
statute, rule, regulation, order, writ, injunction or decree of any public
body or authority by which the Parent or the Subsidiary or any of their re-
spective properties is bound, or (c) 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, cancellation or acceleration)
under, any contract, agreement, note, bond, mortgage, indenture, license,
lease, franchise, permit or other instrument or obligation to which the
Parent or the Subsidiary is a party, or by which either of them or any of
their respective properties is bound.
4.4. Finders and Investment Bankers. All negotiations relating
to this Agreement and the transactions contemplated hereby have been
carried on without the intervention of any person acting on behalf of the
Parent or the Subsidiary in such manner as to give rise to any valid claim
against the Company for any broker's fee or finder's fee or similar
compensation.
4.5. Litigation. As of the date of this Agreement, there is no
action, proceeding or, to the best of the Parent's knowledge, any
governmental investigation or inquiry pending to which the Parent or the
Subsidiary is a party or of which it has received actual notice which re-
lates to the transactions contemplated by this Agreement, nor, to the best
of the Parent's knowledge, has any such action, proceeding, investigation
or inquiry been threatened.
ARTICLE V
COVENANTS
5.1. Conduct of Business of the Company. Except as specifically
provided in this Agreement or except with the prior written consent of the
Parent, during the period from the date of this Agreement to the Effective
Time, the Company will conduct its operations only in the ordinary and
usual course, and will use its customary and reasonable efforts to preserve
intact its business organizations, to keep available the services of its
officers, employees and consultants and to maintain satisfactory
relationships with licensors, licensees, suppliers, contractors,
distributors, customers and others having business relationships with it.
The Company will promptly advise the Parent in writing of any change in the
financial condition, operations, business or prospects of the Company which
the Company recognizes is or is likely to be materially adverse. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in this Agreement, prior to the Effective Time, the Company will
not without the prior written consent of the Parent:
(a) amend the Company's Certificate of Incorporation or By-Laws;
(b) rescind, modify, amend or otherwise change or affect any of
the resolutions of the Board recommending adoption of this Agreement
and authorization of the Merger; provided, however, that subject to
Section 6.4, the Board may take any such action prior to the
Shareholders' Meeting to the extent (i) the Board deems it necessary
to do so in exercise of its fiduciary obligations to the Company's
shareholders under applicable law after advice of counsel with respect
to such obligations or (ii) the Board determines to proceed with an
initial public offering of the Company Common Stock in lieu of consum-
mating the Merger and the transactions contemplated by this Agreement
and such offering meets the requirements set forth in the proviso to
Section 1.7;
(c) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any shares of stock of any class of the
Company, or any securities convertible into or exchangeable for shares
of such stock, except as required by any outstanding options and
warrants described in Section 3.2(a);
(d) split, combine or reclassify any shares of capital stock of
the Company of any class, declare, set aside or pay any dividend or
other distribution (whether in cash, stock or property or any
combination thereof) in respect of any class of the capital stock of
the Company, or redeem or otherwise acquire any shares of such capital
stock;
(e) (i) except in the ordinary course of business under existing
lines of credit, create, incur, assume, maintain or permit to exist
any long-term debt, including obligations in respect of capital leases
(other than obligations under capital leases existing on the date
hereof) or create, incur, assume, maintain or permit to exist any
short-term borrowing in an aggregate amount for the Company exceeding
$50,000; (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other person; (iii) make any loans, advances or
capital contributions to, or investments in, any other person (other
than customary loans in the ordinary course of business or advances to
employees); or (iv) waive, release, grant or transfer any material
rights or modify or change any existing license, lease, contract or
other document material to the Company;
(f) (i) increase or commit to increase in any manner the
compensation, bonus or bonus opportunity of any Employee or the
benefits, rights or entitlements under any Plan of any Employee,
except in the ordinary course of business and in accordance with its
customary past practices (in which event the Company will consult with
the Parent before taking any such action); (ii) pay or commit to pay
any compensation, bonus, pension or other retirement benefit or
allowance, fringe benefit or other benefit not required by an existing
Plan; (iii) amend or commit to amend any Plan; or (iv) institute or
enter into or commit to institute or enter into any additional bonus,
profit-sharing, incentive, stock option or other equity benefit,
deferred compensation, severance, retention, change in control, pen-
sion, retirement, health, welfare, group insurance or other employee
or retiree benefit plan, agreement, trust, fund or arrangement, or any
additional employment or consulting agreement with or for the benefit
of any person;
(g) except in the ordinary course of business, sell, transfer,
mortgage or otherwise dispose of, or encumber, or agree to sell,
transfer, assign, mortgage or otherwise dispose of or encumber, any
properties, real, personal or mixed;
(h) enter into any other agreements, commitments or contracts
which, individually or in the aggregate, are material to the Company,
except agreements, commitments or contracts for the purchase, sale or
lease of goods or services in the ordinary course of business,
consistent with past practice and not in excess of current
requirements, or otherwise make any material change in the conduct of
the business or operations of the Company;
(i) enter into any agreement, commitment or contract with
respect to the purchase of capital assets involving an amount in
excess of $600,000, in any case or which would cause the Company to
exceed its 1995 fiscal year budget for capital expenditures of
$9,300,000.
(j) enter into any other agreements, leases, commitments or
contracts which individually involve the expenditure of more than
$100,000;
(k) except as specifically permitted in this Agreement,
willfully take any action that would result in the representations and
warranties of the Company contained in this Agreement not being true
and correct on the date made or, except with respect to those
representations and warranties made as of a specified date, on the
Closing Date;
(l) make any new elections, or make any changes to current
elections, with respect to Taxes;
(m) create any subsidiary of the Company whether by acquisition,
merger or otherwise; provided, that if the Parent consents to the
creation of any such subsidiary then any representations or warranties
relating to such subsidiary or the business to be acquired by such
subsidiary made by the seller thereof shall be deemed to be
incorporated herein by reference, with the same force and effect as
the representations and warranties made by the Company in Section 3
hereof; or
(n) enter into any written or oral agreement to do any of the
foregoing.
5.2. Parachute Payments. Prior to the Effective Time, the
Company shall obtain shareholder approval for each payment or benefit
payable to or for the benefit of any person who would be treated as a
"disqualified person" under section 280G(c) of the Code. Such shareholder
approval shall be obtained by the Company in a manner sufficient to satisfy
section 280G(b)(5)(A)(ii) of the Code, such that no payment or benefit may
be treated as a payment described in section 280G(b)(2)(A)(i) of the Code.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1. Proxy Statement; Filings. As promptly as practicable and
in any event within 15 days after the date hereof, the Company shall
prepare, and shall mail to its shareholders, a proxy statement with respect
to the meeting of the Company's shareholders referred to in Section 6.2.
The Parent shall have a reasonable opportunity to review and comment on the
Proxy Statement. The term "Proxy Statement" shall mean such proxy
statement and all related materials at the time the same initially are
mailed to the Company's shareholders and all amendments or supplements
thereto, if any, similarly filed and mailed. As promptly as practicable,
the Company, the Parent and the Subsidiary each shall properly prepare and
file any filings required under the HSR Act, and all other Federal, state,
county, local or municipal law relating to the Merger and the transactions
contemplated herein (the "Filings"). Each of the Parent and the
Subsidiary, on the other hand, and the Company, on the other, shall
promptly notify the other of the receipt of any comments on, or any request
for amendments or supplements to, the Filings by any governmental official,
and each of the Company and Parent will supply the other with copies of all
correspondence between it and each of its subsidiaries and representatives,
on the one hand, and any appropriate governmental official, on the other
hand, with respect to the Filings. The Company, the Parent and the
Subsidiary each shall use its best efforts to obtain and furnish the
information required to be included in the Proxy Statement and any Filings.
The information provided and to be provided by the Parent, the Subsidiary
and the Company, respectively, with respect to itself for use in the Proxy
Statement shall, on the date the Proxy Statement is first mailed to the
Company's shareholders and on the date of the meeting of the Company's
shareholders referred to in Section 6.2 hereof, be true and correct in all
material respects and shall not omit to state any material fact required to
be stated therein or necessary in order to make such information not false
or misleading, and the Parent, the Company and the Subsidiary each agree to
correct promptly any such information provided by it for use in the Proxy
Statement which shall have become false or misleading. The Proxy
Statement, when mailed, and any Filing, when filed, shall comply as to form
in all material respects with all applicable requirements of law.
6.2. Meeting of the Company's Shareholders. The Company shall
take all action necessary in accordance with the VSCA and the Company's
Articles of Incorporation and By-Laws to duly call, give notice of, convene
and hold a meeting of its shareholders within 25 days after the date of the
mailing of the Proxy Statement to consider and vote upon the adoption of
this Agreement and the Merger. At such meeting, all the shares of Company
Common Stock owned by the Parent, the Subsidiary or any subsidiary or
affiliate of the Parent shall be voted in favor of the Merger. The
shareholder vote required for the adoption of this Agreement and the Merger
shall be the vote required by the VSCA and the Company's Articles of
Incorporation, which is 66-2/3%. The Proxy Statement shall contain the
determinations and recommendations of the Board as to the Merger set forth
in Section 1.7 hereof, subject to the Board's fiduciary obligations to the
Company's shareholders under applicable law after advice of counsel with
respect to such obligations.
6.3. Additional Agreements. Subject to the terms and conditions
herein provided and, prior to the Shareholder Meeting, subject to the
fiduciary obligations of the Board under applicable law after advice of
counsel with respect to such obligations, 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 to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement and to cooperate with each other in
connection with the foregoing, including using its best efforts to obtain
all necessary consents, approvals and authorizations as are required to be
obtained under any Federal, state or local law or regulation, to defend all
lawsuits or other legal proceedings challenging this Agreement or the
consummation of the transactions contemplated hereby, to cause to be lifted
or rescinded any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions
contemplated hereby, and to effect all necessary registrations and Filings.
6.4. Fees and Expenses. (a) Whether or not the transactions
contemplated by this Agreement are consummated, all fees, costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby, shall be paid by the party incurring such fees, costs
or expenses, except as set forth in Sections 6.4(b), (c), (d), (e) and (f)
below.
(b) If the Company terminates this Agreement pursuant to Sec-
tion 9.1(d), then the Company shall pay the Parent, which amount shall be
payable in same day funds no later than two business days after the
termination of this Agreement, a fee of $3,450,000 (which includes reim-
bursement of the Parent and the Subsidiary for all of their reasonable
out-of-pocket expenses and fees directly and actually incurred in good
faith by them in connection with the transactions contemplated by this
Agreement, including, without limitation, the financing of the Merger (all
of the foregoing being referred to collectively as the "Expenses")).
(c) If the Parent terminates this Agreement pursuant to Sec-
tion 9.1(b) or Section 9.1(f), then the Company shall reimburse the Parent
and the Subsidiary for all of their Expenses.
(d) If the Company terminates this Agreement pursuant to Sec-
tion 9.1(e), then the Company shall reimburse the Parent and the Subsidiary
for all of their Expenses.
(e) If either the Parent or the Company terminates this
Agreement pursuant to Section 9.1(c) or Section 9.1(h), then the Company
shall reimburse Parent and the Subsidiary for their Expenses. In addition,
if prior to such termination pursuant to Section 9.1(c) or within 12 months
after such termination, the Company receives a proposal from a third party
or parties that contemplates the acquisition of at least a majority of the
stock or assets of the Company on terms more favorable to the shareholders
of the Company than the terms of this Agreement (and no fee has been paid
pursuant to Section 6.4(b)), then the Company shall pay the Parent a fee of
$3,450,000 (less the amount reimbursed to the Parent and the Subsidiary
pursuant to the first sentence of this Section 6.4(e)), which amount shall
be payable in same day funds on the date of the consummation of the
transaction contemplated by such other proposal, regardless of when such
consummation occurs.
6.5. Acquisition Proposals. Neither the Company nor any of its
directors, officers, employees, representatives or agents (collectively,
the "Representatives") shall, directly or indirectly, solicit or initiate
inquiries or proposals from or enter into any agreement with respect to or,
subject to the Board's fiduciary obligations to the Company's shareholders
under applicable law after advice of counsel with respect to such
obligations prior to the Shareholder Meeting, provide any confidential
information to or participate in any discussions or negotiations with, any
corporation, partnership, persons or other entity or group (other than the
Parent and its subsidiaries and their respective directors, officers,
employees, representatives and agents) concerning any sale of material
assets or shares of capital stock of the Company other than in the ordinary
course of business of the Company, or any merger, consolidation or similar
transaction involving the Company; provided, however, that nothing
contained in this Section 6.5 shall prohibit the Company or the Board from
taking prior to the Shareholder Meeting and disclosing to the Company's
shareholders a position which, in the judgment of the Board, after advice
from counsel, is required under applicable law. The Company will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any third parties conducted heretofore
with respect to any of the foregoing. The Company will notify the Parent
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, the Company or any of its
Representatives, and will promptly request each person which has heretofore
executed a confidentiality agreement in connection with its consideration
of an acquisition of the Company or any material portion of its assets or
stock to return or destroy all confidential information furnished to such
person by or on behalf of the Company or any of its Representatives.
6.6. Access to Information; Confidentiality. Between the date
of this Agreement and the Effective Time, the Company will give the Parent
and its authorized representatives access to all plants, offices,
warehouses, stores and other facilities of the Company and to all of its
books and records, will permit the Parent to make such inspections as it
may require and will cause its officers and employees to furnish the Parent
with a copy of each report, schedule and other document filed or received
by it during such period pursuant to the requirements of federal and state
securities laws and such financial and operating data and other information
with respect to the business and properties of the Company as the Parent
may from time to time request. The Parent agrees to be bound by and comply
with all the terms and provisions of the Confidentiality Agreement, dated
as of March 14, 1995, between the Company and Kelso & Company, Inc. (the
"Confidentiality Agreement"), applicable to Kelso & Company, Inc.
thereunder.
6.7. Officers' and Directors' Insurance; Indemnification. The
Parent agrees that for the entire period from the Effective Time until at
least four years after the Effective Time: (a) The certificate of
incorporation and the by-laws of the Surviving Corporation shall contain
the provisions with respect to indemnification and exculpation from
liability set forth in the Company's certificate of incorporation and
by-laws as of the date of this Agreement, which provisions shall not be
amended, repealed or otherwise modified during such period in any manner
that would adversely affect the rights thereunder of individuals who on or
prior to the Effective Time were directors, officers, employees or agents
of the Company, unless such modification is required by law;
(b) The Surviving Corporation shall either (x) maintain in effect
the Company's current directors' and officers' liability insurance covering
those persons who are currently covered on the date of this Agreement by
the Company's directors' and officers' liability insurance policy (a copy
of which has been heretofore delivered to Parent) (the "Company Indemnified
Parties"); provided, however, that (i) in no event shall the Surviving
Corporation be required to expend in any one year an amount in excess of
200% of the annual premiums currently paid by the Company for such
insurance which the Company represents to be $165,000 for the twelve month
period ended May 18, 1995; (ii) if the annual premiums of such insurance
coverage exceed such amount, the Surviving Corporation shall be obligated
to obtain a policy with the greatest coverage available for a cost not
exceeding such amount; and (iii) the Surviving Corporation may substitute
for such Company policy, a policy or policies with at least the same
coverage containing terms and conditions which are no less advantageous to
the Company Indemnified Parties provided that said substitution does not
result in any gaps or lapses in coverage with respect to matters occurring
prior to the Effective Time, or (y) cause the Surviving Corporation's
directors' and officers' liability insurance then in effect to cover those
persons who are covered on the date of this Agreement by the Company's
directors' and officers' liability insurance policy with respect to those
matters covered by the Company's directors' and officers' liability
insurance policy; and
(c) The Surviving Corporation shall indemnify all Company
Indemnified Parties to the fullest extent permitted by applicable law with
respect to all acts and omissions arising out of such individuals' services
as officers, directors, employees or agents of the Company occurring prior
to the Effective Time, including, without limitation, the transactions
contemplated by this Agreement. Without limitation of the foregoing, but
subject to Section 6.7(d), in the event any such Company Indemnified Party
is or becomes involved in any capacity in any action, proceeding or
investigation in connection with any matter, including, without limitation,
the transactions contemplated by this Agreement, occurring prior to, and
including, the Effective Time, the Surviving Corporation, from and after
the Effective Time, will pay as incurred such Company Indemnified Party's
reasonable legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith. Subject
to Section 6.7(d), the Surviving Corporation shall pay all reasonable
expenses, including attorneys' fees, that may be incurred by an Company
Indemnified Party in enforcing this Section 6.7. If the indemnity provided
for in this Section 6.7 is not available with respect to any Company
Indemnified Party, then the Surviving Corporation and the Company
Indemnified Party shall contribute to the amount payable in such proportion
as is appropriate to reflect relative faults and benefits.
(d) Any Company Indemnified Party wishing to claim
indemnification under paragraph (a) or (c) of this Section 6.7, upon
learning of any such claim, action, suit, proceeding or investigation,
shall promptly notify the Surviving Corporation thereof. In the event of
any such claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) the Surviving Corporation shall
have the right, from and after the Effective Time, to assume the defense
thereof and the Surviving Corporation shall not be liable to such Company
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Company Indemnified Parties in
connection with the defense thereof, (ii) the Company Indemnified Parties
will cooperate in the defense of any such matter and (iii) the Surviving
Corporation shall not be liable for any settlement effected without its
prior written consent; and provided, further, that the Surviving
Corporation shall not have any obligation hereunder to any Company
Indemnified Party when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final, that
the indemnification of such Company Indemnified Party in the manner
contemplated hereby is prohibited by applicable law. Notwithstanding
anything to the contrary provided elsewhere herein, the Surviving
Corporation's obligation to provide indemnification pursuant to Sections
6.7(c) and 6.7(d) shall be limited to cover only those amounts not covered
under the Company's directors' and officers' liability insurance policy.
6.8. Monthly Financial Statements. During the period after the
execution of this Agreement and prior to the Closing, the Company shall
provide the Parent, within 30 business days of the end of fiscal February
1995 and thereafter within 20 business days of the end of each fiscal
month, the Company's unaudited balance sheet and income statement for such
fiscal month.
6.9. Public Announcements. The Parent and the Company will
consult with each other before issuing any press release or otherwise
making any public statements with respect to this Agreement or the Merger
and shall not issue any such press release or make any such public
statement prior to such consultation without the consent of the Parent,
except as in the opinion of counsel for the Company or the Parent is
required by law.
6.10. Consent of the Parent. The Parent, as the sole
stockholder of the Subsidiary, by executing this Agreement consents to the
execution, delivery and performance of this Agreement by the Subsidiary,
and such consent shall be treated for all purposes as a vote duly adopted
at a meeting of the stockholders of the Subsidiary held for such purpose.
ARTICLE VII
CLOSING CONDITIONS
7.1. Conditions Precedent to the Obligations of All Parties.
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing of each of the
following conditions:
(a) This Agreement and the Merger shall have been approved and
adopted by the requisite vote of the shareholders of the Company at
the meeting referred to in Section 6.2.
(b) Any waiting period (and any extension thereof) applicable to
the consummation of the Merger under the HSR Act shall have expired or
been terminated.
(c) No preliminary or permanent injunction or other order,
decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission nor
any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority shall be in effect which would
(i) make the acquisition or holding by the Parent or its affiliates of
the shares of Company Common Stock illegal or (ii) otherwise prevent
the consummation of the Merger.
(d) The Company and each of the individuals listed on Sched-
ule 7.1(d) hereto shall have entered into Change of Control Agreements
containing terms and conditions reasonably satisfactory to each of the
parties hereto.
7.2. Additional Conditions to the Obligation of the Company.
The obligation of the Company to effect the Merger is also subject to each
of the following conditions:
(a) Each of the Parent and the Subsidiary shall have performed
in all material respects each obligation to be performed by it
hereunder on or prior to the Closing.
(b) The representations and warranties of the Parent and the
Subsidiary set forth in this Agreement shall be true and correct at
and as of the Effective Time as if made at and as of such time, except
to the extent that any such representation or warranty is made as of a
specified date (in which case such representation or warranty shall
have been true and correct as of such date).
(c) The Company shall have received a certificate, dated the
Closing Date, of the President or any Vice President of the Parent to
the effect that the conditions specified in paragraphs (a) and (b) of
this Section 7.2 have been fulfilled.
(d) The Company shall have received the opinion of Debevoise &
Plimpton, counsel to the Parent and the Subsidiary, addressed to them
and dated the Closing Date, as to such items and in such form and
substance as are reasonably requested by the Company.
7.3. Conditions Precedent to Obligations of the Parent and the
Subsidiary. The obligations of the Parent and the Subsidiary to effect the
Merger shall be subject to the fulfillment at or prior to the Effective
Time of the following additional conditions:
(a) The Company shall have performed in all material respects
each of its obligations under this Agreement required to be performed
by it on or prior to the Effective Time pursuant to the terms hereof.
(b) The representations and warranties of the Company contained
in this Agreement, including, without limitation, those incorporated
by reference by operation of Section 5.1(m), shall be true and correct
when made and at and as of the Effective Time as if made at and as of
such time, except to the extent that any such representation or
warranty is made as of a specified date (in which case such
representation or warranty shall have been true and correct as of such
date).
(c) There shall not have occurred after the date hereof any
material adverse change in the financial condition, results of
operations, business or prospects of the Company.
(d) The Company shall not have received notice from the holders
of Dissenting Shares equal to more than five percent (5%) of the
Company Common Stock outstanding immediately prior to the Closing.
(e) The Parent shall have received a certificate, dated the
Closing Date, of the President of the Company to the effect that the
conditions specified in paragraphs (a), (b), (c) and (d) of this Sec-
tion 7.3 have been fulfilled.
(f) There shall not be any action or proceeding commenced by or
before any court or governmental agency or authority in the United
States, or threatened by any governmental agency or authority in the
United States, that challenges the consummation of the Merger or seeks
to impose material limitations on the ability of the Parent to exer-
cise full rights of ownership of any of the material assets or
business of the Company or seeks material damages from the Company in
connection with such ownership.
(g) All necessary third-party consents relating to the
transactions contemplated by this Agreement shall have been obtained.
(h) The Parent and the Subsidiary shall each have received the
opinion of McGuire Woods Battle & Boothe LLP, counsel to the Company,
addressed to them and dated the Closing Date, as to such items and in
such form and substance as are reasonably requested by the Parent.
(i) The Parent and the Subsidiary shall have obtained
$115 million of financing pursuant to loan documentation reasonably
satisfactory to the Parent in order to enable the Parent to perform
all of its obligations under this Agreement, including without
limitation, its obligations under Article II of this Agreement.
(j) The Parent shall be satisfied with the results of its
environmental due diligence of all of the Owned Real Property and the
Leased Real Property.
(k) The Company Option Plan and all outstanding options issued
thereunder shall have been terminated without liability to the
Company.
(l) The Parent shall have received a certificate from the
Company, dated the Closing Date and sworn to under penalty of perjury,
stating that it is not a "United States real property holding
corporation" within the meaning of section 897(c)(2) of the Code, such
certificate to be in the form set forth in the Treasury regulations.
(m) Each of the Change of Control Agreements listed on Schedule
3.7 shall have been terminated without any liability to the Company.
ARTICLE VIII
CLOSING
8.1. Time and Place. The closing of the Merger (the "Closing")
shall take place at the offices of Debevoise & Plimpton, 875 Third Avenue,
New York, N.Y. 10022, at 10:00 a.m., local time, as soon as practicable
following satisfaction of the closing conditions set forth in Article VII.
The date on which the Closing actually occurs is herein referred to as the
"Closing Date."
8.2. Filings at the Closing. At the Closing, the Parent and the
Company shall (i) cause the Certificate of Merger to be filed and recorded
in accordance with the provisions of Section 103 of the GCL, (ii) cause the
Articles of Merger to be filed and recorded in accordance with Sec-
tion 13.1-720 of the VSCA and (iii) take any and all other lawful actions
and do any and all other lawful things necessary to cause the Merger to
become effective.
ARTICLE IX
TERMINATION AND ABANDONMENT
9.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by mutual consent of the Board of Directors of the Parent and
the Board of Directors of the Company;
(b) by either the Parent or the Company if the Merger shall not
have been consummated on or before June 2, 1995; provided, however,
that the right to terminate this Agreement shall not be available to
any party whose failure to fulfill any obligation of this Agreement
has been the cause of, or resulted in, the failure of the Merger to
have occurred on or before the aforesaid date;
(c) by either the Parent or the Company, if at the Shareholder
Meeting (including any adjournment thereof) this Agreement or the
Merger shall fail to be approved by the requisite vote of the
shareholders of the Company under the VSCA;
(d) by the Company, if prior to the approval of the Merger by the
shareholders at the Shareholder Meeting, the Board of Directors in the
exercise of its fiduciary duty shall have withdrawn or modified, in a
manner adverse to the Parent and the Subsidiary, its approval or
recommendation of the Merger or this Agreement;
(e) by the Company, if prior to the approval of the Merger by the
shareholders of the Company at the Shareholder Meeting, the Board of
Directors determines in good faith to proceed with a registered
initial public offering of the Company Common Stock in lieu of
consummating the Merger and the transactions contemplated under this
Agreement and such offering meets the requirements set forth in the
proviso to Section 1.7;
(f) By the Parent, if the Company shall have materially breached
any of its covenants herein or if the Company shall have made a
material misrepresentation or if the Parent is not satisfied with the
results of its environmental due diligence as set forth in pursuant to
Section 7.3(j);
(g) by the Company, if either the Parent or the Subsidiary shall
have materially breached any of its covenants herein or if either the
Parent or the Subsidiary shall have made a material misrepresentation
herein; or
(h) by either the Parent, the Subsidiary or the Company, if any
court of competent jurisdiction or other governmental agency of
competent jurisdiction shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting
the Merger, and such order, decree, ruling or other action shall have
become final and non-appealable.
9.2. Procedure and Effect of Termination. In the event of
termination and abandonment of the Merger by the Parent, the Subsidiary or
the Company pursuant to Section 9.1, written notice thereof shall forthwith
be given to the other parties hereto and this Agreement shall terminate and
the Merger shall be abandoned, without further action by any of the parties
hereto. The Subsidiary agrees that any termination by the Parent shall be
conclusively binding upon it, whether given expressly on its behalf or not,
and the Company shall have no further obligation with respect to it. If
this Agreement is terminated as provided herein, no party hereto shall have
any liability or further obligation to any other party to this Agreement
except that any termination shall be without prejudice to the rights of any
party hereto arising out of a breach by any other party of any covenant or
agreement contained in this Agreement, and except that the provisions of
Section 6.4 and 6.6(b) shall survive such termination.
ARTICLE X
MISCELLANEOUS
10.1. Amendment and Modification. Subject to applicable law,
this Agreement may be amended, modified or supplemented by mutual agreement
of the Parent, the Subsidiary and the Company at any time before or after
approval hereof by the shareholders of the Company; provided, however, that
after any such shareholder approval, no amendment shall be made which
changes the consideration to be received by such shareholders in the Merger
or in any way materially and adversely affects the rights of such share-
holders without the further approval or consent of such shareholders owning
of record in the aggregate in excess of 66-2/3% of the issued and outstanding
shares of Company Common Stock. This Agreement may not be amended except
by an instrument in writing signed by each of the parties hereto.
10.2. Waiver of Compliance; Consents. Any failure of the Parent
or the Subsidiary, on the one hand, or the Company, on the other hand, to
comply with any obligation, covenant, agreement or condition herein may be
waived by the Company or the Parent, respectively, only by a written in-
strument signed by the party granting such waiver (provided that subsequent
to any approval hereof by the shareholders of the Company, the approval or
consent of shareholders owning of record in the aggregate in excess of
66-2/3% of the issued and outstanding shares of Company Common Stock shall be
obtained if such waiver materially and adversely affects the rights of the
Company's shareholders), but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits consent by or
on behalf of any party hereto, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set
forth in this Section 10.2. The Subsidiary hereby agrees that any consent
or waiver of compliance given by the Parent hereunder shall be conclusively
binding upon it, whether given expressly on its behalf or not.
10.3. Investigations; Survival of Warranties. The respective
representations and warranties of the Parent, the Subsidiary and the
Company contained herein or in any certificates or other documents
delivered prior to or at the Closing shall not be deemed waived or
otherwise affected by any investigation made by any party hereto. Each and
every such representation and warranty shall expire with, and be terminated
and extinguished by, the Merger, or the termination of the Merger pursuant
to Section 9.1. This Section 10.3 shall have no effect upon any other
obligation of the parties hereto to be performed before the Effective Time.
10.4. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or
mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice; provided that notices of a change of
address shall be effective only upon receipt thereof):
(a) if to the Parent or the Subsidiary, to:
PHC Retail Holding Corp.
c/o Kelso & Company
350 Park Avenue
New York, New York 10022
Attention: James J. Connors, II, Esq.
(b) if to the Company, to:
Peebles Inc.
One Peebles Street
South Hill, Virginia 23970
Attention: Mr. Michael F. Moorman
with a copy to:
McGuire Woods Battle & Boothe
One James Center
901 East Cary Street
Richmond, Virginia 23219
Attention: Wellford L. Sanders, Jr., Esq.
10.5. Assignment; Parties in Interest. This Agreement and all
of the provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns,
but neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties, provided that the Parent or the
Subsidiary may assign its respective rights and obligations to any direct
or indirect subsidiary of the Parent, but no such assignment shall relieve
the Parent of its obligations hereunder. This Agreement is not intended to
confer upon any other person except the parties hereto any rights or
remedies hereunder.
10.6. Governing Law. This Agreement shall be governed by the
laws of the State of New York (regardless of the laws that might otherwise
govern under applicable principles of conflicts of law) as to all matters,
including, but not limited to, matters of validity, construction, effect,
performance and remedies.
10.7. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
10.8. Interpretation. The article and section headings
contained in this Agreement are solely for the purpose of reference, are
not part of the agreement of the parties and shall not in any way affect
the meaning or interpretation of this Agreement. As used in this
Agreement, (a) the term "person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof; (b) the
terms "affiliate" and "associate" shall have the meanings set forth in Rule
l2b-2 of the General Rules and Regulations promulgated under the Exchange
Act; and (c) the term "subsidiary" of any specified corporation shall mean
any corporation of which the outstanding securities having ordinary voting
power to elect a majority of the board of directors are directly or
indirectly owned by such specified corporation.
10.9. Entire Agreement. This Agreement, including the documents
and instruments referred to herein, together with the Confidentiality
Agreement, embodies the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, representations, warranties, covenants or
undertakings, other than those expressly set forth or referred to herein or
in the Confidentiality Agreement. This Agreement, together with the
Confidentiality Agreement, supersedes all prior agreements and understand-
ings between the parties with respect to such subject matter.
IN WITNESS WHEREOF, the Parent, the Subsidiary and the Company
have caused this Agreement to be signed by their respective duly authorized
officers on the date first above written.
PHC RETAIL HOLDING COMPANY
By
Title:
PEEBLES ACQUISITION CORP.
By
Title:
PEEBLES INC.
By
iii
PEEBLES INC.
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
1. NAME. The name of the Corporation is Peebles Inc.
2. THE AMENDMENT. The Amendment, a copy of which is attached hereto
as Exhibit "A", adds a new Article X to the Articles of Incorporation which
requires the provision of certain specified financial information to the
Corporation's shareholders under certain circumstances.
3. BOARD ACTION. At a meeting of the Board of Directors held on
January 22, 1992, the Board of Directors found the Amendment to the
Articles of Incorporation to be in the best interest of the Corporation and
directed that it be submitted to a vote of the shareholders at the next
regularly scheduled meeting of shareholders.
4. SHAREHOLDER ACTION.
(a) Notice of the meeting, together with a copy of the proposed
Amendment, was given in the manner prescribed by the Virginia Stock
Corporation Act to all shareholders of record entitled to such notice.
(b) On the record date, the total number of shares of Common
Stock outstanding and entitled to vote on the Amendment was 2,913,562.
(c) On April 21, 1993, the meeting of shareholders was held and
the Amendment proposed by the Board of Directors was adopted.
(d) The total number of votes cast FOR the Amendment was
2,098,297 and AGAINST the Amendment was 0. The number of votes cast for
the Amendment was sufficient for its approval.
Dated: April 21, 1993
PEEBLES INC.
By: /s/ Michael F. Moorman
Michael F. Moorman, Chairman of the
Board, President and Chief Executive
Officer
<PAGE>
EXHIBIT A
ARTICLE X
PROVISION OF FINANCIAL STATEMENTS
10.1 Within 60 days after the end of each of the first
three quarters of each of the Corporation's fiscal
years, the Corporation shall mail to each holder
of record of shares of the Corporation's common
stock, a balance sheet of the Corporation as of
the end of such quarter and related statements of
income and cash flows for such quarter and for the
portion of the Corporation's fiscal year ended at
the end of such quarter.
10.2 Within 120 days after the end of each fiscal year
of the Corporation, the Corporation shall mail to
each holder of record of shares of the
Corporation's common stock, a balance sheet of the
Corporation as of the end of such fiscal year and
the related statements of income and cash flows
for such fiscal year.
10.3 The obligations of the Corporation pursuant to
Section 10.1 and 10.2 of this Article X shall be
automatically suspended during any period in which
the Corporation is required or elects to file
periodic reports with the Securities and Exchange
Commission pursuant to the Securities Exchange Act
of 1934, as amended.
10.4 The provisions of this Article X may be amended or
repealed only by the affirmative vote of the
owners of greater than or equal to 75% of the
outstanding shares of the Corporation's common
stock.
STANDARD SERVICE AGREEMENT
Standard Service Agreement, dated January 17, 1995, between
FREDERICK ATKINS, INCORPORATED, a New York corporation ("Atkins")
and PEEBLES INC., a domestic corporation (the "Shareholder").
WHEREAS, Atkins is in the business of providing its
shareholders with various merchandising services, all as more
fully set forth herein; and
WHEREAS, the Shareholder is or desires to become a
shareholder of Atkins subject to the terms and conditions set
forth herein in order to avail itself of the merchandising
services provided by Atkins; and
WHEREAS, Atkins desires to provide such merchandising
services to the Shareholder.
NOW, THEREFORE, Atkins and the Shareholder, intending to be
legally bound, hereby agrees as follows:
ARTICLE ONE
DEFINITIONS
1.01 Board of Directors shall mean the Board of Directors of
Atkins.
1.02 Class A Stock shall mean Class A stock of Atkins.
1.03 Class B Stock shall mean Class B stock of Atkins.
1.04 Director shall mean a member of the Board of Directors.
1.05 Executive Committee shall mean the executive committee
of the Board of Directors.
1.06 Good Standing shall mean being current in all payments
and obligations owing to Atkins, including, but not limited to:
Import Deposits, Past Due Deposits, purchases of Class A Stock
and Class B Stock, the Standard Service Fee and all other
expenses and charges owing to Atkins.
1.07 Import Deposit shall mean such sum as is periodically
determined by Atkins in its reasonable discretion that adequately
protects Atkins for all non-domestic (located outside of the
United States of America) purchases ordered, or to be ordered, by
the Shareholder from Atkins or involving Atkins letters of
credit, open account or otherwise.
1.08 Import Deposit System shall mean that program pursuant
to which the Shareholder must pay all required Import Deposits to
Atkins.
1.09 Net Sales shall be deemed to include all sales derived
from any sources whatsoever, including owned departments, leased
departments, cost departments, alterations, work rooms, contract
departments, restaurants, employees' cafeterias, soda fountains,
etc.; provided, however, that no net sales from leased
departments aggregating more than ten percent (10%) of the
Shareholder's total net sales for the annual period shall be
included in net sales for fee determination purposes pursuant to
Article Six hereof.
1.10 Overseas Offices shall mean all offices and agencies of
Atkins not located in the United States of America.
1.11 Past Due Deposit shall mean an amount equal to one-
hundred percent (100%) of the Shareholders's unpaid balance of
Atkins invoices over thirty (30) days past due.
1.12 Shareholder shall mean the undersigned, together with
its affiliated entities set forth on Exhibit A hereto. Set forth
in Exhibit B hereto is a list of all affiliated entities of the
Shareholder not listed on Exhibit A hereto (including all
entities controlled by, controlling or under common control with,
the Shareholder). The Shareholder represents and warrants to
Atkins that none of the affiliated entities listed on Exhibit B
hereto (as the same may be amended from time to time) utilizes
Atkins' services or receives any information or data disseminated
by Atkins ("Distributed Information") and shall continue to
refrain from using Atkins' services or receiving any Distributed
Information until such time as the Shareholder notifies Atkins
otherwise and Atkins consents to providing services and
information to such affiliated entities. The Shareholder agrees
to update each of Exhibit A and Exhibit B on or before January
1st of each year and upon the written request of Atkins.
1.13 Standard Service Fee shall mean the fee set forth in
Section 6.03 of this Agreement.
ARTICLE TWO
PURCHASE OF STOCK
2.01 Purchase of Class A Stock. Atkins hereby agrees to
sell, and the Shareholder hereby agrees to purchase, N/A shares
of Class A Stock for a purchase price of $ N/A per share (the
"Class A Purchase Price")*. The Shareholder acknowledges that
the foregoing amount of Class A Stock to be purchased and the
Class A Purchase Price was determined on the following basis:
five (5) shares for each full $1,000,000 of the Shareholder's Net
Sales for its year ending on or about the January 31st
immediately prior to the date of this Agreement; Class A Purchase
Price being the book value thereof as determined in the
reasonable discretion of Atkins' auditors on the basis of assets
represented by capital and surplus, excluding any goodwill that
may be on Atkins' books, as of the close of Atkins' fiscal year
immediately preceding that in which this Agreement is executed.
2.02 Purchase of Class B Stock. Atkins agrees to sell, and
the Shareholder agrees to purchase, N/A shares of Class B Stock
for a purchase price of $1.00 per share*. The Shareholder
acknowledges that the foregoing amount of Class B Stock was
determined on the following basis; one (1) share of Class B Stock
for each full $500,000 of the Shareholders' Net Sales for the
year ending on or about the January 31st immediately prior to the
date of this Agreement.
2.03 Purchase of Additional Stock. Atkins agrees to sell,
and the Shareholder agrees to purchase: (i) fifty (50) additional
shares of Class A Stock and twenty (20) additional shares of
Class B Stock if and when the Shareholder's annual Net Sales
increase to a level which is $25 million per year in excess of
the annual Net Sales for the year ended on or about January 31,
1989; and, thereafter, (ii) fifty (50) additional shares of Class
A Stock and twenty (20) additional shares of Class B Stock at the
end of each year during which the Shareholders' Net Sales have
cumulatively increased by an additional $25 million. Such
additional purchase or purchases of Class A Stock shall be made
at a price per share based on the book value of Class A Stock,
determined in accordance with Section 2.01 above, as of the close
of Atkins' fiscal year immediately preceding the year in which
such increase in the Shareholder's annual Net Sales occurs. The
purchase price of the Class B Stock shall be $1.00 per share.
The Shareholder shall not be required to purchase additional
shares of either Class A Stock or Class B Stock after the
Shareholder has given notice of termination of this Agreement
pursuant to Section 9.01 hereof.
_____________________
* See Addendum for existing shareholders.
2.04 Payment For Additional Stock. The purchase price for
such additional Class A Stock and Class B Stock shall be paid to
Atkins not later than thirty (30) days after the date that the
Shareholder's Net Sales for the year have been established.
2.05 Maximum Stock Purchase. When the Shareholder has
purchased a total of 1,200 shares of Class A Stock and 480 shares
of Class B Stock, no additional purchases will be required.
2.06 Delivery of Shareholder's Financial Statements. The
Shareholder shall deliver to Atkins within ninety (90) days after
the end of each of its fiscal years, a consolidated balance sheet
and consolidated statements of income and stockholders' equity
showing the financial condition of the Shareholder and its
consolidated subsidiaries as at the close of such year and the
results of operations during such year, all certified by
independent public accountants of recognized standing and
prepared in accordance with Generally Accepted Accounting
Principles, together with a copy of the Shareholder's auditor's
management letter, if any.
2.07 Shareholder's Stock. The Shareholder hereby grants
Atkins the right to set-off the value of any and all of the
Shareholder's Class A Stock and Class B Stock at any time without
notice against any debt or other obligation owed by the
Shareholder to Atkins.
ARTICLE THREE
SERVICES
3.01 Services to be Rendered by Atkins. Atkins agrees to
furnish to the Shareholder all or such of the following available
services as the Shareholder may reasonably request, provided that
the Shareholder is in Good Standing:
(a) A broad range of information, including market
coverage, fashion reporting, advertising and sales
promotion, marketing and research, direct mail, personnel and
training;
(b) Access to the full range of programs, services and
functions carried on from time to time by Atkins and its
related companies, including: (i) all programs of Frederick
Worldwide Company, a division of Atkins; (ii) direct store
import activities through Atkins; (iii) exchange of
operating information with participating shareholders of
Atkins through performance measurement statistics programs;
(iv) United States or Overseas Offices or agents operated or
used by Atkins; (v) catalogue and statement enclosure
projects; and (vi) private label programs and use of Atkins'
trademarks in this connection;
(c) Accompanying the Shareholder's buyers in the New York
market and advising them regarding buying plans and
programs;
(d) The placing of individual purchase orders for the
account of the Shareholder and reporting on the status thereof;
and
(e) Office space, which will be assigned to the Shareholder
in the Atkins office for purposes of meetings, displays and
buying needs of the Shareholder, together with access to
Atkins' general office space and facilities.
3.02 Availability of Services. During the term of this
Agreement, subject to the Shareholder remaining in Good Standing,
Atkins will make available to the Shareholder its full services
as set forth in Section 3.01 herein on the same basis, or an
equivalent alternative thereof.
ARTICLE FOUR
OVERSEAS OFFICES; PURCHASES;
SHAREHOLDER'S LETTERS OF CREDIT
4.01 Use of Overseas Offices. The Shareholder agrees to
commence use of Atkins' Overseas Offices within one (1) year
after becoming a shareholder. If the Shareholder makes any
direct import purchases without the assistance of Atkins, the
Shareholder, unless it has given prior written notice to Atkins,
shall exclusively use Atkins' Overseas agents for any and all
such purchases.
4.02 Use of Atkins' Letters of Credit/Open Account. The
Shareholder agrees that when the Shareholder's own direct import
purchases are handled through use of Atkins' letters of credit,
open accounts or otherwise, with Atkins acting as the
Shareholder's agent even though Atkins is the importer of record,
the Shareholder will indemnify Atkins from any and all
liabilities, losses, costs, damages, penalties and expenses of
any kind, including reasonable attorneys' fees ("Indemnified
Costs"), incurred by Atkins arising out of such import
transaction or the use by anyone of such imported merchandise,
except if such Indemnified Costs are incurred by Atkins as a
result of Atkins' gross negligence or willful misconduct. The
Shareholder agrees to pay to Atkins all such Indemnified Costs
within ten (10) days of notice from Atkins requesting
indemnification therefor.
4.03 Required Letters of Credit. Atkins may, at any time and
without any notice, refuse to accept any order for the purchase
of domestic or imported goods placed by the Shareholder unless
the Shareholder shall deliver to Atkins an irrevocable commercial
letter of credit in favor of Atkins issued by a bank reasonably
acceptable to Atkins in such amount as Atkins deems reasonably
necessary to adequately protect Atkins for all purchases made or
to be made by the Shareholder.
ARTICLE FIVE
POLICIES AND AMENDMENTS
5.01 Policies. The Shareholder agrees to abide by Atkins'
policies and procedures, as such may be amended from time to
time, in its relationship with Atkins and with other shareholders
of Atkins and to participate in Atkins' service-functions and
activities in a manner consistent with loyal membership.
5.02 Amendments. Except as to the Articles hereinafter
specified, any provision of this Agreement may be amended or
revised by: (i) a vote of a majority of the full Board of
Directors or (ii) an affirmative vote of the holders of at least
a majority of the total number of outstanding shares of Class B
Stock entitled to vote, but only if any such amendment or
revision by its terms is made effective as to all shareholders of
Atkins covered by a Standard Service Agreement substantially
similar to this Agreement. However, no amendment or revision
conflicting with or superseding: (i) Article Nine (Termination);
(ii) Article Two (Purchase of Stock); or (iii) Article Ten
(Restrictions on Stock; Repurchases by Atkins), shall become
effective without the written consent of the Shareholder.
ARTICLE SIX
FEES
6.01 Fees for Services. The Shareholder agrees to pay the
Standard Service Fee to Atkins in payment of the services to be
rendered to the Shareholder (and without regard to the extent to
which the Shareholder calls upon Atkins for such services, if at
all) based on the Shareholder's estimated Net Sales, adjusted for
the actual current Net Sales, all as more particularly set forth
below.
6.02 Notification of Net Sales. Not later than February 15th
of each year, the Shareholder shall notify Atkins of the
Shareholder's estimated Net Sales for the annual period ending
nearest to the 31st of the following January and of the
Shareholder's actual Net Sales for the annual period ending
nearest to the 31st of the immediately preceding January.
6.03 Payment of Fee. Commencing in April of each year, the
Shareholder shall pay Atkins a fee (the "Standard Service Fee")
based on its current estimated Net Sales as determined in Section
6.02 above. The current Standard Service Fee schedule is set
forth in Exhibit C annexed hereto and is subject to modification
as set forth in Section 6.04. In the succeeding March, Atkins
shall credit the Shareholder's account, or charge the
Shareholder, for any amount required to conform the Standard
Service Fee to the Shareholder's actual Net Sales for the
preceding annual period. The Shareholder shall pay its Standard
Service Fee, computed as above provided, on or before the 10th
day of each month, in equal installments (or, if the Shareholder
is on a 4-5-4 calendar, on or before the 10th day after the end
of each monthly period, in adjusted installments).
6.04 Modification of Standard Service Fee. Notwithstanding
anything in this Agreement, either the Board of Directors or the
Executive Committee may, in its reasonable discretion, at any
time or from time to time, increase or decrease the rate of the
Standard Service Fee, either on a fixed basis or on a sliding
scale, for all or such part of a fiscal year as it deems
advisable, and Atkins shall in such event immediately notify each
shareholder of such change and the effective date thereof.
6.05 Termination in Event of Change of Standard Service Fee.
If a new rate of Standard Service Fee becomes effective, a
shareholder dissenting from the change shall be entitled to
terminate this Agreement as provided in Article Nine. In such
case the Shareholder shall continue to pay the Standard Service
Fee at the rate in force prior to the new rate during the period
provided in Article Nine.
6.06 Standard Service Fee for Separate Stores. When
separate stores, in any, of the Shareholder are operated in a
sufficiently autonomous manner so as to require, in the
reasonable judgment of the Board of Directors, the performing of
substantial separate services by Atkins for such stores, the
Shareholder may be required by the Board of Directors to pay an
amount, determined by the Board of Directors on an equitable
basis, for any or all of such separate stores.
6.07 Failure To Pay Standard Service Fee. If the
Shareholder shall fail to pay the Standard Service Fee within ten
(10) days after the date it is due, Atkins may, in its reasonable
discretion, cease providing any and all services to the
Shareholder, including, but not limited to, those services set
forth in Article Three of this Agreement, and such failure shall
constitute grounds for termination of this Agreement by Atkins.
ARTICLE SEVEN
CHARGES
7.01 Office Space. The Shareholder, in addition to the
Standard Service Fee set forth in Article Six, will be charged
for the office space assigned to it, the amount of such charge to
be based on the current rate per square foot, plus electricity
and yearly escalation charges for building operating costs and
real estate taxes.
7.02 Additional Services. Atkins may render to the
Shareholder and to other Atkins' shareholders, at their request,
certain services (including, but not limited to, some of those
referred to in Section 3.01), of such kind and nature as may
require an additional charge. The cost of such services shall be
allocated and charged in whole or in part to the Shareholder and
other participating shareholders, the manner of such allocation
to be determined on an equitable basis in the reasonable judgment
of the Board of Directors or the Executive Committee.
7.03 Expenses. All expenses and charges incurred by Atkins
for the account of the Shareholder, including, without
limitation, communications charges, and any other expenses
incurred at the request of the Shareholder, shall be paid by the
Shareholder according to the terms shown on the invoices
forwarded to the Shareholder.
7.04 Failure to Pay Expenses and Charges. If the
Shareholder shall fail to pay any expense or charges set forth in
Sections 7.01, 7.02 and 7.03 when due, Atkins may, in its
reasonable discretion, cease providing any and all services to
the Shareholder, including, but not limited to, those services
set forth in Article Three of this Agreement, and such failure
shall constitute grounds for termination of this Agreement by
Atkins.
ARTICLE EIGHT
DEPOSITS
8.01 Import Deposit System. The Shareholder agrees to
participate in the Import Deposit System and to make its full
share of Import Deposits as determined periodically by Atkins,
based on the ratio of the Shareholder's prior year import
purchased through Atkins to the total import purchased therefrom
of all shareholders, and, in the case of the Shareholder's first
year, based on the current year's projection of import purchases.
8.02 Past Due Invoice Deposit. The Shareholder agrees to
pay all invoices of Atkins according to the terms shown on such
invoices. If the Shareholder has an unpaid balance over thirty
(30) days past due, the Shareholder agrees to make a Past Due
Deposit. The Shareholder agrees to adjust such Past Due Deposit
as of the end of each month. In addition to the Shareholder's
obligation to make a Past Due Deposit, interest equal to the
prime rate plus one percent (1%) will be assessed on the
shortfall of any Past Due Deposit which is not paid to Atkins
within five (5) business days after Atkins requests payment of
the Past Due Deposit. The Shareholder's failure to make the Past
Due Deposit shall constitute grounds for termination of this
Agreement by Atkins.
8.03 No Offset. Any deposit under this Agreement may not be
used by the Shareholder to offset amounts owed by the Shareholder
to Atkins, but, subject to Section 8.04, excess Past Due Deposits
will be returned to the Shareholder after the Shareholder remains
current on all of its payments to Atkins for thirty (30)
consecutive days.
8.04 Security Interest. Shareholder hereby irrevocably
grants Atkins a security interest in any and all such Import
Deposits and Past Due Deposits and Atkins shall have the right to
set-off any and all such Import Deposits and Past Due Deposits at
any time without notice against debt owed by the Shareholder to
Atkins.
8.05 Failure to Pay Expenses and Charges. If the
Shareholder shall fail to timely pay any and all Import Deports
and/or Past Due Deposits when due, Atkins may, in its reasonable
discretion, cease providing any and all services to the
Shareholder, including, but not limited to, those services set
forth in Article Three of this Agreement, and such failure shall
constitute grounds for termination of this Agreement by Atkins.
ARTICLE NINE
TERMINATION
9.01 Termination of Agreement. The Shareholder may
terminate this Agreement at the end of any calendar month by
giving at least 18 months prior written notice to Atkins, such
notice to be deemed given only when delivered in person to an
officer of Atkins or mailed by registered mail to Atkins
(notwithstanding the provisions of Section 11.01). Except as
otherwise provided in this Agreement, Atkins may terminate this
Agreement on not less than ten (10) days' notice only: (a) by
consent, whether or not given at a meeting, of at least 3/4ths of
its entire Board of Directors; (b) if authorized by a vote of
2/3rds of its outstanding shares of Class B Stock entitled to
vote; or (c) by consent, whether or not given at a meeting, of at
least 3/4ths of the entire Executive Committee in the event that
the Shareholder is not in Good Standing. In the event of notice
of termination by either party, the Standard Service Fee of the
Shareholder shall, from the date of such notice, be based on the
actual Net Sales of the Shareholder for the 12-month period
immediately prior to the date of such notice and shall continue
to be due and payable for all months through and including the
termination date, subject to Section 9.02. In the event of
termination of this Agreement by either party, in addition to the
payment of the Standard Service Fee, the Shareholder agrees to
pay Atkins any and all obligations owing to Atkins for
merchandise ordered but not yet received by the Shareholder
within ten (10) days of request therefor by Atkins.
9.02 Discontinuation of Full Services. Except as
hereinafter provided, if the Board of Directors decides to
discontinue availability of full services theretofore available
to the Shareholder during the period between the giving of notice
and the termination date, and the Shareholder is in a position to
utilize such services, the Shareholder's continuing obligation to
pay the monthly Standard Service Fee shall cease with the month
in which the availability of such services is actually
discontinued by Atkins, However, Atkins shall have no obligation
to provide to the Shareholder (or any Director nominated by the
Shareholder) which has given notice of termination, or which has
been given notice of termination by Atkins, any performance
measurement, expense, merchandise, sales, or other reports or
statistics regarding the operations of Atkins, its shareholders
or its vendors, and the discontinuance of the furnishing of such
information shall not terminate the obligation of the Shareholder
to pay Standard Service Fees as above provided for the 18-month
period between the giving of notice and the termination date, nor
shall the Shareholder have any obligation to furnish to Atkins
during this period any reports regarding its operations.
9.03 Failure to Pay the Standard Service Fee. Failure to
pay the Standard Service Fee described in Section 9.01 on or
before the tenth day of any month during the period between the
date of notice of termination and the termination date shall make
the remaining monthly Standard Service Fee payments become
immediately due and payable to Atkins without notice.
9.04 Merger or Consolidation. In the event that the
Shareholder merges, consolidates, or is otherwise combined with
one or more other shareholders, the 18-month termination fee,
whether paid over such 18-month period or earlier, as well as all
other obligations of the Shareholder, including, but not limited
to, the domestic handling charge, shall continue to be due and
payable and shall be the joint and several obligation of each
such shareholder until paid in full. In connection with the
calculation of fees for services under Article Six, the Net Sales
of the Shareholder which is terminating shall not be added to the
Net Sales of the Shareholder which is not terminating until the
18-month period has expired. Class A Stock and Class B Stock
issued to the shareholder which is terminating this Agreement
shall not be required to be repurchased by Atkins as provided in
Section 10.02 until the terminating shareholders' obligations to
Atkins have been performed and/or paid in full.
9.05 Merger or Consolidation and Deposits. In the event that
the Shareholder merges, consolidates, or is otherwise combined
with one or more other shareholders, each separate shareholder's
Import Deposit, Past Due Deposit and book value of Class A Stock
and Class B Stock, shall be available only for the account of the
Shareholder and may not be used by any other shareholder.
Notwithstanding the foregoing, upon receipt of notice of the
intended merger, consolidation or other combination of the
Shareholder with one or more other shareholders, Atkins shall
have the right to set-off any such Import Deposit, Past Due
Deposit and book value of Class A Stock and Class B Stock,
without notice, against any debt owed by either the Shareholder
or any other shareholder which merges, consolidates, or is
otherwise combined with the Shareholder.
9.06 Resignation From the Board of Directors. In the event
that this Agreement is terminated, the Shareholder shall cause
the Director nominated by the Shareholder to immediately submit
his or her resignation as a member of the Board of Driectors.
ARTICLE TEN
RESTRICTIONS ON STOCK; REPURCHASES BY ATKINS
10.01 Restrictions on Stock. The Shareholder agrees that
during the continuance of this Agreement, it will not voluntarily
sell, pledge or otherwise dispose of any of its shares of Class A
Stock and Class B Stock without the prior written consent of
Atkins given pursuant to a resolution duly adopted by the Board
of Directors.
10.02 Repurchases of Stock by Atkins. Both Atkins and the
Shareholder agree that in the event of termination of this
Agreement, the Shareholder will be deemed to have sold to Atkins
the shares of Atkins stock held by the Shareholder, in the case
of Class B Stock at $1.00 per share, and in the case of Class A
Stock at the book value as determined by Atkins' auditors on the
basis of assets represented by capital and surplus, excluding any
goodwill that may be on Atkins' books, as of the close of the
fiscal year within which the notice of termination has been
given, less the amount of any indebtedness of the Shareholder to
Atkins or any of its subsidiaries. To the extent not already
done, the Shareholder's Class A Stock and Class B Stock will be
tendered to Atkins duly endorsed at Atkins' office within thirty
(30) days after notice of termination is given pursuant to
Section 9.01. Notwithstanding the foregoing, but subject to
Atkins' right of set-off, Atkins shall not be required to pay for
the Shareholder's Class A Stock and Class B Stock until all
termination fees and other amounts owed by the Shareholder to
Atkins have been paid in full.
10.03 Certificates of Bear Legend. All certificates for
shares of Atkins' Class A Stock and Class B Stock purchased or
subscribed for by Atkins' shareholders shall bear endorsed
thereon a reference to the restrictions upon transfer and the
agreement to sell set forth in this Standard Service Agreement.
10.04 Agreement to Vote With Respect to Repurchased Stock.
The Shareholder agrees, so long as it remains a shareholder of
Atkins, to take such action as a shareholder by vote, consent or
otherwise, for reduction of the capital of the corporation or
other measures which may be recommended by the Board of
Directors, on advice of counsel, in order to enable Atkins
legally to purchase or retire, upon the terms of the Standard
Service Agreement, the stock held by any shareholder whose
Standard Service Agreement is terminated.
ARTICLE ELEVEN
MISCELLEANEOUS
11.01 Notices. Unless otherwise expressly set forth
herein, any and all notices permitted or required to be given
hereunder shall be deemed duly given: (i) upon actual delivery,
if delivery is by hand; or (ii) upon receipt by the transmitting
party of answer-back or confirmation if delivery is by telex or
telefax; or (iii) upon delivery into the United States mail if
delivery is by postage paid registered or certified, return-
receipt requested. Each such notice shall be sent to the
respective party at the address indicated below or at any other
address as the repective party may designate by notice delivered
pursuant hereto:
If to Atkins:
Frederick Atkins, Incorporated
1515 Broadway
New York, New York 10036
Attn: Chief Executive Officer
Telecopier: 212-536-7369
If to the Shareholder:
Peebles Inc.
One Peebles Street
South Hill, Virginia 23970
Attn: E. Randolph Lail
Senior Vice President Finance
Chief Financial Officer
Telecopier: 804-447-2387
11.02 Non-Waiver. No term or provision of this Agreement
shall be deemed waived and no breach or default shall be deemed
excused, unless such waiver or consent shall be in writing and
signed by the party claimed to have waived or consented. No
consent by any party to, or waiver of, breach or default by the
other, whether express or implied, shall constitute a consent to,
waiver of, or excuse for any different or subsequest breach or
default.
11.03 Partial Invalidity. If any term or provision of this
Agreement shall be found to be illegal or unenforceable, this
Agreement shall remain in full force and effect and such term or
provision shall be deemed to be deleted.
11.04 Section Headings. The Article and Section headings
used in this Agreement are for the convenience and reference of
the parties only, and shall not be deemed a part of, or utilized
in interpreting, this Agreement.
11.05. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New
York.
11.06. Arbitration. Any claim, controversy or dispute
arising out of or in connection with this Agreement or the
performance of this Agreement shall be diligently negotiated by
the parties to obtain a mutually agreeable solution.
Notwithstanding the foregoing, if the parties cannot resolve any
such claim, controversy or dispute within thirty (30) days,
either party may submit the claim, controversy or dispute to a
panel of three (3) arbitrators in New York, New York, in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The determination of the arbitration
panel will be binding upon the parties and judgment upon the
award rendered by the arbitrators may be entered in any court
having jurisdiction. Both Atkins and the Shareholder shall bear
their own expenses associated with any arbitration action and
subsequent confirmation of the arbitration award, provided,
however, that any and all costs imposed by the American
Arbitration Association shall be borne equally by Atkins and the
Shareholder.
11.07 Confidentially. The Shareholder acknowledges and
agrees that its relationship with Atkins may involve access to
confidential and/or proprietary information related to Atkins
and/or one or more shareholders of Atkins. The Shareholder
agrees that during the time period while the Agreement is in
effect and at all times thereafter, including following
termination, the Shareholder will not disclose any information
related to Atkins or any other shareholder that is treated by
Atkins as confidential and/or proprietary or reasonably believed
by the Shareholder to be confidential and/or proprietary. With
respect to the foregoing, the Shareholder hereby irrevocably
agrees that any and all information provided to the Shareholder
from Atkins or from any other shareholder, which is in any way
related to any shareholder of Atkins is deemed to be confidential
material subject to the non-disclosure requirements of this
Section.
11.08 Bankruptcy. The Shareholder acknowledges and agrees
that this Agreement constitutes a "financial accommodation" by
Atkins to the Shareholder as such term is used under Section 365
of the United States Bankruptcy Code (the "Code"). Further,
Atkins reserves the right to terminate this Agreement if the
Shareholder files for protection under the Code.
11.09 Costs and Expenses Related to Enforcement. The
Shareholder agrees to reimburse Atkins for any and all reasonable
attorneys' fees incurred by or on behalf of Atkins in obtaining
the Shareholder's compliance with any and all provisions of this
Agreement.
11.10 Complete Agreement. This Agreement supersedes any
Stand Service Agreement and any amendment thereto previously
executed by the parties thereto.
IN WITNESS WHEREOF,the parties have caused this Agreement to
be executed by their duly authorized officers or representative
as of the date set forth above.
FREDERICK ATKINS, INCORPORATED
by: /s/ Bernard Olsoff
Name: Bernard Olsoff
Title: President and Chief Executive Officer
PEEBLES INC.
by: /s/ Michael F. Moorman
Name: Michael F. Moorman
Title: Chairman and Chief Executive Officer
ADDENDUM
2.01 Current Holdings of Class A Stock. The Shareholder
has previously purchased 470 shares of Classs A Stock for a
purchase price previously agreed upon.
2.02 Current Holdings of Class B Stock. The Shareholder
has previously purchased 189 shares of Class B Stock for a
purchase price of $1.00 per share.
Exhibit A
List of Shareholder-Affiliated Entities Included
NONE
Exhibit B
List of Shareholder-Affiliated Entities Excluded
NONE
EXHIBIT C
SERVICE FEE SCHEDULE
Maximun Per Category
First $ 20 million sales volume @ $2.70 per thousand = $ 54,000
Next $ 30 million sales volume @ $2.60 per thousand = $ 78,000
Next $ 50 million sales voulme @ $1.60 per thousand - $ 80,000
Next $100 million sales volume @ $1.10 per thousand = $ 110,000
Next $600 million sales volume @ $ .60 per thousand = $ 360,000
Over $800 million sales voulme @ $ .30 per thousand = -
Plus: $10,000 per buying staff when applicable.
AMENDMENT NO. 2 TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT NO. 2 ("Amendment") dated this 30th day of September, 1994
by and between PEEBLES INC. (the "Borrower") and NATWEST USA CREDIT CORP.
(the "Lender").
W I T N E S S E T H :
WHEREAS:
A. The Borrower and the Lender are parties to a certain Second
Amended and Restated Credit Agreement dated January 31, 1992 as amended by
a Waiver and Amendment No. 1 dated January 4, 1993 (as amended to date, the
"Credit Agreement") pursuant to which the Lender agreed to make loans to
and cause to be issued Letters of Credit (as defined in the Credit
Agreement) for the account of the Borrower in an aggregate amount of up to
$76,000,000 subject to the terms and conditions contained therein;
B. The Borrower has requested the Lender to amend the Credit
Agreement in certain respects;
C. The Lender is willing to make such amendments upon the terms and
subject to the conditions of this Amendment; and
D. Capitalized terms not defined herein shall have the meanings
ascribed to such terms in the Credit Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, receipt of which is hereby acknowledged, the
parties agree as follows:
1. AMENDMENT. The Credit Agreement is hereby amended as follows:
(a) Article 1 of the Credit Agreement is hereby amended to add
the following definitions:
"`10-K Filing Date' shall mean the last date upon which
the Borrower may file with the Securities and Exchange Commission
the Borrower's Annual Report on Form 10-K for the immediately
preceding fiscal year."
"`First 10-Q Filing Date' shall mean the last date upon
which the Borrower may file with the Securities and Exchange
Commission the Borrower's Report on Form 10-Q with respect to the
first fiscal quarter of the Borrower's fiscal year."
"`IPO' - an initial offering of shares of the Company's
common stock, par value $0.10 per share, for the account of the
Company pursuant to a registration statement filed with and
declared effective by the Securities and Exchange Commission and
pursuant to which (i) the Borrower receives proceeds, after the
payment of underwriting discounts and commissions, of not less
than $10,000,000 and (ii) an amount of the net proceeds of which
equal to the lesser of (A) 85% of the total gross proceeds to the
Company from such offering or (B) the total outstanding principal
and accrued interest due on the Term Note on the date of
consummation of such offering is applied to the prepayment of the
Term Note."
"`Rate Reduction Period' shall mean (A) the period
beginning on the First 10-Q Filing Date and continuing until but
excluding the Second 10-Q Filing Date, if EBITDA for the first
fiscal quarter of the Borrower exceeded $4,013,000, (B) the
period beginning on the Second 10-Q Filing Date and continuing
until but excluding the Third 10-Q Filing Date, if EBITDA for the
first and second fiscal quarters of the Borrower exceeded
$8,433,000, (C) the period beginning on the Third 10-Q Filing
Date and continuing until but excluding the 10-K Filing Date, if
EBITDA for the first three fiscal quarters of the Borrower
exceeded $12,984,000 and (D) the period beginning on the 10-K
Filing Date and continuing until but excluding the First 10-Q
Filing Date, if EBITDA for the immediately preceding fiscal year
exceeded $22,350,000."
"`Second 10-Q Filing Date' shall mean the last date
upon which the Borrower may file with the Securities and Exchange
Commission the Borrower's Report on Form 10-Q with respect to the
second fiscal quarter of the Borrower's fiscal year."
"`Third 10-Q Filing Date' shall mean the last date upon
which the Borrower may file with the Securities and Exchange
Commission the Borrower's Report on Form 10-Q with respect to the
third fiscal quarter of the Borrower's fiscal year."
(b) Article 1 of the Credit Agreement is hereby amended by
deleting the definition of "Commitment Termination Date" in its entirety
and substituting therefore the following new definition:
"`Commitment Termination Date' - February 1, 1997."
(c) Section 2.4 of the Credit Agreement is hereby amended by
deleting paragraph (a) in its entirety and substituting therefor the
following paragraph:
"(a) The Borrower shall pay to the Lender interest on
the unpaid principal amount of each Credit Loan and the Term Loan
for the period commencing on the date of each such Loan until
such Loan shall be repaid in full at the rate per annum equal to
one percent (1%) in excess of the Prime Rate, provided, however,
that (i) effective on the first day of each Rate Reduction Period
and continuing until the last day of each such Rate Reduction
Period, such rate per annum shall be reduced to three-quarters
percent (3/4%) in excess of the Prime Rate, and (ii) effective
upon the date of consummation of an IPO, such rate per annum
shall be permanently reduced to one-half percent (1/2%) in excess
of the Prime Rate."
(d) Section 2.6 of the Credit Agreement is hereby amended by
deleting paragraph (b)(i) in its entirety and substituting therefore the
following new paragraph (b)(i):
"(b)(i) The principal amount of the Term Loan shall be
repaid in consecutive quarterly payments of principal as follows:
ten (10) equal consecutive quarterly payments of principal in the
amount of Five Hundred Thousand Dollars ($500,000) each,
commencing on October 31, 1994 and continuing on the last day of
each January, April, July and October in each year thereafter
with an eleventh (11th) and final payment on February 1, 1997,
provided that such final payment shall equal the entire
outstanding principal balance of the Term Loan and interest
thereon."
(e) Section 2.9 of the Credit Facility is hereby amended by
deleting the last sentence of paragraph (b) in its entirety and
substituting therefore the following new sentence:
"Notwithstanding the foregoing, no such premium shall
be payable in the event of (i) termination of the Credit Facility
and prepayment of the Loans pursuant to Section 2.18 or Article 8
hereof or (ii) prepayment of the Term Loan following the
consummation of an IPO."
(f) Section 5.11 is hereby amended by deleting Section 5.11 in
its entirety and substituting therefor a new Section 5.11 as follows:
"Section 5.11 Additional Information: Monthly and
Weekly Reports. Such other information regarding the business,
affairs and condition of the Borrower and the Subsidiaries as the
Lender may from time to time reasonably request, including,
without limitation, as soon as available but in any event within
10 days after the end of each fiscal month, a Schedule of
Inventory as of the month then ended, a completed Aged Schedule
of Accounts, a trial balance, and a Borrowing Base Certificate
setting forth a calculation of the Borrowing Base as of the month
then ended, all to be in the same form as currently delivered to
the Lender and otherwise satisfactory to the Lender. The
foregoing notwithstanding, during any period in which the
additional principal amount of Credit Loans which the Borrower is
entitled to request in accordance with the provisions of Section
2.1(a) is less than $10,000,000, the Borrower shall deliver a
Borrowing Base Certificate by Thursday of each week setting forth
a calculation of the Borrowing Base as of the week then ended."
(g) Section 6.8 of the Credit Agreement is hereby amended by
deleting paragraph (a) in its entirety and substituting therefor the
following new paragraph (a):
"(a) Net Worth as at the last day of each month during
each fiscal year set forth below (beginning with February, 1992)
at not less than the respective amounts set forth opposite each
such fiscal year:
FISCAL YEAR ENDING MINIMUM NEW WORTH
January 27, 1995 66,700,000
February 3, 1996 72,800,000
February 2, 1997 and
each fiscal year thereafter 80,576,000
Provided, however, that effective upon the consummation of an
IPO, each Minimum Net Worth amount set forth above shall be
increased by an amount equal to eighty percent (80%) of the
proceeds of such IPO received by the Borrower after payment of
underwriting discounts and commissions."
(h) Section 6.8 of the Credit Agreement is hereby amended by
deleting paragraph (b) in its entirety and substituting therefor the
following new paragraph (b):
"(b) A ratio of EBITDA to Interest Expense determined
as of the end of each fiscal quarter during the periods set forth
below for such fiscal quarter plus the three immediately
preceding fiscal quarters at not less than the respective ratios
set forth opposite each such period:
MINIMUM EBITDA/
FISCAL PERIODS ENDING INTEREST EXPENSE
January 29, 1994 through the third
fiscal quarter ending in 1994 2.7
January 28, 1995 through the third
fiscal quarter ending in 1995 3.2
February 3, 1996 through the fourth
fiscal quarter ending on February 1, 1997 5.5"
(i) Section 6.8 of the Credit Agreement is hereby amended by
deleting paragraph (c) in its entirety and substituting therefor the
following new paragraph (c):
"(c) A ratio of EBIT to Interest Expense determined as
of the end of each fiscal quarter during the periods set forth
below for such fiscal quarter plus the three immediately
preceding fiscal quarters at not less than the respective ratios
set forth opposite each such period:
MINIMUM EBIT/
FISCAL PERIODS ENDING INTEREST EXPENSE
January 29, 1994 through the third
fiscal quarter ending in 1994 1.9
January 28, 1995 through the third
fiscal quarter ending in 1995 2.4
February 3, 1996 through the fourth
fiscal quarter ending on February 1, 1997 4.4"
(j) Section 6.8 of the Credit Agreement is hereby amended by
deleting paragraph (d) in its entirety and substituting therefor the
following new paragraph (d):
"(d) Fixed Charge Coverage determined as of the end of
each fiscal quarter during the periods set forth below for such
fiscal quarter plus the three immediately preceding fiscal
quarters at not less than the respective ratios set forth
opposite each such period:
FIXED CHARGED
FISCAL YEAR ENDING COVERAGE
January 29, 1994 through
the third fiscal quarter
ending in 1994 1.00
January 28, 1995 through
the third fiscal quarter
ending in 1995 1.05
February 3, 1996 through
the fourth fiscal quarter
ending on February 1, 1997 1.10
Provided, however, that the obligations of the Borrower under
this Section 6.8(d) shall automatically terminate and be of no
further force and effect upon the consummation of an IPO."
(k) Section 7.4 of the Credit Agreement is hereby amended by
deleting Section 7.4 in its entirety and substituting therefor the
following new Section 7.4:
"Section 7.4 Mergers, Acquisitions. Merge or
consolidate with any Person (whether or not the Borrower or any
Subsidiary is the surviving entity), or acquire all or
substantially all of the assets or any of the capital stock of
any Person, except that (i) any of the Borrower's Subsidiaries
may merge or consolidate with or transfer assets to or acquire
assets from any other Subsidiary of the Borrower, (ii) any of the
Borrower's Subsidiaries may merge into or transfer assets to the
Borrower and (iii) the Borrower or any Subsidiary may acquire the
assets or capital stock of any Person (A) if the total purchase
price paid by the Borrower and its Subsidiaries in such
transaction (including liabilities assumed by the Borrower and
its Subsidiaries in such transaction but excluding the value
ascribed by the Borrower to any inventory and accounts receivable
acquired in such transaction) does not exceed (1) $1,000,000 in
the case of a transaction consummated prior to the consummation
of an IPO or (2) $6,000,000 in case of a transaction consummated
after the consummation of an IPO and (B) the value ascribed by
the Borrower to inventory and accounts receivable acquired in
such transaction does not exceed (1) $6,000,000 in the case of a
transaction consummated prior to the consummation of an IPO or
(2) $20,000,000 in the case of a transaction consummated after
the consummation of an IPO, provided, in each case, that
immediately after giving effect thereto no Default or Event of
Default shall occur or be continuing,."
(l) Section 7.12 of the Credit Agreement is hereby amended by
deleting Section 7.12 in its entirety and substituting therefor a new
Section 7.12 as follows:
"Section 7.12 Capital Expenditures. Make or be or
become obligated to make Capital Expenditures in the aggregate
for the Borrower and the Subsidiaries in excess of (X)
$10,000,000 in any fiscal year of the Borrower and its
Subsidiaries prior to consummation of an IPO or (Y) $15,000,000
in the fiscal year of the Borrower and its Subsidiaries in which
an IPO is consummated and in each fiscal year of the Borrower and
its Subsidiaries thereafter, provided, however, that any of such
amounts not made or obligated to be made on Capital Expenditures
during any of the respective fiscal years set forth above, not to
exceed the maximum amount of $1,000,000, shall be added to the
maximum amount of Capital Expenditures permitted to be made
during the next succeeding fiscal year set forth above; and
provided further, however, that notwithstanding the foregoing
maximum amounts of Capital Expenditures permitted to be made by
this Section 7.12 during the fiscal years set forth above, at no
time shall Capital Expenditures during any fiscal year of the
Borrower and its Subsidiaries exceed an amount equal to the sum
of net income plus noncash expenses including, without
limitation, noncash income tax expenses less (i) principal
payments on the Term Note, (ii) principal payments on any other
Indebtedness of the Borrower (other than principal payments made
under the Credit Note), and (iii) the principal component of
payments made under Capitalized Leases, to the extent such
amounts are not deducted in the calculation of net income."
2. As further consideration to the Lender for entering into this
Amendment, the Borrower shall pay to the Lender a non-refundable fee in an
amount equal to One hundred Fifty Thousand Dollars ($150,000) which amount
shall be payable upon execution and delivery of this Amendment by each of
the parties hereto.
3. This Amendment shall become effective as of the date first above
written (the "Effective Date") upon the execution of this Amendment by each
of the parties hereto.
4. The Borrower hereby represents and warrants to the Lender that as
of the Effective Date (after giving effect to this Amendment):
(a) Each of the representations and warranties of the Borrower
contained in the Credit Agreement are true and correct as if made on the
Effective Date;
(b) No Default or Event of Default has occurred or is
continuing;
(c) The Borrower has (i) the power to execute, deliver and
perform this Amendment and (ii) taken all necessary action, corporate or
otherwise, to authorize the execution, delivery and performance of this
Amendment; and
(d) This Amendment has been duly executed and delivered by it
and constitutes the valid and legally binding obligation of the Borrower,
enforceable in accordance with its terms, except as such enforcement may be
subject to (i) limitations imposed by general principles of equity
(regardless of whether such enforceability is considered in a proceeding at
law or in equity) and (ii) the effect of applicable bankruptcy, insolvency,
reorganization, moratorium, arrangement or other similar laws of general
application relating to or affecting creditors' rights.
5. All references in the Credit Agreement to "this Agreement",
"hereto", "hereof", "hereunder" or words of like import referring to the
Credit Agreement shall mean the Credit Agreement as waived and amended by
this Amendment and all references in the other Loan Documents to the
"Credit Agreement", "thereto", "thereof", "thereunder" or words of like
import referring to the Credit Agreement shall mean the Credit Agreement as
waived and amended by this Amendment.
6. Except as specifically set forth herein, the Credit Agreement
shall remain in full force and effect without amendment. This Amendment
shall not be construed as an amendment or waiver of any provision of the
Credit Agreement except as specifically set forth herein, nor shall this
Amendment be construed as a waiver of any Event of Default or a waiver of
any right or remedy the Lender may have under the Credit Agreement or any
other Loan Document, at law or otherwise.
7. This Amendment may be signed in any number of counterparts all of
which taken together shall constitute one and the same instrument, and
either of the parties hereto may execute this Amendment by signing any
counterpart.
8. This Amendment shall be governed by and construed in accordance
with the laws of the State of New York.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed on the date first above written.
PEEBLES INC.
By: /s/ E. Randolph Lail
Title:__________________________________
NATWEST USA CREDIT CORP.
By: /s/ Kevin R. Rogers
Title:__________________________________
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT is entered into as of the 30th day of March, 1995 by
and between Peebles Inc., a Virginia corporation (the "Company"), and
_______________ ("Executive").
RECITALS
A. Executive currently serves as a key employee member of management
of the Company and his services and knowledge are valuable to the Company.
B. The Board (as defined in Section 1) has determined that it is in
the best interests of the Company and its stockholders to secure
Executive's continued services and to ensure Executive's continued
dedication and objectivity in the event of any threat or occurrence of, or
negotiation or other action that could lead to, or create the possibility
of, a Change in Control (as defined in Section 1) of the Company, without
concern as to whether Executive might be hindered or distracted by personal
uncertainties and risks created by any such possible Change in Control, and
to encourage Executive's full attention and dedication to the Company, the
Board has authorized the Company to enter into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements herein contained, the Company and Executive
hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (1) a material breach by Executive of the
duties and responsibilities of Executive (other than as a result of
incapacity due to physical or mental illness) which is demonstrably willful
and deliberate on Executive's part, which is committed in bad faith or
without reasonable belief that such breach is in the best interests of the
Company and which is not remedied in a reasonable period of time after
receipt of written notice from the Company specifying such breach or (2)
the commission by Executive of a felony involving moral turpitude. Cause
shall not exist unless and until the Company has delivered to Executive a
copy of a resolution duly adopted by three-quarters of the Board at a
meeting of the Board called and held for such purpose (after reasonable
notice to Executive and an opportunity for Executive, together with his
counsel, to be heard before the Board), finding that in the good faith
opinion of the Board the Executive was guilty of the conduct set forth in
this Section 1(b) and specifying the particulars thereof in detail.
(c) "Change in Control" means:
(1) the acquisition by any individual, entity or group
(a "Person"), including any "person" within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), of beneficial ownership
within the meaning of Rule 13d-3 promulgated under the Exchange
Act, of 50% or more of either (i) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common
Stock") or (ii) the combined voting power of the then outstanding
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following acquisitions
shall not constitute a Change in Control: (A) any acquisition by
the Company, (B) any acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (C) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation
involving the Company, if, immediately after such reorganization,
merger or consolidation, each of the conditions described in
clauses (i), (ii) and (iii) of subsection (3) of this Section
(1)(c) shall be satisfied, or (D) any acquisition by the
Executive or any group of persons including the Executive; and
provided further that, for purposes of clause (A), if any Person
(other than the Company or any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company) shall become the beneficial owner of
50% or more of the Outstanding Company Common Stock or 50% or
more of the Outstanding Company Voting Securities by reason of an
acquisition by the Company and such Person shall, after such
acquisition by the Company, become the beneficial owner of any
additional shares of the Outstanding Company Common Stock or any
additional Outstanding Voting Securities, such additional
beneficial ownership shall constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of such Board; provided, however,
that any individual who becomes a director of the Company
subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by the vote
of at least a majority of the directors then comprising the
Incumbent Board shall be deemed to have been a member of the
Incumbent Board; and provided further, that no individual who was
initially elected as a director of the Company as a result of an
actual or threatened election contest, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act,
or any other actual or threatened solicitation of proxies or
consents by or on behalf of any Person other than the Board shall
be deemed to have been a member of the Incumbent Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation unless, in any such case,
immediately after such reorganization, merger or consolidation,
(i) more than 50% of the then outstanding shares of common stock
of the corporation resulting from such reorganization, merger or
consolidation and more than 50% of the combined voting power of
the then outstanding securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals or entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation and in substantially the
same proportions relative to each other as their ownership,
immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities, as the case may be, (ii)
no Person (other than the Company, any employee benefit plan (or
related trust) sponsored or maintained by the Company or the
corporation resulting from such reorganization, merger or
consolidation (or any corporation controlled by the Company), or
any Person which beneficially owned, immediately prior to such
reorganization, merger or consolidation, directly or indirectly,
50% or more of the Outstanding Company Common Stock or the
Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 50% or more of the
then outstanding shares of common stock of such corporation or
50% or more of the combined voting power of the then outstanding
securities of such corporation entitled to vote generally in the
election of directors and (iii) at least a majority of the
members of the board of directors of the Corporation resulting
from such reorganization, merger or consolidation were members of
the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such
reorganization, merger or consolidation; or
(4) approval by the stockholders of the Company of (i)
a plan of complete liquidation or dissolution of the Company or
(ii) the sale or other disposition of all or substantially all of
the assets of the Company other than to a corporation with
respect to which, immediately after such sale or other
disposition, (A) more than 50% of the then outstanding shares of
common stock thereof and more than 50% of the combined voting
power of the then outstanding securities thereof entitled to vote
generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such
sale or other disposition and in substantially the same
proportions relative to each other as their ownership,
immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and the Outstanding Company
Voting Securities, as the case may be, (B) no Person (other than
the Company, any employee benefit plan (or related trust)
sponsored or maintained by the Company or such corporation (or
any corporation controlled by the Company), or any Person which
beneficially owned, immediately prior to such sale or other
disposition, directly or indirectly, 50% or more of the
Outstanding Company Common Stock or the Outstanding Company
Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 50% or more of the then outstanding
shares of common stock thereof or 50% or more of the combined
voting power of the then outstanding securities thereof entitled
to vote generally in the election of directors and (C) at least a
majority of the members of the board of directors thereof were
members of the Incumbent Board at the time of the execution of
the initial agreement or action of the Board providing for such
sale or other disposition.
Notwithstanding anything contained in this Agreement to the contrary,
if Executive's employment is terminated prior to a Change in Control and
Executive reasonably demonstrates that such termination was at the request
of a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control (a "Third "Party") who effectuates
a Change in Control, then for all purposes of this Agreement, the date of a
Change in Control shall mean the date immediately prior to the date of such
termination of Executive's employment.
(d) "Company" means Peebles Inc., a Virginia corporation.
(e) "Date of Termination" means (1) the effective date on which
Executive's employment by the Company terminates as specified in a prior
written notice by the Company or Executive, as the case may be, to the
other, delivered pursuant to Section 12 or (2) if Executive's employment by
the Company terminates by reason of death, the date of death of Executive.
(f) "Good Reason" means, without Executive's express written
consent, the occurrence of any of the following events after a Change in
Control:
(1) (i) the assignment to Executive of any duties
inconsistent in any material adverse respect with Executive's
position(s), duties, responsibilities or status with the Company
immediately prior to such Change in Control, (ii) a material
adverse change in Executive's reporting responsibilities, titles
or offices with the Company as in effect immediately prior to
such Change in Control or (iii) any removal or involuntary
termination of Executive from the Company otherwise than as
expressly permitted by this Agreement or any failure to re-elect
Executive to any position with the Company held by Executive
immediately prior to such Change in Control;
(2) a reduction by the Company in Executive's rate of
annual base salary as in effect immediately prior to such Change
in Control or as the same may be increased from time to time
thereafter;
(3) any requirement of the Company that Executive (i)
be based anywhere more than twenty-five miles from the facility
where Executive is located at the time of the Change in Control
or (ii) travel on Company business to an extent substantially
more burdensome than the travel obligations of Executive
immediately prior to such Change in Control;
(4) the failure of the Company to (i) continue in
effect any employee benefit plan or compensation plan in which
Executive is participating immediately prior to such Change in
Control, unless Executive is permitted to participate in other
plans providing Executive with substantially comparable benefits,
or the taking of any action by the Company which would adversely
affect Executive's participation in or materially reduce
Executive's benefits under any such plan, (ii) provide Executive
and Executive's dependents with welfare benefits (including,
without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death
and travel accident insurance plans and programs) in accordance
with the most favorable plans, practices, programs and policies
of the Company and its affiliated companies in effect for
Executive immediately prior to such Change in Control, (iii)
provide fringe benefits in accordance with the most favorable
plans, practices, programs and policies of the Company and its
affiliated companies in effect for Executive immediately prior to
such Change in Control, or (iv) provide Executive with paid
vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated
companies as in effect for Executive immediately prior to such
Change in Control; or
(5) the failure of the Company to obtain the
assumption agreement from any successor as contemplated in
Section 10(b).
In addition, a termination by Executive of his employment for any
reason during the 30-day period immediately following the first anniversary
of the date of commencement of the Termination Period shall be deemed to be
termination by Executive for Good Reason. For purposes of this Agreement,
any good faith determination of Good Reason made by Executive shall be
conclusive; provided, however, that an isolated, insubstantial and
inadvertent action taken in good faith and which is remedied by the Company
promptly after receipt of notice thereof given by Executive shall not
constitute Good Reason. Any event or condition described in this Section
1(f)(1) through (5) which occurs prior to a Change in Control, but was at
the request of a Third Party who effectuates a Change in Control, shall
constitute Good Reason following a Change in Control for purposes of this
Agreement notwithstanding that it occurred prior to the Change in Control.
(g) "Nonqualifying Termination" means a termination of
Executive's employment (1) by the Company for Cause, (2) by Executive for
any reason other than a Good Reason, (3) as a result of Executive's death,
(4) by the Company due to Executive's absence from his duties with the
Company on a full-time basis for at least one hundred eighty consecutive
days as a result of Executive's incapacity due to physical or mental
illness or (5) as a result of Executive's mandatory retirement. The
parties hereto expressly understand and agree that a termination by
Executive of his employment in accordance with the first sentence of the
second paragraph of Section 1(f) shall be deemed to be a termination by the
Executive for Good Reason and thus shall not be a Nonqualifying
Termination.
(h) "Pension Plan" means the Company's defined benefit pension
plan or any successor plan and any other employee benefit plans of the
Company that require any minimum period of employment as a condition to the
receipt of retirement benefits thereunder.
(i) "Termination Period" means the period of time beginning with
a Change in Control and ending on the earliest to occur of (1) Executive's
70th birthday, (2) Executive's death, and (3) three years following such
Change in Control.
2. OBLIGATIONS OF EXECUTIVE. Executive agrees that in the event any
person or group attempts a Change in Control, he shall not voluntarily
leave the employ of the Company without Good Reason (a) until such
attempted Change in Control terminates or (b) if a Change in Control shall
occur, until ninety days following such Change in Control. For purposes of
the foregoing subsection (a), Good Reason shall be determined as if a
Change in Control had occurred when such attempted Change in Control became
known to the Board.
3. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) If during the Termination Period the employment of Executive
shall terminate, other than by reason of a Nonqualifying Termination, then
the Company shall pay to Executive (or Executive's beneficiary or estate)
within thirty days following the Date of Termination, as compensation for
services rendered to the Company:
(1) a lump-sum cash amount equal to the sum of (i)
Executive's full annual base salary from the Company and its
affiliated companies through the Date of Termination, to the
extent not theretofore paid, (ii) Executive's annual bonus in an
amount at least equal to the greatest of (A) the average bonus
(annualized for any fiscal year consisting of less than twelve
full months or with respect to which Executive has been employed
by the Company for less than twelve full months) paid or payable,
including by reason of any deferral, to Executive by the Company
and its affiliated companies in respect of the three fiscal years
of the Company (or such portion thereof during which Executive
performed services for the Company if Executive shall have been
employed by the Company for less than such three fiscal year
period) immediately preceding the fiscal year in which the Change
in Control occurs, or (B) 50% of Executive's target bonus for the
fiscal year in which the Change in Control occurs, or (C) 50% of
Executive's target bonus for the fiscal year in which Executive's
Date of Termination occurs, multiplied by (D) a fraction, the
numerator of which is the number of days in the fiscal year in
which the Date of Termination occurs through the Date of
Termination and the denominator of which is three hundred sixty-
five or three hundred sixty-six, as applicable, and (iii) any
compensation previously deferred by Executive other than pursuant
to a tax-qualified plan (together with any interest and earnings
thereon) and any accrued vacation pay, in each case to the extent
not theretofore paid; plus
(2) a lump-sum cash amount equal to (i) two times
Executive's highest annual rate of base salary from the Company
and its affiliated companies in effect during the twelve-month
period prior to the Date of Termination, plus (ii) two times the
greatest of (A) the average bonus (annualized for any fiscal year
consisting of less than twelve full months or with respect to
which Executive has been employed by the Company for less than
twelve full months) paid or payable, including by reason of any
deferral, to Executive by the Company and its affiliated
companies in respect of the three fiscal years of the Company (or
such portion thereof during which Executive performed services
for the Company if Executive shall have been employed by the
Company for less than such three fiscal year period) immediately
preceding the fiscal year in which the Change in Control occurs
or (B) 50% of Executive's target bonus for the fiscal year in
which the Change in Control occurs or (C) 50% of Executive's
target bonus for the fiscal year in which Executive's Date of
Termination occurs; provided, however, that in the event there
are fewer than twenty-four whole months remaining from the Date
of Termination to the date of Executive's 70th birthday, the
amount calculated in accordance with this Section 3(a)(2) shall
be reduced by multiplying such amount by a fraction the numerator
of which is the number of months, including a partial month (with
a partial month being expressed as a fraction the numerator of
which is the number of days remaining in such month and the
denominator of which is the number of days in such month), so
remaining and the denominator of which is twenty-four; provided
further, that any amount paid pursuant to this Section 3(a)(2)
shall be paid in lieu of any other amount of severance relating
to salary or bonus compensation to be received by Executive upon
termination of employment of Executive under any severance plan,
policy, employment agreement or arrangement of the Company.
(b) (1) In addition to the payments to be made pursuant to
paragraph (a) of this Section 3, if on the Date of Termination
other than by reason of a Nonqualifying Termination, Executive
shall not be fully vested in his accrued benefit under the
Pension Plan, the Company shall pay to Executive within thirty
days following the Date of Termination a lump sum cash amount
equal to the actuarial equivalent of his unvested accrued benefit
under the Pension Plan as of such date. Such lump sum cash
amount shall be computed using the same actuarial methods and
assumptions then in use for purposes of computing benefits under
the Pension Plan, provided that the interest rate used in making
such computation shall not be greater than the interest rate
permitted under Section 417(e) of the Internal Revenue Code of
1986, as amended (the "Code"), as it existed immediately prior to
the enactment of the Retirement Protection provisions of H.R.
5110.
(2) In addition to the payments to be made pursuant to
paragraph (a) of this Section 3, if on the Date of Termination
other than by reason of a Nonqualifying Termination, Executive
shall not be fully vested in the employer contributions made on
his behalf under any defined contribution plan of the Company,
the Company shall pay to Executive within thirty days following
the Date of Termination a lump sum cash amount equal to the value
of the unvested portion of such employer contributions; provided,
however, that if any payment pursuant to this Section 3(b)(2) may
or would result in such payment being deemed a transaction which
is subject to Section 16(b) of the Exchange Act, the Company
shall make such payment so as to meet the conditions for an
exemption from such Section 16(b) as set forth in the rules (and
interpretative and no-action letters relating thereto) under
Section 16 of the Exchange Act. The value of any such unvested
employer contributions shall be determined as of the Date of
Termination; provided that for purposes of valuing common stock
of the Company that may be a part of any such plan, if the common
stock of the Company is traded on a national securities exchange
or The Nasdaq National Market on the Date of Termination, the
value of a share of common stock of the Company shall be the
closing price on the national securities exchange or NASDAQ on
the Date of Termination or, if such date is not a trading day, on
the immediately preceding trading day.
(3) For a period of two years commencing on the Date
of Termination, the Company shall continue to keep in full force
and effect (or otherwise provide) all policies of medical,
accident, disability and life insurance with respect to Executive
and his dependents with the same level of coverage, upon the same
terms and otherwise to the same extent as such policies shall
have been in effect immediately prior to the Date of Termination
(or, if more favorable to Executive, immediately prior to the
Change in Control), and the Company and Executive shall share the
costs of the continuation of such insurance coverage in the same
proportion as such costs were shared immediately prior to the
Date of Termination.
(c) If during the Termination Period the employment of Executive
shall terminate by reason of a Nonqualifying Termination, then the Company
shall pay to Executive within thirty days following the Date of
Termination, a cash amount equal to the sum of (1) Executive's full annual
base salary from the Company through the Date of Termination, to the extent
not theretofore paid and (2) any compensation previously deferred by
Executive other than pursuant to a tax-qualified plan (together with any
interest and earnings thereon) and any accrued vacation pay, in each case
to the extent not theretofore paid.
4. EXCISE TAX LIMITATION. (a) Notwithstanding anything contained
in this Agreement or any other agreement or plan to the contrary, the
payments and benefits provided to, or for the benefit of, Executive under
this Agreement or under any other plan or agreement which became payable or
are taken into account as a result of the Change in Control (the
"Payments") shall be reduced (but not below zero) to the extent necessary
so that no payment to be made, or benefit to be provided, to Executive or
for his benefit under this Agreement or any other plan or agreement shall
be subject to the imposition of an excise tax under Section 4999 of the
Code (such reduced amount is hereinafter referred to as the "Limited
Payment Amount"). Unless Executive shall have given prior written notice
specifying a different order to the Company, the Company shall reduce or
eliminate the Payments to Executive by first reducing or eliminating those
payments or benefits which are not payable in cash and then by reducing or
eliminating cash payments, in each case in reverse order beginning with
payments or benefits which are to be paid the farthest in time from the
Determination (as hereinafter defined). Any notice given by Executive
pursuant to the preceding sentence shall take precedence over the
provisions of any other plan, arrangement or agreement governing
Executive's rights and entitlements to any benefits or compensation.
(b) All determinations required to be made under this Section 4
shall be made by the Company's public accounting firm (the "Accounting
Firm"). The Accounting Firm shall provide its calculations, together with
detailed supporting documentation, both to the Company and Executive within
fifteen days after the receipt of notice from the Company that there has
been a Payment (or at such earlier times as is requested by the Company)
and, with respect to any Limited Payment Amount, a reasonable opinion to
Executive that he is not required to report any excise tax on his federal
income tax return with respect to the Limited Payment Amount (collectively,
the "Determination"). In the event that the Accounting Firm is serving as
an accountant or auditor for the individual, entity or group effecting the
Change in Control, Executive shall appoint another nationally recognized
public accounting firm to make the determination required hereunder (which
accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees, costs and expenses (including, but not limited to,
the costs of retaining experts) of the Accounting Firm shall be borne by
the Company. The Determination by the Accounting Firm shall be binding
upon the Company and Executive (except as provided in paragraph (c) below).
(c) If it is established pursuant to a final determination of a
court or an Internal Revenue Service (the "IRS") proceeding which has been
finally and conclusively resolved, that Payments have been made to, or
provided for the benefit of, Executive by the Company, which are in excess
of the limitations provided in Section 4 (hereinafter referred to as an
"Excess Payment"), such Excess Payment shall be deemed for all purposes to
be a loan to Executive made on the date Executive received the Excess
Payment and Executive shall repay the Excess Payment to the Company on
demand, together with interest on the Excess Payment at the applicable
federal rate (as defined in Section 1274(d) of the Code) from the date of
Executive's receipt of such Excess Payment until the date of such
repayment. As a result of the uncertainty in the application of Section
4999 of the Code at the time of the Determination, it is possible that
Payments which will not have been made by the Company should have been made
(an "Underpayment"), consistent with the calculations required to be made
under this Section 4. In the event that it is determined (i) by the
Accounting Firm, the Company (which shall include the position taken by the
Company, or together with its consolidated group, on its federal income tax
return) or the IRS or (ii) pursuant to a determination by a court, that an
Underpayment has occurred, the Company shall pay an amount equal to such
Underpayment to Executive within ten days of such determination together
with interest on such amount at the applicable federal rate from the date
such amount would have ben paid to Executive until the date of payment.
5. WITHHOLDING TAXES. The Company may withhold from all payments
due to Executive (or his beneficiary or estate) hereunder all taxes which,
by applicable federal, state, local or other law, the Company is required
to withhold therefrom.
6. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise
under this Agreement involving termination of Executive's employment with
the Company or involving the failure or refusal of the Company to perform
fully in accordance with the terms hereof, the Company shall reimburse
Executive, on a current basis, for all legal fees and expenses, if any,
incurred by Executive in connection with such contest or dispute
(regardless of the result thereof), together with interest in an amount
equal to the prime rate of NatWest Bank N.A. from time to time in effect,
but in no event higher than the maximum legal rate permissible under
applicable law, such interest to accrue from the date the Company receives
Executive's statement for such fees and expenses through the date of
payment thereof.
7. TERMINATION OF AGREEMENT. (a) This Agreement shall be effective
on the date hereof and shall continue until terminated by the Company as
provided in paragraph (b) of this Section 8; provided, however, that this
Agreement shall terminate in any event upon the first to occur of (i)
Executive's 70th birthday, (ii) Executive's death and (iii) termination of
Executive's employment with the Company prior to a Change in Control
(except as otherwise provided hereunder).
(b) The Company shall have the right prior to a Change in
Control, in its sole discretion, pursuant to action by the Board, to
approve the termination of this Agreement, which termination shall not
become effective until the date fixed by the Board for such termination,
which date shall be at least one hundred twenty days after notice
thereunder is given by the Company to Executive in accordance with Section
11; provided, however, that no such action shall be taken by the Board
during any period of time when the Board has knowledge that any person has
taken steps reasonably calculated to effect a Change in Control until, in
the opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change in Control; and provided, further, that in no
event shall this Agreement be terminated without the consent of Executive
following a Change in Control.
8. SCOPE OF AGREEMENT. Nothing in this Agreement shall be deemed to
entitle Executive to continued employment with the Company or its
subsidiaries, and if Executive's employment with the Company shall
terminate prior to a Change in Control, Executive shall have no further
rights under this Agreement; provided, however, that any termination of
Executive's employment during the three-year period following a Change in
Control shall be subject to all of the provisions of this Agreement.
9. CONFIDENTIAL INFORMATION. Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have
been obtained by Executive during Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by Executive or representatives of Executive
in violation of this Agreement). After termination of Executive's
employment with the Company, Executive shall not, without the prior written
consent of the Company, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by
it. In no event shall an asserted violation of the provisions of this
Section 9 constitute a basis for deferring or withholding any amounts
otherwise payable to Executive under this Agreement.
10. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving
or resulting corporation or as a result of any transfer of all or
substantially all of the assets of the Company. In the event of any such
merger, consolidation or transfer of assets, the provisions of this
Agreement shall be binding upon the surviving or resulting corporation or
the person or entity to which such assets are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this
Section 10, it will cause any successor or transferee unconditionally to
assume, by written instrument delivered to Executive (or his beneficiary or
estate), all of the obligations of the Company hereunder. Failure of the
Company to obtain such assumption prior to the effectiveness of any such
merger, consolidation or transfer of assets shall be a breach of this
Agreement and shall constitute Good Reason hereunder and shall entitle
Executive to compensation and other benefits from the Company in the same
amount and on the same terms as Executive would be entitled hereunder if
Executive's employment were terminated following a Change in Control other
than by reason of a Nonqualifying Termination. For purposes of
implementing the foregoing, the date on which any such merger,
consolidation or transfer becomes effective shall be deemed the date Good
Reason occurs, and shall be the Date of Termination if requested by
Executive.
(c) This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive shall die while any amounts would be payable to Executive
hereunder had Executive continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to such person or persons appointed in writing by Executive
to receive such amounts or, if no person is so appointed, to Executive's
estate.
11. NOTICE. (a) For purposes of this Agreement, all notices and
other communications required or permitted hereunder shall be in writing
and shall be deemed to have been duly given when delivered or five days
after deposit in the United States mail, certified and return receipt
requested, postage prepaid, addressed as follows:
If to Executive:
______________________
c/o Peebles Inc.
One Peebles Street
South Hill, Virginia 23970
If to the Company:
Peebles Inc.
One Peebles Street
South Hill, Virginia 23970
Attention: Corporate Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
(b) A written notice of Executive's Date of Termination by the
Company or Executive, as the case may be, to the other, shall (i) indicate
the specific termination provision in this Agreement relied upon, (ii) to
the extent applicable, set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated and (iii) specify the
Termination Date (which date shall be not less than fifteen days after the
giving of such notice). The failure by Executive or the Company to set
forth in such notice any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of Executive or
the Company hereunder or preclude Executive or the Company from asserting
such fact or circumstance in enforcing Executive's or the Company's rights
hereunder.
12. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's
obligation to make any payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action
which the Company may have against Executive or others. In no event shall
Executive be obligated to seek other employment or take other action by way
of mitigation of the amounts payable to Executive under any of the
provisions of this Agreement and, such amounts shall not be reduced whether
or not Executive obtains other employment.
(b) If there shall be any dispute between the Company and
Executive in the event of any termination of Executive's employment, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause, that
the determination by Executive of the existence of Good Reason was not made
in good faith, or that the Company is not otherwise obligated to pay any
amount or provide any benefit to Executive and his dependents or other
beneficiaries, as the case may be, under paragraphs (a) and (b) of Section
3, the Company shall pay all amounts, and provide all benefits, to
Executive and his dependents or other beneficiaries, as the case may be,
that the Company would be required to pay or provide pursuant to paragraphs
(a) and (b) of Section 3 as though such termination were by the Company
without Cause or by Executive with Good Reason; provided, however, that the
Company shall not be required to pay any disputed amounts pursuant to this
paragraph except upon receipt of an undertaking by or on behalf of
Executive to repay all such amounts to which Executive is ultimately
adjudged by such court not to be entitled.
13. EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company for
purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership
interest of 50% or more of the total combined voting power of the then
outstanding securities of such corporation or other entity entitled to vote
generally in the election of directors.
14. GOVERNING LAW; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the Commonwealth of
Virginia without regard to the principle of conflicts of laws. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this
Agreement, which other provisions shall remain in full force and effect.
15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of
which together shall constitute one and the same instrument.
16. MISCELLANEOUS. No provision of this Agreement may be modified or
waived unless such modification or waiver is agreed to in writing and
signed by Executive and by a duly authorized officer of the Company. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. Failure by Executive or the Company to insist upon strict
compliance with any provision of this Agreement or to assert any right
Executive or the Company may have hereunder, including without limitation,
the right of Executive to terminate employment for Good Reason, shall not
be deemed to be a waiver of such provision or right or any other provision
or right of this Agreement. The rights of, and benefits payable to,
Executive, his estate or his beneficiaries pursuant to this Agreement are
in addition to any rights of, or benefits payable to, Executives, his
estate or his beneficiaries under any other employee benefit plan or
compensation program of the Company.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by a duly authorized officer of the Company and Executive has
executed this Agreement as of the day and year first above written.
PEEBLES INC.
By:_____________________________________
Title:__________________________________
EXECUTIVE
________________________________________
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of the 30th
day of March, 1995, between PEEBLES INC. (the "Company"), and
______________________ (the "Employee").
1. EMPLOYMENT. The Company employs the Employee, and the Employee
accepts such employment, for a term ("Term of Employment") of two years
beginning on the date hereof and terminating on the 31st day of March, 1997
on the terms and conditions hereinafter set forth.
2. DUTIES AND SERVICES. The Employee shall serve as a management
employee of the Company. During the Term of Employment, the Employee shall
exercise such authority and perform such management duties and
responsibilities for the Company as may from time to time be designated by
the Chief Executive Officer of the Company.
3. COMPENSATION. During the Term of Employment, the Company shall
pay the Employee for services to be rendered by the Employee hereunder a
salary of $____________ per year, payable in monthly installments or more
frequently in accordance with the Company's general corporate pay policies.
Such salary shall be paid to the Employee only during the Term of
Employment during which the Employee is able to render services to the
Company, except as provided in Sections 5 and 6. The salary in effect from
time to time shall be reviewed periodically by the Chief Executive Officer
of the Company and may, with the approval of the Board of Directors of the
Company, be increased to the extent necessary to reflect the value of the
services of the Employee. The Employee will also continue to be eligible
to receive any incentive or bonus payments that might be awarded by the
Board of Directors of the Company.
4. EMPLOYMENT BENEFIT PLANS. During the period in which the Employee
is receiving a salary under this Agreement, the Company will provide the
Employee with such benefits as are available to other similarly situated
key employees from time to time. This coverage shall cease when the
Employee ceases to receive a salary under this Agreement, except as
otherwise provided in the Company's employee benefits programs or as
required by existing law.
5. DEATH OR DISABILITY. If the Employee dies or becomes totally
disabled during the Term of Employment, the Employee's employment under
this Agreement shall terminate immediately upon the Employee's death or
total disability. Upon such termination, the Employee (or his personal
representative, in the case of his death) shall be entitled to receive the
salary he would have received through the end of the month in which such
termination becomes effective.
For purposes of this Agreement, the term totally disabled means
the inability of the Employee to fulfill his customary responsibilities
hereunder because of a physical or mental illness and such inability has
continued for a period of six consecutive months during the Term of
Employment. The Company shall, in its discretion, determine whether the
Employee has become totally disabled on the basis of medical reports of a
licensed physician acceptable to the Company. Notwithstanding the
foregoing, nothing contained in this Agreement shall be deemed to entitle
the Employee to receive both a salary under this Agreement and under the
Company's existing short term disability plan, it being the intent of the
parties to provide only for the continuation of the Employee's salary
hereunder during the period of six consecutive months referred to above.
6. TERMINATION OF EMPLOYMENT BY THE COMPANY. The Company may
terminate the Employee's employment for whatever reason, with or without
good cause. Written notice of termination under this section will be given
by the Company to the Employee. The Employee's termination shall become
effective, and this Agreement and the Employee's employment with the
Company shall terminate, immediately upon receipt of such notice by the
Employee.
If the Company terminates the Employee's employment other than
for good cause, the Employee shall be entitled to receive his salary at the
rate in effect immediately before such termination for the balance of the
Term of Employment.
If the Company terminates the Employee's employment for good
cause, the Employee shall be entitled to receive the salary he would have
received through the end of the month in which such termination becomes
effective.
For purposes of this section, the term good cause shall mean (a)
the Employee has committed a serious crime, or (b) the Employee, in
carrying out his duties under this Agreement, has been guilty of (i)
willful gross neglect, or (ii) willful gross misconduct resulting in either
case in material harm to the Company or any subsidiary thereof.
7. CONFIDENTIALITY CLAUSE. Except as specifically authorized by the
Company in writing, or as required by law, the Employee will not disclose,
(a) except to his personal advisor, financial advisor or similar persons,
the existence of this Agreement or the terms of this Agreement, or (b) any
proprietary information or confidential records of the Company or any
subsidiary thereof.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered mail
to the residence in the case of the Employee or to its principal office in
the case of the Company.
9. SUCCESSORS, ASSIGNS, ETC. This Agreement shall inure to the
benefit of and be binding upon the Company, its successors and assigns,
including without limitation any corporation that may acquire all or
substantially all of the Company's assets and business, or with or into
which the Company may be consolidated or merged, and upon the Employee and
his personal representatives.
10. ENTIRE AGREEMENT. This Agreement constitutes the full and
complete understanding and agreement of the parties and cannot be amended,
changed, modified or terminated without the consent, in writing, of the
parties hereto.
11. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 30th day of March, 1995.
PEEBLES INC.
By:_____________________________________
Title:__________________________________
EMPLOYEE
________________________________________
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
NONE
<TABLE> <S> <C>
<ARTICLE> 5
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