<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED AUGUST 31, 1995
COMMISSION FILE NUMBER 0-15247
REEDS JEWELERS, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1441702
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2525 South Seventeenth Street
Wilmington, North Carolina 28401
(Address of principal executive offices)
(910) 350-3100
(Registrant's telephone number, including area code)
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 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 the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
The number of outstanding shares of Common Stock, par value $0.10 per
share, as of October 17, 1995 was 4,216,406.
<PAGE> 2
Part I
Item 1. FINANCIAL STATEMENTS
The consolidated financial statements included herein have been
prepared by Reeds Jewelers, Inc. (the "Company"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations; however, the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form 10-K for the
fiscal year ended February 28, 1995.
<PAGE> 3
REEDS JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, August 31, August 31,
1995 1995 1994
---- ---- ----
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 134,000 $ 137,000 $ 254,000
Accounts receivable:
Customers, less allowance for doubtful accounts
of $2,869,000, $2,695,000, and $2,406,000 35,379,000 33,035,000 29,668,000
Other 838,000 363,000 687,000
Merchandise inventories 26,438,000 29,991,000 28,392,000
Deferred income taxes 1,840,000 1,791,000 1,595,000
Other 365,000 975,000 872,000
---------- ---------- ----------
Total current assets 64,994,000 66,292,000 61,468,000
Property and equipment 20,893,000 22,108,000 19,776,000
Less: accumulated depreciation and amortization 11,270,000 12,013,000 10,680,000
---------- ---------- ----------
Net property and equipment 9,623,000 10,095,000 9,096,000
Goodwill, net of accumulated amortization of
$536,000, $570,000, and $500,000 2,189,000 2,155,000 2,223,000
Other 595,000 619,000 539,000
---------- ---------- ----------
Total other assets 2,784,000 2,774,000 2,762,000
---------- ---------- ----------
TOTAL ASSETS $ 77,401,000 $ 79,161,000 $ 73,326,000
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 8,567,000 $ 8,572,000 $ 8,503,000
Accrued expenses 4,523,000 2,753,000 3,014,000
Deferred revenue 1,074,000 1,159,000 926,000
Income taxes 1,702,000 118,000 342,000
Current portion of long-term debt 3,313,000 3,320,000 3,799,000
---------- ---------- ----------
Total current liabilities 19,179,000 15,922,000 16,584,000
Revolving credit note 19,000,000 24,200,000 19,000,000
Long-term debt and subordinated notes payable 9,378,000 8,400,000 11,720,000
Subordinated notes payable to shareholders 900,000 900,000 900,000
Deferred income taxes 2,211,000 2,182,000 1,917,000
Deferred revenue 906,000 905,000 755,000
---------- ---------- ----------
Total long-term liabilities 32,395,000 36,587,000 34,292,000
Common stock, par value $0.10 per share;
Authorized: 10,000,000 shares; issued and
outstanding: 4,201,281, 4,201,281, and
4,201,084 (Note B) 420,000 420,000 420,000
Additional paid-in capital (Note B) 10,796,000 10,796,000 10,795,000
Retained earnings (Note B) 14,611,000 15,436,000 11,235,000
---------- ---------- ----------
Total shareholders' equity 25,827,000 26,652,000 22,450,000
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 77,401,000 $ 79,161,000 $ 73,326,000
========== ========== ==========
</TABLE>
<PAGE> 4
REEDS JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three months ended August 31, Six months ended August 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 16,185,000 $ 14,996,000 $ 33,330,000 $ 29,856,000
Other (principally finance
charges) 2,356,000 2,122,000 4,727,000 4,268,000
---------- ---------- ---------- ----------
Total revenues 18,541,000 17,118,000 38,057,000 34,124,000
Costs and expenses:
Cost of sales (including
occupancy costs) 9,790,000 8,960,000 19,943,000 17,882,000
Selling, general, and
administrative 6,596,000 6,102,000 13,976,000 12,464,000
Bad debt 682,000 619,000 1,263,000 1,119,000
Interest 810,000 802,000 1,642,000 1,507,000
---------- ---------- ---------- ----------
Total costs and expenses 17,878,000 16,483,000 36,824,000 32,972,000
---------- ---------- ---------- ----------
Earnings before income taxes 663,000 635,000 1,233,000 1,152,000
Income taxes 219,000 229,000 407,000 415,000
---------- ---------- ---------- ----------
Net earnings $ 444,000 $ 406,000 $ 826,000 $ 737,000
========== ========== ========== ==========
Earnings per share (Note B) $ 0.11 $ 0.10 $ 0.20 $ 0.18
========== ========== ========== ==========
Weighted average shares
outstanding (Note B) 4,201,281 4,199,426 4,201,281 4,196,027
========== ========== ========== ==========
</TABLE>
<PAGE> 5
REEDS JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended August 31,
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 826,000 $ 737,000
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 996,000 833,000
Provision for loss on accounts receivable 1,263,000 1,118,000
Gain on sale of property and equipment 31,000 4,000
Changes in assets and liabilities:
Accounts receivable 1,556,000 154,000
Merchandise inventories -3,553,000 -6,162,000
Other assets -651,000 -493,000
Trade payables 4,000 134,000
Accrued expenses -1,770,000 -138,000
Deferred revenue 134,000 -74,000
Income taxes -1,615,000 -1,212,000
---------- ----------
Net cash used in operating activities -2,779,000 -5,099,000
Cash flows from investing activities:
Proceeds from sale of property and equipment 14,000 4,000
Capital expenditures -1,462,000 -1,258,000
---------- ----------
Net cash used in investing activities -1,448,000 -1,254,000
Cash flows from financing activities:
Proceeds from exercise of options on common stock 0 47,000
Proceeds from revolving credit note 5,201,000 7,276,000
Principal payments on debt -971,000 -970,000
--------- --------
Net cash provided by financing activities 4,230,000 6,353,000
--------- ---------
Net change in cash 3,000 0
Cash, beginning of period 134,000 254,000
-------- --------
Cash, end of period $ 137,000 $ 254,000
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,662,000 $ 1,314,000
Income taxes 1,972,000 1,746,000
</TABLE>
<PAGE> 6
REEDS JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. MANAGEMENT'S OPINION
These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the
fiscal year ended February 28, 1995.
Management of Reeds Jewelers, Inc. believes that the consolidated financial
statements contained herein contain all adjustments necessary to present
fairly the financial position, consolidated results of operations, and cash
flows for the interim period. Management also believes that all
adjustments so made are of a normal and recurring nature.
B. Adjusted for 10% stock dividend on June 1, 1995.
<PAGE> 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITI0N AND
RESULTS OF OPERATIONS
Results of Operations
Net sales for the quarter ended August 31, 1995 were up 8% over the same
quarter last year to a second quarter record of $16,185,000. Comparable store
sales were positive in every month of the quarter, resulting in a 3% increase
for the period. The Company operated 80 stores at the end of the second
quarter, compared to 73 at the same time last year. Net sales for the first
six months were $33,330,000, up 12% over the first half of last year.
Comparable store sales were positive 6% year-to-date.
Other revenues increased to $2,356,000, up 11% over the second quarter of last
year. Finance charges and credit insurance income from customer receivables,
which increased 13%, accounted for 79% of other revenues. Other revenues were
up 11% for the first six months with 96% of the increase resulting from
increased finance charges and credit insurance income; the balance of the
increase resulted from various smaller line items.
Gross margins were 40% of net sales during the second quarter of each year. For
the first six months of both years, gross margins were 40% of net sales, the
same as last year. Management expects some margin pressure throughout the
remainder of the year as jewelers compete for market share during the
all-important Christmas selling season.
Selling, general, and administrative expenses were 41% of net sales for the
second quarter in both 1995 and 1994. SG&A was 42% of net sales for the first
six months of both years.
Bad debt expense was 4% of net sales for both the quarter and the six months
ended August 31, 1995, flat with the comparable periods last year. As a
percentage of average customer receivables, bad debt was 1.9% in the second
quarter of 1995 and 1994, and was 3.4% and 3.5% for the first six months of
1995 and 1994, respectively. The Company's credit extension policies and
criteria continue to be consistent with those used during the same periods last
year. The allowance for bad debts was 7.50% at the end of both periods.
Interest expense was $8,000 higher in the second quarter and $135,000 higher in
the first six months than for the same periods last year. The increase
resulted from higher average borrowings.
The Company's anticipated tax rate was 33% for both periods in 1995 and 36% for
the three-month and six-month periods in 1994; the lower anticipated tax rate
in 1995 results primarily from the benefits attributable to the captive
insurance company and from a reduction in the Company's state income taxes as a
result of being able to use a portion of the Company's state net operating loss
carryovers. Net income after income taxes was $444,000 ($0.11 per share and
2.7% of net sales) for the quarter, compared to $406,000 ($0.10 per share and
2.7% of net sales) for the same quarter last year. For the first six months,
the Company earned $826,000 ($0.20 per share and 2.5% of net sales) compared to
$737,000 ($0.18 per share and 2.5% of net sales) for the first half of last
year.
The Company generally follows the practice of passing on price changes to its
customers. As a result, management believes its operations have not been
materially affected by inflationary or deflationary forces during the periods
reported herein.
Liquidity and Capital Resources
Working capital increased 12% to $50,370,000 at August 31, 1995 from
$44,884,000 at August 31, 1994. The resulting ratio of current assets to
current liabilities at August 31, 1995 was 4.2 to 1, compared to 3.7 to 1 at
the same date in the prior year.
<PAGE> 8
Customer receivables, net of allowance for doubtful accounts, were $33,035,000
and $29,668,000 at August 31, 1995 and 1994, respectively. The 11% increase
essentially reflected the normal share of total sales being done on the
Company's proprietary credit card and related finance charges and credit
insurance fees. Credit extension policies and criteria remained consistent
during the first half of both years.
Merchandise inventories were 6% higher at the end of the second quarter of 1995
than at the same time in the previous year. The increase was higher than
expected at August 31, 1995 as the Company's buyers purchased items earlier
than planned. The increase over plan has been trimmed since August 31, 1995,
and management believes that inventory turns, for the full fiscal year, will be
approximately the same as last year.
Capital expenditures were $1,462,000 during the six months ended August 31,
1995, compared to $1,258,000 for the same period in 1994. Expenditures during
both periods were primarily for tenant improvements in new and remodeled stores
and for additional office, security, and computer equipment. The Company
opened three new stores during the second quarter of this year in High Point
NC, Bridgeport WV, and Albany GA; the Company also closed its store in
Carbondale IL in June 1995. Management plans to open one additional store in
Tuscaloosa AL during the current fiscal year.
At this time, management believes its credit lines are adequate to support its
plans for the current year and knows of no other material events or
uncertainties which would cause the financial information herein not to be
indicative of the operating results or future financial condition of Reeds
Jewelers, Inc.
Recent Developments
On October 5, 1995, the Company acquired all the common stock of The Melart
Jewelers, Inc. ("Melart") from its nine shareholders. Melart, based in Silver
Spring MD, operates 19 stores in the Washington DC/Baltimore metroplex and had
net sales of approximately $17,500,000 during its most recent fiscal year that
ended June 30, 1995. The cash purchase price of $1,977,000 is to be paid in the
following manner: $477,000 was paid at closing on October 5, 1995, and the
balance is due in three deferred payments of $500,000 each on October 5, 1996,
1997, and 1998. The deferred payments are financed by the sellers at 6.28%
interest. The Company may deduct from the purchase price and withhold from the
deferred payments for the following items, should they occur: the amount of
negative net worth of Melart as of September 30, 1995; $196,000 for a potential
liability resulting from a certain promotion of Melart; any write-off in excess
of $237,000 on the Melart accounts receivable acquired; up to $250,000 for
cancellation of any lease or for increased costs of property leases because of
this transaction; up to $25,000 for costs relating to improperly maintained
heating, air conditioning, plumbing, or electrical systems in any of the Melart
stores; any costs resulting from an unrecorded liability, including unrecorded
liabilities for consignment inventory. The Company is also indemnified for a
period of 3 years for up to $500,000 for misrepresentations, unrecorded
liabilities or claims, and various actions that may result from such, if any
exist or should occur.
In addition to the 19 stores, at September 30, 1995, Melart owned approximately
$4,300,000 in inventories and approximately $1,000,000 in accounts receivable,
and owed approximately $2,500,000 in secured obligations and approximately
$5,200,000 in accounts payable, accruals, and other unsecured obligations.
Management believes that, with the acquisition, the Company has obtained
desirable locations in most of the regional enclosed malls in the populous
Washington/Baltimore metropolitan market. In addition, it has received the
added benefit of well-trained and experienced associates in the various stores.
The acquisition enables the Company to expand into this important contiguous
market with only one over-lapping location for the Company in Springfield VA.
The initial purchase payment was made from the Company's cash. The Company is
in the process of obtaining a $40,000,000 bank facility to replace its existing
$27,000,000 bank revolving credit facility. The new financing is expected to
<PAGE> 9
be in place before the end of December 1995. The incremental borrowings
primarily are to provide financing for the increased operating needs and
deferred payments that result from the acquisition.
Management expects sales declines in the Melart stores during the Company's
fiscal third quarter as the Company adjusts the merchandise mix and modifies
the credit approval criteria to bring both in line with its philosophies.
Management believes that sales should begin stabilizing in its fiscal fourth
quarter. Operating savings will be realized when the Melart central office in
Silver Spring MD is closed on October 25, 1995, but will be partially offset by
planned increases in advertising, store staffing, and equipment upgrades that
will begin immediately. In addition, management expects to spend approximately
$3,000,000 over the next three years to remodel many of the Melart stores.
At this time, management believes its financing plans are adequate to support
its operating plans and knows of no other material events or uncertainties
which would cause the financial information herein not to be indicative of the
operating results or future financial condition of Reeds Jewelers, Inc.
<PAGE> 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Shareholders was held on Tuesday, July
11, 1995, and the following matters were submitted to a vote
of the shareholders:
(b) To elect nine directors (Garland Waddy Garrett, James R.
Rouse, Arlene Z. Schreiber, Richard F. Sherman, Alan M.
Zimmer, Herbert J. Zimmer, Jeffrey L. Zimmer, Roberta G.
Zimmer, and William R. Zimmer) to serve until the 1996 Annual
Meeting of Shareholders or until their successors are elected
and qualified: for James R. Rouse and Richard F. Sherman,
3,621,056 votes were cast in favor, 7,058 votes were withheld,
and 191,273 abstained; for Alan M. Zimmer, 3,620,956 votes
were cast in favor, 7,158 were withheld, and 191,273 were not
voted; for Arlene Z. Schreiber, Herbert J. Zimmer, Jeffrey L.
Zimmer, and William R. Zimmer, 3,620,856 votes were cast in
favor, 7,258 were withheld, and 191,273 were not voted; for
Garland Waddy Garrett, 3,620,836 votes were cast in favor,
7,278 were withheld and 191,273 were not voted; and for
Roberta G. Zimmer, 3,620,656 votes were cast in favor, 7,458
were withheld, and 191,273 were not voted.
(c) To ratify the appointment of Ernst & Young as independent
auditors of the Company for the fiscal year ending February
29, 1996: 3,627,663 votes were cast in favor, 231 votes were
against, 220 votes abstained, and 191,273 were not voted.
(d) Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10 - Stock Purchase Agreement
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
Not applicable.
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REEDS JEWELERS, INC.
October 20, 1995 /s/ James R. Rouse
- -------------------------- ----------------------------------
James R. Rouse
Treasurer and
Chief Financial Officer
<PAGE> 1
STOCK PURCHASE AGREEMENT
BETWEEN
REEDS JEWELERS, INC.
AND
THE SHAREHOLDERS OF
THE MELART JEWELERS, INC. IDENTIFIED
ON SCHEDULE A
September 29, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Purchase of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------------
2. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------
3. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
--------------
3.1. Total Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
--------------------
3.2. Payments at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
-------------------
3.3. Deferred Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
-----------------
3.4 Additional Offsets to Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
------------------------------------
4. Delivery of Stock and Subsequent Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
----------------------------------------
4.1. Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
--------
4.2 Further Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
---------------
5. Representations and Warranties of the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
---------------------------------------------
5.1. Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-------------------------
5.2. Corporate Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-------------------
5.3. Agreement Approved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
------------------
5.4. Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-------------
5.5. No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
---------------
5.6. Title to Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
--------------
5.7. Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
---------------
5.8. Equipment and Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
----------------------
5.9. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
------
5.10. Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
---------
5.11. Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
--------
5.12. Intellectual Property and Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
----------------------------------
5.13. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
--------------------
5.14. No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-----------------
5.15. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----
5.16. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
----------------------
5.17. Union Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
---------------
5.18. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-----------
5.19. Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-----------------------
5.20. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
----------
5.21. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
---------
5.22. Affiliate Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-------------------
5.23. Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
---------------------
5.24. Credit Cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
------------
5.25. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
----
5.26. Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
--------------------
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
5.27. Legal Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
--------------
5.28. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
----------
6. Representations and Warranties of the Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-------------------------------------------
6.1. Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-------------------------
6.2. Agreement Approved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
------------------
6.3. No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
----------
6.4. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
----------
6.5. Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-------------------
7. Interim Operation of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-----------------------------
8. Conditions to Obligations of the Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
--------------------------------------
8.1. Representations True . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
--------------------
8.2. Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
--------------------------
8.3. No Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-----------
8.4. Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-------------------
8.5. Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
--------------
8.6. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
---------
8.7. Closing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-----------------
8.8. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
----------
8.9. Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-------------
8.10. Resignations, Accounts, Records, Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-----------------------------------------
8.11. Lease Estoppels and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
----------------------------
8.12. Consignment Vendors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-------------------
8.13. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
--------
8.14. No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-----------------
8.15. Repayment of Loans; Credit Cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
--------------------------------
8.16. Note Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
--------------
8.17. Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
----------
8.18. Agreements with Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-------------------------
8.19. SCAC Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
-------------
8.20. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
--------------------
9. Conditions to Obligations of the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
----------------------------------------
9.1. Representations True . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
--------------------
9.2. Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
--------------------------
9.3. Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-------------------
9.4. Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-------------
9.5. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
----------
10. Actions To Be Taken By Seller At Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
----------------------------------------
11. Actions To Be Taken By Buyer At The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-------------------------------------------
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
12. Actions To Be Taken By Buyer After Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
------------------------------------------
13. Survival of Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
----------------------
14. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
---------------
14.1. Indemnification of Buyer and Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
------------------------------------
14.2. Tax Benefit Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
----------------------
14.3. Insured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
--------------
14.4. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
-----------
14.5. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
------
15. Settlement of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
--------------------
15.1. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
------
15.2. Defense and Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
----------------------
16. Expenses of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-----------------------
17. Right to Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-----------------------------
18. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
----------
19. No Other Bids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-------------
20. Tax Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
------------
21. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-------------
21.3. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
----------------
21.4. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
----------
21.5. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
------------
21.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
------------
21.7. Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
---------
21.8. Efforts to Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
----------------
21.9. COBRA Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
--------------
</TABLE>
(iii)
<PAGE> 5
This Stock Purchase Agreement (the "Agreement"), dated as of the 29th
day of September, 1995, is between REEDS JEWELERS, INC., a North Carolina
corporation (the "Buyer"), and the sellers listed on Schedule A hereto
(collectively the "Sellers").
R E C I T A L S:
A. The Sellers are the record holders and beneficial owners of
all of the outstanding capital stock (the "Stock") of THE MELART JEWELERS,
INC., a Maryland corporation (the "Company").
B. The Sellers wish to sell the Stock to the Buyer and the Buyer
wishes to acquire the Stock from the Sellers on the terms set forth in this
Agreement.
NOW, THEREFORE, for due consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Purchase of Stock. Subject to all of the terms and conditions
of this Agreement, the Sellers agree to sell, transfer and deliver the Stock to
the Buyer and the Buyer agrees to buy the Stock from the Sellers at the Closing
on the Closing Date (both as defined in Section 2) for the purchase price set
forth in Section 3.
2. The Closing. The sale and purchase shall take place at the
closing (the "Closing") at the offices of Silver, Freedman & Taff, L.L.P. at
1100 New York Avenue, N.W., Suite 700 East, Washington, DC at 1:00 p.m. on
September 27, 1995, or at such other time and place as may be agreed on by the
parties (the "Closing Date").
3. Purchase Price.
3.1. Total Purchase Price. Subject to all of the terms
and conditions of this Agreement, the Buyer shall pay an aggregate purchase
price for all of the Stock (the "Purchase Price") equal to $1,977,128.28.
<PAGE> 6
3.2. Payments at Closing. On the Closing Date the Buyer
shall pay to the Sellers $477,128.28 (the "Closing Date Payment"). The Closing
Date Payment will be paid to Silver, Freedman & Taff, L.L.P., as escrow agent,
by wire transfer or by certified check in immediately available funds. Also at
the Closing, the Buyer will cause the Company to pay (a) $93,661.00 to 8700
Georgia Avenue Limited Partnership, representing the lease termination fee
payable for termination of the Company's main office lease effective as of
October 31, 1995, and (b) severance payments in the following amounts:
<TABLE>
<S> <C>
Albert A. Foer $ 59,876.06
Martin L. Stein $ 47,859.36
Ronald Sheinbaum $ 21,475.30
</TABLE>
3.3. Deferred Payments. The balance of the Purchase Price
shall be payable in accordance with the following schedule, by wire transfer or
by certified check in immediately available funds:
<TABLE>
<S> <C>
First Anniversary of Closing Date $ 500,000.00
Second Anniversary of Closing Date $ 500,000.00
Third Anniversary of Closing Date $ 500,000.00
</TABLE>
Each such payment (collectively, the "Deferred Payments") will be paid to
Silver, Freedman & Taff, L.L.P., as escrow agent, and shall bear interest from
the Closing Date at the rate of 6.28% per annum. In addition to any other
offsets to which Buyer may be entitled under this Agreement, the Buyer may
deduct (i) from any Deferred Payment the amount, if any, by which the net worth
of the Company as of June 30, 1995 (as shown on its audited financial
statements) is less than zero and/or (ii) from any Deferred Payment any
additional amount by which the net worth of the Company as of the Closing Date
is less than zero.
2
<PAGE> 7
In the event the Sellers dispute the financial statements for the
Company as of the Closing Date as audited or reviewed by the independent public
accountants chosen by Buyer, Sellers shall have the right to conduct their own
audit or review at their sole cost and expense and submit the dispute between
the two reports to binding arbitration. The net worth of the Company as of the
Closing Date shall be computed using generally accepted accounting principles
applied consistently with the manner applied in the preparation of the
financial statements identified in Section 5.13; provided, however, that for
purposes of this determination net worth shall be increased by the lease
termination fee and severance payments to be paid pursuant to Sections 3.2 and
11.2, if paid at closing, and by the $15,000 in professional fees allowed
pursuant to Section 5.27.
If particular facts or circumstances result in the net worth of the
Company being less than zero as of the Closing Date, and the Purchase Price is
reduced accordingly, the Buyer shall not be entitled to any further reduction
of the Purchase Price pursuant to any part of Section 3.4 resulting from the
same facts and circumstances, nor shall Buyer be entitled to any
indemnification from Sellers pursuant to Section 13 arising from the same facts
and circumstances.
Upon payment of any portion of the Purchase Price to Silver, Freedman
& Taff, L.L.P. as escrow agent, Buyer shall have no further responsibility to
any Seller for that portion of the Purchase Price.
3.4 Additional Offsets to Purchase Price. The Deferred
Payments commencing with the First Anniversary of the Closing Date shall be
referred to as the "Contingent Deferred Payments". The Contingent Deferred
Payments shall be subject to offset for certain specific
3
<PAGE> 8
contingencies in accordance with this Section 3.4 (without limiting Buyer's
right of offset for other reasons).
(a) Full Purchase Price Refund Offer. Buyer may deduct from the
Purchase Price (and lower the amount of any Contingent Deferred Payment
accordingly) the following amounts, unless for the jurisdiction listed Buyer
files for an Escheat Declaratory Judgment within six months after the Closing
Date and obtains an Escheat Declaratory Judgment (as defined below) within
three years after the Closing Date:
<TABLE>
<S> <C>
Maryland $ 131,912
Virginia $ 54,180
District of Columbia $ 10,502
</TABLE>
An Escheat Declaratory Judgment shall consist of a final,
non-appealable, binding and unequivocal order of a court of competent
jurisdiction to the effect that amounts owed under the Company's "Full Purchase
Price Refund Offer" program are not subject to the state's escheat laws.
(b) Accounts Receivable Collection. The Buyer may deduct from the
Purchase Price (and lower the amount of any Contingent Deferred Payment
accordingly) that amount by which write-offs of the Company's in-house accounts
receivable existing as of Closing exceeds $237,000.00. "Write-offs of the
Company's in-house accounts receivables" shall include:
(i) the amount of in-house Company accounts receivable, including
finance charges thereon according to the customers' contracts,
which are written off within the ten (10) month period after
Closing, such in-house accounts to be written off according to
the Buyer's customary criteria (i.e., at seven
4
<PAGE> 9
(7) months recency and 12 months contractual), with the
accounts receivable as of Closing beginning in their then
actual aging in both recency and contractual categories, plus
(ii) an allowance of 26.68% of any uncollected balance on the
in-house Company accounts receivable not yet written off as of
ten (10) months following the Closing Date, as provision for
future writeoff of such uncollected balance, less
(iii) actual collections (net of payments to third party collection
agencies, if any) of any of the Company's accounts receivable
(outstanding as of Closing) after such accounts were written
off.
In the event that the aforesaid calculation yields a figure less than
$237,000.00 such difference shall be added to the Purchase Price (and increase
the amounts of the Contingent Deferred Payments accordingly).
The Buyer shall use reasonable efforts to collect the in-house Company
accounts receivable during the ten months after Closing, and such collection
efforts shall be commensurate with those efforts exerted to collect the Buyer's
accounts receivable. The Buyer shall advise Sellers of the nature and status
of Buyer's collection efforts, and consider Sellers' suggestions as to ways to
maximize such collections.
The Buyer will identify separately, including but not limited to a
collection history record, the Company's in-house portfolio existing as of
Closing. Representatives of the Sellers will be given reasonable access to:
(1) the books and records pertaining to the Company's in-house portfolio
existing as of Closing; and (ii) the premises from which Buyer's credit
5
<PAGE> 10
department makes its collections. The Buyer will supply the Sellers with
monthly reports setting forth the aging of the Company's in-house portfolio.
The Buyer shall cause the Company to assign to the Sellers (or to such
agent as is specified by the Sellers) the charged-off and uncollected in-house
accounts (at their then existing account balances, including finance charges)
as and when written off. Provided, however, that the Sellers shall severally
indemnify the Company and the Buyer from any liability, damage, expense or loss
resulting from Sellers' efforts to collect any accounts assigned to Sellers,
including but not limited to any liability, damage, expense or loss arising
from violation of the Federal Fair Debt Collection Practices Act.
(c) Lease Assignments. The Buyer may deduct from the Purchase
Price any increased costs over the term of the leases arising from this
transaction under the Company's rights as a tenant to the properties it leases,
including but not limited to fees, penalties, and increases in rental payments
(and lower the amounts of the Contingent Deferred Payments accordingly). If
any lease is terminated as a result of this transaction the Purchase Price
shall be reduced by the amount shown on Schedule 3.4(c). Notwithstanding the
provisions of this paragraph, there shall be no reduction in the Purchase Price
for any costs or termination resulting from the radius clause in the Company's
Springfield, Virginia lease. Deductions pursuant to this Section 3.4(c) shall
in no event exceed $250,000.00.
(d) Equipment in Good Operating Condition and Repair. The Buyer
may deduct from the Purchase Price any costs incurred by the Company (as
determined by inspections by Buyer or its agents to be permitted by Sellers
before the Closing Date) resulting from improperly maintained heating, air
conditioning, plumbing, or electrical systems in any of the Company's
6
<PAGE> 11
stores (and lower the amounts of the Contingent Deferred Payments accordingly),
provided, however, that the deductions pursuant to this Section 3.4(d) shall be
limited to a total of $25,000.00.
(e) Consignment Inventory. The Buyer may deduct from the Purchase
Price (and lower the amounts of the Contingent Deferred Payments accordingly)
the cost associated with any consignment inventory for which, as of the Closing
Date, no liability has been established on the Company's books and records for
a discrepancy between the Company's perpetual inventory and payables records
and the records of the Company's consignment vendors, whether resulting from
(1) a shortage in consignment inventory or (2) the sale of such merchandise,
either occurring prior to the Closing Date. Buyer will notify the Sellers of
any such deductions within 90 days after the Closing Date.
4. Delivery of Stock and Subsequent Actions.
4.1. Delivery. At the Closing, the Sellers shall deliver
or cause to be delivered to the Buyer certificates for all of the Stock, duly
endorsed by the Sellers, with signatures guaranteed by a commercial bank or
trust company or a member of a national securities exchange. In the event that
any Seller is unable to locate his or her certificate representing shares of
Stock, the Buyer will accept from such Seller an affidavit of lost certificate
and indemnity agreement in a form reasonably acceptable to the Buyer's counsel.
The Stock shall be free and clear of all liens, restrictions, encumbrances,
charges, security interests and adverse claims of every kind.
4.2 Further Actions. The Sellers agree that they shall
at any time and from time to time after the Closing Date, upon reasonable
request of the Buyer, do, execute,
7
<PAGE> 12
acknowledge and deliver or shall cause to be done, executed, acknowledged and
delivered all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney and assurances as may be required for the complete
assigning, transferring, granting, assuring and confirming to the Buyer and to
its successors and assigns of, and for aiding and assisting in obtaining or
collecting and reducing to possession, any or all of the Stock.
5. Representations and Warranties of the Sellers. The Sellers
severally represent and warrant to the Buyer as set forth below. Albert A.
Foer, Martin L. Stein, Jack Land and Ronald Sheinbaum are referred to as the
"Management Sellers". Notwithstanding anything herein to the contrary, all
representations and warranties of Sellers other than the Management Sellers
shall be to their knowledge (except that no knowledge limitation shall apply to
Section 5.6).
5.1. Organization and Standing. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Maryland. The Company is qualified to do business as a
foreign corporation in each other jurisdiction in which the Company transacts
business and the Company is in good standing in each such jurisdiction. The
Company has full corporate power and authority to own and operate its
properties, to carry on its business as presently conducted. The Company has
full corporate power and authority to execute, deliver and perform this
Agreement and doing so will not violate any provision of law or contravene any
provisions of its Articles of Incorporation or Bylaws.
5.2. Corporate Documents. The Company's Articles of
Incorporation, Bylaws and corporate minutes delivered to the Buyer are true,
correct and complete as of the date hereof, and the corporate minutes
accurately reflect all actions required to be reflected therein.
8
<PAGE> 13
5.3. Agreement Approved. This Agreement has been duly
executed and delivered by the Sellers and represents the valid and binding
obligation of the Sellers. The execution and delivery of this Agreement and
the other agreements of the Sellers contemplated hereby and the compliance with
their respective terms will not violate any agreement to which any of the
Sellers or the Company is a party, or violate or create a breach of, or
constitute a default under, or prevent the Company or any of the Sellers from
fulfilling any of their obligations under, any law, agreement, commitment,
instrument, order, judgment or decree or other obligation to which any of the
Sellers or the Company is subject or by which any of them is bound, or give
rise to the acceleration of any obligation of the Company, except as set forth
on Schedule 5.3.
5.4. Capital Stock. The authorized capital stock of the
Company consists of 1,000 shares of voting common stock, $4.70 par value, of
which 100 shares are issued and outstanding, and 15,000 shares of nonvoting
common stock, $4.70 par value, of which 9,660 shares are issued and
outstanding. The Company is not authorized to issue shares of any other class.
All outstanding shares of the capital stock of the Company are duly and validly
issued and are fully paid and non-assessable. There are no outstanding
contracts, options, warrants, rights or other securities or instruments that
may entitle any person to acquire shares of the Company whether issued or
unissued.
5.5. No Subsidiaries. The Company does not own any equity
interest in any corporation, partnership or other enterprise.
9
<PAGE> 14
5.6. Title to Stock. Each Seller represents that he or
she is the owner, free and clear of any encumbrance, of the number of shares of
the capital stock of the Company set opposite that Seller's name on Schedule A.
5.7. Title to Assets. The Company has good and marketable
title to all of its assets, free and clear of all equities, pledges, liens
(except liens for taxes not yet due), security interests or other encumbrances
of any kind whatsoever, except as identified on Schedule 5.7.
5.8. Equipment and Premises. Except for ordinary wear and
tear attributable to the routine and ordinary day-to-day conduct of the
Company's business, all of the Company's office and other equipment is in good
operating condition and repair. There are no existing structural defects, or
infestations by wood damaging or other pests, in any premises leased or owned
by the Company. Except as otherwise disclosed in Schedule 5.8, the Company has
properly maintained and repaired all heating, air conditioning, plumbing and
electrical systems in the premises and all such systems and other equipment,
whether owned or leased, are operating satisfactorily or will operate
satisfactorily upon utilization in the appropriate season.
5.9. Leases. All leases pursuant to which the Company
leases any real or personal property are listed in Schedule 5.9 and all such
leases are legally valid. There is no existing default or any event that, with
notice or lapse of time, or both, would constitute a default by the Company or,
to the knowledge of the Sellers, by any other party under any of the leases.
The Company is not a party to and is not bound by any other lease. There is no
lien, mortgage or other encumbrance on Company's rights as a tenant to the
properties identified on Schedule 5.9, except as identified on Schedule 5.9.
10
<PAGE> 15
5.10. Inventory. The Company's inventory consists entirely
of new and unused goods (except for estate and refurbished goods which are
marketed as such), is in good and marketable condition, and is capable of being
sold in the ordinary course of business. The Company's books and records
concerning its consignment inventory are true, accurate and complete.
5.11. Accounts. All of the Company's accounts receivable
arose from bona fide transactions in the ordinary course of business, represent
amounts validly due for goods sold or services rendered or other validly
increased indebtedness and, to Sellers' knowledge are not subject to offset or
any defense to payment.
5.12. Intellectual Property and Licenses. The Company owns
and has the unrestricted right to use all licenses, patents, trademarks, trade
names, service marks, service names, copyrights, inventions and other know-how
used in or necessary for the conduct of the Company's business as presently
conducted and all payments due under any such license has been paid. The
rights obtained through license or other agreement are listed on Schedule 5.12
(the "Licenses"). The Sellers have delivered to the Buyer complete copies of
all documents evidencing the Licenses, none of which has been affected by any
oral agreement or waiver. All of the Licenses are valid obligations of the
parties thereto, enforceable in accordance with their respective terms and
there is no existing default or any event that, with notice or lapse of time,
or both, would constitute a default by the Company or, to the knowledge of the
Sellers, by any other party to any License. All patents, trademarks, trade
names, service marks and service names used by the Company are listed on
Schedule 5.12 and, to the Sellers' knowledge, the
11
<PAGE> 16
Company's use of them has not infringed the rights of others and no claim of
such infringement has been made.
5.13. Financial Statements. The Sellers have delivered to
the Buyer copies of the audited financial statements of the Company for the
years ended June 30, 1991 through 1994, inclusive, and unaudited financial
statements for the year ended June 30, 1995 (the "Financial Statements"). All
the Financial Statements are true, correct and complete (for the period covered
by them), have been prepared in accordance with generally accepted accounting
principles consistently applied and fairly reflect the financial condition and
results of operations of the Company at the dates and for the periods
indicated. The Financial Statements adequately disclose all of the Company's
assets and liabilities and all information necessary to reflect its financial
condition as of their respective dates. The financial books and records of the
Company properly reflect and disclose all transactions entered into by the
Company.
5.14. No Adverse Change. Since June 30, 1995, there has
been no material adverse change in the condition, financial or otherwise,
assets, liabilities, properties, labor relations or business of the Company,
except for such changes as may be customary due to the seasonal nature of the
Company's business. Since June 30, 1995, there has not been any damage,
destruction or loss, whether covered by insurance or not, materially affecting
any of the properties or the business of the Company nor has there been any
material increase in the compensation payable by the Company to any officer or
employee, or any material increase in any bonus, insurance, pension or other
employee benefit plan, payment or arrangement made to, for or with any such
officer or employee. Since June 30, 1995, the Company's inventories have been
maintained at customary levels. Except as disclosed in Schedule 5.14, and
except as
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otherwise permitted or specifically contemplated under this Agreement, since
June 30, 1995, the Company (i) has not paid or declared any dividends, (ii) has
not made or committed to make any distribution of assets and (iii) has not made
or committed to make any loans.
5.15. Taxes. All tax returns of the Company, including but
not limited to, returns of income, sales, social security, property,
withholding and unemployment taxes that are required to have been filed by the
Company to date have been duly prepared, timely filed and are true and correct,
and all taxes, interest and penalties shown thereon or due in connection
therewith have been paid, if due, or accrued, if not yet due. The Company has
not waived any statute of limitations for federal or state tax purposes. No
deficiency has been proposed and not paid with respect to any tax return filed
by the Company. All payroll taxes that the Company is required by law to
withhold have been withheld and properly deposited.
5.16. Employee Benefit Plans. Except as otherwise
disclosed in Schedule 5.16, the Company does not have any bonus, deferred
compensation, profit sharing, pension, retirement or stock option plan or
agreement, or any other type of employee benefit plan or any accrued obligation
thereunder, or any current or prospective obligation for the payment of
severance pay to any current or former employee. All such plans, agreements or
obligations are disclosed in Schedule 5.16 and are referred to herein as
"Employee Benefit Plans". The Company has delivered to the Buyer complete
copies of all documents governing such plans and obligations and copies of all
such agreements and copies of all reports applicable thereto. All accrued
vacation pay and sick pay due to the Seller's employees is set forth on
Schedule 5.16. The Company and each Employee Benefit Plan has been and is in
full compliance with all applicable laws, regulations and orders, including, to
the extent applicable, the Employee
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<PAGE> 18
Retirement Income Security Act of 1974, the Internal Revenue Code and the
Consolidated Omnibus Budget Reconciliation Act of 1985 (all as amended).
5.17. Union Contracts. The Company is not, and has never
been, a party to any collective bargaining or other labor agreement. There is
no employee dispute, grievance or controversy pending or threatened against the
Company and, to the knowledge of the Sellers, there is no basis for such
dispute, grievance or controversy. The Company has complied with all
applicable equal employment opportunity laws.
5.18. Commitments. Except as otherwise disclosed in
Schedule 5.18, the Company is not subject to or bound by any agreement,
commitment, lease, agreement not to compete or other obligation extending
beyond the date hereof that is not terminable by the Company without liability
therefor, and the Company is not a party to any guaranty or endorsement. There
has not been any default in any obligation to be performed by the Company under
any of such agreements, commitments, leases, agreements not to compete or other
obligations, and no party thereto has waived any material rights under or with
respect to such agreements, commitments, leases, agreements not to compete and
other obligations.
5.19. Undisclosed Liabilities. The Company does not have
any liability or obligation, whether contingent or otherwise, other than (i)
those disclosed in the Financial Statements and notes thereto, (ii) those
disclosed in this Agreement and (iii) liabilities incurred in the ordinary
course of business since June 30, 1995, in amounts and on terms consistent with
past practices. All of the Company's open purchase orders are listed in
Schedule 5.19. There is no basis for any claim against the Company relating to
defects in any product sold by the Company.
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<PAGE> 19
5.20. Litigation. There are no suits, claims, or
proceedings by or before any court, arbitrator or governmental authority
pending or, to the knowledge of the Sellers, threatened, against the Company,
except as disclosed in Schedule 5.20. The Company is not subject to any
judgment, award, order or decree. None of the Sellers nor any previous
stockholders of the Company, have any claims against the Company or its assets,
except as disclosed on Schedule 5.20.
5.21. Insurance. The Company maintains in full force and
effect the insurance policies listed in Schedule 5.21. There has been no
default in the payment of premiums on any policy, and to the knowledge of the
Sellers, there is no ground for cancellation or avoidance of any policy or for
reduction of the coverage provided by it. Based on the advice of the Company's
insurance broker and to the knowledge of the Sellers, such insurance policies
adequately insure the Company against all risks customarily insured against by
parties engaged in businesses similar to the Company's business.
5.22. Affiliate Interests. All of the officers and
directors of the Company are identified on Schedule 5.22. Except as disclosed
on Schedule 5.22, no officer, director or stockholder of the Company has any
substantial financial interest, direct or indirect, in any supplier, customer,
lessor or lessee of the Company, has property or assets belonging to the
Company, or, is entitled to any indemnification from the Company or is indebted
to the Company on amounts of loans or advances of any kind.
5.23. Employment Agreements. Except as otherwise disclosed
in Schedule 5.23, the Company does not have any employment, service or
consulting agreement with any person
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or entity which cannot be terminated at any time with or without cause and
without liability to the Company.
5.24. Credit Cards. All credit cards issued for the
account of the Company are listed in Schedule 5.24.
5.25. Name. Except as set forth on Schedule 5.25, the
Company has not done business in any name other than its corporate name.
5.26. Compliance With Laws. The Company has obtained all
governmental approvals, permits and licenses required to conduct its business,
all of which are in full force and effect and are not subject to any condition
other than those identified in Schedule 5.26. To the knowledge of Sellers, the
Company has fully complied with all laws, ordinances, regulations and orders,
including all zoning, safety and environmental laws, ordinances, regulations
and orders, applicable to the business or the properties of the Company, and
the present uses by the Company of its properties, whether leased or owned, do
not violate any such laws, ordinances, regulations or orders. To the knowledge
of Sellers, except as otherwise disclosed in Schedule 5.26, there is not
currently and in the past there has not been (i) any use, treatment, storage or
disposal of any hazardous waste, substance or material or pollutant on any of
the Company's properties, whether leased or owned, (ii) any spill, leakage,
discharge or release of any hazardous waste, substance or material or pollutant
thereon or therefrom, (iii) any off-site disposal by the Company of any
hazardous substance or pollutant in any location or (iv) any hazardous
condition in existence on or adjacent to any of the Company's properties,
whether leased or owned. To the knowledge of Sellers, the Company has not
purchased or sold asbestos or any other hazardous substance. To the knowledge
of the Sellers, the Company is not subject,
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<PAGE> 21
and will not be subject, to any liability or claim in connection with any
environmental law or any use, treatment, storage or disposal of any hazardous
substance or pollutant or any spill, leakage, discharge or release of any
hazardous substance or pollutant as a result of having owned or leased the
Premises or operated any business.
5.27. Legal Expenses. The Sellers, and not the Company,
have paid (or will pay from the Purchase Price) all professional fees incurred
in connection with the transaction contemplated by this agreement for the
period commencing with July 12, 1995 (except for legal fees incurred after July
12, 1995 in an amount not exceeding $15,000.00).
5.28. Disclosure. No representation or warranty made by
the Sellers in this Agreement, or in any statement, certificate or other
instrument furnished to the Buyer pursuant hereto, or in connection with the
transactions contemplated hereby, contains (or will contain when furnished) any
untrue statement of a material fact or omits (or will omit, when furnished) a
material fact necessary to make the statements herein or therein not
misleading, provided, however, that any disclosure of a fact or state of facts
set forth in any Schedule to this Agreement shall be deemed a disclosure of
such fact or state of facts with respect to each and every representation or
warranty of the Sellers, regardless of whether specific reference thereto is
made in the representation or warranty or any Schedule referenced therein.
6. Representations and Warranties of the Buyer. The Buyer
represents and warrants to the Sellers as set forth below.
6.1. Organization and Standing. The Buyer is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of North Carolina. The Buyer has full corporate power and
authority to execute, deliver and perform this Agreement, and
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<PAGE> 22
doing so will not violate any provision of law or contravene any provision of
its articles of incorporation or bylaws.
6.2. Agreement Approved. This Agreement and the
transactions provided for in this Agreement by the Buyer have been duly and
validly authorized by its Board of Directors. This Agreement has been duly
executed and delivered on behalf of Buyer and constitutes (and each other
document to be executed by the Buyer in connection with this Agreement, when
executed and delivered, will constitute) the legal, valid and binding
obligation of the Buyer enforceable in accordance with its terms.
6.3. No Default. The execution and delivery of this
Agreement by the Buyer and the consummation of the transactions provided for
herein do not and will not constitute a breach of, or default under, any law,
agreement, commitment, instrument, order, judgment or decree to which the Buyer
is a party or to which any of its assets is subject. Provided, however, that
consummation of the transactions may result in violation of certain covenants
in agreements governing indebtedness of the Buyer (for which the Buyer
anticipates obtaining waivers prior to Closing), but such a violation will not
affect Buyer's obligation to close under this agreement in accordance with its
terms.
6.4. Litigation. There are no suits, claims, or
proceedings by or before any court, arbitrator or governmental authority or, to
the knowledge of the Buyer, threatened, against the Buyer that could materially
affect the Buyer's ability to perform its obligations under this Agreement.
6.5. Financial Condition. The Buyer's shareholders'
equity as of August 31, 1995 was at least $25,000,000.00.
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7. Interim Operation of Business. The Sellers covenant
that from the date hereof through the Closing Date the Company shall:
(a) Conduct its business only in the ordinary course and
incur no liabilities, direct or contingent, except in the ordinary course of
business consistent with past practices;
(b) Use all reasonable efforts to preserve its business
intact, keeping available the services of the present officers thereof and
preserving relationships with suppliers, customers and others with whom the
Company has business dealings;
(c) Maintain its inventories at customary seasonal levels;
(d) Maintain all of its properties in customary repair,
order and condition and maintain in full force and effect all licenses,
franchises and other intangible assets owned by the Company;
(e) Maintain its books of account and records in the
usual, regular and ordinary manner, in accordance with generally accepted
accounting principles applied on a consistent basis;
(f) Not pay or declare any dividends, not pay or commit
to pay any bonuses or salary increases, not make or commit to make any
distribution of assets, not make or commit to make any loans or otherwise
dispose of its assets other than in the ordinary course of business consistent
with past practices; provided, however, that the Company may make payments to
Albert A. Foer and Martin L. Stein to compensate them for the depletion of cash
value of life insurance owned by the Company, so long as such payments do not
cumulatively total more than $35,000 (whether before or after the date hereof);
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(g) Advise the Buyer of any vendor purchase orders the
Company intends to execute and not execute any vendor purchase order to which
the Buyer objects (provided, however, that the Company may make special
customer orders and fill-in reorders, not to exceed in the aggregate
$25,000.00);
(h) Promptly advise the Buyer in writing of any material
adverse change, known or threatened, in the financial condition, business or
affairs of the Company; and
(i) Not make any change to its Articles of Incorporation,
as amended, or Bylaws.
8. Conditions to Obligations of the Buyer. The obligations of
the Buyer under this Agreement are subject to the fulfillment prior to Closing
of each of the following conditions.
8.1. Representations True. All representations and
warranties of the Sellers contained in this Agreement, all of which shall be
deemed made again as of the Closing Date, shall be true and complete.
8.2. Performance of Obligations. The Sellers shall have
performed and complied with all covenants, terms and conditions required by
this Agreement to be performed and complied with by them prior to the Closing.
8.3. No Casualty. None of the Company's assets or
property leased by the Company shall have suffered damage by fire, flood or
other casualty so as to impair the ability of the Buyer to operate the
Company's business after the Closing Date or to increase the expense thereof to
a material extent.
8.4. Closing Certificate. The Buyer shall have received
the Sellers' written certification with respect to the satisfaction of the
conditions set forth in this Section 8.
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<PAGE> 25
8.5. Transfer Taxes. The Sellers shall have paid, or made
provision for payment by a method acceptable to Buyer, all transfer taxes,
sales taxes, property taxes or similar taxes due or to become due because of
the transactions contemplated hereby.
8.6. Insurance. The Sellers shall have delivered to the
Buyer written confirmation from the Company's insurance company or broker that
each policy of insurance issued by an insurance company identified in Schedule
5.21 is in full force and effect at the Closing Date and has been at all times
since its date of issue in full force and effect.
8.7. Closing Documents. The Sellers shall have delivered
all documents and taken all actions required at the Closing under Section 10.
8.8. Litigation. There shall be no pending or threatened
litigation or any investigation by any governmental body or any legal,
administrative or arbitration proceeding pending or threatened which may have a
material adverse effect on the operation of the Company's business by the
Buyer, except as may be disclosed at Schedule 5.20. No action shall have been
taken to enjoin the transactions contemplated by this Agreement.
8.9. Legal Opinion. The Buyer shall have received the
written opinion of Silver, Freedman and Taff, counsel for the Sellers, in form
and substance reasonably satisfactory to the Buyer, as to certain matters
concerning the Company, the Stock, and the enforceability of this Agreement.
8.10. Resignations, Accounts, Records, Releases. The Buyer
shall have received from the Sellers written resignations of all officers and
directors of the Company as of the Closing Date to be effective immediately
following the Closing, a written statement of the name of each bank in which
the Company maintains an account or safe deposit box and the names of
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<PAGE> 26
all persons authorized to draw thereon or have access thereto and in what
combinations, the names of all persons authorized to borrow money for, or who
hold powers of attorney from, the Company together with a statement of the
terms thereof. The Buyer shall also have received from the Sellers'
possession, at the office of the Company, of the records, books, corporate
seal, stock book, minute book and all documents, instruments, check-books and
other records, agreements and contracts of the Company and written instructions
to each of the Company's banks canceling the right of all current signatories
as of the Closing Date to sign checks or otherwise transact any business with
such banks with respect to accounts of the Company.
The Buyer shall also have received from each of the Sellers and each
of the Directors and Officers of the Company, a document pursuant to which each
such person releases and forever discharges the Company and the Buyer from any
and all claims, demands, damages, actions, causes of action, or suits at law or
inequity, of any kind or nature arising from actions occurring prior to the
Closing Date or existing as of the Closing Date (except, as to Goldie Sheinbaum
and the Estate of Melvin Foer, amounts payable under the promissory notes as
amended pursuant to Section 8.16).
8.11. Lease Estoppels and Consents. The Sellers shall have
delivered to the Buyer copies of requests for consents and estoppel
certificates in form satisfactory to the Buyer from each lessor of real or
personal property identified in Schedule 5.9 attached hereto, which requests
shall be mailed at the completion of the Closing. The consent and estoppel
certificates shall provide that notwithstanding the transaction contemplated by
this Agreement, the Company's leases shall remain in full force and effect with
no increases in rent or other fees, and that the Company may utilize any of the
Buyer's trade names. In addition, the Sellers shall
22
<PAGE> 27
have delivered to the Buyer evidence of termination of the Company's current
lease for the corporate offices at 8700 Georgia Avenue, Silver Spring, MD,
effective as of October 31, 1995 and of modification of the lease to provide
that the tenant shall have no responsibility with respect to the condition of
the premises, including for repairs or return to previous condition, except in
connection with changes or damages occurring after the Closing Date and before
October 31, 1995.
8.12. Consignment Vendors. The Management Sellers will
have used their best efforts to obtain and deliver to the Buyer verification of
the Company's consignment inventories from each of the Company's consignment
vendors.
8.13. Consents. To the extent reasonably required by
Buyer, each party to any material agreement with the Company which requires
consent to the transaction contemplated by this Agreement, shall have consented
to the transactions contemplated by this Agreement and shall not have
terminated or threatened to terminate such agreement.
8.14. No Adverse Change. As of the Closing, no event shall
have occurred and no circumstance shall exist that may materially affect or, in
the reasonable judgment of the Buyer, threatens to affect the Company's
business or condition, prospects, or properties.
8.15. Repayment of Loans; Credit Cards. All indebtedness
of the directors and officers of the Company owed to the Company shall be
repaid on or before the Closing Date, and all indebtedness of all other
employees unless advanced in the ordinary course of business (such as trade
receivables or travel advances) shall be repaid on or before the Closing Date.
The Sellers shall certify on the Closing Date that all such indebtedness has
been repaid. All credit cards of all directors, officers and employees and
their relatives and others issued in the name
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<PAGE> 28
of the Company shall be returned to the Company on or before the Closing Date
and shall be delivered to the Purchaser on the Closing Date.
8.16. Note Amendment. The Company is currently obligated
to Goldie Sheinbaum ("Sheinbaum") in the principal amount of $250,000.00, as
evidenced by the Company's Promissory Note dated June 11, 1990 and is indebted
to The Estate of Melvin Foer in the amount of $67,365.95 (representing
principal and accrued interest through September 15, 1995), as evidenced by the
Company's Promissory Note dated July 1, 1984, (the "Notes"). The Company shall
have amended the Notes to provide that (i) they shall bear interest at the
"prime rate" as stated in the Wall Street Journal on the 15th day of each month
(or the first business day thereafter) and (ii) they shall be repaid in full by
January 15, 1996.
8.17. Legal Fees. The Sellers shall deliver a certificate
from the law firm of Silver, Freedman & Taff stating that obligations of the
Company (or for which the Company may be responsible) to the law firm through
the Closing Date have been satisfied.
8.18. Agreements with Employees. Albert A. Foer, Martin L.
Stein, Ronald Sheinbaum and Jack Land shall have agreed with the Company as
follows. Messrs. Foer, Stein, Sheinbaum and Land shall be prohibited from the
following activities for a period of three years from the Closing Date: (a)
soliciting for employment or hiring for themselves, or any other person or
entity, persons employed by the Company as of the Closing, except for home
office employees terminated by the Company after Closing or employees who have
not been Company employees for at least one year prior to their hiring, (b)
advertising to the public their prior affiliation with the Company, (c)
soliciting for the sale of jewelry persons who were customers of the Company as
of the Closing Date, and (d) obtaining, for themselves or any other person
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<PAGE> 29
or entity, a lease for a jewelry store in any mall or shopping center in which
the Company operates as of the Closing Date. Provided, however, that this
Section 8.18 shall not be violated by Messrs. Foer, Stein, Sheinbaum or Land
either (i) being involved in opening a retail store in any mall or shopping
center if such store does not offer for sale merchandise commonly associated
with retail jewelry stores, (ii) are employed by a retail jeweler existing as
of the Closing Date that opens a store prohibited in part (d) above, so long as
not personally involved in deciding to obtain such a location or (iii)
disclosing their prior affiliation with the Company to a potential employer or
by way of a resume, biography or curriculum vitae. By execution of this
Agreement, Messrs. Foer, Stein, Sheinbaum and Land acknowledge that their
agreements in this Section shall automatically be effective as of the
completion of the Closing, without the requirement of any additional action.
8.19. SCAC Contract. The Sellers shall have delivered to
the Buyer an agreement between the Company and Shoppers Charge Account Co.
("SCAC") modifying the Company's contract with SCAC dated August 31, 1994, as
amended, and the Operating Agreement between the Company and SCAC, satisfactory
in form and substance to Buyer in its sole and absolute discretion.
8.20. Financial Statements. The Sellers shall have
delivered to the Buyer audited financial statements for the Company as of June
30, 1995 showing a net worth not less than zero, and showing no material change
from the unaudited financial statements as of June 30, 1995 previously provided
to Buyer.
9. Conditions to Obligations of the Sellers. The obligations of
the Sellers under this Agreement are subject to the fulfillment prior to the
Closing of each of the following conditions.
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9.1. Representations True. All representations and
warranties of the Buyer contained in this Agreement, all of which shall be
deemed made again as of the Closing Date, shall be true and complete.
9.2. Performance of Obligations. The Buyer shall have
performed and complied with all covenants, terms and conditions required by
this Agreement to be performed and complied with by it prior to the Closing.
9.3. Closing Certificate. The Sellers shall have received
the Buyer's written certification with respect to the satisfaction of the
conditions set forth in this Section 9.
9.4. Legal Opinion. The Sellers shall have received the
written opinion of Zimmer & Zimmer, L.L.P., counsel for the Buyer, in form and
substance reasonably satisfactory to the Sellers, as to certain matters
concerning the Buyer and the enforceability of this Agreement.
9.5. [Reserved].
10. Actions To Be Taken By Seller At Closing. At the Closing, in
addition to the transfer of certificates for the Stock, the Sellers shall
execute and deliver, or cause to be executed and delivered, to the Buyer, good
standing certificates for the Company and such other documents as are called
for under this Agreement or may be reasonably requested by Buyer:
11. Actions To Be Taken By Buyer At The Closing. At the Closing,
the Buyer shall make the Closing Date Payment to the Sellers, and deliver such
other documents as are called for under this Agreement or reasonably requested
by Sellers (including financial statements for the Buyer as of August 31, 1995
showing compliance with the financial condition requirement contained in
Section 6.5.
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<PAGE> 31
The Buyer shall also cause the Company to offer to transfer to Albert
A. Foer, Goldie Sheinbaum, Jack Land, Don Bowen, Martin L. Stein, Peter Barber,
Ronald Sheinbaum and Michael Brown the vehicles they currently operate. Each
person who accepts an offer to transfer a vehicle currently leased to the
Company shall within 60 days after the Closing obtain a release of the Company
from all obligations associated with the lease. For such vehicles that are
owned by the Company, the Company shall have been paid the higher of book value
(as shown on the Company's June 30, 1995 financial statement) or the NADA
wholesale price as of the Closing.
The Buyer will cause the Company to offer to transfer to the insureds
any Company-owned life insurance policies in exchange for an amount equal to
the value of such policies as shown on the Company's books, provided that the
Company is released from any associated liabilities.
12. Actions To Be Taken By Buyer After Closing. The Buyer shall
cause the Company to make severance payments to all corporate office employees
of the Company (other than those identified on Section 3.2) in an amount equal
to one week's salary (as of the date of this Agreement) for each year of
service to the Company, up to a maximum of eight weeks' salary, plus accrued
vacation according to Company policy. Such payments shall be made in a timely
manner by the Company after termination of such employees (and, in any event,
no later than the time required by applicable law).
The Buyer shall use its best efforts to secure releases from
NationsBank of the personal guarantees of the Company's obligations by Albert
A. Foer and Goldie Sheinbaum and of the lien on the real property located at
8700 Georgia Avenue, Silver Spring, Maryland.
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<PAGE> 32
The Buyer shall cause the Company to sell to each Seller, for a period
of three years following the Closing Date, jewelry for their personal use and
not for resale, at the Company's wholesale cost for such jewelry.
13. Survival of Warranties. All covenants, representations and
warranties contained herein shall survive any investigation at any time made by
or on behalf of the Buyer, its successors and assigns (the "Indemnified Party")
and shall survive the Closing.
14. Indemnification.
14.1. Indemnification of Buyer and Company. The Sellers
hereby severally agree to indemnify and hold the Buyer and the Company
(together with their successors and assigns, each an "Indemnified Party")
harmless from any damage, expense or loss resulting from:
(i) Any misrepresentation, breach of warranty or
nonfulfillment of any covenant, undertaking or agreement on
the part of Seller under this Agreement or any
misrepresentation in or omission from any certificate or other
instrument furnished or to be furnished to the Buyer
hereunder;
(ii) All liabilities of, or claims against, the
Company that are attributable or chargeable to the ownership
and operation of the business of the Company prior to the
Closing and are not reflected in the Financial Statements or
the Schedules attached hereto, which liabilities and claims
include all debts, liabilities and obligations of any nature,
absolute or contingent, foreseen or unforeseen, arising from
any transaction occurring prior to the Closing; and
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(iii) All actions, suits, proceedings, demands,
assessments, judgments, costs and expenses (including interest
paid thereon and all reasonable attorneys' fees incurred)
incident to the foregoing.
Notwithstanding the foregoing, the Buyer will not be entitled to a
claim against the Sellers under this Section 13 unless the aggregate amount of
such claim is at least $25,000.00, Buyer's right to indemnification under
Section 13 shall be capped at a maximum recovery of $500,000.00, and
indemnification of the Buyer by any one Seller shall not exceed that Seller's
proportionate share of the Purchase Price net of all offsets (as identified on
Schedule A).
The Buyer hereby agrees to indemnify and hold the Sellers (each an
"Indemnified Party") harmless from any damage, expense or loss resulting from
(i) any misrepresentation, breach of warranty or nonfulfillment of any
covenant, undertaking or agreement on the part of the Buyer under this
Agreement or any misrepresentation in or omission from any certificate or other
instrument furnished or to be furnished to the Buyer hereunder; (ii) all
liabilities of, or claims against, the Company that are attributable or
chargeable to the ownership and operation of the business of the Company
following the Closing; and (iii) all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses, (including interest paid thereon
and all reasonable attorneys fees incurred) incident to the foregoing. Without
limitation of the foregoing, the Buyer agrees to indemnify (i) Albert A. Foer
and Goldie Sheinbaum from their guarantees of the Company's lease for its store
at Beltway Plaza and their guarantees of the Company's obligations to
NationsBank, and (ii) 8700 Georgia Avenue Limited Partnership from any loss,
damages or expenses incurred as a result of efforts by NationsBank (following
the
29
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Closing) to foreclose on the lien on the real property located at 8700 Georgia
Avenue, Silver Spring, Maryland securing the Company's obligations to
NationsBank.
14.2. Tax Benefit Adjustment. The foregoing
indemnification shall be net of any tax benefit actually realized by the
Indemnified Party in connection with a loss indemnified hereunder, but after
giving effect to any tax which may be required to be paid on the
indemnification payment.
14.3. Insured Claims. If a claim asserted against the
Indemnified Party, which could constitute a basis for indemnification
hereunder, is or may be covered by liability insurance, the Indemnified Party
agrees to use reasonable efforts to cause the insurer to pay the claim.
14.4. Termination. (a) On the third anniversary of the
Closing Date (the "Payment Date"), the indemnification obligations provided for
above shall terminate, except with respect to (i) any claim of which the
Indemnified Party has provided notice prior to the Payment Date; (ii) any claim
for taxes, and interest and penalties thereon, payable by the Indemnified Party
under this Agreement; (iii) any breach of the representations and warranties
set forth in Section 5.26; and (iv) any claim for products liability
recoverable from the Sellers under this Agreement.
14.5. Setoff. Buyer may setoff amounts for which it is
entitled to indemnification against any Contingent Deferred Payments due to
Sellers.
15. Settlement of Claims.
15.1. Notice. If any claim that is covered by Section 14
above is made against an Indemnified Party, the Indemnified Party shall give
prompt written notice of such claim (the
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"Indemnity Notice") to the Sellers. Failure to give or delay in giving the
Indemnity Notice shall not relieve a Seller of the Seller's obligation to
indemnify unless, and to the extent that, the Seller is materially prejudiced
by the failure or delay.
15.2. Defense and Settlement. (a) Upon receipt by the
Sellers of the Indemnity Notice, the Sellers shall have the responsibility of
defending the claim, and all expenses (including attorneys' fees) incurred in
connection therewith shall be paid by the Sellers, and shall notify the
Indemnified Party of their intention to defend within 10 days of receipt of
notice. The Indemnified Party shall have the right to be represented by
counsel at its own expense in any defense. If any Seller defends the claim,
the defending Seller or Sellers shall have the exclusive right to settle any
such matter, either before or after the initiation of litigation, at such time
and upon such terms as it deems fair and reasonable, provided that the Sellers,
except with the consent of the Indemnified Party, shall not consent to entry of
judgment or enter into any settlement that admits wrongdoing by the Company,
involves injunctive relief against the Company, or that does not include an
unconditional release by the claimant of the Indemnified Party from all
liability in respect to such matter.
(b) If a claim under Section 13 is not defended by any Seller
and the claim is determined favorably to the Indemnified Party, the Indemnified
Party shall give notice to the Sellers of the amount of the expenses (including
reasonable attorneys' fees) incurred with respect to such claim, and the
Sellers shall remit such amount to the Indemnified Party promptly. If the
claim is finally determined adversely to the Indemnified Party or if the
Indemnified Party compromises the claim, the Indemnified Party shall give
notice to the Sellers of the amount of such claim as finally determined or
compromised (including the amount of the Indemnified
31
<PAGE> 36
Party's costs and interest with respect thereto and attorneys' fees, if
applicable), and the Sellers shall remit such amount to the Indemnified Party
promptly except to the extent that payment is setoff against any Deferred
Payments. References herein to costs and attorneys' fees shall also include
all costs and attorneys' fees incurred in appeals.
16. Expenses of the Parties. Except as specifically provided
herein, all expenses incurred by or on behalf of the parties hereto including,
without limitation, all fees and expenses of agents, representatives, counsel
and accountants employed by the parties in connection with the preparation of
this Agreement and the consummation of the transactions contemplated by this
Agreement shall be borne solely by the party who shall have incurred such
expenses and the other party shall have no liability in respect thereof. The
Company will bear its own normal and customary audit expenses.
17. Right to Specific Performance. In addition to other remedies
available at law or in equity, if the Buyer or the Sellers fail to perform
their respective obligations hereunder, the other shall have the right (i) to
terminate its obligations hereunder by giving written notice of such
termination or (ii) to require specific performance of the obligation not
performed.
18. [Reserved].
19. No Other Bids. Unless this Agreement is terminated by Buyer,
Sellers will not solicit other bids for the Stock, accept any bids therefor,
whether solicited or unsolicited, negotiate with any other person or entity
with respect to the sale of the Stock, or vote in favor of any merger or share
exchange involving the Company.
20. Tax Election. The parties acknowledge that Buyer intends to
make an election pursuant to Section 338(a) of the Internal Revenue Code in
connection with its purchase of the
32
<PAGE> 37
Stock. The Sellers and the Company agree to cooperate with the Buyer in making
timely joint Section 338(h)(10) elections in accordance with the Internal
Revenue Code.
21. Miscellaneous.
21.1. Notices. All notices and other communications
provided for hereunder shall be in writing, unless otherwise specified, and
shall be deemed to have been duly given if delivered personally, given by
prepaid telegram, overnight courier, facsimile, or mailed, registered or
certified mail, postage prepaid, to the following addresses or at such other
addresses as the parties hereto may designate from time to time in writing:
If to the Sellers:
As set forth on Schedule A
If to the Buyer:
Reeds Jewelers, Inc.
2525 S. 17th Street
Wilmington, North Carolina
Attention: Alan M. Zimmer
President and CEO
21.2. Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of North
Carolina. The section headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
21.3. Entire Agreement. All understandings and agreements
of the parties are merged into this Agreement and the instruments and
agreements specifically referred to herein.
33
<PAGE> 38
21.4. Successors. This Agreement inures to the benefit of
and shall be binding on each of the parties hereto or any of them, their
respective representatives and successors.
21.5. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
21.6. Severability. In the event any provision of this
Agreement is deemed to be unenforceable, the remainder of this Agreement shall
not be affected thereby and each provision hereof shall be valid and enforced
to the fullest extent permitted by law.
21.7. Brokerage. The Buyer represents to the Sellers that
it has not incurred any liability for any brokerage or similar services in
connection with the transactions contemplated in this Agreement and agrees to
hold the Sellers harmless from any expenses the Buyer may have incurred in
connection with such services. The Sellers represent to the Buyer that they
have not incurred any liability for any brokerage or similar services in
connection with the transactions contemplated in this Agreement, and agree to
hold the Buyer harmless from any expenses the Sellers may have incurred in
connection with such services.
21.8. Efforts to Close. Buyer and Sellers each agree to
use their best efforts to complete the transactions contemplated by this
Agreement, including taking all steps reasonably necessary to satisfy
conditions precedent to the obligations contained herein.
21.9. COBRA Coverage. Following the Closing, the Buyer
will cause the Company to comply with all laws concerning health-care benefit
continuation for employees who are terminated (and will offer coverage required
by law at the expense of the employees).
34
<PAGE> 39
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written down.
REEDS JEWELERS, INC.
By: Alan M. Zimmer
-----------------------------------------
Title: President and CEO
-----------------------------------
SELLERS
/s/ Albert A. Foer
--------------------------------------------
Albert A. Foer
/s/ Martin L. Stein
--------------------------------------------
Martin L. Stein
/s/ Jack Land
--------------------------------------------
Jack Land
The Estate of Melvin Foer
By: Albert A. Foer
-----------------------------------------
Title: Personal Representative
--------------------------------------
Paul Foer by Albert A. Foer attorney-in-fact
--------------------------------------------
Paul Foer
Gordon Foer by Albert A. Foer attorney-in-fact
--------------------------------------------
Gordon Foer
Laura Jaffe by Albert A. Foer attorney-in-fact
--------------------------------------------
Laura Jaffe
/s/ Ronald Sheinbaum
--------------------------------------------
Ronald Sheinbaum
/s/ Bonnie Gorman
--------------------------------------------
Bonnie Gorman
35
<PAGE> 40
THE MELART JEWELERS, INC.
(solely for the purpose of agreeing to make
the payments called for in Section 3.2)
By: Albert A. Foer
-------------------------------------------
Title: Chairman and CEO
-------------------------------------
36
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENT OF REEDS JEWELERS FOR THE SIX MONTHS ENDED AUGUST 31, 1995,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> AUG-31-1995
<CASH> 134,000
<SECURITIES> 0
<RECEIVABLES> 35,730,000
<ALLOWANCES> 2,695,000
<INVENTORY> 29,991,000
<CURRENT-ASSETS> 66,292,000
<PP&E> 22,108,000
<DEPRECIATION> 12,013,000
<TOTAL-ASSETS> 79,161,000
<CURRENT-LIABILITIES> 15,922,000
<BONDS> 32,600,000
<COMMON> 420,000
0
0
<OTHER-SE> 26,232,000
<TOTAL-LIABILITY-AND-EQUITY> 79,161,000
<SALES> 33,330,000
<TOTAL-REVENUES> 38,057,000
<CGS> 19,943,000
<TOTAL-COSTS> 19,943,000
<OTHER-EXPENSES> 13,976,000
<LOSS-PROVISION> 1,263,000
<INTEREST-EXPENSE> 1,642,000
<INCOME-PRETAX> 1,233,000
<INCOME-TAX> 407,000
<INCOME-CONTINUING> 826,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 826,000
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
