<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 28, 1995
-----------------
FAMILY BARGAIN CORPORATION
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 0-16309 51-0299573
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(State of incorporation) (Commission File Number) (IRS Empl. ID No.)
315 East 62nd Street, New York, New York 10021
-----------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
</TABLE>
Registrant's telephone number, including area code (212) 980-9670
--------------
<PAGE> 2
Item 2. Acquisition and Disposition of Assets
On November 13, 1995, Family Bargain Corporation (the "Company")
acquired all of the outstanding shares of common stock of Capin Mercantile
Corporation, an off-price clothing and housewares retailer with 31 stores
operating in the states of Arizona, New Mexico and Texas. Immediately
following completion of the acquisition, the name of Capin Mercantile
Corporation was changed to Factory 2-U, Inc. ("Factory 2-U"). The acquisition
was completed pursuant to the Stock Purchase Agreement, dated August 29, 1995,
by and between the Company and the former shareholders of Factory 2-U. The
Company paid $1.85 million in total consideration for acquiring all of the
common stock of Factory 2-U and a promissory note (the "Purchased Debt")
payable to certain former shareholders and other creditors of Factory 2-U. Of
the $1.85 million consideration, $625,000 was paid upon the closing of the
acquisition of Factory 2-U, and the balance is payable pursuant to three
Promissory Notes of the Company in the amount of $125,000 (the "Downpayment
Note"), $600,000 (the "Contingent Note") and $500,000 (the "Absolute Note").
Principal and interest on the Downpayment Note is due in full on December 31,
1995. The amount payable under the Contingent Note is subject to adjustment,
as described in the Stock Purchase Agreement, based upon the net proceeds from
the sale, or appraised value at a future date, of certain real property
consisting of a facility that housed the Factory 2-U corporate offices and
distribution center and adjacent undeveloped land, all located in Nogales,
Arizona (the "Factory 2-U Real Property"). Principal and interest under the
Absolute Note are payable in eleven quarterly installments commencing May 15,
1996 and ending on October 30, 1998. All of the above notes bear interest at a
rate of 8.75% per year, subject to penalties and adjustment in the event of
failure to pay amounts when due.
In connection with the acquisition, non-affiliate creditors of
Factory 2-U, representing over 80% of the trade accounts payable with invoice
dates prior to September 1, 1995, agreed to reschedule the payment of their
receivables from Factory 2-U. This rescheduling provides for the payment of
approximately $5.6 million in 24 equal monthly installments ending October 15,
1997. Factory 2-U will continue its efforts to enter into similar debt
reschedulings with the holders of remaining pre-acquisition trade payable
obligations.
Upon consummation of the acquisition of Factory 2-U, Factory 2-U
entered into a $10.0 million revolving credit facility with Finova Capital
Corporation (the "Credit Facility") secured by a lien on all of the assets of
Factory 2-U, a Guaranty of the Company, and a pledge of certain other assets
owned by the Company. The Credit Facility bears interest at a floating rate,
based on a prime rate of interest, plus two percent. Borrowing under the
Credit Facility is limited to 50% of eligible inventory. Upon consummation of
the acquisition, Factory 2-U's former revolving line of credit in the amount
of approximately $3.6 million was paid in full with proceeds from the Credit
Facility.
The Company, through its Factory 2-U subsidiary, plans to continue to
operate 29 of the 31 Factory 2-U stores. While the Factory 2-U stores will be
operated separately from the Family Bargain stores operated by General
Textiles, most administrative functions will be consolidated and their cost
allocated between the two subsidiaries. The Company intends to sell the
Factory 2-U Real Property.
<PAGE> 3
Prior to the execution of the Stock Purchase Agreement, there was no
material relationship between the Company and Factory 2-U or between the
directors and officers of the Company and the directors and officers of Factory
2-U.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired.
Filed with this report are the following financial statements of
Factory 2-U:
(1) Audited balance sheet as of December 31, 1994 and the related
statements of operations, stockholders' equity (deficiency) and
cash flows for the year then ended.
(2) Audited balance sheets as of December 31, 1992 and 1993 and
the related statements of earnings, stockholders' equity and cash
flows for the years then ended.
It is impractical to provide interim financial statements for the period
subsequent to December 31, 1994 at this time. Interim financial statements
will be filed within sixty (60) days.
(b) Pro Forma Financial Information.
It is impractical to provide pro forma financial information at this
time. Pro forma financial information will be filed within sixty (60) days.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
10.1 Stock purchase agreement between Family Bargain Corporation, as buyer ("Buyer"), the shareholders of Capin
Mercantile Corporation, as sellers ("Sellers"), and Sellers' Agent dated as of August 29, 1995, omitting exhibits
and schedules.
10.2 Amendment to Stock Purchase Agreement dated November 10, 1995 between Buyer and Sellers.
99.1 Press release issued August 17, 1995.
99.2 Press release issued November 14, 1995.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FAMILY BARGAIN CORPORATION
/s/ WILLIAM W. MOWBRAY
-------------------------------------
William W. Mowbray
Chief Financial Officer
<PAGE> 4
CAPIN MERCANTILE CORPORATION
FINANCIAL STATEMENTS FOR THE
YEAR ENDED DECEMBER 31, 1994
AND INDEPENDENT AUDITORS' REPORT
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Capin Mercantile Corporation
We have audited the accompanying balance sheet of Capin Mercantile Corporation
(the "Company") as of December 31, 1994, and the related statements of
operations, stockholders' equity (deficiency), and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's loss from operations, difficulties in
meeting its loan agreement covenants, and net working capital deficiency raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
DELOITTE & TOUCHE LLP
April 20, 1995
(May 1, 1995 as to paragraph 4 of Note 6)
<PAGE> 6
CAPIN MERCANTILE CORPORTATION
BALANCE SHEET
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,471,313
Receivables (Note 6):
Trade accounts, less allowance for doubtful
accounts and sales returns of $58,000 950,571
Other 562,716
Nonoperating affiliates (Note 3) 11,281
-----------
Total receivables 1,524,568
-----------
Merchandise inventories (Note 6) 12,087,327
Prepaid expenses and supplies 486,628
-----------
Total current assets 15,569,836
-----------
LAND HELD FOR SALE (Note 4) 531,210
PROPERTY AND EQUIPMENT, NET (Notes 4 and 6 8,906,864
OTHER ASSETS 298,959
-----------
TOTAL $25,306,869
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Trade accounts payable $13,933,547
Accrued expenses (Note 5) 2,614,179
Due to nonoperating affiliates (Note 3) 183,889
Current portion of notes payable to related parties (Note 3) 434,188
Long-term debt reclassified as current (Note 6) 2,716,241
-----------
Total current liabilities 19,882,044
-----------
DEFERRED INCOME AND LIABILITIES (Note 9) 783,455
LONG-TERM DEBT, NET OF CURRENT PORTION (Note 6) 315,854
NOTES PAYABLE TO RELATED PARTIES, NET OF
CURRENT PORTION (Note 3) 1,943,016
SUBORDINATED NOTES PAYABLE TO STOCKHOLDERS (Note 7) 2,726,000
Total liabilities 25,650,369
COMMITMENTS AND CONTINGENCIES (Notes 3, 6, 9 and 10)
STOCKHOLDERS' DEFICIENCY (Note 8):
Common stock, $.01 par value, 1,000,000 shares authorized,
168,399 shares issued and outstanding 1,684
Additional paid-in capital 4,803,015
Deficit (5,148,199)
-----------
Total stockholders' deficiency (343,500)
-----------
TOTAL $25,306,869
===========
</TABLE>
See notes to financial statements.
-2-
<PAGE> 7
CAPIN MERCANTILE CORPORATION
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
NET SALES $93,875,685
COST OF SALES 69,055,122
-----------
Gross margin 24,820,563
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OPERATING EXPENSES:
General and administrative expenses (Notes 3 and 9) 13,935,074
Selling expenses (Note 9) 17,239,128
Restructuring expenses (Notes 1, 5 and 11) 300,000
-----------
Total operating expenses 31,474,202
-----------
LOSS FROM OPERATIONS (6,653,639)
-----------
OTHER INCOME (EXPENSE):
Interest income 38,730
Interest expense (661,663)
Gain on sale of assets 407,644
Gain on foreign currency transactions 62,721
Net rental operations 52,489
Miscellaneous 106,801
-----------
Total other income 6,722
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NET LOSS $(6,646,917)
===========
</TABLE>
See notes to financial statements.
-3-
<PAGE> 8
CAPIN MERCANTILE CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
YEAR ENDED DECEMBER 31,1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL RETAINED STOCKHOLDERS'
COMMON PAID-IN EARNINGS EQUITY
STOCK CAPITAL (DEFICIT) (DEFICIENCY)
----- ------- --------- ------------
<S> <C> <C> <C> <C>
Balances, January 1, 1994 $1,684 $4,400,901 $ 1,723,718 $ 6,126,303
Distributions (225,000) (225,000)
Contributions 402,114 402,114
Net loss (6,646,917) (6,646,917)
------ ---------- ----------- -----------
Balances, December 31, 1994 $1,684 $4,803,015 $(5,148,199) $ (343,500)
====== ========== =========== ===========
</TABLE>
See notes to financial statements.
-4-
<PAGE> 9
CAPIN MERCANTILE CORPORATION
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net loss $ (6,646,917)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 669,303
Gain on sale of assets (407,644)
Changes in assets and liabilities:
Increase in receivables (488,028)
Increase in other receivables (317,199)
Decrease in merchandise inventories 716,912
Increase in prepaid expenses and supplies (319,217)
Decrease in other assets 14,464
Increase in trade accounts payable 6,609,669
Increase in accrued expenses 496,771
Decrease in due to nonoperating affiliates (36,616)
Decrease in deferred income and liabilities (132,195)
------------
Net cash provided by operating activities 159,303
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 573,660
Increase in notes receivable from nonoperating affiliates (4,259)
Collections of notes receivable 28,858
Additions to property, plant and equipment (936,145)
Decrease in cash value of officers' life insurance 125,745
------------
Net cash used in investing activities (212,141)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in cash surrender value policy loans (32,676)
Borrowings on line of credit 19,335,000
Repayments of line of credit (19,335,000)
Payments of long-term debt (171,966)
Payments on notes payable to related parties (177,809)
Cash contributions 402,114
Cash distributions (225,000)
------------
Net cash used in financing activities (205,337)
------------
NET DECREASE IN CASH (258,175)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,729,488
------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,471,313
============
</TABLE>
See notes to financial statements.
-5-
<PAGE> 10
CAPIN MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994
1. ORGANIZATION AND BASIS OF PRESENTATION
Capin Mercantile Corporation (the "Company") operated 38 retail stores
during 1994 in the Southwest United States located in Arizona, New Mexico
and Texas. The Company operates stores under the following trade names:
Factory 2-U, Capin's, Parisian and Robinson's True Value Hardware. The
majority of stores are Factory 2-U locations.
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company incurred a net loss for the year ended December 31,
1994 of approximately $6,600,000 and at December 31, 1994 the Company's
current liabilities exceeded its current assets by approximately
$4,300,000. As a result, the Company is in technical default of loan
agreements with a bank (Note 6). These factors among others may indicate
that the Company will be unable to continue as a going concern for a
reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and classifications of liabilities that might be necessary should the
Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to comply
with the terms and covenants of its debt agreements and to obtain
additional financing or refinancing as necessary. Management is continuing
to negotiate the terms of its indebtedness and has established a
restructuring plan to generate cash to help relieve current cash
constraints. These plans include:
- Generating cash through the sale of non-essential assets.
- Reducing headcount, thus reducing wages and payroll taxes.
- Reducing average inventory levels and restructuring distribution
center operations.
- Geographically centralizing the chain and closing marginally
profitable stores. At December 31, 1994, the Company has recorded
$300,000 of restructuring charges in connection with the closing of
stores (Note 11).
Although the results of these actions cannot be predicted, the Company
believes that these steps are appropriate and will help the Company
effectively reorganize its operations and ultimately to return to
profitability.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS AND SUPPLEMENTARY CASH FLOW INFORMATION - The
Company considers all short-term investments purchased with an original
maturity of three months or less to be cash equivalents. At December 31,
1994, cash equivalents include cash on hand and checking accounts held in
banks.
-6-
<PAGE> 11
Interest paid during 1994 was $661,663.
TRADE ACCOUNTS RECEIVABLE - Trade accounts receivable are recorded net of
the allowance for doubtful accounts and sales returns. The Company uses the
allowance method for recording bad debts for financial reporting purposes.
MERCHANDISE INVENTORIES - Inventories are stated at the lower of cost or
market (net realizable value). Cost is generally determined using the
first-in, first-out (FIFO) method for inventory held in the distribution
center. Cost is generally determined using the retail inventory method for
inventory at the retail stores.
LAND HELD FOR SALE - Land held for sale is recorded at the lower of cost or
estimated net realizable value. Costs incurred and capitalized in
connection with development include architectural, engineering and legal
fees.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation of property and equipment is calculated using the
straight-line and declining-balance methods over the estimated useful lives
of the respective assets. Leasehold improvements are amortized using the
straight-line method over the lesser of the lease terms or the estimated
useful lives of the related improvements.
The estimated useful lives of the property and equipment follow:
<TABLE>
<CAPTION>
Lives
-----
<S> <C>
Buildings and improvements 19-40 years
Store fixtures and equipment 10-20 years
Office furniture and equipment 10-20 years
Transportation equipment 2-10 years
Computer equipment 4-7 years
Leasehold improvements 5-15 years
</TABLE>
INCOME TAXES - With the consent of its stockholders, the Company has
elected S Corporation status. No provision for income taxes is made as S
Corporations are not generally subject to income taxes. All earnings or
loss and income tax credits flow through to the individual stockholders who
are to report the earnings or loss and income tax credits on their personal
income tax returns.
ALLOCATION OF PROFITS AND LOSSES - The profits and losses of the Company
are allocated to the stockholders based on their respective ownership
percentages.
DEFERRED LEASE OBLIGATION - Rent expense is generally recognized on a
straight-line basis over the terms of the related leases. Deferred lease
obligation represents rent expense recognized in excess of scheduled cash
payments and is included in Deferred Income and Liabilities in the
accompanying balance sheet.
3. TRANSACTIONS WITH AFFILIATES
The Company is a member of a group of affiliated, nonoperating entities by
virtue of common ownership. These entities primarily engage in the rental
of property. The Company incurred rent expense, included in selling
expenses, from rentals with affiliated, nonoperating entities of $447,920
during the year ended December 31, 1994 (Note 9). Amounts payable,
primarily for rent obligations, to nonoperating affiliates at December 31,
1994 totaled $183,889. Amounts receivable from nonoperating affiliates
arising in the ordinary course of operations totaled $11,281 at December
31, 1994.
-7-
<PAGE> 12
The Company has unsecured notes payable to stockholders and related parties
for advances to the Company. The Company is currently paying interest
quarterly at 6.88% on the notes payable. Interest payments associated with
these notes totaled $132,382 for the year ended December 31, 1994. The
notes payable to related parties totaled $2,377,204 of which $434,188 is
classified as current at December 31, 1994.
The Company as guarantor is contingently liable with respect to a mortgage
note held by a nonoperating affiliate. The mortgage note balance was
$471,688 at December 31, 1994.
Certain stockholders of the Company have personally guaranteed the
provisions of certain long-term debt and lease agreements (Notes 6 and 9).
4. PROPERTY AND EQUIPMENT AND LAND HELD FOR SALE
During 1991, management subdivided its new headquarters and distribution
center land into two parcels with the intent of developing and selling the
parcel adjacent to the new building. At December 31, 1994, $531,210 was
classified as land held for sale and consists of the following:
<TABLE>
<S> <C>
Land $ 432,389
Land development costs 98,821
-----------
$ 531,210
===========
Property and equipment at December 31, 1994 consists of the following:
Land and improvements $ 383,901
Buildings and improvements 6,761,137
Furniture, fixtures and equipment 4,521,541
Transportation equipment 539,799
Computer equipment 1,282,102
Leasehold improvements 1,160,434
Construction in progress 282,808
-----------
Total 14,931,722
Less accumulated depreciation and amortization 6,024,858
-----------
Property and equipment, net $ 8,906,864
===========
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses at December 31, 1994 consists of the following:
<TABLE>
<S> <C>
Taxes other than income taxes $ 1,031,612
Salaries and related benefits 563,963
Advertising 158,085
Freight 179,457
Rent and utilities 108,259
Interest 25,090
Restructuring 300,000
Other 247,713
-----------
$ 2,614,179
===========
</TABLE>
-8-
<PAGE> 13
6. LINES OF CREDIT AND LONG-TERM DEBT
The Company's $5,500,000 general line of credit is subject to renewal on
July 30, 1995. This line of credit bears interest at the bank's prime rate
(8.5% at December 31, 1994) and is payable monthly. The balance outstanding
under this line of credit was zero at December 31, 1994.
The Company's $2,000,000 seasonal line of credit is available between May
31, 1994 and December 31, 1994, and then between May 31, 1995 and July 30,
1995. This line of credit bears interest at the bank's prime rate (8.5% at
December 31, 1994) and is payable monthly. The balance outstanding under
this line of credit was zero at December 31, 1994.
The lines of credit are collateralized by accounts receivable and
inventories and are personally guaranteed by the Company's stockholders.
At December 31, 1994, the balance outstanding on the Company's installment
note payable to a bank was $2,475,000. This loan agreement as well as the
Company's general line of credit contain certain restrictive debt
covenants. At December 31, 1994, the Company was not in compliance with
certain of such covenants (current ratio, tangible net worth ratio, total
liabilities to tangible net worth and cash flow ratio); however, on May 1,
1995, the Company received a forbearance letter from the bank through June
15, 1995. Management has prepared projections that indicate that upon the
expiration of the forbearance letter described above and through December
31, 1995, the Company may not be in compliance with their debt covenants.
Consequently, approximately $2,300,000 of such debt that would have been
classified as long-term has been classified as current in the December 31,
1994 balance sheet. The Company intends to seek appropriate financial
covenant waivers or amendments, although no assurance can be given that
such waivers or amendments will be obtained. Any such failure to obtain
covenant relief would result in a default under the Company's credit
agreement and the bank will be entitled to accelerate the indebtedness owed
by the Company.
-9-
<PAGE> 14
Long-term debt at December 31, 1994 consists of the following:
<TABLE>
<S> <C>
Installment note payable to the Commerce and Economic
Development Commission of Arizona maturing December 2000,
bearing interest at 6%, payable in monthly installments of $3,652,
personally guaranteed by certain stockholders $ 188,909
Prime plus 1/2% installment note payable to a bank; payable in
monthly installments of $11,250 plus interest through March 1998
when a balloon payment of approximately $2,000,000 is due, collateralized
by substantially all land, buildings and improvements and personally
guaranteed by certain stockholders 2,475,000
Installment note payable to the Economic Development Administration
of Arizona, maturing April 1998, bearing interest at 5%, payable in
monthly installments of $1,376 with a balloon payment of approximately
$32,000, collateralized by certain equipment and personally guaranteed
by certain stockholders 76,086
Unsecured noninterest-bearing installment note payable to Arizona
Public Service Company maturing August 1996, payable in monthly
installments of $4,765 142,941
Other notes payable to unrelated parties, payable in monthly installments
through January 1999 149,159
----------
Total long-term debt 3,032,095
Less current portion 2,716,241
----------
Long-term debt $ 315,854
==========
</TABLE>
A summary of long-term debt maturities for the years ending December 31 are
as follows:
<TABLE>
<S> <C>
1995 $2,716,241
1996 107,359
1997 85,310
1998 80,286
1999 42,899
----------
$3,032,095
==========
</TABLE>
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<PAGE> 15
7. SUBORDINATED NOTES PAYABLE TO STOCKHOLDERS
The Company has unsecured notes payable to certain stockholders. The notes
payable are subordinate to the lines of credit and note payable to a bank
(Note 6). The notes require interest payments monthly at 6.88%.
Subordinated notes payable to stockholders totaled $2,726,000 at December
31, 1994.
8. STOCK PURCHASE AGREEMENT
The Company is obligated to repurchase the stock, equal to the book value
at the end of the preceding fiscal year, of any stockholder upon the
stockholder's resignation, termination or death. The Company,
alternatively, may assign the rights to repurchase the stock to other
eligible stockholders, but the Company remains contingently liable for
payment of the purchase price of the stock.
9. COMMITMENTS
The Company occupies various properties and operates an airplane under
operating lease agreements with affiliated, nonoperating entities and
unrelated parties. Existing lease agreements expire at various dates
through 2014 and include renewal options. The Company is responsible in
most cases for occupancy and maintenance costs including real estate taxes,
insurance and utility costs. Rent expense for the year ended December 31,
1994 totaled $3,524,217, of which $447,920 was paid to affiliated,
nonoperating entities. Rent expense is included in general and
administrative and selling expenses in the accompanying statement of
operations. Included in rent expense for the year ended December 31, 1994
are rentals, contingent upon store revenues, of $529,391.
In February 1995, the Company decided to terminate the airplane lease and
ceased making lease payments. The airplane is currently for sale by the
leasing company. The Company will be responsible for any difference between
the selling price of the airplane and the remaining lease payments. The
Company anticipates that any shortfall will be offset by deferred income
recognized on the sale-leaseback of the airplane of approximately $540,000.
A summary of future minimum lease payments, excluding contingent rentals
and the terminated airplane lease, required under operating leases that
have remaining noncancelable lease terms in excess of one year follows:
<TABLE>
<CAPTION>
Years Ending Total Related Entity
December 31 Rentals Rentals
----------- ------- -------
<S> <C> <C>
1995 $ 2,548,371 $ 231,444
1996 2,443,941 233,844
1997 2,104,716 236,244
1998 1,894,602 238,644
1999 1,593,306 119,392
Thereafter 5,581,174 --
----------- ----------
$16,166,110 $1,059,568
=========== ==========
</TABLE>
The leases expire through 2014. It is expected that in the normal course of
business, leases that expire will be renewed or replaced by leases on other
properties; thus, it is anticipated that rent expense will be greater than
the future minimum lease payments shown above. Included in the above
amounts is $2,543,821 of total rentals related to 1995 store closures, a
portion of which the Company has accrued as of December 31, 1994 (see Notes
1 and 11).
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<PAGE> 16
10. LITIGATION
Several former employees of the Company have filed claims against the
Company pertaining to termination of employment. The claims generally do
not state specific damage amounts. While the Company is unable to predict
with certainty the outcome of this litigation, it is management's opinion,
that the ultimate outcome will not have a material adverse effect on the
financial position or results of operations of the Company.
11. RESTRUCTURING
As part of its restructuring plan, the Company closed four of its 38 stores
in 1995. Costs related to these store closures consisting primarily of
committed lease obligations, net of any estimated sublease revenue, and
non-recoverable fixtures and leasehold improvements were provided for in
restructuring expenses at December 31, 1994.
12. SUBSEQUENT EVENT (UNAUDITED)
On November 13, 1995, Family Bargain Corporation, an unrelated company,
acquired all of the outstanding shares of common stock of the Company.
-12-
<PAGE> 17
CAPIN MERCANTILE CORPORATION
(an S corporation)
Financial Statements
December 31, 1992 and 1993
(With Independent Auditors' Report Thereon)
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Capin Mercantile Corporation:
We have audited the accompanying balance sheets of Capin Mercantile Corporation
as of December 31, 1992 and 1993, and the related statements of earnings,
changes in stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capin Mercantile Corporation
as of December 31, 1992 and 1993, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
March 29, 1994
<PAGE> 19
CAPIN MERCANTILE CORPORATION
(an S corporation)
Balance Sheets
December 31, 1992 and 1993
<TABLE>
<CAPTION>
ASSETS 1992 1993
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,091,613 1,729,488
Receivables (notes 7 and 11):
Trade accounts, less allowance for doubtful accounts and
sales returns of $58,000 in 1992 and 1993 443,445 675,463
Nonoperating affiliates (note 3) 25,479 7,022
Current installments of note from nonoperating affiliate
(note 4) 12,697 --
Current installments of notes receivable 30,858 32,597
----------- ----------
Total receivables 512,479 715,082
----------- ----------
Merchandise inventories (note 7) 14,065,929 12,804,239
Prepaid expenses and supplies 92,146 167,411
Refundable income taxes 23,218 --
----------- ----------
Total current assets 17,785,385 15,416,220
----------- ----------
Note from nonoperating affiliate, excluding current installments
(note 4) 18,262 --
Notes receivable, excluding current installments 97,208 72,686
Land held for development and sale (note 5) 503,721 531,210
Property, plant and equipment, at cost (notes 5 and 7) 13,747,296 14,439,421
Less accumulated depreciation and amortization 5,246,206 5,697,419
----------- ----------
Net property, plant and equipment 8,501,090 8,742,002
----------- ----------
Other assets:
Cash value of officers' life insurance, net of policy loans of
$62,713 in 1992 and $579,140 in 1993 626,799 244,321
Deposits 39,233 47,010
Others, at cost 84,887 71,332
----------- ----------
Total other assets 750,919 362,663
----------- ----------
$27,656,585 25,124,781
=========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 20
CAPIN MERCANTILE CORPORATION
(an S corporation)
Balance Sheets, Continued
December 31, 1992 and 1993
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1992 1993
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 8,357,673 7,323,878
Accrued expenses (note 6) 2,522,557 2,117,408
Current installments of long-term debt (note 7) 494,138 262,440
Due to nonoperating affiliates (note 3) 634,793 220,505
Income tax payable (note 10) 96,744 --
Demand notes payable to related parties (note 3) 828,460 2,647,264
----------- ----------
Total current liabilities 12,934,365 12,571,495
Deferred payables 890,876 915,650
Construction contract payable (note 5) 535,098 --
Long-term debt, excluding current installments (note 7) 3,688,366 2,885,333
Subordinated notes payable to stockholders (note 8) 2,300,000 2,626,000
----------- ----------
Total liabilities 20,348,705 18,998,478
----------- ----------
Stockholders' equity (note 9):
Common stock, $.01 par value; 1,000,000 shares authorized; issued and
outstanding 165,652 shares in 1992 and 168,399 in 1993 1,656 1,684
Additional paid-in capital 4,224,003 4,400,901
Retained earnings 3,082,221 1,723,718
----------- ----------
Total stockholders' equity 7,307,880 6,126,303
Commitments and contingent liabilities (notes 3, 7 and 12)
----------- ----------
$27,656,585 25,124,781
=========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 21
CAPIN MERCANTILE CORPORATION
(an S corporation)
Statements of Earnings
Years ended December 31, 1992 and 1993
<TABLE>
<CAPTION>
1992 1993
<S> <C> <C>
Net sales (note 11) $100,500,270 95,912,368
Cost of sales 68,381,642 65,801,990
------------ ----------
Gross margin 32,118,628 30,110,378
------------ ----------
General and administrative expenses (notes 3, 6 and 12) 16,309,428 15,046,403
Selling expenses 15,173,242 14,651,498
------------ ----------
31,482,670 29,697,901
------------ ----------
Operating income 635,958 412,477
Other income (deductions):
Interest income 73,088 69,465
Interest expense (note 2) (312,665) (604,816)
Net rental operations 288,772 178,409
Miscellaneous 397,248 37,023
------------ ----------
446,443 (319,919)
------------ ----------
Earnings before income tax expense 1,082,401 92,558
Income tax expense (note 10) 77,669 --
------------ ----------
Net earnings $ 1,004,732 92,558
============ ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 22
CAPIN MERCANTILE CORPORATION
(an S corporation)
Statements of Stockholders' Equity
Years ended December 31, 1992 and 1993
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C>
Balances, December 31, 1991 $38,600 3,834,312 4,739,808 8,612,720
Issuance of 5,620 shares of common
stock as a stock bonus 56 389,691 -- 389,747
Cash dividends paid -- -- (927,676) (927,676)
Distribution of investment in
trading association (note 1) -- -- (1,496,681) (1,496,681)
Cash distributions from liquidation
of stock in non-operating
affiliates (note 1) (37,000) -- (237,962) (274,962)
Net earnings -- -- 1,004,732 1,004,732
------- --------- ---------- ----------
Balances, December 31, 1992 1,656 4,224,003 3,082,221 7,307,880
Issuance of 2,747 shares of common
stock as a stock bonus 28 176,898 -- 176,926
Cash distributions paid -- -- (1,451,061) (1,451,061)
Net earnings -- -- 92,558 92,558
------- --------- ---------- ----------
Balances, December 31, 1993 $ 1,684 4,400,901 1,723,718 6,126,303
======= ========= ========== ==========
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 23
CAPIN MERCANTILE CORPORATION
(an S corporation)
Statements of Cash Flows
Years ended December 31, 1992 and 1993
<TABLE>
<CAPTION>
1992 1993
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,004,732 92,558
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization of property, plant and
equipment 483,965 605,857
(Gain) loss on disposal of property, plant and equipment (296,190) 21,970
Common stock bonus charged to general and administrative
expense 389,747 176,926
Changes in assets and liabilities:
Decrease (increase) in receivables 143,366 (213,561)
Decrease in merchandise inventories 26,939 1,261,690
Increase in prepaid expenses and supplies (3,873) (75,265)
Decrease in refundable income taxes 27,988 23,218
Decrease (increase) in deposits 286,715 (7,777)
(Increase) decrease in other assets (29,316) 13,555
Decrease in trade accounts payable (1,376,679) (1,116,366)
(Decrease) increase in accrued expenses (207,595) 106,265
Decrease in due to nonoperating affiliates (83,938) (414,288)
Decrease in income taxes payable (455,780) (96,744)
Increase (decrease) in deferred payables 890,876 (109,533)
----------- ----------
Net cash provided by operating activities 800,957 268,505
----------- ----------
Cash flows from investing activities:
Decrease in unexpended construction funds 211,301 --
Collections of notes receivable from nonoperating affiliate 1,155 30,959
Collections of notes receivable 4,980 22,783
Increase in notes receivable (133,046) --
Additions to land held for development and sale -- (27,489)
Additions to property, plant and equipment (1,384,841) (668,880)
Proceeds from sale of property, plant and equipment 466,981 --
Increase in cash value of officers' life insurance (247,439) (133,949)
----------- ----------
Net cash used in investing activities (1,080,909) (776,576)
----------- ----------
</TABLE>
(Continued)
6
<PAGE> 24
CAPIN MERCANTILE CORPORATION
(an S corporation)
Statements of Cash Flows, Continued
Years ended December 31, 1992 and 1993
<TABLE>
<CAPTION>
1992 1993
<S> <C> <C>
Cash flows from financing activities:
Increase in cash surrender value policy loans $ -- 516,427
Borrowings on line of credit 26,180,000 19,934,944
Repayments on line of credit (26,180,000) (19,934,944)
Principal repayment of long-term debt (31,875) (1,917,708)
Borrowings of demand notes payable to related parties 14,404,301 7,206,673
Repayment of demand notes payable to related parties (13,575,841) (5,061,869)
Principal repayments of advance from related party -- (146,516)
Increase in notes payable to stockholders 2,300,000 --
Cash distributions (1,202,638) (1,451,061)
------------ -----------
Net cash (used in) provided by financing
activities 1,893,947 (854,054)
------------ -----------
Net increase (decrease) in cash and cash equivalents 1,613,995 (1,362,125)
Cash and cash equivalents at beginning of year 1,477,618 3,091,613
------------ -----------
Cash and cash equivalents at end of year $ 3,091,613 1,729,488
============ ===========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 25
CAPIN MERCANTILE CORPORATION
(an S corporation)
Notes to Financial Statements
December 31, 1992 and 1993
(1) ORGANIZATION AND PURPOSE
Capin Mercantile Corporation (Corporation) currently operates 36 retail
stores in the Southwest United States located in Arizona, New Mexico, and
Texas. The Corporation operates stores under the following trade names:
Factory 2-U, Capin's, Parisian, La Ville de Paris, and Robinson's True
Value Hardware. The majority of stores are Factory 2-U locations.
In March 1992, Capin's Duty-Free Warehouse, Inc. (CDFW) and the company
in which it had a 10.89% common stock ownership interest (UETA, Inc.)
entered into definitive Plans of Merger and Reorganization agreement with
Duty-Free International, Inc. (DFI), an unrelated party. Under the
terms of the agreement, DFI acquired substantially all of the net assets
of UETA, Inc. solely in exchange for DFI voting common stock. CDFW then
distributed to its shareholders the common stock of DFI with a cost of
$1,496,681 along with its remaining assets and liabilities in a tax-free
reorganization.
During 1992, three nonoperating affiliates (Capin's Duty-Free Warehouse,
Inc., San Luis Imports-Exports, Inc., and Capin's Free Port, Inc.) were
dissolved resulting in the reduction of $37,000 of common stock, a
reduction of retained earnings of $237,962, and a distribution of
$274,962 in cash to the stockholders.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS AND SUPPLEMENTARY CASH FLOW INFORMATION
The Corporation considers all short-term investments purchased with an
original maturity of three months or less to be cash equivalents. At
December 31, 1992 and 1993, cash equivalents include cash on hand,
checking accounts held in banks, overnight investments and commercial
paper.
Interest paid was $366,390 in 1992 and income taxes paid were $533,449 in
1992. Income taxes paid in 1992 represent tax liabilities existing as of
December 31, 1991 from certain companies prior to their conversion from a
C corporation to an S corporation (note 10). During 1992, the
Corporation distributed its investment in a trading association to its
stockholders in a noncash transaction. During 1992, the Corporation sold
a building in exchange for cash and the buyer assuming a note payable
with a remaining balance of $552,500. Additionally, the Corporation
constructed a new warehouse facility primarily by executing two notes
payable to a bank totaling $3,932,504 and recording a construction
contract payable of $535,098 relating to the accrual of the final
construction draw request and retention obligation in noncash
transactions.
Interest paid was $615,508 in 1993. During 1993 the Corporation
purchased certain equipment primarily by executing notes payable of
$117,288 and increasing accounts payable by $82,571. Income taxes paid
in 1993 totaled $96,744 related to built-in gains taxes accrued in 1992.
8
<PAGE> 26
CAPIN MERCANTILE CORPORATION
(an S corporation)
Notes to Financial Statements, Continued
TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are reflected net of the allowance for doubtful
accounts and sales returns. The Corporation uses the allowance method
for recording bad debts for financial reporting purposes and the direct
write-off method for income tax reporting purposes.
MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of cost or market (net
realizable value). Cost is generally determined using the first-in,
first-out (FIFO) method for inventory held in the warehouse. Cost is
generally determined using the retail inventory method for inventory at
the retail stores.
LAND HELD FOR DEVELOPMENT AND SALE
Land held for development and sale is recorded at the lower of cost or
estimated net realizable value. Costs incurred in connection with
development are capitalized and include architectural, engineering, legal
fees, real property taxes and interest.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of
property, plant and equipment is calculated using the straight-line and
declining-balance methods for financial reporting purposes over the
estimated useful lives of the respective assets. Leasehold improvements
are amortized using the straight-line method over the lesser of the lease
terms or the estimated useful lives of the related improvements.
The estimated useful lives of the property, plant and equipment follow:
<TABLE>
<CAPTION>
Lives
<S> <C>
Buildings and improvements 19-40 years
Store fixtures and equipment 10-20 years
Office furniture and equipment 10-20 years
Transportation equipment 2-10 years
Computer equipment 4-7 years
Leasehold improvements 5-15 years
</TABLE>
INCOME TAXES
With the consent of its stockholders, the Corporation has elected
subchapter S status. No provision for income taxes is made as S
corporations are not generally subject to income taxes. All earnings or
loss and income tax credits "flow-through" to the individual stockholders
who are to report the earnings or loss and income tax credits on their
personal income tax returns.
ALLOCATION OF PROFITS AND LOSSES
The profits and losses of the Corporation are allocated to the
stockholders based on their respective ownership percentages.
9
<PAGE> 27
CAPIN MERCANTILE CORPORATION
(an S corporation)
Notes to Financial Statements, Continued
DEFERRED RENT PAYABLE
Rent expense is generally recognized on a straight-line basis over the
terms of the related leases. Deferred rent payable represents rent
expense recognized in excess of scheduled cash payments.
(3) TRANSACTIONS WITH AFFILIATES
The Corporation is a member of a group of affiliated, nonoperating
entities by virtue of common ownership. These entities primarily engage
in the rental of property. The Corporation incurred rent expense,
included in general and administrative expenses, from rentals with
affiliated, nonoperating entities of $1,005,530 and $719,659 during the
years ended December 31, 1992 and 1993, respectively (note 12). Amounts
payable, primarily for rent obligations, to nonoperating affiliates as of
December 31, 1992 and 1993 totaled $634,793 and $220,505, respectively.
Amounts receivable from nonoperating affiliates arising in the ordinary
course of operations totaled $25,479 and $7,022 as of December 31, 1992
and 1993, respectively.
The Corporation executed unsecured demand notes payable to stockholders
and related parties for short-term advances to the Corporation. The
Corporation is currently paying interest quarterly at 5.0% on the notes
payable. In 1992, the Corporation paid quarterly interest payments at
1/4% over the prevailing prime lending rate. Interest payments
associated with these notes totaled $200,505 and $163,829 for the years
ended December 31, 1992 and 1993, respectively. The demand notes payable
to related parties totaled $828,460 and $2,647,264 at December 31, 1992
and 1993, respectively.
The Corporation as guarantor is contingently liable with respect to a
mortgage note held by a nonoperating affiliate. The mortgage note
balance was $622,206 and $499,865 at December 31, 1992 and 1993,
respectively.
Certain stockholders of the Corporation have personally guaranteed the
provisions of certain long-term debt and lease agreements (notes 8 and
12).
(4) NOTES RECEIVABLE FROM NONOPERATING AFFILIATE
During 1987, the Corporation received an $83,751 unsecured note
receivable from Potrero Realty, a nonoperating affiliate. The note bears
interest at 8% and is to be repaid in 94 monthly principal and interest
installments of $1,202. The balance outstanding on the note receivable
was $30,959 at December 31, 1992. The note was repaid in 1993.
10
<PAGE> 28
CAPIN MERCANTILE CORPORATION
(an S corporation)
Notes to Financial Statements, Continued
(5) LAND HELD FOR DEVELOPMENT AND SALE AND PROPERTY, PLANT AND EQUIPMENT
During 1991, management subdivided its new headquarters and distribution
center land into two parcels with the intent of developing and selling
the parcel adjacent to the new building. At December 31, 1992 and 1993,
$503,721 and $531,210, respectively, were classified as land held for
development and sale. A summary of land held for development and sale
follows:
<TABLE>
<CAPTION>
1992 1993
<S> <C> <C>
Land $432,389 432,389
Land development costs 71,332 98,821
-------- -------
$503,721 531,210
======== =======
</TABLE>
A summary of property, plant and equipment follows:
<TABLE>
<CAPTION>
1992 1993
<S> <C> <C>
Land and improvements $ 212,617 309,334
Buildings and improvements 7,082,903 7,091,670
Furniture, fixtures and equipment 3,691,334 4,127,719
Transportation equipment 676,166 599,526
Computer equipment 1,015,147 1,077,555
Leasehold improvements 991,974 1,031,051
Construction in progress 77,155 202,566
----------- ----------
$13,747,296 14,439,421
=========== ==========
</TABLE>
The Corporation had a final construction balance of $535,098 on the new
headquarters and distribution center at December 31, 1992. The
Corporation's banking institution has committed to finance this balance
on a long-term basis and, therefore, the liability has been classified
long-term on the accompanying balance sheet at December 31, 1992.
Interest costs capitalized during 1992 totalled $193,969. There was no
interest capitalized during 1993, and no commitments have been executed
with respect to the construction in progress at December 31, 1993.
11
<PAGE> 29
CAPIN MERCANTILE CORPORATION
(an S corporation)
Notes to Financial Statements, Continued
(6) ACCRUED EXPENSES
A summary of accrued expenses follows:
<TABLE>
<CAPTION>
1992 1993
<S> <C> <C>
Taxes other than income taxes $ 842,807 1,039,257
Vacation 309,019 --
Salaries and related benefits 204,099 236,259
Advertising 178,444 187,611
Freight 51,196 121,670
Rent and utilities 310,482 115,267
Interest 25,319 14,627
Other 601,191 402,717
---------- ---------
$2,522,557 2,117,408
========== =========
</TABLE>
During 1993, the Corporation's Board of Directors amended its corporate
policy related to the accumulation of earned vacation. Under the new
policy, earned vacation not used by employees in the current fiscal
year-end is forfeited. Accordingly, the Company's accrued vacation in
the amount of $309,019 was recorded as a reduction of general and
administrative expenses in 1993.
(7) LINES OF CREDIT AND LONG-TERM DEBT
The Corporation's $5,500,000 general line of credit is subject to renewal
on July 30, 1995. This line of credit bears interest at the bank's prime
rate which is payable monthly. The balance outstanding under this line
of credit was zero at December 31, 1992 and 1993.
The Corporation's $2,000,000 seasonal line of credit is available between
May 31, 1994 and December 31, 1994, and then between May 31, 1995 and
July 30, 1995. This line of credit bears interest at the bank's prime
rate and is payable monthly. The balance outstanding under this line of
credit was zero at December 31, 1993.
The lines of credit are secured by accounts receivable, inventory, and
the personal guarantees of the Corporation's stockholders. The
Corporation's loan agreement contains certain restrictive debt covenants.
The Corporation was in compliance with the restrictive debt covenants at
December 31, 1992 and 1993.
12
<PAGE> 30
CAPIN MERCANTILE CORPORATION
(an S corporation)
Notes to Financial Statements, Continued
A summary of long-term debt follows:
<TABLE>
<CAPTION>
1992 1993
<S> <C> <C>
6% installment note payable to the Commerce and Economic
Development Commission of Arizona due in December 2000,
monthly principal and interest payments of $3,652; personally
guaranteed by certain stockholders
$ 250,000 220,368
Prime plus 1/2% installment note payable to a bank; payable
in monthly installments of $11,250 plus interest through
March 1998 when a balloon payment of approximately $2,000,000
is due; secured by substantially all land, buildings and
improvements, and the personal guarantee of certain
stockholders 2,161,077 2,610,000
Prime plus 1/2% installment note payable to a bank; payable
in monthly installments of $12,438 including interest through
March 1998 when a balloon payment of approximately $1,652,000
is due; secured by substantially all land and buildings and
improvements. This note was repaid in 1993.
1,771,427 --
5% installment note payable to the Economic Development
Administration of Arizona, monthly principal and interest
payments of $1,376, due in April 1998 when a balloon payment
of approximately $32,000 is due; secured by certain equipment
with a depreciated cost of $96,519 and the personal guarantee
of certain stockholders
-- 88,452
Unsecured noninterest-bearing installment note payable to
Arizona Public Service Company due August 1996, payable in
monthly payments of $4,765 -- 200,118
12.5% installment note payable to an unrelated party,
payable in monthly installments of $2,581 including interest,
through January 1995; secured by certain vehicles with a
depreciated cost of $32,637 -- 28,835
---------- ---------
Total long-term debt 4,182,504 3,147,773
Less current installments of long-term debt 494,138 262,440
---------- ---------
Long-term debt, excluding current installments $3,688,366 2,885,333
========== =========
</TABLE>
13
<PAGE> 31
CAPIN MERCANTILE CORPORATION
(an S corporation)
Notes to Financial Statements, Continued
A summary of long-term debt maturities after December 31, 1993 follows:
<TABLE>
<CAPTION>
LONG-TERM DEBT
Years ending December 31 MATURITIES
<S> <C>
1994 $ 262,440
1995 240,973
1996 241,300
1997 215,598
1998 2,145,029
Thereafter 42,433
----------
$3,147,773
==========
</TABLE>
(8) SUBORDINATED NOTES PAYABLE TO STOCKHOLDERS
During 1992, the Corporation executed unsecured notes payable to certain
stockholders. The notes payable are subordinate to the lines of credit
and notes payable to a bank (note 7). The notes require interest
payments quarterly at 1/4% over the prevailing prime lending rate through
December 1997 when the entire balance is due in full. Notes payable to
stockholders totaled $2,300,000 and $2,626,000 at December 31, 1992 and
1993, respectively.
(9) STOCK REPURCHASE AGREEMENT
The Corporation is obligated to repurchase the stock, equal to the book
value at the end of the preceding fiscal year, of any stockholder upon
the stockholder's resignation, termination, or death. The Corporation,
alternatively, may assign the rights to repurchase the stock to other
eligible stockholders, but the Corporation remains contingently liable
for payment of the purchase price of the stock.
(10) INCOME TAXES
Income taxes in 1992 represent built-in gains taxes for the excess fair
market value over the book value of the Corporation's assets, computed as
of the date of conversion by the Corporation to an S corporation.
Built-in gains taxes are assessed upon disposal of the respective assets;
however, payment of built-in gains taxes is limited by the Corporation's
taxable income during its reporting periods. During 1992, the
Corporation recognized $77,669 of built-in gains taxes related to the
disposal of a building and had remaining estimated built-in gains taxes
payable of $96,744 at December 31, 1992.
(11) BUSINESS AND CREDIT CONCENTRATIONS
The Corporation has 36 retail stores located in Arizona, New Mexico, and
Texas with customers residing in Arizona, New Mexico, Texas, and Mexico.
No account receivable from any customer exceeded 5% of the Corporation's
total stockholders' equity at December 31, 1992 and 1993.
14
<PAGE> 32
CAPIN MERCANTILE CORPORATION
(an S corporation)
Notes to Financial Statements, Continued
(12) COMMITMENTS AND CONTINGENT LIABILITIES
The Corporation occupies various properties and operates an airplane
under operating lease agreements with affiliated, nonoperating entities
and unrelated parties. Existing lease agreements expire at various dates
through 2014 and include renewal options. The Corporation is responsible
in most cases for occupancy and maintenance costs including real estate
taxes, insurance, and utility costs. Rent expense for the year ended
December 31, 1992 totaled $3,715,469 of which $1,005,530 was paid to
affiliated nonoperating entities. Rent expense for the year ended
December 31, 1993, totaled $3,504,687 of which $719,659 was paid to
affiliated, nonoperating entities. Rent expense is included in general
and administrative and selling expenses on the accompanying statements of
earnings. Included in rent expense for the years ended December 31, 1992
and 1993 is contingent rentals of $606,838 and $888,842, respectively.
A summary of future minimum lease payments, excluding contingent rentals,
required under operating leases that have remaining noncancelable lease
terms in excess of one year follows:
<TABLE>
<CAPTION>
RELATED
TOTAL ENTITY
YEARS ENDING DECEMBER 31 RENTALS RENTALS
<S> <C> <C>
1994 $ 2,585,326 229,044
1995 2,607,520 231,444
1996 2,329,184 233,844
1997 1,965,783 236,244
1998 1,839,199 238,644
Thereafter 7,510,686 119,329
----------- ---------
Total future minimum lease payments required $18,837,698 1,288,549
=========== =========
</TABLE>
All leases expire through 2014. It is expected that in the normal course
of business, leases that expire will be renewed or replaced by leases on
other properties; thus, it is anticipated that rent expense will be
greater than the future minimum lease payments shown for 1994.
The Corporation is liable with respect to claims incidental to the
ordinary course of its operations. In the opinion of management, based
on consultation with legal counsel, the ultimate outcome of such matters
will not have a materially adverse effect on the Corporation.
15
<PAGE> 1
EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
BETWEEN
FAMILY BARGAIN CORPORATION
AS BUYER
AND
THE SHAREHOLDERS OF CAPIN
MERCANTILE CORPORATION
AS SELLERS
---------------------------------
DATED AS OF AUGUST 29, 1995
---------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
PURCHASE AND SALE; CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Purchase and Sale of Shares and Purchased Debt . . . . 1
SECTION 1.2 Consideration . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.3 Payment . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.4 Adjustments . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.5 Closing . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 1.6 Appointment of Sellers' Agent . . . . . . . . . . . . 4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS . . . . . . . . . . . . . . . . . . 4
SECTION 2.1 Status of the Shares . . . . . . . . . . . . . . . . . 4
SECTION 2.2 Title to the Shares and Purchased Debt . . . . . . . . 5
SECTION 2.3 Authority Relative to this Agreement . . . . . . . . . 5
SECTION 2.4 No Conflicts; Consents . . . . . . . . . . . . . . . . 5
SECTION 2.5 Corporate Existence and Power . . . . . . . . . . . . 6
SECTION 2.6 Charter Documents and Corporate Records . . . . . . . 6
SECTION 2.7 Financial Information . . . . . . . . . . . . . . . . 6
SECTION 2.8 Liabilities . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.9 Company Receivables . . . . . . . . . . . . . . . . . 7
SECTION 2.10 Inventories . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.11 Absence of Certain Changes . . . . . . . . . . . . . 7
SECTION 2.12 Properties . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.13 Contracts . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.14 Intangible Property . . . . . . . . . . . . . . . . . 10
SECTION 2.15 Claims and Proceedings . . . . . . . . . . . . . . . 10
SECTION 2.16 Taxes . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.17 Employee Benefits Plans . . . . . . . . . . . . . . . 13
SECTION 2.18 Employee-Related Matters . . . . . . . . . . . . . . 14
SECTION 2.19 Insurance . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.20 Compliance with Laws . . . . . . . . . . . . . . . . 16
SECTION 2.21 Permits . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.22 Environmental Matters . . . . . . . . . . . . . . . . 16
SECTION 2.23 Suppliers . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.24 Potential Conflicts of Interest . . . . . . . . . . . 17
SECTION 2.25 Finders; Fees . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.26 Depositaries; Powers of Attorney, etc. . . . . . . . 17
SECTION 2.27 Disclosure . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . 18
SECTION 3.1 Authority Relative to This Agreement . . . . . . . . . 18
SECTION 3.2 No Conflicts; Consents . . . . . . . . . . . . . . . . 18
SECTION 3.3 Corporate Existence and Power . . . . . . . . . . . . 18
</TABLE>
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<TABLE>
<S> <C>
SECTION 3.4 Reports and Financial Statements . . . . . . . . . . . . . . . . . 19
SECTION 3.5 Acquisition for Investment . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.6 Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.7 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV
COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 4.1 Conduct of Business of Company . . . . . . . . . . . . . . . . . . 19
SECTION 4.2 Corporate Examinations and Investigations . . . . . . . . . . . . 21
SECTION 4.3 Additional Financial Statements . . . . . . . . . . . . . . . . . 21
SECTION 4.4 Filings and Authorizations . . . . . . . . . . . . . . . . . . . . 21
SECTION 4.5 Efforts to Consummate . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 4.6 Negotiations With Others . . . . . . . . . . . . . . . . . . . . . 22
SECTION 4.7 Notices of Certain Events . . . . . . . . . . . . . . . . . . . . 22
SECTION 4.8 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 4.9 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 4.10 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4.11 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4.12 Provision of Merchandise . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.13 Limitation on Bankruptcy . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.14 Severance Payments/Continued Employment . . . . . . . . . . . . . 25
SECTION 4.15 Restrictive Covenants . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.16 Negotiations and Notice by Buyer with Respect to Guarantees . . . 27
SECTION 4.17 No Involuntary Proceedings . . . . . . . . . . . . . . . . . . . 27
SECTION 4.18 No Continuing Legal Representation; Conflict Waiver . . . . . . . 27
SECTION 4.19 Additional Buyer Financial Statements . . . . . . . . . . . . . . 27
SECTION 4.20 Closing of Capin's Store . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.21 Intellectual Property Rights . . . . . . . . . . . . . . . . . . 27
SECTION 4.22 No Claim to Sellers' Assets . . . . . . . . . . . . . . . . . . . 28
SECTION 4.23 Adverse Change Expected . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.24 Termination of Certain Leases . . . . . . . . . . . . . . . . . . 28
SECTION 4.25 Amendments to Certain Leases . . . . . . . . . . . . . . . . . . 28
SECTION 4.26 Release of Bank Debt . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.27 Cooperation in Litigation . . . . . . . . . . . . . . . . . . . . 29
ARTICLE V
CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 5.1 Conditions to the Obligations of Sellers and Buyer . . . . . . . . 29
SECTION 5.2 Conditions to the Obligations of Sellers . . . . . . . . . . . . . 30
SECTION 5.3 Conditions to the Obligations of Buyer . . . . . . . . . . . . . . 31
ARTICLE VI
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6.1 Survival of Representations and Warranties . . . . . . . . . . . . 34
SECTION 6.2 Obligation of Sellers to Indemnify . . . . . . . . . . . . . . . . 34
</TABLE>
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<TABLE>
<S> <C>
SECTION 6.3 Obligation of Buyer to Indemnify . . . . . . . . . . . . . . . . . 35
SECTION 6.4 Notice and Opportunity to Defend Third Party Claims . . . . . . . . 35
SECTION 6.5 Limits on Indemnification . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6.6 Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6.7 Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VII
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 7.2 Effect of Termination; Right to Proceed . . . . . . . . . . . . . 37
ARTICLE VIII
ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8.1 Binding Arbitration . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8.2 Choice of Arbitrator . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8.3 Resolution of Dispute . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE IX
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 9.2 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 9.3 Waivers and Amendments; Non-Contractual
Remedies; Preservation of Remedies . . . . . . . . . . . . . . . . 40
SECTION 9.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 9.5 Consent to Jurisdiction and Service of Process . . . . . . . . . . 40
SECTION 9.6 Designated Buyer . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 9.7 Binding Effect; No Assignment . . . . . . . . . . . . . . . . . . 40
SECTION 9.8 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 9.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 9.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE X
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 10.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 10.2 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
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EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A - List of Sellers
Exhibit B1 - Form of Downpayment Note
Exhibit B2 - Form of Contingent Note of Buyer
Exhibit B3 - Form of Absolute Note of Buyer
Exhibit C1 - Form of Merchandising Note and Security Agreement
Exhibit C2 - Form of Deed of Trust
Exhibit C3 - Form Inter-Creditor Agreement
Exhibit C4 - Form of Signing Opinion
Exhibit D - Indemnity Agreement
Exhibit E - Form of Legal Opinion of Counsel to Buyer
Exhibit F - Form of Closing Opinion
Exhibit G - Form of Estoppel Certificate
SCHEDULES
Schedule 1.4 - Composition of the Affected Liabilities
Schedule 2.1 - Restrictions on Shares
Schedule 2.4 - Seller Required Consents
Schedule 2.7 - Exceptions to Financial Statements
Schedule 2.8 - Certain Liabilities
Schedule 2.8A - Updated Liabilities List
Schedule 2.9 - Receivables
Schedule 2.10 - Inventories
</TABLE>
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<TABLE>
<S> <C> <C>
Schedule 2.11 - Recent Developments
Schedule 2.12A - Owned Real Property
Schedule 2.12B - Leased Real Property
Schedule 2.12C - Occupancy Rights of Others
Schedule 2.12D - Personal Property
Schedule 2.13 - Contracts
Schedule 2.14 - Intellectual Property
Schedule 2.15 - Litigation
Schedule 2.16 - Taxes
Schedule 2.17 - Employee Benefit Plans
Schedule 2.18 - Employment Related Matters
Schedule 2.19 - Insurance
Schedule 2.21 - Permits
Schedule 2.22 - Environmental Matters
Schedule 2.23 - Suppliers
Schedule 2.24 - Potential Conflicts of Interest
Schedule 2.26 - Depositories; Powers of Attorney
Schedule 3.2 - Buyer Required Consents
Schedule 4.22 - Sellers' Assets to be Retained
</TABLE>
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of August 29, 1995 among FAMILY
BARGAIN CORPORATION, a Delaware corporation (" Buyer"); each of the shareholders
listed on the signature page of this Agreement (each a "Seller" and collectively
the "Sellers") and Robert S. Stuchen as agent for the Sellers ("Sellers'
Agent"):
Each Seller owns the number of shares of Common Stock, par value $.01
per share (the " Common Stock"), set forth in Exhibit A next to the name of such
Seller (collectively, the "Shares") of Capin Mercantile Corporation, an Arizona
corporation (the "Company").
This Agreement contemplates a transaction in which Buyer will purchase
from Sellers, and Sellers will sell to Buyer, all of the outstanding capital
stock of the Company and debt obligations of the Company in the aggregate
principal amount of $1,849,000 (the "Purchased Debt") upon the terms and
conditions set forth herein (certain terms used herein having the respective
meanings set forth in Article IX).
Now, therefore, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
expressly acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE; CLOSING
SECTION 1.1 Purchase and Sale of Shares and Purchased Debt. Subject
to the terms and conditions set forth herein, at the Closing, Sellers shall
sell, transfer and deliver the Shares to Buyer, and Buyer shall purchase and
accept the Shares from Sellers, and Sellers shall sell, transfer and deliver or
cause to be sold, transferred and delivered the Purchased Debt to Buyer, and
Buyer shall purchase and accept the Purchased Debt.
SECTION 1.2 Consideration. Subject to the adjustments specified in
Section 1.4, the purchase price for the Shares shall be $1,000 (the "Share
Purchase Price") and the purchase price for the Purchased Debt shall be
$1,849,000 (the "Debt Purchase Price"), both payable in accordance with the
provisions of Section 1.3 (the Share Purchase Price and the Debt Purchase
Price, as so adjusted, shall be collectively referred to as the "Purchase
Price").
SECTION 1.3 Payment. The Purchase Price will be payable as follows
(and shall be deposited in an account or accounts designated by Sellers'
Agent):
(a) Seller shall pay the Share Purchase Price in cash or other
immediately available funds at the Closing.
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(b) If the Affected Real Property or any portion thereof
is sold, on or before the Closing, for an aggregate price of at least
$3,000,000, Buyer shall pay $899,000, otherwise Buyer shall pay $499,000, in
each case at the Closing in cash by wire transfer of immediately available
funds to an account designated by Sellers' Agent by written notice given to
Buyer at least one Business Day prior to the Closing Date.
(c) Buyer shall pay $250,000, plus interest at the rate
of eight and three quarters percent (8.75%) per year from the Closing Date, on
or before December 31, 1995. Buyer's obligation to make the payments required
pursuant to this clause (c) shall be evidenced by the delivery at the Closing
of a promissory note of Buyer in substantially the form of the note attached as
Exhibit B1 (the "Downpayment Note").
(d) Subject to adjustment pursuant to Section 1.4, Buyer
shall pay to Seller $600,000 (the "Final Installment"), plus interest thereon at
the rate of eight and three quarters percent (8.75%) per year, on or before
October 30, 1998 (the "Maturity Date"). Buyer's obligation to make the payments
required pursuant to this clause (d) shall be evidenced by the delivery at the
Closing of a promissory note of Buyer in substantially the form of the note
attached as Exhibit B2 (the "Contingent Note").
(e) Buyer shall pay the balance (which shall be $500,000
or $100,000 depending upon the payment called for under Section 1.4(b)) of the
Purchase Price in 10 equal quarterly installments of principal, plus interest
at the rate of eight and three quarters (8.75%) percent per year, payable
quarterly, commencing on the 15th day of the sixth month following the Closing
and continuing on the 15th day of each third month thereafter. Buyer's
obligation to pay such balance of the Purchase Price plus interest shall not be
subject to adjustment pursuant to Section 1.4. All principal and interest not
paid in installments under this clause (e) shall be due and payable in full on
the Maturity Date. Buyer's obligation to make the payments required pursuant
to this clause (e) shall be evidenced by the delivery at the Closing of a
promissory note of Buyer in substantially the form of the note attached as
Exhibit B3 (the "Absolute Note").
SECTION 1.4 Adjustments. The Company owns the land, buildings and
improvements described in Schedule 1.4 (the "Affected Real Property"). The
Purchase Price shall be adjusted as follows based upon a sale or appraisal of
the Affected Real Property:
(a) From and after the Closing Date, Buyer shall exert
its reasonable efforts to cause the Company to sell the Affected Real Property
to a bona fide third party purchaser prior to the Maturity Date. Buyer may
cause the Affected Real Property to be sold at any price to a bona fide
third-party purchaser, provided that if the Affected Real Property is in an
escrow for sale during the first eight months following the Closing (the
"Initial Period"), which escrow ultimately results in a sale of the Affected
Real Property, there will be no downward adjustment of the Purchase Price under
this Section 1.4.
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<PAGE> 9
(b) If, at any time prior to the Maturity Date, the sale
of the Affected Real Property to a bona fide third party purchaser yields Net
Proceeds in excess of $6,700,000, the Debt Purchase Price will be increased by
50% of the excess, and the amount of such excess shall be paid to Sellers'
Agent (on behalf of Sellers) immediately upon the closing of any sale of any
portion of the Affected Real Property that results in cumulative Net Proceeds
(including any deferred consideration such as seller/owner financing) exceeding
$6,700,000. If, after the Initial Period, the sale to a bona fide third party
purchaser of the Affected Real Property yields Net Proceeds of less than
$6,700,000, the Final Installment will be reduced by the lesser of $600,000 or
50% of the shortfall.
(c) If the Affected Real Property is not sold to a bona
fide third party purchaser on or before six months prior to the Maturity Date,
Sellers' Agent and Buyer will appoint a real estate appraiser to appraise the
Affected Real Property. If no agreement is reached by Buyer and Sellers' Agent
within five months prior to the Maturity Date as to the appointment of a real
estate appraiser, the parties shall petition the presiding judge of the
Superior Court of Santa Cruz, Arizona to appoint such an appraiser. The
appointment of the appraiser by such presiding judge shall be final and binding
upon all parties. The terms of appointment of the appraiser will require him
or her to produce, within 60 days after appointment, an appraisal reflecting
the fair market value of the unsold portion or portions of the Affected Real
Property (assuming a willing buyer and willing seller, with the former under no
compulsion to buy and the latter under no compulsion to sell), reduced by the
customary Sales Expenses associated with a sale thereof (the "Deemed Net
Proceeds"), which shall conclusively be deemed to constitute the value of the
unsold portion of the Affected Real Property for purposes of Section 1.4(d).
(d) If any portion of the Affected Real Property is not
sold to or placed into an escrow for sale to a bona fide third party purchaser
as of the Maturity Date, the Final Installment will be adjusted on the basis of
the Deemed Net Proceeds of the unsold portion. If the Deemed Net Proceeds
(when added to the Net Proceeds for any portion of the Affected Real Property
sold to a bona fide third party purchaser) ("Adjusted Deemed Net Proceeds")
exceed $6,700,000, the Final Installment will be increased by 50% of the
excess. Conversely, if the Adjusted Deemed Net Proceeds are less than
$6,700,000, the Final Installment will be reduced by the lesser of $600,000 or
50% of the shortfall.
(e) If the Affected Real Property is in an escrow for
sale as of the Maturity Date, Sellers will have the option of making the
adjustment to the Purchase Price pursuant to Section 1.4(d) or deferring
payment of the Final Installment until the closing of the escrow for the sale
of the Affected Real Property. If Sellers elect to defer payment of the Final
Installment by giving Buyer notice of such election no later than five days
prior to the Maturity Date, the Final Installment shall be due and payable on
the date of the closing of the escrow for the sale of the Affected Real
Property and the Purchase Price shall be adjusted pursuant to Section 1.4(b) on
the basis of the Net Proceeds of such sale. If there is no such closing within
90 days after the Maturity Date, the provisions of Section 1.4(d) will apply
and the Final Installment will be due and payable on the ninety fifth day after
the Maturity Date.
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<PAGE> 10
(f) The Company shall have the right to sell all or any
portion of the Affected Real Property prior to the Closing, subject to the
consent of Buyer to the sale, which consent will not be unreasonably withheld.
Any such sale shall result in an adjustment to the Purchase Price pursuant to
Section 1.4(b).
SECTION 1.5 Closing. The closing of the purchase and sale of the
Shares and the Purchased Debt (the "Closing") hereunder shall take place at the
offices of Lewis and Roca LLP, One South Church Avenue, Suite 700, Tucson,
Arizona 85701 at 10:00 a.m., local time on October 30, 1995, or if on such date
the conditions to closing specified in Article V (other than conditions
requiring the delivery of certificates, opinions and other instruments and
documents) shall not have been satisfied or waived, on the fifth day following
such satisfaction or waiver, or on such other date as Buyer and the Sellers'
Agent shall agree. The time and date of the Closing is hereinafter called the
"Closing Date".
SECTION 1.6 Appointment of Sellers' Agent. Each Seller irrevocably
appoints and authorizes Robert S. Stuchen to do all such acts and things as
agent (and not as principal) on its behalf and to exercise all such rights,
powers and privileges in relation to this Agreement or any Transaction Document
as fully and completely as such Seller could on its own behalf, together with
all such powers as are reasonably incidental thereto. Each Seller agrees that
the foregoing appointment and powers are coupled with an interest and every
party acting hereunder or under any Transaction Document shall be entitled to
rely on any action taken or omitted by Sellers' Agent on behalf of any other
Seller.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller represents and warrants to Buyer that:
SECTION 2.1 Status of the Shares and Purchased Debt. The authorized
capital of the Company consists of one million common shares, par value one
cent per share, of which 168,399.25 shares are issued and outstanding. The
Shares constitute 100% of the issued and outstanding capital stock of the
Company. Except as set forth on Schedule 2.1, the Shares are subject to no
restrictions on transferability other than restrictions imposed by (a) the 1933
Act, (b) applicable state securities Laws and (c) the Family Agreement. At the
Closing, the Company will not have outstanding any rights, warrants or options
to acquire securities of the Company or any convertible or exchangeable
securities and, other than pursuant to this Agreement, no person will have any
right to acquire any securities of the Company. All of the Shares have been
duly authorized and duly and validly issued and are fully paid and
non-assessable, and none was issued in violation of any preemptive rights,
rights of first refusal or other contractual or legal restrictions of any kind.
The Purchased Debt represents amounts owed by the Company for money borrowed
from the initial holder of each promissory note evidencing any portion of the
Purchased Debt; the adjusted issue price of the Purchased Debt is equal to
$1,849,000.
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<PAGE> 11
SECTION 2.2 Title to the Shares and Purchased Debt. Each Seller owns
and holds good and marketable title to such Seller's Shares free and clear of
any Lien of any kind. At the Closing, Buyer will acquire good and marketable
title to such Seller's Shares, free and clear of any Lien of any kind other
than Liens created by Buyer or arising pursuant to this Agreement. At the
Closing, Buyer will acquire the Purchased Debt free and clear of any Lien of
any kind other than Liens created by Buyer or arising pursuant to this
Agreement.
SECTION 2.3 Authority Relative to this Agreement. Each Seller has
full power, capacity and authority to execute and deliver this Agreement and
each other Transaction Document to which he or it is a party and to consummate
the transactions contemplated hereby and thereby (the "Contemplated
Transactions"). The execution and delivery of this Agreement and the
consummation of the Contemplated Transactions to which such Seller is a party
have been duly and validly authorized by each Seller and no other proceedings
on the part of the Company are necessary to authorize the execution and
delivery by such Seller of this Agreement or the consummation of the
Contemplated Transactions to which such Seller is a party. This Agreement and
the other Transaction Documents to which such Seller is a party have been duly
and validly executed and delivered by each Seller, and (assuming the valid
execution and delivery thereof by the other parties thereto) constitute the
legal, valid and binding agreements of such Seller enforceable against such
Seller in accordance with their respective terms except as such obligations and
their enforceability may be limited by applicable bankruptcy and other similar
Laws affecting the enforcement of creditors' rights generally and except that
the availability of equitable remedies is subject to the discretion of the
court before which any proceeding therefor may be brought (whether at law or in
equity).
SECTION 2.4 No Conflicts; Consents. The execution, delivery and
performance by each Seller of this Agreement and each other Transaction
Document to which he or it is a party, the consummation of the Contemplated
Transactions to which such Seller is a party or the contemplated change of
control of the stock ownership of the Company, will not (i) violate any
provision of the articles of incorporation or bylaws (or comparable
instruments) of the Company; (ii) require Sellers or the Company to obtain any
consent, approval or action of or waiver from, or make any filing with, or give
any notice to, any Governmental Body or any other person, except for compliance
with the HSR Act and except as set forth on Schedule 2.4 (the "Seller Required
Consents"); (iii) if the Seller Required Consents are obtained prior to
Closing, violate, conflict with or result in a breach or default under (after
the giving of notice or the passage of time or both), or permit the termination
of, any Lease or Contract of a type required to be listed on Schedules 2.12B or
2.13 to which any Seller or the Company is a party or by which any of them or
any of their Assets may be bound or subject, or result in the creation of any
Lien upon the Shares or upon any of the Assets of the Company pursuant to the
terms of any such Contract; (iv) if the Seller Required Consents are obtained
prior to Closing, violate any Law or Order of any Governmental Body against, or
binding upon, any Seller or the Company or upon their respective Assets or the
Business; (v) if the Seller Required Consents are obtained prior to Closing,
violate or result in the revocation or suspension of any Permit.
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<PAGE> 12
SECTION 2.5 Corporate Existence and Power. (a) The Company is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and has all requisite powers and all
material Permits required to carry on the Business as now conducted. The
Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where the failure to be so qualified
would not, individually or in the aggregate, have a material adverse effect on
the Business or the Assets, financial condition, prospects or the results of
operations of the Company (collectively, the "Condition of the Business").
(b) The Company does not have any Subsidiaries and does
not directly or indirectly own any interest or investment in any other person.
SECTION 2.6 Charter Documents and Corporate Records. (a) Sellers
have heretofore delivered to Buyer true and complete copies of the Certificate
of Incorporation and By-laws, or comparable instruments, of the Company as in
effect on the date hereof. The stock and transfer books of the Company have
been made available to Buyer for its inspection and are true and complete.
(b) Since January 1, 1992, all financial, business and
accounting books, ledgers, accounts and official and other records relating to
the Company have been properly and accurately kept and completed in all
material respects, and there are no material inaccuracies or discrepancies
contained or reflected therein.
SECTION 2.7 Financial Information. Sellers have previously furnished
to Buyer true and complete copies of (i) the Company's financial statements at
and for the years ended December 31, 1994, 1993 and 1992 (the "Annual
Statements"), (ii) the Company's unaudited financial statements at and for the
calendar quarters ended March 31, 1995 and March 31, 1994 and the six months
ended June 30, 1995 and June 30, 1994 (the "Interim Statements"), and (iii) all
management letters, audit letters and attorney audit response letters issued in
connection with the Company's financial statements for each of the three years
ended December 31, 1994. The Annual Statements have been prepared in
accordance with GAAP consistently applied as set forth in the notes thereto and
were audited by the Company's accountants. Except as set forth on Schedule
2.7, each delivered financial statement presents fairly the financial position
of the Company as of its date, and its earnings, changes in stockholders'
equity and cash flow for the periods then ended. Except as set forth on
Schedule 2.7, each delivered balance sheet fully sets forth all material Assets
and Liabilities of the Company existing as of its date which, under GAAP,
should be set forth therein, and each statement of earnings sets forth the
items of income and expense of the Company which should appear therein under
GAAP.
SECTION 2.8 Liabilities. Except as and to the extent set forth on
Schedule 2.8 or reflected in the unaudited balance sheet of the Company (the
"Latest Balance Sheet") at June 30, 1995 (the "Latest Balance Sheet Date")
referred to in Section 2.7, the Company did not have, as of the Latest Balance
Sheet Date, any Liabilities or obligations (other than obligations of continued
performance under Contracts and other commitments and arrangements entered into
in the ordinary course of business);
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and except as described in Schedule 2.8 hereto, the Company has not incurred any
Liabilities since June 30, 1995 except (i) current Liabilities for trade or
business obligations incurred in connection with the purchase of goods or
services in the ordinary course of the Business and consistent with recent
practice, (ii) Liabilities in respect of borrowings under the Revolving Credit
Facility and (iii) Liabilities reflected on any balance sheet included in the
Interim Statements. Also attached as Schedule 2.8A is an update of Schedule 2.8
as of July 31, 1995.
SECTION 2.9 Company Receivables. Except to the extent of the amount
of the reserve for doubtful accounts reflected in the Latest Balance Sheet or
as set forth in Schedule 2.9, all the Receivables of the Company reflected
therein and all Receivables that have arisen since the Latest Balance Sheet
Date (except Receivables as have been collected since such date) are valid and
enforceable claims, and constitute bona fide Receivables resulting from the
sale of goods and services in the ordinary course of the Business. Except as
indicated on Schedule 2.9, the Receivables are subject to no valid defense,
offsets, returns, allowances or credits of any kind, and are fully collectible
or realizable except to the extent of the amount of the reserve for doubtful
accounts reflected in the Latest Balance Sheet. Except for Receivables, the
Company has not made any loan or advance to any person.
SECTION 2.10 Inventories. Schedule 2.10 sets forth a true and complete
list of Inventory by category as of June 30, 1995. Except as indicated on
Schedule 2.10, as of June 30, 1995, all Inventory consisted of items which were
good and merchantable and of a quantity and quality usable and saleable in the
ordinary course of the Business consistent with past practices.
SECTION 2.11 Absence of Certain Changes. Since the Latest Balance
Sheet Date, except as set forth in this Agreement or disclosed in Schedule 2.11,
the Company has conducted the Business in the ordinary course consistent with
recent practices and there has not been:
(a) Any transaction or Contract with respect to the
purchase, acquisition, lease, disposition or transfer of any Assets or to any
capital expenditure (in each case, other than in the ordinary course of the
Business in accordance with recent practice);
(b) Any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
the Company;
(c) Any damage, destruction or other casualty loss
(whether or not covered by insurance), condemnation or other taking affecting
the Assets of the Company to the extent material to the Company;
(d) Any change in any method of accounting or accounting
practice by the Company;
(e) Any increase in the compensation payable or to become
payable to any officer, stockholder, director, consultant, agent or full-time
employee of the Company, or any alteration in the benefits payable to any
thereof;
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(f) Except in the ordinary course of the Business,
consistent with recent practice, any payment, directly or indirectly, of any
Liability before it became due in accordance with its terms;
(g) Any receipt of written notices of termination,
default, amendment or modification of any Lease except as set forth on Schedule
2.12B; or
(h) Except for any changes made in the ordinary course of
the Business as conducted in accordance with recent practice, any material
change in any of the Company's business policies, including advertising,
marketing, pricing, purchasing, personnel, returns or budget policies.
SECTION 2.12 Properties. (a) Schedule 2.12A sets forth a
complete and accurate list and general description of all real property owned
by the Company (the "Owned Real Property"). The Company has good and
marketable fee simple title to the Owned Real Property, free and clear of all
Liens and other title defects of any nature whatsoever, except as disclosed on
Schedule 2.12A. To Sellers' actual knowledge, Schedule 2.12A also sets forth
with respect to such Owned Real Property a list of all title insurance
policies, deeds, appraisal reports, surveys and environmental reports held by
the Company, copies of which have been provided to Buyer.
(b) Schedule 2.12B sets forth a complete list and general
description of all real properties leased by the Company as tenant and all
properties subleased by the Company, as sublessor or sublessee (the "Leased
Real Property"). (The Owned Real Property and the Leased Real Property are
collectively referred to as the "Real Property"). With respect to the Leased
Real Property, Schedule 2.12B also sets forth the date of all of the real
property leases for the Leased Real Property and any amendments thereto and
assignments thereof (the "Leases"), the term thereof, including any renewal
options, options to purchase, rights of first refusal, and the aggregate
monthly rental payable thereunder. Complete copies of all Leases have been
delivered to Buyer. (Buyer acknowledges receipt of the actual leases for
Leased Real Property for which such information is summarized on Schedule
2.12B). Except as disclosed on Schedule 2.12B, to Sellers' actual knowledge,
(i) the Leases are in full force and effect with no existing defaults
thereunder which have continued beyond the expiration of applicable notice and
cure periods, (ii) there is no omission, condition or event which, with the
giving of notice or passage of time, would constitute a default under any of
the Leases, and (iii) the Company has not received any notice of default or
termination under any of the Leases. Sellers represent that, except as set
forth on Schedule 2.12B, all of the Leases are with unrelated third-party
landlords.
(c) To Sellers' actual knowledge, except as disclosed on
Schedule 2.12C, all structures and buildings of the Business (including HVAC
equipment) are in good operating condition (subject to normal wear and tear)
with no structural or other defects known to Sellers that could interfere in
any material respect with the operation of the Business, are located within
applicable boundary lines and are suitable for the purposes for which they are
currently used. To Sellers' actual knowledge, except as disclosed on Schedule
2.12C, neither the Business nor the
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<PAGE> 15
Owned or Leased Real Property is in violation in any material respect of any
building, zoning, anti-pollution, health, occupational safety or other Law or
any Order or Permit in respect of such Owned or Leased Real Property,
improvements, structures and buildings located therein or thereat. Except as
disclosed on Schedule 2.12C, no person, other than the Company, has any right to
occupy or possess any of the Real Property or any such structures or buildings
thereat. Except as disclosed on Schedule 2.12C, all tenant improvements or
other work required to be performed by or on the part of the Company under any
Lease has been completed substantially in accordance with the provisions of each
such Lease. The Company has not received any notice from any insurer or any
Governmental Body recommending or requiring any work to be performed on or with
respect to any Real Property.
(d) To Sellers' actual knowledge, the Company has good
and marketable title to (or valid leasehold interest in) all personal property
used in the Business, free and clear of all Liens except as disclosed in
Schedule 2.12D. Except as disclosed in Schedule 2.12D, the machinery,
equipment and other tangible personal property constituting a part of the
Assets (whether owned or leased), are in good condition and repair (subject to
normal wear and tear). Schedule 2.12D contains a list and description of all
equipment and other tangible personal property acquired by the Company since
January 1, 1992 with an original cost of $10,000 or more.
SECTION 2.13 Contracts. (a) Schedule 2.13 sets forth an accurate
and complete list of all Contracts (other than Leases) to which the Company is
a party or by which it or its Assets are bound or subject, except only for
those with persons who are not Affiliates of either the Company or any Seller
relating solely to the purchase or sale of property or services by the Company
in the ordinary course of the Business which (i) require the Company to make or
receive payments not in excess of $25,000 per year and (ii) have a remaining
term of less than twelve months on the date of this Agreement or are terminable
by the Company without penalty during such period. True and correct copies of
all written Contracts listed on such Schedule and summaries of the material
provisions of all oral Contracts so listed have been made available to Buyer.
(b) Except as described on Schedule 2.13, all Contracts
listed on Schedule 2.13 and all Leases (the "Material Contracts") are valid,
subsisting, in full force and effect and binding upon the Company, and, to the
knowledge of Sellers, the other parties thereto in accordance with their terms.
Except as described on Schedule 2.13, the Company is not in default (or alleged
default) under any such Material Contract in any material respect, nor, to the
knowledge of Sellers, is any other party thereto in default thereunder in any
material respect, nor does any condition exist that with notice or the lapse of
time or both would constitute a material default (or give rise to a termination
right) thereunder. To the actual knowledge of Sellers, none of the other
parties to any such Material Contract intends to terminate or materially alter
the provisions thereof by reason of the Contemplated Transactions or otherwise.
Since the Latest Balance Sheet Date, the Company has not waived any material
right under any such Material Contract, materially amended or extended beyond
December 31, 1995 any such Material Contract or terminated or failed to renew
(or received notice of termination or failure to renew with respect to) any
such Material Contract.
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SECTION 2.14 Intangible Property. Schedule 2.14 sets forth all
trademarks, registered copyrights, service marks and trade names owned or used
by the Company, all applications for any of the foregoing, and all permits,
grants and licenses or other rights running to or from the Company relating to
any of the foregoing, and there are no other trademarks, copyrights, service
marks and trade names that are material to the Business (the "Intellectual
Property Rights"). Except as provided in this Agreement, the Contemplated
Transactions will not adversely affect the right, title and interest of the
Company in and to the Intellectual Property Rights. The Intellectual Property
Rights do not infringe on or conflict with the rights or intellectual property
of third parties.
SECTION 2.15 Claims and Proceedings. Except as set forth on
Schedule 2.15, there are no outstanding Orders of any Governmental Body against
or involving the Company or the Business. Except as set forth on Schedule
2.15, there are no actions, suits, claims or counterclaims or legal,
administrative or arbitral proceedings or investigations (collectively,
"Claims") (whether or not the defense thereof or Liabilities in respect thereof
are covered by insurance), pending or threatened on the date hereof, against or
involving the Company, any of its Assets or the Business. Schedule 2.15 also
indicates those Claims the defense thereof or Liabilities in respect thereof
are covered by insurance. Except as set forth on Schedule 2.15, at the Closing
there will be no such Claims pending or threatened, other than Claims by the
Company's lenders, vendors or suppliers or claims that, individually or in the
aggregate, could not reasonably be expected to have a material adverse effect
on the Condition of the Business. Except as set forth on Schedule 2.15, to the
actual knowledge of Sellers, on the date hereof, there is no fact, event or
circumstances that would give rise to any uninsured Claim. As of the Closing,
except with respect to past due payment obligations to the Company's lenders,
vendors and suppliers, there will exist no such fact, event or circumstance
known to Sellers that would give rise to any uninsured Claim that, if pending
or threatened on the Closing Date, could reasonably be expected to have a
material adverse effect on the Condition of the Business. All notices required
to have been given to any insurance company listed as insuring against any
Claim set forth on Schedule 2.15 have been timely and duly given and, except as
set forth on Schedule 2.15, no insurance company has asserted that such Claim
is not covered by the applicable policy relating to such Claim. There are no
Claims pending or, to the knowledge of Sellers, threatened that would give rise
to any right of indemnification on the part of any director or officer of the
Company or the heirs, executors or administrators of such director or officer,
against the Company.
SECTION 2.16 Taxes. (a) Except as set forth in Schedule 2.16:
(i) the Company has timely filed or, if not yet due,
will timely file all Tax Returns required to be filed by it for all taxable
periods ending on or before the Closing, to the extent that such returns are or
will be due on or before the Closing, and to the knowledge of the Sellers all
such Tax Returns are true, correct and complete;
(ii) the Company has paid or, if payment is not yet
due, will pay to the appropriate Tax Authority all Taxes of the Company for all
taxable periods
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<PAGE> 17
ending on or prior to the Closing Date, to the extent that such payments are due
on or prior to the Closing Date;
(iii) no extension of time has been requested or
granted for the Company to file any Tax Return that has not yet been filed or to
pay any Tax that has not yet been paid;
(iv) the Company has not received a notice of a
determination by a Tax Authority that Taxes are owed by the Company (other than
for Taxes that are normally computed and assessed by a Tax Authority such as
real or personal property taxes) for which the Tax has not been paid (such
determination to be referred to as a "Tax Deficiency") and, to the knowledge of
Sellers, no such notice of determination is proposed or threatened;
(v) there are no Tax Liens on or pending against
the Company or any of its properties;
(vi) there are no presently outstanding waivers or
extensions or requests for waiver or extension of the time within which a Tax
Deficiency may be asserted or assessed;
(vii) no issue has been raised in any examination,
investigation, audit, suit, action, claim or proceeding relating to Taxes (a
"Tax Audit") which, by application of similar principles to any past, present or
future period, would result in a determination by a Tax authority that Taxes are
owed by the Company for such period;
(viii) with the exception of a federal income Tax
Audit for calendar year 1992, there are no pending or, to the knowledge of
Sellers, threatened Tax Audits of the Company;
(ix) the Company does not currently have any
adjustments pursuant to Section 481 of the Code that will require it to include
such an adjustment to income during any post Closing period, and no Tax
Authority has proposed any such adjustments;
(x) the Company does not own any property that is
tax-exempt use property within the meaning of section 168(b) of the Code or that
is described in section 168(f)(8) of the Code as in effect prior to its
amendment by the Tax Reform Act of 1986;
(xi) the Company has not filed a consent pursuant
to section 341(f) of the Code or agreed for section 341(f)(2) to apply to the
disposition of any asset;
(xii) the Company is not now (A) an includable
member of an "affiliated group" within the meaning of section 1504(a) of the
Code, (B) a member of any consolidated, combined or unitary Tax Return filing
group, (C) a party to an agreement that obligates it to make any payment
computed by reference to the Taxes,
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taxable income or tax losses of any other individual or entity, (D) a personal
holding company as defined in section 542 of the Code, (E) the owner of an
interest in an entity that is or is treated as a partnership, trust, regulated
investment company as defined in section 851 of the Code, real estate investment
trust as defined in section 856 of the Code or foreign personal holding company
as defined in section 552(a) of the Code or, (F) a United States shareholder as
defined in section 951(b) of the Code of a controlled foreign corporation as
defined in section 957 of the Code;
(xiii) the Company will not be subject to Tax under
sections 1374, 1375 or 1371(d)(2) of the Code for any taxable period ending on
or before the Closing Date; and
(xiv) no state or local Tax will be imposed upon the
Company under Arizona law as a result of the change in ownership of the Shares
pursuant to the Contemplated Transactions.
(b) Schedule 2.16 contains (i) a schedule of the filing
dates of all Tax Returns required to be filed by the Company, and (ii) a list
of all elections made by the Company relating to Taxes since 1992. Except as
set forth in Schedule 2.16, the Company has retained all supporting and backup
papers, receipts, spreadsheets and other information necessary for (i) the
preparation of all Tax Returns that have not yet been filed and (ii) the
defense of all Tax Audits involving taxable periods either ending on or during
the six (6) years prior to the Closing Date or from which there are unutilized
net operating loss, capital loss or investment tax credit carryovers.
(c) Except for sales Taxes which result from the
consummation of the Contemplated Transactions, and as set forth on Schedule
2.16, the Company has collected and remitted to the appropriate Tax Authority
all sales and use or similar Taxes required to have been collected and remitted
on or prior to the Closing Date, including any interest and any penalty,
addition to tax or additional amount unpaid, and have been furnished properly
completed exemption certificates for all exempt transactions. The Company has
maintained and has in its possession all records, supporting documents and
exemption certificates required by applicable sales Tax statutes and
regulations to be retained in connection with the collection and remittance of
sales and use Taxes for all periods up to and including the Closing Date.
(d) The Company has collected all withholding, payroll,
employment, property, customs duty, fee, assessment or charge of any kind
whatsoever (including but not limited to Taxes assessed to real property and
water and sewer rents relating thereto) that is required to be collected and
will collect all such required amounts prior to Closing. In addition, the
Company has remitted or will remit the collected amounts to the appropriate Tax
Authority to the extent that the remittance is or was due on or before the
Closing, together with any applicable interest or penalty.
SECTION 2.17 Employee Benefits Plans. (a) Schedule 2.17 lists all
bonus, deferred compensation, pension, retirement, profit-sharing, thrift,
savings, employee stock ownership, stock bonus, stock purchase, restricted
stock and stock option plans, all employment or severance contracts, health and
medical insurance plans, life
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<PAGE> 19
insurance and disability insurance plans, other employee benefit plans,
contracts or arrangements including, but not limited to, "employee benefit
plans" within the meaning of Section 3(3) of ERISA (the "Employee Benefit
Plans") which cover any current or former employee, officer, director or
consultant of the Company or any portion of the Business. Schedule 2.17
separately identifies all Employee Benefit Plans providing retiree benefits and
a calculation of the present value of all Liabilities therefor. To the actual
knowledge of Sellers, all Employee Benefit Plans have been established and
maintained substantially in accordance with their material terms. No Employee
Benefit Plan is or was collectively bargained for. To the actual knowledge of
Sellers, the Employee Benefit Plans which are described in Section 3(3) of ERISA
(the "ERISA Plans") are in compliance with all provisions of ERISA, other
applicable Laws and, if intended to be tax qualified, Sections 401(a) and 501(a)
of the Code. All ERISA Plans which are intended to qualify under Section 401(a)
of the Code have been submitted to and approved under Section 401(a) of the Code
by the IRS and, to the actual knowledge of Sellers, nothing has occurred which
would cause the loss of such tax qualification. No liability under ERISA has
been or is expected to be incurred by the Company or any Affiliate of the
Company with respect to any ongoing, frozen or terminated "single-employer
plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any entity which is
considered one employer with the Company under Section 4001 of ERISA or Section
414 of the Code (an "ERISA Affiliate"). The Company and its Affiliates have not
incurred and do not expect to incur any Liability with respect to a
multi-employer plan under Subtitle E of Title IV of ERISA (regardless of whether
based on contributions of an ERISA Affiliate) and have not made and are not
obligated to make any contributions to any multi-employer plan. To Sellers'
knowledge, all contributions required to be made under the terms of any Employee
Benefit Plan have been timely made or have been duly provided for. No
single-employer plan of the Company or any ERISA Affiliate of the Company has
any unfunded pension liability or any "accumulated funding deficiency" (whether
or not waived) within the meaning of Section 412 of the Code or Section 302 of
ERISA. No Reportable Event has occurred with respect to any ERISA Plan. Neither
the Company nor any of its Affiliates has provided, or is required to provide,
security to any single- employer plan of an ERISA Affiliate pursuant to Section
401(a) of the Code. The Company and each ERISA Affiliate have paid all premiums
(together with any interest, charges or penalties for late payment thereon)
required to be paid to the Pension Benefit Guaranty Corporation with respect to
each ERISA plan for which such premiums are required. No ERISA Plan has engaged
in any transaction described in Section 406 or 407 of ERISA or Section 4975 of
the Code that is not exempt under Section 408 of ERISA or Section 4975(d) of the
Code. Each ERISA Plan is currently in compliance with the bonding requirements
of Section 412 of ERISA. Each Employee Benefit Plan can be unilaterally
terminated without penalty by the Company on no more than sixty (60) days'
notice. There are no pending or, to the knowledge of Sellers, threatened Claims
relating to any Employee Benefit Plan, other than routine Claims for benefits in
the ordinary course, asserted against (i) any Employee Benefit Plan or its
assets, (ii) the Company or any ERISA Affiliate, (iii) any fiduciary, for which
the Company may be directly or indirectly liable, through indemnification
obligations or otherwise.
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(b) With respect to each Employee Benefit Plan, Sellers
have delivered to Buyer a current, accurate and complete copy (or, to the
extent no such copy exists, an accurate and complete description) thereof
(including all amendments thereto which will become effective at a later date)
and, to the extent applicable, (i) any related trust agreement, annuity
contract or other funding instrument; (ii) the most recent summary plan
description, (iii) the most recent annual report form (FORM 5500 series),
financial statement and actuarial report and (iv) the most recent IRS
determination letter.
SECTION 2.18 Employee-Related Matters. (a) Schedule 2.18
contains a true and correct list of all directors and employees of the Company,
including any agreement relating thereto, and a description of the rate and
nature of all compensation payable by the Company to each such person.
Schedule 2.18 also contains a description of all existing severance, accrued
vacation policies or retiree benefits of any current or former director,
officer, employee or consultant (to the extent not included on Schedule 2.17).
Except as set forth on such Schedule, the employment or consulting arrangement
of all such persons is terminable at will.
(b) Except as set forth in Schedule 2.18, (a) the Company
is not a party to any Contract with any labor organization or other
representative of its employees; (b) there is no unfair labor practice charge or
complaint pending or, to the knowledge of Sellers, threatened against the
Company; (c) the Company has not experienced any labor strike, slowdown, work
stoppage or similar material labor controversy within the past three years; (d)
no representation question has been raised respecting any of the Company's
employees working within the past three years, nor, to the knowledge of Sellers,
are there any campaigns being conducted to solicit authorization from the
Company's employees to be represented by any labor organization; (e) no Claim
before any Governmental Body brought by or on behalf of any employee,
prospective employee, former employee, retiree, labor organization or other
representative of the Company's employees, is pending or, to the knowledge of
Sellers, threatened against the Company; (f) the Company is not a party to, or
otherwise bound by, any Order relating to its employees or employment practices;
and (g) except with respect to ongoing disputes of a routine nature involving
immaterial amounts, the Company has paid in full to all of their employees all
wages, salaries, commissions, bonuses, benefits and other compensation due and
payable to such employees.
SECTION 2.19 Insurance. Schedule 2.19 sets forth a list of all
material insurance policies, fidelity and surety bonds and fiduciary liability
policies (the "Insurance Policies") covering the Assets, the Business,
operations, employees, officers and directors of the Company and true and
complete copies of all such Insurance Policies will be delivered to Buyer prior
to the Closing. Prior to the Closing, Sellers will cause the Company to assign
to Sellers or their assigns all insurance policies on the life of any Seller,
and all actions or causes of action on the part of the Company against any
insurer, agent or other person associated or involved in any manner with the
issuance or sale of any such policy; and Sellers shall assume all obligations
to repay amounts borrowed against any such policy. Schedule 2.19 also sets
forth (a) with respect to each Insurance Policy the applicable deductible
amounts and any material limitations to coverage and (b) any letter of credit
relating to any such
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<PAGE> 21
Insurance Policy and all inspections and reports delivered to the Company by any
insurer with respect to such Insurance Policies, copies of which have been
delivered to Buyer. Sellers have also delivered to Buyer a true and complete
list of Claims made in respect of any liability Insurance Policies during the
five years prior to the date hereof and a list of Claims made in respect of
workers' compensation or unemployment Insurance Policies during the 12 months
prior to the date hereof. There is no Claim by the Company pending under any of
such Insurance Policies as to which coverage has been questioned, denied or
disputed by the underwriters of such Insurance Policies or requirement by any
insurer to perform work which has not been satisfied. Except as indicated on
Schedule 2.19, all premiums payable under all Insurance Policies have been paid
and the Company is otherwise in compliance in all material respects with the
terms and conditions of all such Insurance Policies. Except as indicated on
Schedule 2.19, to the actual knowledge of Sellers, all Insurance Policies are in
full force and effect. The insurance in effect with respect to any Real
Property is in an amount of the full replacement value of such Real Property,
including the buildings and improvements thereon. Sellers do not know of any
threatened termination of, premium increase with respect to, or uncompleted
requirements under any Insurance Policy. No premiums are or will be payable
under Insurance Policies after the Closing in respect of insurance provided for
periods prior to the Closing Date.
SECTION 2.20 Compliance with Laws. The Company is not in
violation in any material respect of any order, judgment, injunction, award,
citation, decree, consent decree or writ (collectively, "Orders"), or any law,
statute, code, ordinance, rule, regulation or other requirement (collectively,
"Laws"), of any government or political subdivision thereof, whether federal,
state, local or foreign, or any agency or instrumentality of any such
government or political subdivision, or any court or arbitrator (collectively,
"Governmental Bodies") affecting its Assets or the Business.
SECTION 2.21 Permits. The Company has obtained all licenses,
permits, certificates, certificates of occupancy, orders, authorizations and
approvals (collectively, "Permits") of, and has made all required
registrations and filings with the appropriate Governmental Bodies that are
material to the conduct of the Business and the use of the Real Property
thereat. All Permits material to the Business are in full force and effect; no
material violations of any Permit exist; and no proceeding is pending or, to
the actual knowledge of Sellers, threatened to revoke or limit any Permit.
Except as listed on Schedule 2.21, no Permit will terminate by reason of the
Contemplated Transactions.
SECTION 2.22 Environmental Matters. (a) Except as set forth in
Schedule 2.22, to the actual knowledge of Sellers, there has been no
manufacture, refining, storage, transport, disposal or treatment of Hazardous
Substances by the Company (except for the use and disposal of de minimis
amounts of Hazardous Substances used in normal cleaning and operation of the
Business in material compliance with all Laws), or any Release at, on or under
any Real Property by the Company or, to the actual knowledge of Sellers, by any
other person, in violation of any Environmental Law or which would require
remedial action under any Environmental Law; none of the soil, ground water or
surface water of such Real Property is or has been
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<PAGE> 22
contaminated by any Release by the Company, nor to Sellers' actual knowledge by
any other person.
(b) The Company has not received any written (i) notice
of any violation with respect to any Environmental Law; or (ii) notice of any
actual, pending or threatened Regulatory Action involving such party or any
present or former owner, lessee or operator of the Real Property or (iii)
notice of any third-party claim with respect to the breach of any Environmental
Law or presence of Hazardous Substances on, in, under or at the Real Property,
and Sellers are not aware of any such violation.
(c) Except as set forth in Schedule 2.22 to Sellers'
actual knowledge: (i) there are no incinerators, septic tanks, underground
tanks or cesspools located or, to the knowledge of Sellers, which have been
located, on, at or under the Owned Real Property, (ii) all sewage from the
Owned Real Property is discharged into a public sanitary sewer system, and
(iii) there has been no Release by the Company into the atmosphere, any
adjoining or adjacent body of water, or adjoining or adjacent property.
SECTION 2.23 Suppliers. Schedule 2.23 lists, by dollar volume
paid for the 12 months ended December 31, 1994, the 15 largest suppliers of the
Company.
SECTION 2.24 Potential Conflicts of Interest. Except as set forth
in Schedule 2.24, no officer, director or Affiliate of the Company, no spouse
of any such officer, director or Affiliate, nor, to the actual knowledge of
Sellers, any entity controlled by one or more of the foregoing:
(a) owns, directly or indirectly, any interest in
(excepting less than 1% stock holdings for investment purposes in securities of
publicly held and traded companies), or is an officer, director, employee or
consultant of, any person that carries on business in competition with the
Company;
(b) owns, directly or indirectly, in whole or in part,
any material Asset that the Company uses in the conduct of its business;
(c) has any material Claim whatsoever against, or owes
any amount to, the Company, except for claims in the ordinary course of
business such as for accrued vacation pay and accrued benefits under employee
benefit plans; or
(d) is employed by or provides services to the Company
(other than Working Shareholders).
SECTION 2.25 Finders; Fees. Sellers and the Company have not
retained any investment banker, broker, finder or other intermediary to act on
behalf of any Seller or the Company in connection with the Contemplated
Transactions.
SECTION 2.26 Depositaries; Powers of Attorney, etc. Schedule 2.26
sets forth (i) the name and address of each bank or similar entity in which the
Company has an account, lock box or safe deposit box, the relevant account
number(s), and the names of all persons authorized to draw thereon or to have
access thereto; and (ii) the
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name of each person holding a general or special power of attorney from the
Company and a description of the terms thereof.
SECTION 2.27 Disclosure. Neither this Agreement, the Schedules
hereto, nor any audited or unaudited financial statements, documents or
certificates furnished or to be furnished to Buyer by or on behalf of any
Seller pursuant to this Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers that:
SECTION 3.1 Authority Relative to This Agreement. Buyer has full
power and authority to execute and deliver this Agreement and each other
Transaction Document to which it is a party and to consummate the Contemplated
Transactions. The execution and delivery of this Agreement and the
consummation of the Contemplated Transactions to which Buyer is a party have
been duly and validly authorized and approved by Buyer's board of directors and
no other corporate proceedings on the part of Buyer are necessary to authorize
the execution and delivery by Buyer of this Agreement or the consummation of
the Contemplated Transactions to which Buyer is a party. This Agreement has
been duly and validly executed and delivered by Buyer and (assuming the valid
execution and delivery of this Agreement by the other parties hereto)
constitutes the legal, valid and binding agreement of Buyer, enforceable
against Buyer in accordance with its terms, except as such obligations and
their enforceability may be limited by applicable bankruptcy and other similar
laws affecting the enforcement of creditors' rights generally and except that
the availability of equitable remedies is subject to the discretion of the
court before which any proceeding therefor may be brought (whether at law or in
equity).
SECTION 3.2 No Conflicts; Consents. The execution, delivery and
performance by Buyer of this Agreement and each other Transaction Document to
which it is a party and the consummation of the Contemplated Transactions to
which Buyer is a party will not (i) violate any provision of the Certificate of
Incorporation or By-laws of Buyer; (ii) require Buyer to obtain any consent,
approval or action of or waiver from, or make any filing with, or give any
notice to, any Governmental Body or any other person, except as set forth in
Schedule 3.2 (the "Buyer Required Consents"); (iii) if Buyer Required Consents
are obtained prior to the Closing, violate, conflict with or result in the
breach or default under (after the giving of notice or the passage of time); or
permit the termination of, any material Contract to which Buyer is a party or
by which it or its Assets may be bound or subject, or (iv) if Buyer Required
Consents are obtained prior to the Closing, violate any Law or Order of any
Governmental Body against, or binding upon, Buyer or upon its assets or
business.
SECTION 3.3 Corporate Existence and Power. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of its
state of
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incorporation and has all requisite corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted. Buyer is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate, have a
material adverse effect on the business, its Assets, financial condition or the
results of operations of Buyer or Buyer's Subsidiaries taken as a whole.
SECTION 3.4 Reports and Financial Statements. Buyer has previously
furnished to Sellers' Agent true and complete copies of (i) Buyer's Annual
Reports on Form 10-K for each of the two fiscal years ended January 28, 1995
and January 29, 1994 as filed with the Securities and Exchange Commission
("SEC"); and (ii) all other reports or registration statements filed by Buyer
with the SEC since January 1, 1995. Buyer's Annual Reports on Form 10-K, and
all other reports filed with the SEC since January 1, 1995 did not contain any
untrue statement of a material fact, or omit to state a material fact, required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, which untrue
statement or omission has not been corrected or updated in a document
subsequently filed with the SEC. The consolidated balance sheet and statements
of cash flows and operations of the Buyer and statements of income and retained
earnings as of and for the years ended January 28, 1995 and January 29, 1994,
copies of all of which have been furnished to Sellers' Agent, have been
prepared in accordance with GAAP applied on a consistent basis (except as may
be indicated therein or in the notes thereto), and fairly present in accordance
with GAAP the consolidated financial position of the Buyer and its Subsidiaries
as of the dates thereof and the consolidated results of operations and cash
flows (or changes in financial position, as the case may be), of the Buyer and
its Subsidiaries for each of the periods then ended.
SECTION 3.5 Acquisition for Investment. Buyer is acquiring the
Shares for its own account and not with a present intention to make any sale,
disposition, distribution or other transfer of the Shares in a manner that will
be in violation of any applicable securities Laws and understands that the
Shares have not been registered under the 1933 Act or under the securities Laws
of any state.
SECTION 3.6 Finders' Fees. Buyer is responsible for paying any
broker's or finder's fee or commission relating to the Contemplated
Transactions.
SECTION 3.7 Disclosure. Neither this Agreement and the Schedules and
Exhibits hereto, nor any audited or unaudited financial statements, documents
or certificates, furnished or to be furnished, to Sellers by or on behalf of
Buyer contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading.
ARTICLE IV
COVENANTS AND AGREEMENTS
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SECTION 4.1 Conduct of Business of Company. (a) From the date
hereof through the Closing Date, each Seller agrees to cause the Company:
(i) To conduct its operations according to the
ordinary and usual course of the Business consistent with recent practice, to
preserve intact its present business organization and structure, to keep
available the services of such of its present officers, agents and full-time
employees as Sellers determine necessary, to use reasonable efforts to preserve
and maintain its Assets and the goodwill of the Business and to use reasonable
efforts to preserve its relationships with customers and suppliers, and others
having business dealings with it.
(ii) To consult with Buyer on all material
decisions involving the Business;
(iii) To not make any expenditure over $50,000 other
than in the ordinary course of Business without Buyer's consent;
(iv) To not make any payments on any Liabilities
evidenced by promissory notes in favor of any Seller or Affiliate, except to the
extent of $45,000 per month in the aggregate to all Sellers and Affiliates;
(v) To maintain in the ordinary course of the
Business, consistent with recent practice, the Real Property, all material
structures, equipment located at the Real Property, and other tangible property
in their present repair, order and condition, subject to ordinary wear and tear,
and materially comply with all Laws, Orders and Permits affecting the Real
Property and the Business operations thereat.
(vi) To comply with all Leases and Liens (to the
extent applicable).
(vii) Not to permit or cause the transport, storage,
manufacture, refining, disposal or treatment of Hazardous Substances at the Real
Property except as allowed under existing Leases and except for de minimis
amounts of Hazardous Substances used in ordinary cleaning and operation of the
Business in compliance with all Laws.
(viii) Not to incur any Liability (other than
Liabilities or Company Debt incurred in the ordinary course of the Business,
consistent with recent practice), nor enter into any Contract of a type required
to be included on any Schedule hereto.
(ix) Not to undertake (nor permit to be undertaken)
any of the actions specified in clauses (a) through (h) of Section 2.11.
(x) Not to pay, discharge or satisfy any material
Claim or Liability, other than the payment, discharge or satisfaction in the
ordinary course of the Business of Claims or Liabilities incurred in the
ordinary course of Business, consistent with recent practice.
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(xi) Not to increase the compensation payable to
any Seller or Affiliate of a Seller; nor to increase the compensation payable to
any other employee out of the ordinary course of business (without notice to
Buyer).
(b) From the date hereof through the Closing Date, each
Seller agrees to use reasonable efforts to cause the affairs of the Company to
be conducted in such a manner so that the representations and warranties of
Sellers contained herein shall continue to be materially true and correct on and
as of the Closing Date as if made on and as of the Closing Date, provided that
Buyer acknowledges the Company's financial difficulties and anticipates
continued deterioration in the Company's financial condition.
(c) From the date hereof through the Closing Date, Sellers
shall cause the Company to consult with Buyer prior to any renewal, amendment,
extension or termination of, waiver of any material right under, or any failure
to renew, any Contract or Lease and will not take any such action if Buyer
objects thereto in writing.
SECTION 4.2 Corporate Examinations and Investigations. Prior to the
Closing Date, Sellers agree that Buyer shall be entitled, through its
Representatives to make such investigation of the Assets, the Business and
operations of the Company, and such examination of the books, records and
financial condition of the Company, as Buyer reasonably deems necessary. Any
such investigation and examination shall be conducted at reasonable times,
under reasonable circumstances and upon reasonable notice, and Sellers shall,
and shall cause the Company to, cooperate fully therein. In that connection,
Sellers shall make available and shall cause the Company to make available to
the Representatives of Buyer during such period, without however causing any
unreasonable interruption in the operations of the Company, all such
information and copies of such documents and records concerning the affairs of
the Company as such Representatives may reasonably request, shall permit the
Representatives of Buyer access to the Assets of Company and all parts thereof
and to its employees, customers, suppliers and others, and shall cause the
Company's Representatives to cooperate fully in connection with such review and
examination. No investigation by Buyer shall diminish or obviate any of the
representations, warranties, covenants or agreements of a Seller contained in
this Agreement.
SECTION 4.3 Additional Financial Statements. Prior to the Closing
Date, Sellers shall use reasonable efforts to furnish Buyer with the internal
financial information and reports prepared by the Company as part of its recent
practice. Such information shall include the Interim Statements at and for the
period ended June 30, 1995. Sellers shall also use reasonable efforts to
furnish Buyer with the weekly management reports prepared by the Company as
part of its recent practice.
SECTION 4.4 Filings and Authorizations. Sellers and Buyer, as
promptly as practicable after the execution and delivery of this Agreement,
shall make, or cause to be made, all filings and submissions under such Laws as
are applicable to them or their respective Affiliates, as may be required for
them to consummate the Contemplated Transactions in accordance with the terms
of this Agreement. Without limiting the foregoing, Sellers and Buyer, as
promptly as practicable after the
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execution and delivery of this Agreement, shall file or supply, or cause to be
filed or supplied, all notifications, reports and other information required to
be filed or supplied pursuant to the HSR Act in connection with the Contemplated
Transactions. Sellers and Buyer shall cooperate with each other in connection
with such filings and furnish each other with copies of such filings and any
correspondence received from any Governmental Body in connection therewith. All
filings shall comply in form and content in all material respects with
applicable Law.
SECTION 4.5 Efforts to Consummate. Subject to the terms and
conditions herein, each party hereto, without payment or further consideration,
shall use its reasonable efforts to take or cause to be taken all action and to
do or cause to be done all things necessary, proper or advisable under
applicable Laws, Permits and Orders to consummate and make effective, as soon
as reasonably practicable, the Contemplated Transactions, including, but not
limited to, the obtaining of all Seller Required Consents and Buyer Required
Consents and Permits or consents of any third party, whether private or
governmental, required in connection with such party's performance of such
transactions and each party hereto shall cooperate with the other in all of the
foregoing; and (i) Buyer shall use its best efforts to obtain the release of
the Guarantors from all Guarantor Debt owed by the Company to the Bank under
the Revolving Credit Facility; and (ii) Sellers shall use reasonable efforts to
ensure that substantially all Leases are in full force and effect as of the
Closing.
SECTION 4.6 Negotiations With Others. From and after the date hereof
unless and until this Agreement shall have terminated in accordance with its
terms, Sellers agree that none of them, nor the Company, will directly or
indirectly (i) solicit, engage in discussions or engage in negotiations with
any person (other than Buyer or any of its Affiliates) with respect to an
Acquisition Proposal; (ii) provide information to any person (other than Buyer
or any of its Representatives) in connection with an Acquisition Proposal; or
(iii) enter into any transaction with any person (other than Buyer or any of
its Affiliates) with respect to an Acquisition Proposal. If any Seller, the
Company, or Representative thereof receives any offer or proposal to enter into
discussions or negotiations relating to any of the above, Sellers will
immediately notify Buyer in writing as to the identity of the offeror or the
party making any such proposal and the specific terms of such offer or
proposal.
SECTION 4.7 Notices of Certain Events. Prior to the Closing Date,
each of Sellers and Buyer shall promptly notify the other of:
(a) any notice or other communication from any person
alleging that the consent of such person is or may be required in connection
with the Contemplated Transactions;
(b) any notice or other communication from any
Governmental Body in connection with the Contemplated Transactions; and
(c) any event, condition or circumstance occurring from
the date hereof through the Closing Date that would constitute a violation or
breach of any representation or warranty, whether made as of the date hereof or
as of the Closing
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Date, or that would constitute a violation or breach of any covenant of any
party contained in this Agreement.
SECTION 4.8 Public Announcements. Prior to the Closing Date,
Sellers' Agent and Buyer will consult with each other before issuing any press
release or otherwise making any public statement with respect to the
Contemplated Transactions, and will not issue any such press release or make
any such public statement without the prior approval of the Buyer or Sellers'
Agent, as the case may be, except as may be required by applicable Law in which
event the other party shall have the right to review and comment upon (but not
approve) any such press release or public statement prior to its issuance.
SECTION 4.9 Confidentiality. (a) Buyer, on the one hand, and each
Seller, on the other hand, each shall hold in strict confidence, and shall use
his, her or its best efforts to cause all its Representatives to hold in strict
confidence, unless compelled to disclose by judicial or administrative process,
or by other requirements of Law, all information concerning the Sellers and the
Company (in the case of Buyer) and Buyer and the Buyer Subsidiaries (in the
case of the Sellers) which is created or obtained prior to, on or after the
dates hereof in connection with the Contemplated Transactions, and Buyer and
Sellers each shall not use or disclose to others, or permit the use of or
disclosure of, any such information created or obtained except to the extent
that such information can be shown (i) to have been previously known by Buyer
or any Seller as the case may be and (ii) to have been made known to Buyer or
Seller, as the case may be, from a third-party not in breach of any
confidentiality requirement or (iii) to have been made public through no fault
of Buyer or Seller, as the case may be, or any of their respective
Representatives, and will not release or disclose such information to any other
person, except its officers, directors, employees, Representatives and lending
institutions who need to know such information in connection with this
Agreement and who shall be advised of the provisions of this Section 4.9 and
shall agree to be bound by the terms hereof.
(b) In the event that a party (the "First Party") or its
Representatives are requested or required (by oral questions, interrogatories,
request for information or documents subpoena, civil investigative demand or
similar process) to make a disclosure in violation of the provisions of this
Section 4.9, it is agreed that the First Party, to the extent not prohibited by
Law, will provide the other (the "Second Party") with prompt notice of such
request(s) so that the Second Party may seek an appropriate protective order
and/or waive compliance with the provisions of this Agreement. If in the
absence of a protective order or the receipt of a waiver hereunder, the First
Party or its Representatives are nonetheless, in the opinion of the First
Party's counsel, compelled to make any such disclosure to any Governmental Body
or else stand liable for contempt or suffer other censure or penalty, the First
Party or its Representative may make any such disclosure to such Governmental
body without liability hereunder.
(c) If the Contemplated Transactions are not consummated,
such confidence shall be maintained except (i) as required by Law or (ii) to
the extent such information is made public through no fault of Buyer or any
Seller, as the case may be, or any of their respective Representatives. If the
Contemplated Transactions are
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not consummated and if requested by any Seller or Buyer, as the case may be,
Buyer shall return to Sellers' Agent all tangible evidence of such information
regarding Sellers and the Company and Sellers shall return to Buyer all tangible
evidence of such information regarding Buyer and Buyer Subsidiaries.
SECTION 4.10 Expenses. Buyer and Company shall each pay 50% of
the expenses incurred in connection with the title insurance and survey
referred to in Sections 4.12 and 5.3(e) and in making the HSR filing. Buyer
understands and agrees that Company is paying for the fees and expenses of
Sellers' Representatives (in reasonable and customary amounts) in connection
with the preparation and execution of this Agreement and the Contemplated
Transaction. Except as otherwise specifically provided in this Agreement,
Buyer shall bear its own expenses incurred in connection with the preparation,
execution and performance of this Agreement and the Contemplated Transaction,
including, without limitation, all fees and expenses of Buyer's
Representatives.
SECTION 4.11 Tax Matters. (a) Buyer and the Company shall be
responsible for preparing and filing all Tax Returns required to be filed after
the Closing Date; provided, however, that, with respect to state and federal
income tax returns for the period that ends on or before the Closing Date,
Sellers shall have the right to select the accountant or firm of accountants
who will prepare the Tax Returns for such period and will have the right to
approve such Tax Returns prior to their being filed with the applicable Tax
Authorities.
(b) Sellers, the Company, and Buyer shall reasonably
cooperate, and shall cause their respective Representatives reasonably to
cooperate, in preparing and filing all Tax Returns, including maintaining and
making available to each other all records necessary in connection with the
preparation and filing of the Tax Returns, the payment of Taxes and the
resolution of Tax Audits and Tax Deficiencies with respect to all taxable
periods. With respect to any Tax Audits of income tax returns for any period
ending on or prior to the Closing Date, Buyer shall cause the Company to
promptly notify the Sellers of any such Tax Audit, and shall permit Sellers and
their Representatives to participate fully, at the expense of Sellers, in any
such Tax Audit and its resolution and Buyer shall not permit Company to agree
to any Tax Deficiency without the approval of Sellers' Agent. Furthermore,
Buyer recognizes that Sellers and their Affiliates will need access, from time
to time, after the Closing Date, to certain accounting and Tax records and
information held by the Company that pertain to events occurring prior to the
Closing Date; therefore, Buyer agrees to cause the Company to allow Sellers and
their Representatives, at times and dates reasonably acceptable to Buyer, to
inspect, review and make copies of such records as Sellers and Buyer deem
necessary or appropriate, provided such activities are conducted during normal
business hours.
SECTION 4.12 Provision of Merchandise. During the 60 day period
following the execution of this Agreement, Buyer may, at its option, make
available to the Company a credit facility, advance or financing mechanism
pursuant to which, upon Buyer's approval, Company will have the ability to
acquire, at cost, plus a markup of three percent (3%), but without any other
add ons, markups or charges, up to $2,000,000 of merchandise of the type
normally sold by the Company (which
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merchandise shall be reasonably acceptable to the Company's president) (the
"Merchandise Financing"). The terms of the Merchandise Financing shall be more
fully set forth in an agreement substantially in the form of Merchandising Note
and Security Agreement attached as Exhibit C1 (the "MNSA"), which shall be
entered into concurrently herewith. The Merchandise Financing will be secured
by a second lien on all real and personal property of the Company currently
securing any obligation of the Company to Bank of America Arizona (the "Bank").
To evidence the grant by the Company of a security interest in such Real
Property to Buyer, upon the execution and delivery hereof, the Company will
execute and deliver to Buyer a deed of trust substantially in the form of the
Deed of Trust attached as Exhibit C2, the validity and priority of which shall
be insured, simultaneously with the execution and delivery of the Deed of Trust,
by an ALTA Loan Policy to be issued by Stewart Title Guaranty Company and which
Deed of Trust shall be subject to no Liens, except as permitted under said Deed
of Trust, and the Company shall enter into an Inter-Creditor Agreement
substantially in the form attached as Exhibit C3. Concurrently with the
execution and delivery hereof, the Sellers shall cause Lewis and Roca LLP,
counsel to the Sellers and to the Company, to deliver a written opinion to Buyer
substantially in the form of the opinion attached to the Agreement as Exhibit C4
(the "Signing Opinion").
SECTION 4.13 Limitation on Bankruptcy. At any time at least
$1,000,000 is outstanding under the MNSA, the Sellers will take appropriate
action to assure that the Company does not file for protection in a voluntary
case under Title 11 of the United States Code (a "Bankruptcy Petition") without
the Sellers first giving the Buyer (i) five calendar days prior written notice
of such filing and (ii) the option to close the Contemplated Transaction upon
the Buyer indemnifying Sellers against all liabilities, claims, loss or
expenses relating to the debts of the Company, but without the release of the
Guarantors from their obligations.
SECTION 4.14 Severance Payments/Continued Employment. (a) On the
Closing Date, Buyer shall cause the Company, at Buyer's expense, to offer to
continue employing each Working Shareholder for a minimum of three months
commencing on the Closing Date in a position either comparable to the position
occupied by each employee on the date hereof or in a different store position
selected by Mark R. Capin, in either case in Nogales, Arizona or at such other
Company site as may be acceptable to such employee and at the base compensation
level in effect on June 30, 1995 ("Base Compensation"). Should any such
Working Shareholder, having accepted such continued employment, thereafter
terminate his employment at any time prior to the expiration of one year from
the Closing Date or if, during such period, such employment is otherwise
terminated for any reason whatsoever, the Buyer shall cause the Company to pay
severance to such employee equal to three months of his Base Compensation in
effect on June 30, 1995 in three monthly installments commencing (i) if the
termination occurs after the expiration of three months from the Closing Date,
on the 15th day of the month following the termination date or (ii) if the
termination occurs prior to the expiration of three months from the Closing
Date, on the 15th day of the fourth month following the Closing Date.
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(b) If any such Working Shareholder declines the offer
set forth in Section 4.14(a), the Company shall pay such Working Shareholder
severance amounts equal to three months of Base Compensation in effect on June
30, 1995 in three monthly installments commencing on the 15th day of the fourth
month following the Closing Date.
SECTION 4.15 Restrictive Covenants. (a) In furtherance of the
sale of the Business and more effectively to protect the value of the Business,
each Seller agrees as follows:
(i) during the two-year period commencing on the
Closing Date (the "Restrictive Period"), he or she shall not acquire, alone or
together with any of the other Sellers, a chain of retail stores located in the
State of Arizona that is similar to the Business in terms of sales volume,
number of stores and the nature of merchandise carried.
(ii) during the Restrictive Period, he or she will
not own, operate or manage or be employed by or act as a consultant to any
retail store in the United States or Mexico under the name "Factory 2-U" or
"Family Bargain," or any variation thereof.
(iii) during the Restrictive Period, he or she shall
not solicit any employee or agent of the Company.
(b) Each Seller acknowledges and agrees that the
restrictive covenants set forth in this Section 4.15 (collectively, the
"Restrictive Covenants") are reasonable and valid in geographical and temporal
scope and in all other respects. If any court determines that any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full force and effect, without regard to the invalid or unenforceable
parts.
(c) If any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable for any reason,
such court shall have the power to modify such Restrictive Covenant, or any
part thereof, and, in its modified form, such Restrictive Covenant shall then
be valid and enforceable.
(d) In the event of a breach or threatened breach by a
Seller of any of the Restrictive Covenants, Buyer shall be entitled to a
temporary restraining order, preliminary injunction and/or a permanent
injunction restraining such Seller from breaching or continuing to breach any
of said covenants.
SECTION 4.16 Negotiations and Notice by Buyer with Respect to
Guarantees. Buyer shall in good faith negotiate with the holders of all of the
Guarantor Debt not fully paid or discharged prior to the Closing for the prompt
reduction or discharge of all such Guarantor Debt. Buyer shall provide Sellers
with notice of any payment not timely made by the Company with respect to any
Guarantor Debt within five days after the date any such payment shall have
become due.
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SECTION 4.17 No Involuntary Proceedings. Buyer shall not take any
action or participate with others in any action on or prior to the Closing to
place the Company or cause the Company to be placed in an involuntary
bankruptcy proceeding.
SECTION 4.18 No Continuing Legal Representation; Conflict Waiver.
Sellers and Buyer agree that the representation of the Company by Lewis and
Roca LLP shall terminate upon the Closing and that, after the Closing, the
Company will not be represented by Lewis and Roca LLP unless a new engagement
agreement is entered into in writing between Lewis and Roca LLP and the
Company. Sellers and Buyer agree to waive and to cause the Company to waive
all conflicts of interest with respect to Lewis and Roca LLP's representation,
after the Closing, of the Sellers in any action adverse to the Company.
SECTION 4.19 Additional Buyer Financial Statements. Prior to the
Closing Date, as soon as available, and in any event within 30 calendar days
after the end of each month, Buyer shall deliver to Sellers' Agent Buyer's
internal financial statements prepared by Buyer in the ordinary course of its
business.
SECTION 4.20 Closing of Capin's Store. No later than January 31,
1996, Buyer shall cause the Company to close the store location currently
operating under the name "Capin's," vacate the premises occupied by that store
and terminate the Lease described at Tab 51 on Schedule 2.12B. In no event
shall Buyer or the Company make use of, in any manner whatsoever, or have any
claim to, the name "Capin's," or any variation thereof, after January 31, 1996.
SECTION 4.21 Intellectual Property Rights. (a) At the Closing,
Buyer shall cause the Company to assign to Sellers or their assignees the
rights to all Intellectual Property of the Company other than the domestic and
foreign rights and registrations for the name "Factory 2-U" or any variant
thereof.
(b) Promptly after the Closing, Buyer shall cause the
Company to amend its articles of incorporation to change its name to a new name
without the word "Capin" therein.
(c) Notwithstanding anything to the contrary contained in
this Section 4.21:
(i) For a period of three months after the
Closing Date, no Seller shall make use of or permit any other person to make
use of, in any manner whatsoever, or have any claim to, the names "Capin's,"
"Parisian," "La Ville" or any other tradenames owned by the Company and
(ii) For a period of six months after the Closing
Date, no Seller shall make use of or permit any other person to make use of, in
any manner whatsoever, or have any claim to, the word "Mercantile" in any
corporate or tradename.
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SECTION 4.22 No Claim to Sellers' Assets. Buyer acknowledges that
certain of the Sellers have furnished their offices at the Company's office
facility with furniture and other items purchased and paid for by a Seller or
by the Sellers as a group. Sellers shall have the right to remove all such
furniture and other items prior to the Closing. Sellers shall provide Buyer
with Schedule 4.22, a reasonably complete listing of such furniture and other
items, within 30 days of the date of this Agreement.
SECTION 4.23 Adverse Change Expected. Adverse changes to the
Company's business or operations after the date of this Agreement are expected,
and no such adverse change will be a defense to Buyer's obligation to close
hereunder.
SECTION 4.24 Termination of Certain Leases. On or before the
Closing, Sellers shall cause those Leases described at Tab nos. 4, 11, 14, 44
and 52 on Schedule 2.12B to be terminated.
SECTION 4.25 Amendments to Certain Leases. On or before the
Closing, those Leases described at Tab nos. 45, 51 and 53 on Schedule 2.12B
will each be amended, effective as of the Closing, to increase the percentage
rent multiplier from 2% to 3%. The parties agree that the percentage rent
multiplier for the Lease described at Tab no. 33 on Schedule 2.12B shall remain
at 3%. In addition, as to any of such Leases under which the Company is in
default, as of the Closing and on a going forward basis, the Buyer will cure
any such defaults by paying all rent and other charges due under such Leases as
the same becomes due.
SECTION 4.26 Release of Bank Debt. Buyer shall obtain the release
of Guarantors from all obligations of Guarantors relating to the Company's debt
to the Bank secured by the Owned Real Property no later than February 28, 1996.
SECTION 4.27 Cooperation in Litigation. Each of the Sellers and
Buyers agree to cooperate, both before and after the Closing, in connection with
the defense or assertion of any Claims against or involving the Company, any of
its Assets or the Business, or any Claims that are brought against or involving
the Company, any of its Assets or the Business in the future arising from or
involving pre-Closing facts or events; provided, however, that (i) the Company
shall provide notice of all Claims (except for any Claims disclosed in this
Agreement or the Schedules attached hereto) to those Sellers from which
cooperation may be sought by the Company promptly after the Company, or its
counsel, determines that such cooperation may be sought with respect to a Claim,
(ii) each Seller shall provide notice of all Claims (except for any Claims
disclosed in this Agreement or the Schedules attached hereto) to the Company
with respect to which cooperation may be sought by such Seller promptly after
such Seller,or its counsel, determines that such cooperation may be sought with
respect to a Claim, (iii) neither the Sellers or the Company will be required to
cooperate if such cooperation involves a waiver of any attorney client
work-product or other applicable privilege of the Company or Sellers, and (iv)
the Company shall not be required to cooperate with any Seller with respect to
any Claim which the Board of Directors of the Company, in its sole discretion,
has determined that such cooperation is not appropriate because such Seller has
acted in a manner inconsistent with the applicable standards of conduct under
Section 10-005 A of the Arizona
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General Corporation Law. Cooperation under this Section 4.27 shall include,
without limitation, participating in interviews, appearing at depositions, and
providing testimony at trial. The Company or Buyer shall pay all reasonable
out-of-pocket expenses incurred by any of the Sellers in cooperating with the
Company under this Section 4.27.
ARTICLE V
CONDITIONS TO CLOSING
SECTION 5.1 Conditions to the Obligations of Sellers and Buyer. The
obligations of Buyer and Sellers to consummate the Contemplated Transactions
are subject to the satisfaction of the following conditions, which, in the case
of Section 5.1(c), may be waived by Buyer and Sellers' Agent:
(a) HSR Act. Any applicable waiting period under the HSR
Act relating to the Contemplated Transaction shall have expired.
(b) No Injunction. No provision of any applicable Law
and no Order shall prohibit the consummation of the Contemplated Transactions.
(c) No Proceeding or Litigation. No Claim instituted by
any person shall have been commenced or pending against a Seller, the Company,
Buyer or any of their respective Affiliates, officers or directors which Claim
seeks to restrain, prevent, change or delay in any material respect the
Contemplated Transactions or seeks to challenge any of the material terms or
provisions of this Agreement or seeks material damages in connection with any
of such transactions.
SECTION 5.2 Conditions to the Obligations of Sellers. All
obligations of Sellers hereunder are subject, at the option of the Sellers, to
the fulfillment prior to or at the Closing of each of the following further
conditions:
(a) Performance. Buyer shall have performed and
materially complied with all agreements, obligations and covenants required by
this Agreement to be performed or complied with by it at or prior to the
Closing Date.
(b) Representations and Warranties. The representations
and warranties of Buyer contained in this Agreement and in any certificate or
other writing delivered by Buyer pursuant hereto shall be true in all material
respects at and as of the Closing Date as if made at and as of such time.
(c) Purchase Price. Buyer shall have delivered by wire
transfer of immediately available funds the cash portion of the Purchase Price
to be paid at the Closing as provided in Section 1.3.
(d) Buyer Required Consents. All Buyer Required Consents
shall have been obtained.
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(e) Revolving Credit Facility. All obligations owed by
the Company to the Bank with respect to the Revolving Credit Facility shall
have been paid by Buyer and the Guarantors released and discharged from all
Guarantor Debt related to the Revolving Credit Facility.
(f) Indemnity Agreement. Buyer shall have delivered to
the Guarantors the form of Indemnity Agreement attached as Exhibit D pursuant to
which Buyer shall have unconditionally and irrevocably agreed to indemnify the
Guarantors and hold them harmless from and against any and all Losses they may
sustain as a result of any enforcement action that may be commenced against them
arising out of or in connection with their guaranty of any Guarantor Debt up to
the amount of the Guaranty Indemnity Cap.
(g) Documentation. There shall have been delivered to
Sellers the following:
(i) A certificate, dated the Closing Date, of the
Chairman of the Board, the President or any Vice President of Buyer confirming
the matters set forth in Section 5.2(a) and (b) hereof.
(ii) A certificate, dated the Closing Date, of the
Secretary or Assistant Secretary of Buyer certifying, among other things, that
attached or appended to such certificate (A) is a true and correct copy of its
Certificate of Incorporation and all amendments if any thereto as of the date
thereof; (B) is a true and correct copy of its By-laws as of the date hereof;
(C) is a true copy of all corporate actions taken by it, including resolutions
of its board of directors authorizing the execution, delivery and performance
of this Agreement, and each other document to be delivered by Buyer pursuant
hereto; and (D) are the names and signatures of its duly elected or appointed
officers who are authorized to execute and deliver this Agreement and any
certificate, document or other instrument in connection herewith.
(iii) A signed opinion of Buyer's counsel, dated the
Closing Date and addressed to Sellers and Sellers' counsel, substantially in the
form of opinion annexed as Exhibit E hereto.
(iv) Copies of all Buyer Required Consents.
(v) Originals of all loan agreements, modification
agreements, forbearance letter agreements, promissory notes, and guaranty
agreements between each Guarantor and the Bank with respect to the Revolving
Credit Facility, marked cancelled.
(h) Esther Capin Payment and Guarantee. Buyer shall have
paid $50,000 to Esther Capin and shall have delivered its guarantee as to the
payment by the Company to Esther Capin, individually and in her capacity as
trustee, of an additional $116,866, payable in installments of $4,000 per
month, all owed by the Company pursuant to the Post-Death Salary Agreement for
Capin Officer-Employees dated February 27, 1987.
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SECTION 5.3 Conditions to the Obligations of Buyer. All obligations
of Buyer hereunder are subject, at its option, to the fulfillment prior to or
at the Closing of each of the following further conditions:
(a) Performance. Sellers shall have performed and
materially complied with all agreements, obligations and covenants required by
this Agreement to be performed or complied with by them at or prior to the
Closing Date.
(b) Representations and Warranties. The representations
and warranties of Sellers contained in this Agreement and in any certificate or
other writing delivered by Sellers pursuant hereto shall be true in all
material respects at and as of the Closing Date as if made at and as of such
time.
(c) Seller Required Consents. All Seller Required
Consents shall have been obtained.
(d) Discharge of Certain Indebtedness. Except for the
Purchased Debt, all indebtedness or other Liabilities of the Company to any
Seller or an Affiliate of any Seller in respect of borrowed moneys shall have
been discharged prior to the Closing Date, and the Company shall be fully
released in respect thereof, pursuant to one or more instruments in form and
substance satisfactory to Buyer.
(e) Survey and Title Insurance. Buyer shall have procured
(i) title insurance insuring the Company's fee simple interest in the Owned Real
Property, subject only to Liens listed on Schedule 2.12A and such exceptions as
are customary on the ALTA standard title insurance printed form or which are
specifically agreed to by Buyer, with respect to the Owned Real Property and
(ii) a recent certified survey which complies with ALTA minimum requirements, by
a licensed surveyor selected by Buyer, of the Owned Real Property, showing the
location of all boundaries, easements and rights-of-way of record, improvements
and encroachments, if any, and that such things do not materially adversely
affect the marketability of the Owned Real Property or otherwise materially
adversely affect the operations of the Business thereat, interfere or prevent
the use, ownership or operation of the Business thereat and do not provide the
right of forfeiture or reentry in favor of any person.
(f) Documentation. There shall have been delivered to
Buyer the following:
(i) (A) The stock certificates of each Seller
representing the number of Shares set forth opposite such Seller's name on
Exhibit A, duly endorsed in blank or accompanied by stock powers duly executed
in blank, in proper form for transfer; and (B) the promissory notes evidencing
the Purchased Debt, duly endorsed in favor of or assigned to Buyer.
(ii) A certificate dated the Closing Date, of each
Seller confirming the matters set forth in Sections 5.3(a) and (b).
(iii) A certificate, dated the Closing Date, of the
Secretary or Assistant Secretary of the Company certifying, among other things,
that attached or
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appended to such certificate (A) is a true and correct copy of the articles of
incorporation and bylaws (or comparable instruments) of the Company, and all
amendments if any thereto as of the date thereof; (B) are the names of the
directors and officers of the Company; and (C) is a true copy of all corporate
actions taken by the Board of Directors of the Company (which actions shall have
been taken prior to the date of entering into this Agreement) to authorize the
Contemplated Transactions.
(iv) The resignations, dated on or before the
Closing Date, of each director and officer of the Company and such trustees of
Benefit Plans as may have been requested by Buyer.
(v) A signed opinion of Sellers' counsel, dated
the Closing Date, addressed to Buyer, substantially in the form of opinion
annexed as Exhibit F hereto (the "Closing Opinion").
(vi) Copies of all Seller Required Consents and
material Permits.
(vii) All notes and other evidence of Company Debt.
(viii) Possession and control of the Assets of the
Company (including all corporate books, bank accounts, records, documents,
Leases and Contracts).
(ix) Title affidavits, forms and other
documentation reasonably required in order to obtain the title insurance and
survey described in Section 5.3(f).
(x) An executed estoppel certificate from the
landlord under each Lease, substantially in the form of Exhibit G hereto,
provided that Sellers' failure to obtain such estoppel certificates after a good
faith attempt to do so will not be a defense to Buyer's obligations to close the
Contemplated Transactions.
(xi) Executed UCC-1 financing statements reasonably
requested by Buyer in connection with the Merchandising Note and Security
Agreement.
(xii) Executed UCC-1 financing statements
reasonably requested by Buyer in connection with the Deed of Trust.
(xiii) Proof of posting of Worker Adjustment and
Retraining Notification Act notices.
(g) The Company shall not be a debtor in a case pending
under Title 11 of the United States Code.
(h) Substantially all of the Leases will be in full force
and effect.
(i) The Family Agreement, dated January 1, 1982, as
amended (the "Family Agreement"), among the Company, certain of the Sellers and
others shall
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be terminated and of no force or effect as it applies to, or restricts any sale
or transfer of, Shares.
(j) Buyer shall have received the agreement of Esther
Capin, individually and in her capacity as trustee, granting a general release
to the Company with respect to its obligations under Section 2 of the Richard
Capin Buy-Out Agreement dated September 1, 1989, accompanied by a legal opinion
of counsel acceptable to Buyer as to the validity and enforceability of such
release.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1 Survival of Representations and Warranties. (a)
Notwithstanding any right of Buyer fully to investigate the affairs of the
Company and notwithstanding any knowledge of facts determined or determinable
by Buyer pursuant to such investigation or right of investigation, Buyer has
the right to rely fully upon the representations, warranties, covenants and
agreements of Sellers contained in this Agreement, or listed or disclosed on
any Schedule hereto or in any instrument delivered in connection with or
pursuant to any of the foregoing. All such representations, warranties,
covenants and agreements shall survive the execution and delivery of this
Agreement and the Closing hereunder. Notwithstanding the foregoing, all
representations and warranties of Sellers contained in this Agreement, on any
Schedule hereto or in any instrument delivered in connection with or pursuant
to this Agreement shall terminate and expire 24 months after the Closing Date;
provided, however, that the liability of Sellers shall not terminate as to any
specific Claim or Claims of the type referred to in Section 6.2 hereof, whether
or not fixed as to liability or liquidated as to amount, to the extent Sellers
have been given specific notice, describing any such Claim with particularly,
on or prior to the date on which such liabilities would otherwise terminate
pursuant to the terms of this Section 6.1(a). Notwithstanding the foregoing,
Sellers acknowledge that their obligation to indemnify Buyer with respect to
any Excluded Liabilities shall survive the Closing until the expiration of any
applicable statute of limitations with respect thereto, and such obligation
shall not be affected by the expiration of any representation and warranty of
Sellers under this Section 6.1(a).
(b) All representations and warranties, covenants and
agreements of Buyer shall terminate and expire 24 months after the Closing
Date; provided, however, that the liability of Buyer shall not terminate as to
any specific Claim or Claims of the type referred to in Section 6.3 hereof,
whether or not fixed as to liability or liquidated as to amount, to the extent
that Buyer has been given specific notice, describing any such Claim with
particularity, on or prior to the date on which such liabilities would
otherwise terminate pursuant to the terms of this Section 6.1(b).
Notwithstanding any provision to the contrary contained in this Agreement or in
any of the Transaction Documents, in no event shall the liability of Buyer
terminate as to any Buyer's Conduct Claim or any obligation of
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Buyer relating to its undertaking to pay or indemnify Sellers with respect to
any Guarantor Debt. Buyer's obligation to pay or indemnify Sellers with respect
to all Guarantor Debt shall continue until such time as all such Guarantor Debt
has been fully paid or otherwise discharged.
SECTION 6.2 Obligation of Sellers to Indemnify. Each Seller agrees
to indemnify, defend and hold harmless Buyer (and its directors, officers,
employees, Affiliates, successors and assigns) from and against all Claims,
losses, liabilities, damages, deficiencies, judgments, settlements, costs of
investigation or other expenses (including interest, penalties and reasonable
attorneys' fees and disbursements and expenses incurred in enforcing this
indemnification or in any litigation between the parties or with third parties)
(collectively, the "Losses") suffered or incurred by Buyer or any of the
foregoing persons arising out of (a) any breach of the representations or
warranties of such Seller or of the covenants and agreements of such Seller
contained in this Agreement or in the Schedules or any Transaction Document or
(b) any Excluded Liabilities.
SECTION 6.3 Obligation of Buyer to Indemnify. Buyer agrees to
indemnify, defend and hold harmless each Seller (and their Affiliates,
Representatives, heirs, successors or assigns) from and against any Losses
suffered or incurred by such Seller or any of the foregoing persons (i) arising
out of any breach of the representations or warranties of Buyer or of the
covenants and agreements of Buyer contained in this Agreement or in the
Schedules or any Transaction Documents, (ii) by reason of, in connection with,
or relating to the conduct of the Business or the operation of the Company or
of Buyer after the Closing Date ("Buyer's Conduct Claim"), or (iii) due to
Buyer's or the Company's failure to pay the Guarantor Debt (up to the amount of
the Guaranty Indemnity Cap) as and when due.
SECTION 6.4 Notice and Opportunity to Defend Third Party Claims. (a)
Promptly after receipt by any party hereto (the "Indemnitee") of notice of any
demand, claim, circumstance or Tax Audit which would or might give rise to a
claim or the commencement (or threatened commencement) of any action,
proceeding or investigation (an "Asserted Liability") that may result in a
Loss, the Indemnitee shall give prompt notice thereof (the "Claims Notice") to
the party or parties obligated to provide indemnification pursuant to Section
6.2 or 6.3 (the "Indemnifying Party"). The Claims Notice shall describe the
Asserted Liability in reasonable detail and shall indicate the amount
(estimated, if necessary, and to the extent feasible) of the Loss that has been
or may be suffered by the Indemnitee.
(b) The Indemnifying Party may elect to defend, at its own
expense and with its own counsel, any Asserted Liability unless (i) the Asserted
Liability seeks an Order, injunction or other equitable or declaratory relief
against the Indemnitee or (ii) the Indemnitee shall have reasonably concluded
that (x) there is a conflict of interest between the Indemnitee and the
Indemnifying Party in the conduct of such defense or (y) the Indemnitee shall
have one or more defenses not available to the Indemnifying Party. If the
Indemnifying Party elects to defend such Asserted Liability, it shall within
thirty days (or sooner, if the nature of the Asserted Liability so requires)
notify the Indemnitee of its intent to do so, and the Indemnitee shall
cooperate, at the expense of the Indemnifying Party, in the defense of such
Asserted
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Liability. If the Indemnifying Party elects not to defend the Asserted
Liability, is not permitted to defend the Asserted Liability by reason of the
first sentence of this Section 6.4(b), fails to notify the Indemnitee of its
election as herein provided or contests its obligation to indemnify under this
Agreement with respect to such Asserted Liability, the Indemnitee may pay,
compromise or defend such Asserted Liability at the sole cost and expense of the
Indemnifying Party. Notwithstanding the foregoing, neither the Indemnifying
Party nor the Indemnitee may settle or compromise any claim over the reasonable
written objection of the other, provided that the Indemnitee may settle or
compromise any claim as to which the Indemnifying Party has failed to notify the
Indemnitee of its election as herein provided or is contesting its
indemnification obligations hereunder. In any event, the Indemnitee and the
Indemnifying Party may participate, at their own expense, in the defense of such
Asserted Liability. If the Indemnifying Party chooses to defend any Asserted
Liability, the Indemnitee shall make available to the Indemnifying Party any
books, records or other documents within its control that are necessary or
appropriate for such defense. Any expenses of any Indemnitee for which
indemnification is available hereunder shall be paid upon written demand
therefor.
SECTION 6.5 Limits on Indemnification. Notwithstanding anything
contained in this Article VI or elsewhere in this Agreement to the contrary:
(a) Sellers shall not have any obligation to indemnify
Buyer with respect to any Claim unless and until Buyer shall have incurred
Losses in an aggregate amount in excess of $50,000 (the "Stipulated Amount") in
which event Buyer shall be entitled to be indemnified for all of its Losses
commencing at $1; provided that the foregoing limitation shall not apply to the
obligations of Sellers under Section 4.10.
(b) Buyer shall have no obligation to indemnify Sellers
with respect to any Claim unless and until the Sellers shall have incurred
Losses in an aggregate amount in excess of the Stipulated Amount in which event
Sellers shall be entitled to be indemnified for all of their Losses commencing
at $1; provided that the foregoing limitation shall not apply to the
obligations of Buyer under Sections 1.3, 4.10, the Downpayment Note, the
Absolute Note, the Contingent Note or in connection with any obligation of
Buyer to pay or indemnify any Seller with respect to any Guarantor Debt.
(c) The liability hereunder of any Seller shall at no
time exceed the portion of the Purchase Price then remaining payable to such
Seller.
(d) The liability hereunder of Buyer shall at no time
exceed the Purchase Price, except (i) with respect to any Buyer's Conduct
Claim, in which case there shall be no limit on Buyer's obligation to indemnify
Sellers, or (ii) with respect to Buyer's or the Company's failure to pay the
Guarantor Debt as and when due, in which case the amount of the Guaranty
Indemnity Cap is the sole limit on Buyer's obligation to indemnify Sellers.
SECTION 6.6 Offset. The amount of any indemnification obligation of
a Seller to Buyer under this Agreement shall be satisfied by means of offsets
and
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deductions in the amount of any Loss(es) against the installments due under the
Notes. In no event, however, will any offset be made or deduction taken without
the consent of the Sellers' Agent or a decision of the arbitrator(s) pursuant to
Article VIII.
SECTION 6.7 Adjustment. It is the intent of the parties that amounts
paid under Sections 6.2 or 6.3 (other than Buyer's obligations in connection
with any Guarantor Debt) shall represent an adjustment of the Purchase Price
and the parties will report such payments consistent with such intent.
Nevertheless, if any such payment pursuant to Section 6.2 or 6.3 hereof would
be treated by any Tax Authority as other than a Purchase Price adjustment and
would, on that basis, be includable in the gross income of the Indemnitee that
is reported to such Tax Authority, then such payment shall be increased by the
amount necessary so that the Indemnitee is fully and completely indemnified on
an after-tax basis.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination. This Agreement may be terminated and the
Contemplated Transactions may be abandoned at any time prior to the Closing:
(a) By mutual written consent of Sellers and Buyer;
(b) By the Sellers if (i) there has been a material
misrepresentation or breach of warranty on the part of Buyer in the
representations and warranties contained herein and such material
misrepresentation or breach of warranty, if curable, is not cured within 30
days after written notice thereof from Sellers (ii) Buyer has committed a
material breach of any covenant imposed upon it hereunder and fails to cure
such breach within 30 days after written notice thereof from Sellers; or (iii)
any condition to a Sellers' obligations hereunder becomes incapable of
fulfillment through no fault of Sellers and is not waived by the Sellers'
Agent.
(c) By Buyer, if (i) there has been a material
misrepresentation or breach of warranty on the part of a Seller in the
representations and warranties contained herein and such material
misrepresentation or breach of warranty, if curable, is not cured within 30
days after written notice thereof from Buyer; (ii) a Seller has committed a
material breach of any covenant imposed upon it hereunder and fails to cure
such breach within 30 days after written notice thereof from Buyer; (iii) any
condition to Buyer's obligations hereunder becomes incapable of fulfillment
through no fault of Buyer and is not waived by Buyer; or (iv) the Company files
a petition for bankruptcy or if a bankruptcy petition is pending against the
Company.
(d) By the Sellers or by Buyer, if there shall be any Law
that makes consummation of the Contemplated Transactions illegal or otherwise
prohibited, or if any Order enjoining Buyer or any Seller from consummating the
Contemplated Transactions is entered and such Order shall have become final and
nonappealable.
SECTION 7.2 Effect of Termination; Right to Proceed. In the event
that this Agreement shall be terminated pursuant to Section 7.1, all further
obligations of the
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parties under the Agreement shall terminate without further liability of any
party hereunder except (i) to the extent that a party has made a material
misrepresentation hereunder or committed a breach of the material covenants and
agreements imposed upon it hereunder; (ii) to the extent that any condition to a
party's obligations hereunder became incapable of fulfillment because of the
breach by a party of its obligations hereunder and (iii) that the agreements
contained in Sections 4.8, 4.9 and 4.10 shall survive the termination hereof. In
the event that a condition precedent to its obligation is not met, nothing
contained herein shall be deemed to require any party to terminate this
Agreement, rather than to waive such condition precedent and proceed with the
Contemplated Transactions.
ARTICLE VIII
ARBITRATION
SECTION 8.1 Binding Arbitration. If any dispute arises between the
parties with respect to any claim of right to offset or deduction under this
Agreement or its exhibits, or any indemnification claim under Article VI or
under the Indemnification Agreement, the parties agree to submit the dispute to
binding arbitration.
SECTION 8.2 Choice of Arbitrator. If the parties can agree to a
single arbitrator within 30 days of one party receiving notice from the other
party of the dispute, disagreement or claim, that arbitrator shall be the one
chosen. If the parties disagree as to the choice of arbitrator, each party
shall choose an arbitrator within ten days after the expiration of the 30 days
referred to in the preceding sentence, and the two arbitrators so chosen shall
choose an additional arbitrator within ten days of the date on which the last
arbitrator was chosen. If at the end of such ten days the parties' designated
arbitrators cannot agree on the selection of the third arbitrator, such
selection shall be made by the American Arbitration Association on the
application of either party.
SECTION 8.3 Resolution of Dispute. The dispute between the parties
shall be heard by the arbitrator(s) within 30 days of the date on which the
final arbitrator(s) have been chosen. The arbitrator(s) shall, by a majority
vote, resolve any dispute or disagreement within 30 days after hearing the
dispute. The arbitration shall be conducted pursuant to the Commercial Rules
of the American Arbitration Association. The decision of the arbitrator(s)
shall be binding on the parties.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Notices. (a) Any notice or other communication required
or permitted hereunder shall be in writing and shall be delivered personally by
hand or by recognized overnight courier, telecopied or mailed (by registered or
certified mail, postage prepaid) as follows:
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(i) If to Buyer, one copy to:
Family Bargain Corporation
315 East 62nd Street
New York, New York 10022
(212) 755-4079
Telecopier: (212) 755-4311
Attention: John A. Selzer, President
with a simultaneous copy to:
Baer Marks & Upham
805 Third Avenue
New York, New York 10022
Telecopier: (212) 702-5941
Attn: Joel M. Handel, Esq.
(ii) If to Sellers, one copy each to:
Robert S. Stuchen
1981 North Old Patagonia Road
Nogales, Arizona 85621
Telecopier: (520) 287-5501
with a simultaneous copies to:
Mark R. Capin
2847 North Vista del Cielo
Nogales, Arizona 85621
Lewis and Roca LLP
One South Church Avenue
Suite 700
Tucson, Arizona 85701
(602) 622-2090
Telecopier: (602) 622-3088
Attn: Gabriel Beckmann
(b) Each such notice or other communication shall be
effective (i) if given by telecopier, when such telecopy is transmitted to the
telecopier number specified in Section 9.1(a) (with confirmation of
transmission) or (ii) if given by any other means, when delivered at the
address specified in Section 9.1(a). Any party by notice given in accordance
with this Section 9.1 to the other party may designate another address (or
telecopier number) or person for receipt of notices hereunder. Notices by a
party may be given by counsel to such party.
SECTION 9.2 Entire Agreement. This Agreement (including the
Schedules and Exhibits hereto) and the collateral agreements executed in
connection with the consummation of the Contemplated Transactions contain the
entire agreement
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between the parties with respect to the subject matter hereof and related
transactions and supersede all prior agreements, written or oral, with respect
thereto.
SECTION 9.3 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies. This Agreement may be amended, superseded,
cancelled, renewed or extended only by a written instrument signed by the
Sellers and Buyer. The provisions hereof may be waived in writing by the
Sellers and Buyer. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any such right, power or privilege, nor any
single or partial exercise of any such right, power or privilege, preclude any
further exercise thereof or the exercise of any other such right, power or
privilege. Except as otherwise provided herein, the rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that
any party may otherwise have at law or in equity.
SECTION 9.4 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Arizona applicable to
agreements made and to be performed entirely within such State, without regard
to the conflict of laws rules thereof.
SECTION 9.5 Consent to Jurisdiction and Service of Process. Subject
to Article VIII, the parties hereto irrevocably: (a) agree that any suit,
action or other legal proceeding arising out of this Agreement may be brought
in the courts of the State of Arizona or the courts of the United States
located in Pima County, Arizona, (b) consent to the jurisdiction of each court
in any such suit, action or proceeding, (c) waive any objection which they, or
any of them, may have to the laying of venue of any such suit, action or
proceeding in any of such courts, and (d) waives the right to a trial by jury
in any such suit, action or other legal proceeding.
SECTION 9.6 Designated Buyer. It is understood and agreed between
the parties that Buyer may cause one or more Affiliates, direct or indirect
Subsidiaries or other entities designated by it (the "Designated Buyer" or
Designated Buyer") to carry out all or part of the Contemplated Transactions to
be carried out by Buyer; provided, however, that Buyer nevertheless shall
remain liable (as principal and not as guarantor) for all of its obligations
and those of any Designated Buyer hereunder.
SECTION 9.7 Binding Effect; No Assignment. This Agreement and all of
its provisions, rights and obligations shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors, heirs and
legal representatives. Except as provided in Section 9.6, this Agreement may
not be assigned (including by operation of Law) by a party without the express
written consent of Buyer (in the case of assignment by any Seller) or the
Sellers (in the case of assignment by Buyer) and any purported assignment,
unless so consented to, shall be void and without effect. Nothing herein
express or implied is intended or shall be construed to confer upon or to give
anyone other than the parties hereto and their respective heirs, legal
representatives and successors any rights or benefits under or by reason of
this Agreement and no other party shall have any right to enforce any of the
provisions of this Agreement.
38
<PAGE> 45
SECTION 9.8 Exhibits. All Exhibits and Schedules attached hereto
are hereby incorporated by reference into, and made a part of, this Agreement.
SECTION 9.9 Severability. If any provision of this Agreement for
any reason shall be held to be illegal, invalid or unenforceable, such
illegality shall not affect any other provision of this Agreement, but this
Agreement shall be construed as if such illegal, invalid or unenforceable
provision had never been included herein.
SECTION 9.10 Counterparts. The Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
ARTICLE X
DEFINITIONS
SECTION 10.1 Definitions. (a) The following terms, as used herein,
have the following meanings:
"Acquisition Proposal" shall mean any proposal for the acquisition of,
or merger or other business combination involving the Company or the sale of
the Shares or the sale of any equity interest in, or the Business or any Assets
of, the Company (except in the ordinary course), other than the transactions
contemplated by this Agreement.
"Affiliate" of any person means any other person directly or
indirectly through one or more intermediary persons, controlling, controlled by
or under common control with such person.
"Agreement" or "this Agreement" shall mean, and the words "herein",
"hereof" and "hereunder" and words of similar import shall refer to, this
agreement as it from time to time may be amended.
"Assets" shall mean properties, rights, interests and assets of every
kind, real, personal or mixed, tangible and intangible, used or usable in the
Business.
The term "audit" or "audited" when used in regard to financial
statements shall mean an examination of the financial statements by a firm of
independent certified public accountants in accordance with generally accepted
auditing standards for the purpose of expressing an opinion thereon.
"Business" shall mean the ownership and operation of the Assets
comprising the business operations of the Company.
39
<PAGE> 46
"Certificate of Incorporation" shall mean, in the case of any
corporation, the certificate of incorporation, articles of incorporation or
charter of a corporation, howsoever denominated under the laws of the
jurisdiction of its incorporation.
"Company Debt" shall mean (i) money borrowed by the Company from any
person; (ii) any indebtedness of the Company or any Subsidiary arising under
leases required to be capitalized under GAAP or evidenced by a note, bond,
debenture or similar instrument; (iii) any indebtedness of the Company arising
under purchase money obligations or representing the deferred purchase price of
property and services (other than current trade payables incurred in the
ordinary course of the Business) and (iv) any Liability of the Company under
any guaranty, letter of credit, performance credit or other agreement having
the effect of assuring a creditor against loss.
"Contract" shall mean any contract, agreement, indenture, note, bond,
lease, conditional sale contract, mortgage, license, franchise, instrument,
commitment or other binding arrangement, whether written or oral.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
The term "control", with respect to any person, shall mean the power
to direct the management and policies of such person, directly or indirectly,
by or through stock ownership, agency or otherwise, or pursuant to or in
connection with an agreement, arrangement or understanding (written or oral)
with one or more other persons by or through stock ownership, agency or
otherwise; and the terms "controlling" and "controlled" shall have meanings
correlative to the foregoing.
"Environmental Laws" shall mean any and all Laws (including common
law), Orders, Permits, agreements or any other requirement or restriction
promulgated, imposed, enacted or issued by any federal, state, local and
foreign Governmental Bodies relating to human health or the environment,
including the emission, discharge or Release of pollutants, contaminants,
Hazardous Substances or wastes into the environment (which includes, without
limitation, ambient air, surface water, ground water, or land), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, Hazardous
Substances or wastes or the clean-up or other remediation thereof.
"Environmental Permits" with respect to the Company shall mean those
Permits required by the Company under Environmental Laws in connection with the
Business or the use and operation of the Assets owned or leased by them.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Excluded Liabilities" shall mean any and all Liabilities of Sellers
or the Company arising out of events, transactions, facts or circumstances
occurring or existing on or prior to the Closing Date that arise under or
relate to (a) Taxes (other than Tax Liabilities arising out of the Contemplated
Transactions that are payable by Buyer), (b) Environmental Laws, (c) ERISA or
the Employee Benefit Plans, (d) Claims
40
<PAGE> 47
of the type required to be listed on Schedule 2.15 which are pending or
threatened as of the Closing Date or (e) Claims with respect to matters
represented by Sellers in Section 2.2.
"GAAP" shall mean generally accepted accounting principles in effect
on the date hereof as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States.
"Guarantors" shall mean Harlan M. Capin and Felice Capin, husband and
wife; James B. Capin and Victoria Capin, husband and wife, Norman A. Capin;
Mark Capin; Fredric Capin and Cynthia Capin, husband and wife; Jeffrey Stuchen
and Amy Stuchen, husband and wife; Hyman Capin; Zellie Capin; Leonard F. Cooper
and Bette Cooper, husband and wife; Robert Stuchen and Debbie Stuchen, husband
and wife; David Cooper and Liane Cooper, husband and wife; Nils Urman and
Sharon Urman, husband and wife; and Gordon Keith and Elizabeth Keith, husband
and wife, jointly, severally and jointly and severally.
"Guarantor Debt" shall mean all obligations of any kind of the Company
guaranteed by any of the Guarantors or any of the Sellers.
"Guaranty Indemnity Cap" means $6,900,000 in the aggregate with
respect to Guarantor Debt now held directly or indirectly by the Bank and
$1,500,000 in the aggregate with respect to all other Guarantor Debt, plus in
each case, interest, penalties, legal fees and costs and all other associated
costs or expenses including, without limitation, all costs of every nature
associated with the enforcement of any right or claim to indemnification from
Buyer.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvement Act
of 1976, as amended.
"Hazardous Substances" shall mean any dangerous, toxic, radioactive,
caustic or otherwise hazardous material, pollutant, contaminant, chemical,
waste or substance defined, listed or described as any of such in or governed
by any Environmental Law, including but not limited to urea-formaldehyde,
polychlorinated biphenyls, asbestos or asbestos-containing materials, radon,
explosives, known carcinogens, petroleum and its derivatives, petroleum
products, or any substance which might cause any injury to human health or
safety or to the environment or might subject the owner or operator of the Real
Property to any Regulatory Actions or Claims.
"Inventory" shall mean, as of any date, collectively, all inventories
of merchandise and other products owned by the Company and held for resale or
for distribution, together with packaging and samples thereof, operating
supplies and spare or maintenance parts owned by the Company as of such date.
"IRS" shall mean the Internal Revenue Service.
41
<PAGE> 48
The term "knowledge" with respect to (a) any individual shall mean
actual knowledge, after due inquiry, and (b) any corporation shall mean the
actual knowledge of the directors or the executive officers of such corporation,
after due inquiry; and "knows" has a correlative meaning.
"Liability" shall mean any direct or indirect indebtedness, liability,
assessment, claim, loss, damage, deficiency, obligation or responsibility,
fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, actual or potential, contingent or otherwise
(including any liability under any guaranties, letters of credit, performance
credits or with respect to insurance loss accruals).
"Lien" shall mean, with respect to any Asset, any mortgage, lien
(including mechanics, warehousemen, laborers and landlords liens), claim,
pledge, charge, security interest, preemptive right, right of first refusal,
option, judgment, title defect, or encumbrance of any kind in respect of or
affecting such Asset.
"Net Proceeds" shall mean an amount equal to the gross sales price of
the Affected Real Property, reduced by Sale Expenses.
"1933 Act" shall mean the Securities Act of 1933, as amended, and all
rules and regulations promulgated thereunder.
The term "person" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity,
including a government or political subdivision or an agency or instrumentality
thereof.
"Receivables" shall mean as of any date any accounts receivable, notes
receivable, sales representative advances and other miscellaneous receivables
of the Company.
The term "recent practice" shall mean the manner in which the Company
has been operated and the Business has been conducted since January 1, 1995, a
period during which the Business has been experiencing significant decline and
the Corporation has experienced severe cash-flow shortages and supply
disruptions.
"Regulatory Actions" shall mean any claim, demand, action, suit or
proceeding brought or instigated by any Governmental Body in connection with
any Environmental Law, including, without limitation, civil, criminal and/or
administrative proceedings, whether or not seeking costs, damages, penalties or
expenses.
"Release" shall mean the intentional or unintentional, spilling,
leaking, disposing, discharging or disturbance of, or emitting, depositing,
injecting, leaching, escaping, or any other release or threatened release to or
from, however defined, any Hazardous Substance in violation of any
Environmental Law.
"Reportable Event" shall mean any of the events described in Section
4043(b)(1), (2), (3), (5), (6), (8) or (9) of ERISA.
42
<PAGE> 49
"Representatives" means a person's or entity's directors, officers,
Affiliates, employees, attorneys, accountants, representatives, lenders,
consultants and other agents.
"Revolving Credit Facility" shall mean the line of credit under the
Business Loan Agreement, dated July 30, 1993, between the Bank and the Company,
as amended from time to time, including amendment pursuant to a certain Amended
and Restated Business Loan and Real Estate Loan Agreement that is in the
process of negotiation between the Company and the Bank and in which the
Revolving Credit Facility is referred to as the "Business Loan."
"Sales Expenses" shall mean costs and expenses relating to the sale of
the Affected Real Property, including, but not limited to, brokerage,
appraisal, legal, accounting, title, survey and recording expenses and any
transfer taxes.
"Subsidiary" of a person shall mean any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are owned
directly or indirectly through one or more intermediaries, or both, by such
person.
"Tax" (including, with correlative meaning, the terms "Taxes" and
"Taxable") shall mean (i) any net income, gross income, gross receipts, sales,
use, ad valorem, transfer, transfer gains, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, rent, recording,
occupation, premium, real or personal property, intangibles, environmental or
windfall profits tax, alternative or add-on minimum tax, customs duty or other
tax, fee, duty, levy, impost, assessment or charge of any kind whatsoever
(including but not limited to taxes assessed to real property and water and
sewer rents relating thereto), together with any interest and any penalty,
addition to tax or additional amount imposed by any Governmental Body (domestic
or foreign) (a "Tax Authority") responsible for the imposition of any such tax,
with respect to the Company, the Business or the Assets (or the transfer
thereof or of the Shares); (ii) any liability for the payment of any amount of
the type described in the immediately preceding clause (i) as a result of the
Company being a member of an affiliated or combined group with any other
corporation at any time on or prior to the Closing Date and (iii) any liability
of the Company for the payment of any amounts of the type described in the
immediately preceding clause (i) as a result of a contractual obligation to
indemnify any other person.
"Tax Return" shall mean any return or report (including elections,
declarations, disclosures, schedules, estimates and information returns)
required to be supplied to any Tax Authority.
"Transaction Documents" shall mean, collectively, this Agreement, and
each of the other agreements and instruments to be executed and delivered by
all or some of the parties hereto in connection with the consummation of the
transactions contemplated hereby.
The term "voting power" when used with reference to the capital stock
of, or units of equity interests in, any person shall mean the power under
ordinary
43
<PAGE> 50
circumstances (and not merely upon the happening of a contingency) to vote in
the election of directors of such person (if such person is a corporation) or
to participate in the management and control of such person (if such person is
not a corporation).
"Working Shareholders" shall mean Mark R. Capin, David C. Cooper,
Fredric J. Capin, Jeffrey H. Stuchen, Richard B. Kauffman, Nils Urman and Sean
L. Stuchen.
(b) The following terms are defined in the following
sections of this Agreement:
<TABLE>
<S> <C>
Term Section
---- -------
Absolute Note 1.3(iii)
Adjusted Deemed Net Proceeds 1.4(d)
Affected Real Property 1.4
Annual Statements 2.7(i)
Asserted Liability 6.4(a)
Bank 4.12
Bankruptcy Petition 4.13
Board 4.13
Base Compensation 4.14
Buyer Recital
Buyer's Conduct Claim 6.3
Buyer's Nominees 4.13
Buyer's Required Consents 3.2
Buy-Out Agreement 5.3(j)
Claims 2.15
Claims Notice 6.4(a)
Closing Date 1.5
Closing Opinion 5.3 (a)(v)
Common Stock Recital
Company Recital
Condition of the Business 2.5
Contemplated Transactions 2.3
Contingent Note 1.3(iii)
Debt Purchase Price 1.2
Deemed Net Proceeds 1.4(c)
Downpayment Note 1.3 (iii)
Employee Benefit Plan 2.17
ERISA Affiliate 2.17
ERISA Plan 2.17
Family Agreement 5.3(i)
Final Installment 1.3(a)(iii)
First Party 4.9(b)
Governmental Bodies 2.20
Indemnifying Party 6.4(a)
Indemnitee 6.4(a)
Initial Period 1.4(a)
Insurance Policies 2.19
Intellectual Property Rights 2.14
</TABLE>
44
<PAGE> 51
<TABLE>
<S> <C>
Interim Statements 2.7(ii)
Latest Balance Sheet 2.8
Latest Balance Sheet Date 2.8
Laws 2.20
Leased Real Property 2.12
Leases 2.12(b)
Losses 6.2
Material Contract 2.13(b)
Maturity Date 1.3(a)(iii)
Merchandise Financing 4.12
MNSA 4.12
Notes 1.3(b)
Orders 2.20
Owned Real Property 2.12
Permits 2.21
Purchase Price 1.2
Purchased Debt Recitals
Real Property 2.12(b)
Representatives 4.2
Restrictive Covenants 4.15(b)
Restrictive Period 4.15(a)
Second Party 4.9(b)
Sellers' Agent Control Period 1.4(a)
Seller Required Consents 2.4
Sellers Recital
Sellers' Agent Recital
Shares Recital
Share Purchase Price 1.2
Signing Opinion 4.12
Tax Audit 2.16(viii)
Tax Deficiency 2.16(a)(iv)
</TABLE>
SECTION 10.2 Interpretation. Unless the context otherwise
requires, the terms defined in Section 10.1 shall have the meanings herein
specified for all purposes of this Agreement, applicable to both the singular
and plural forms of any of the terms defined herein. All accounting terms
defined in Section 10.1, and those accounting terms used in this Agreement not
defined in Section 10.1, except as otherwise expressly provided herein, shall
have the meanings customarily given thereto in accordance with GAAP. When a
reference is made in this Agreement to Sections, such reference shall be to a
Section of this Agreement unless otherwise indicated. The headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation".
IN WITNESS WHEREOF, the undersigned have executed this Stock Purchase
Agreement as of the date set forth above.
45
<PAGE> 52
BUYER: FAMILY BARGAIN CORPORATION,
a Delaware corporation
By:/s/ JOHN A. SELZER
------------------------
Name: John A. Selzer
Title: President
SELLERS' AGENT: /s/ ROBERT S. STUCHEN
---------------------------
Robert S. Stuchen
SELLERS:
/s/ ZELLIE CAPIN
- ----------------------
Zellie Capin
/s/ HARLAN M. CAPIN /s/ FELICE CAPIN
- ---------------------- ---------------------------
Harlan M. Capin Felice Capin
/s/ HYMAN CAPIN
- ----------------------
Hyman Capin
/s/ LEONARD F. COOPER /s/ BETTE C. COOPER
- ---------------------- ---------------------------
Leonard F. Cooper Bette C. Cooper
/s/ ROBERT S. STUCHEN /s/ DOBRA I. STUCHEN
- ---------------------- ---------------------------
Robert S. Stuchen Dobra I. Stuchen
/s/ JAMES B. CAPIN /s/ VICTORIA H. CAPIN
- ---------------------- ---------------------------
James B. Capin Victoria H. Capin
/s/ DAVID C. COOPER /s/ LIANE L. COOPER
- ---------------------- ---------------------------
David C. Cooper Liane L. Cooper
/s/ MARK R. CAPIN
- ----------------------
Mark R. Capin
/s/ FREDRIC J. CAPIN /s/ CYNTHIA A. CAPIN
- ---------------------- ---------------------------
Fredric J. Capin Cynthia A. Capin
/s/ NORMAN A. CAPIN
- ----------------------
Norman A. Capin
/s/ JEFFREY H. STUCHEN /s/ AMY L. STUCHEN
- ---------------------- ---------------------------
Jeffrey H. Stuchen Amy L. Stuchen
46
<PAGE> 53
/s/ NILS URMAN /s/ SHARON C. URMAN
- ------------------------ ----------------------
Nils Urman Sharon C. Urman
/s/ MAXWELL GORDON KEITH /s/ ELIZABETH C. KEITH
- ------------------------ ----------------------
Maxwell Gordon Keith Elizabeth C. Keith
/s/ SEAN L. STUCHEN
- ------------------------
Sean L. Stuchen
/s/ RICHARD B. KAUFFMAN /s/ SANDRA C. KAUFFMAN
- ------------------------ ----------------------
Richard B. Kauffman Sandra C. Kauffman
47
<PAGE> 1
EXHIBIT 10.2
AMENDMENT TO STOCK PURCHASE AGREEMENT
This Amendment to Stock Purchase Agreement ("Amendment") is
hereby entered into among the undersigned parties to the Stock Purchase
Agreement, dated as of August 29, 1995, and modified by the Closing Extension
Under Stock Purchase Agreement, dated as of October 30, 1995 (as modified, the
"Agreement"). Capitalized terms used in this Amendment and not otherwise
defined shall have the meanings provided in the Agreement.
R E C I T A L S
A. The Buyer has requested Sellers to modify the
Agreement in order to permit Buyer to comply with the requirements of its
lender, FINOVA Capital Corporation.
B. Sellers are willing to agree to Buyer's request,
provided Buyer pays $625,000 of the Purchase Price in cash at the Closing and
agrees to pay certain penalties in the event payments are not timely made under
the Down Payment Note, the Contingent Note and the Absolute Note.
A G R E E M E N T
Therefore, Buyer and Sellers agree as follows:
1. Subject to, and effective only upon, the payment by
Buyer to Sellers of $625,000 in cash at the Closing, as provided below, the
Agreement shall be amended as follows:
1.1. Section 1.3(b) of the Agreement shall be
revised in its entirety to read as follows:
(b) If the Affected Real Property or any
portion thereof is sold, on or before the Closing,
for an aggregate price of at least $3,000,000, Buyer
shall pay $1,024,000, otherwise Buyer shall pay
$624,000, in each case at the Closing in cash by wire
transfer of immediately available funds to an account
designated by Sellers' Agent by written notice given
to Buyer at least one Business Day prior to the
Closing Date.
<PAGE> 2
1.2. Section 1.3(c) of the Agreement shall be
amended by changing the reference to "$250,000" in the first line to
$"125,000."
1.3. The forms of the Down Payment Note, the
Contingent Note and the Absolute Note shall be revised in their entirety and
replaced with the forms of such notes attached hereto and incorporated herein
by this reference.
2. The Closing shall take place no later than 5:00 p.m.
local time on November 13, 1995.
3. In all other respects, the Agreement shall remain
unchanged and is hereby confirmed and ratified by the parties.
4. This Amendment may be signed and delivered in several
counterparts (including counterpart signature pages transmitted by telecopier),
each of which together shall constitute one document.
Dated ______________________________________, 1995.
BUYER:
FAMILY BARGAIN CORPORATION,
a Delaware corporation
By:___________________________
Name:_________________________
Title:________________________
SELLERS' AGENT: ________________________
Robert S. Stuchen
SELLERS:
___________________________
Zellie Capin
___________________________
Hyman Capin
<TABLE>
<S> <C>
___________________________ ___________________________________
Harlan M. Capin Felice Capin
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
_____________________________ ___________________________________
Leonard F. Cooper Bette C. Cooper
_____________________________ ___________________________________
Robert S. Stuchen Dobra I. Stuchen
_____________________________ ___________________________________
James B. Capin Victoria H. Capin
_____________________________ ___________________________________
David C. Cooper Liane L. Cooper
_____________________________
Mark R. Capin
_____________________________ ___________________________________
Fredric J. Capin Cynthia A. Capin
_____________________________
Norman A. Capin
_____________________________ ___________________________________
Jeffrey H. Stuchen Amy L. Stuchen
_____________________________ ___________________________________
Nils Urman Sharon C. Urman
_____________________________ ___________________________________
Maxwell Gordon Keith Elizabeth C. Keith
_____________________________
Sean L. Stuchen
_____________________________ ___________________________________
Richard B. Kauffman Sandra C. Kauffman
</TABLE>
3
<PAGE> 1
EXHIBIT 99.1
FAMILY BARGAIN CORPORATION
315 East 62nd Street, 6th Floor, New York, NY 10021
(212) 980-9670 -- Fax (212) 593-4586
<TABLE>
<S> <C>
Company Contact: Investor Relations Contact:
John A. Selzer John Nesbett, ext. 101
Chief Executive Officer Jason Thompson, ext. 124
212-980-9670 212-838-3777
</TABLE>
FAMILY BARGAIN CENTER ANNOUNCES ACQUISITION
OF CAPIN MERCANTILE CORPORATION
- Company Announces Revised Financing Plans -
NEW YORK, NY, August 17, 1995 -- FAMILY BARGAIN CORPORATION (Nasdaq
Symbol: FBAR, Nasdaq Preferred Symbol: FBARP) today announced that it has
signed a letter of intent to acquire 100% of the stock of Capin Mercantile
Corporation ("Capins") for $1,850,000 consisting of a combination of cash and a
three year note. For the year ended December 1994, Capins' sales (adjusted for
closed stores) were $71 million.
Capins operates 31 "Factory 2-U" off-price retail stores in Arizona,
New Mexico and Texas. The Factory 2-U stores sell heavily discounted apparel
and footwear for men, women and children, and household goods.
The Factory 2-U acquisition reflects Family Bargain Corporation's
strategy of expanding its off-price retail operations. Similar to the
Company's General Textiles subsidiary, Factory 2-U markets off-price family
merchandise to a low-income customer base.
Family Bargain Corporation will acquire and operate Factory 2-U as a
subsidiary separate from its General Textiles operation. General Textiles and
Factory 2-U will purchase merchandise independent of each other and will
maintain separate vendor and credit relationships. Family Bargain Corporation
expects to continue to operate the acquired stores under the Factory 2-U name.
However, the Company expects to recognize substantial overhead savings as a
result of providing consolidated support services to and between the two
subsidiaries.
- more -
<PAGE> 2
Family Bargain Corporation
Page 2
John A. Selzer, President of Family Bargain Corporation, said, "The
Factory 2-U acquisition is consistent with our strategy to grow in a low risk
manner, maximizing our earnings and cash flow. The Factory 2-U stores
represent proven, high volume locations in the types of markets where our
stores have historically performed well. The addition of Factory 2-U
strengthens our position as a major off-price retailer in the west and will
initiate our penetration into the Texas market."
Mr. Selzer concluded, "Financially, we expect the acquisition to
improve our earnings based on the added sales volume and operating expense
efficiencies."
Family Bargain expects to sign a contract within two weeks and
complete the acquisition in October.
Family Bargain also announced that it has withdrawn its S-4 Proxy
Statement from the SEC, postponing plans to merge General Textiles and Family
Bargain Corporation and undertake a $12 million common stock rights offering.
The Company plans to raise approximately $12 million to provide working capital
for the Factory 2-U subsidiary and for general corporate purposes. In
addition, the Company plans to refinance Factory 2-U's credit facility with a
new $10 million revolver line. Family Bargain is currently in discussions with
several financing sources.
Mr. Selzer said, "We decided to postpone our rights offering at this
time in order to focus our efforts on completing and financing the Factory 2-U
acquisition."
FAMILY BARGAIN CORPORATION, through its subsidiary General Textiles,
operates 102 'Family Bargain Center' off-price apparel retail stores which
sell primarily first quality clothing for men, women and children at prices
which generally are significantly lower than the prices offered by its
competitors. Stores are located in California, Arizona, New Mexico,
Washington, Nevada and Oregon. Upon completion of the Factory 2-U acquisition,
Family Bargain Corporation's subsidiaries will operate 133 stores and expand
its geographical coverage to include Texas.
# # #
<PAGE> 1
EXHIBIT 99.2
FAMILY BARGAIN CORPORATION
315 East 62nd Street, 6th Floor, New York, NY 10021
(212) 980-9670 -- Fax (212) 593-4586
<TABLE>
<S> <C>
Company Contact: Investor Relations Contact:
John A. Selzer John Nesbett, ext. 101
President 212-838-3777
212-980-9670
</TABLE>
FAMILY BARGAIN CORPORATION
COMPLETES CAPIN MERCANTILE ACQUISITION
NEW YORK, NY, NOVEMBER 14, 1995 -- FAMILY BARGAIN CORPORATION (Nasdaq
Symbol: FBAR, Nasdaq Preferred Symbol: FBARP) today announced that it has
completed the acquisition of 100% of the stock of Capin Mercantile Corporation.
Capin operates 31 Factory 2-U off-price retail stores in Arizona, New Mexico
and Texas.
John A. Selzer, President of Family Bargain, said, "The Factory 2-U
acquisition represents the continuing implementation of Family Bargain's growth
and expansion strategy in the off-price retailing business. We expect that the
addition of Factory 2-U will increase our overall sales volume by over 40%
above pre-acquisition level and will substantially enhance our profitability."
FAMILY BARGAIN CORPORATION operates 133 off-price apparel retail
stores which sell primarily first quality clothing for men, women and children
at prices which generally are significantly lower than the prices offered by
its competitors. Stores are located in California, Arizona, New Mexico,
Washington, Nevada, Oregon and Texas.
###
