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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K405
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED AUGUST 2, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For The Transition Period From _____ To _____
COMMISSION FILE NUMBER: 1-10767
VALUE CITY DEPARTMENT STORES, INC.
(Exact name of registrant as specified in its charter)
OHIO NO. 31-1322832
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3241 WESTERVILLE ROAD, COLUMBUS, OHIO 43224
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (614) 471-4722
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Shares, without par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates of the
registrant, 9,354,911 Common Shares, based on the $8.0625 closing sale price on
October 27, 1997, was $75,423,970.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date: 31,892,045 Common Shares
were outstanding at October 27, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Proxy Statement for 1997 Annual Meeting of Shareholders, in part, as
indicated.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
FORM
10-K
REPORT
ITEM NO. PAGE
- -------- ----
<S> <C>
PART I
1. Business................................................................3
2. Properties.............................................................13
3. Legal Proceedings......................................................14
4. Submission of Matters to a Vote of Security Holders....................14
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters.................................................15
6. Selected Financial Data................................................16
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................17
7A. Quantitative and Qualitative Disclosures about Market Risk.............23
8. Financial Statements and Supplementary Data............................23
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................................23
PART III
10. Directors and Executive Officers of the Registrant.....................24
11. Executive Compensation.................................................24
12. Security Ownership of Certain Beneficial Owners and Management.........24
13. Certain Relationships and Related Transactions.........................24
PART IV
14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.........25
Signatures.................................................................26
TABLE OF CONTENTS TO FINANCIAL STATEMENTS AND SCHEDULES
Independent Auditors' Report...............................................F-1
Consolidated Balance Sheets................................................F-3
Consolidated Statements of Income..........................................F-4
Consolidated Statements of Shareholders' Equity............................F-5
Consolidated Statements of Cash Flows......................................F-6
Notes to the Consolidated Financial Statements.............................F-7
SCHEDULES
II - Valuation and Qualifying Accounts.....................................S-1
Index to Exhibits..........................................................E-1
</TABLE>
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PART I
ITEM 1 BUSINESS.
ORGANIZATION
Value City Department Stores, Inc. ("VCDS") was incorporated on March
15, 1985 and was inactive until June 18, 1991 when it sold 8,025,000 Common
Shares in a public offering and issued 22,500,000 Common Shares to
Schottenstein Stores Corporation ("SSC") in exchange for substantially all of
the net assets of the Value City Department Store Division of SSC (the
"Division"). In connection with the acquisition of the Division, VCDS entered
into a number of agreements with SSC. These agreements are described in the
material incorporated by reference pursuant to Item 13 of this annual report on
Form 10-K.
On September 18, 1992, VCDS acquired all of the outstanding stock of
GB Stores, Inc., a Pennsylvania corporation, from GB Stores, a Pennsylvania
limited partnership ("GB Partnership") in exchange for the issuance by VCDS to
GB Partnership of 1,312,500 Common Shares of VCDS (the "GB Acquisition"). GB
Partnership is an affiliate of SSC.
The Company also operates the apparel, housewares and domestics
departments in two department stores in New Jersey pursuant to a license
agreement with The Valley Fair Corporation ("Valley Fair"), a subsidiary of
SSC.
Two of the Company's department stores operated as partnerships owned
by the Company and the manager of the respective stores through July and
October 1995. During fiscal 1996 the Company bought the 25% minority interest
in the partnership stores for approximately $1,328,000 which was the net book
value of the minority interests in those partnerships.
In July 1997, the Company entered into agreements with Mazel Stores,
Inc. ("Mazel") to create VCM, Ltd. ("VCM"), a 50/50 joint venture. VCM operates
the health and beauty aids and toy and sporting goods departments in the
Company's stores as licensed departments. The Company accounts for its fifty
percent interest in the joint venture under the equity method. See "Licensed
Departments."
VCDS and its wholly owned subsidiaries are herein referred to
collectively as the "Company."
GENERAL
The Company currently operates a chain of 94 department stores located
in Ohio and 14 other Midwestern and eastern states, principally under the name
"Value City." For over 80 years, the Company's strategy has been to provide
exceptional value by offering a broad selection of brand name merchandise at
prices substantially below conventional retail prices. The stores carry men's,
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women's and children's apparel, housewares, giftware, home furnishings, toys,
sporting goods, jewelry, shoes and health and beauty aids, with apparel
comprising over 60% of total sales. The Company operates large stores,
averaging 86,000 square feet, which allow it to offer over 90,000 different
items of merchandise similar to the items found in department, specialty and
discount stores.
The Company's pricing strategy is supported by its ability to purchase
large quantities of goods in a variety of special buying opportunities. For
many years, the Company has also had a reputation in the marketplace as a
leading purchaser of buy-outs and manufacturers' closeouts.
BUSINESS STRATEGY
The Company's strategy, to provide brand name merchandise
substantially below conventional retail prices, is reflected in its name "Value
City" and the Company's motto "Better Living for Less." Management believes
that Value City's large stores facilitate a full-line merchandise offering and
range of brands, which differentiate the Company from other off-price
retailers. The principal elements of the business strategy are discussed below.
MERCHANDISING
Selection
Value City is a full-line, off-price retailer carrying men's, women's
and children's apparel, housewares, giftware, home furnishings, toys, sporting
goods, jewelry, shoes and health and beauty aids. Off-price retailing, as
distinguished from traditional full-price retailing and discount or off-brand
merchandise, is characterized by the purchase of primarily high quality brand
name merchandise, at prices below normal cost to retailers. A portion of the
cost savings is then passed on to customers through lower prices. The Company
strives to offer customers one-stop-shopping in terms of categories of
merchandise carried. The large physical size of the Company's stores
facilitates the offering of a wide range of merchandise categories with broad,
deep selections of goods within each category. The stores carry over 90,000
different items of merchandise similar to the items found in department,
specialty and discount stores.
To improve store profitability and meet the changing needs of its
customers, the Company continuously refines its merchandise mix eliminating
less productive departments and introducing new merchandise categories. For
example, in 1997 the Company expanded its seasonal business such as Halloween
and Trim-A-Tree and expanded the giftware area in most stores by approximately
20% to 30%. To help provide the Company with a reliable source of predominantly
fashion merchandise, the Company has begun a private label program in certain
apparel categories.
The following table sets forth relative contributions of each major
merchandise category to total sales.
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<TABLE>
<CAPTION>
Percentage of Aggregate Sales Volume
Fiscal Years Ended
------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Apparel and Ready-to-Wear - Includes Men's, Women's
and Children's outerwear, suits, dresses, sportswear,
sleepwear, underwear and accessories.............................. 61.6% 62.2% 61.5%
Hard goods and Home Furnishings - Includes domestics, jewelry,
housewares, giftware, small appliances, toys
and sporting goods................................................ 23.9 23.3 24.0
Licensed Departments - includes shoes, health and beauty
and other incidental departments.................................. 14.5 14.5 14.5
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
Customers are attracted to the Company's stores because of continuous
new offerings of value-priced merchandise acquired in special purchases. At the
same time, the Company maintains a broad and consistent range of goods in the
stores, purchases continuing lines of merchandise and offers some private label
goods to ensure constant availability of certain basic categories of
merchandise as well as current fashion trends.
Value Pricing
The Company offers quality brand name merchandise at prices typically
50% to 70% below prices charged by department stores for similar items and at
prices comparable to or lower than prices charged by other off-price retailers.
The Company can offer exceptional values because its buyers purchase
merchandise directly from manufacturers and other vendors at prices
substantially below those generally paid by conventional retailers. See
"Supplier Relationships and Purchasing." This allows the Company to pass on the
savings directly to its customers, while still maintaining favorable profit
margins.
Well known designer labels, brand names and original retailer names
are prominently displayed throughout the stores. Many items carry labels and/or
original price tags showing brand names identifiable with major designers,
manufacturers and retail stores, as well as tags showing original retail or
"nationally advertised" prices. In some cases suppliers may require removal of
labels or original retail price tags as a condition to a special purchase
arrangement. See "Supplier Relationships and Purchasing."
Licensed Departments
All store departments are operated by the Company except for the
health and beauty aids,
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shoes, toys and sporting goods (beginning August 1997), and certain other
incidental departments. These departments are licensed to others, including
affiliated parties, for a percentage of net sales, generally ranging from 5% to
11%, for initial periods of up to 15 years with, in some instances, an option
to renew. In addition, the Company receives a fee from some licensees for
general and administrative expenses. The aggregate annual license fees received
by the Company from all licensees for fiscal years ended August 2, 1997, August
3, 1996 and July 29, 1995 were approximately $17,685,000, $15,162,000 and
$13,958,000, respectively.
SSC owns 50% of the outstanding stock of the licensee that operates
the shoe departments in all of the stores, and owned a controlling interest in
L. F. Widmann, Inc. ("Widmann"), the licensee that operated the health and
beauty aids departments in the Company's stores. In July 1997, the Company
entered into agreements with Mazel to create VCM, a 50/50 joint venture.
Effective August 3, 1997, VCM purchased 100% of Widmann's capital stock and
purchased the assets of the Company's toys and sporting goods departments. VCM
operates the health and beauty aids and toys and sporting goods departments in
the Company's stores as licensed departments. The license agreements provide
for fees based on a percentage of sales, as defined, for license fees,
advertising fees and credit and administrative charges. The Company provides
certain personnel, administrative and service functions for which it receives a
monthly fee from VCM to cover the related costs. The license and joint venture
agreements are for a term of ten years ending on the last day of fiscal 2007
and contain certain provisions whereby either business partner can initiate
renegotiation of terms if certain minimum requirements are not met.
Licensees supply their own merchandise and generally supply their own
store fixtures but in most instances utilize the Company's associates to
operate their departments. The licensees reimburse the Company for all costs
associated with such associates. Licensees operate their departments under the
general supervision of the Company and are required to abide by the policies of
the Company with regard to pricing, quality of merchandise, refunds and store
hours. Licensed departments complement the operations of the stores and are
considered an integral part of the Company's store operations. The common
ownership interest in licensees facilitates the uniformity of merchandising
strategy in the stores, including the overall emphasis on values resulting from
special purchase opportunities.
SUPPLIER RELATIONSHIPS AND PURCHASING
An important factor in the Company's growth has been its many years of
experience in purchasing merchandise directly from manufacturers and other
vendors at prices substantially below those generally paid by conventional
retailers. The Company believes that over the years its buyers have established
excellent relationships with suppliers and that the Company has established a
reputation for its willingness and ability to purchase entire lots of
merchandise and to make prompt payment. The Company continuously seeks to find
and negotiate special purchase opportunities. As a result of the Company's
relationships, experience and reputation for prompt payment, many suppliers
offer special purchase opportunities to the Company prior to attempting to
dispose of merchandise through other channels. Many manufacturers of brand name
merchandise are reluctant
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to sell merchandise for resale at discounted prices through their normal
channels of distribution or to retailers which may be considered to be
competitors in their regular distribution channels. By selling such merchandise
through its own retail stores, the Company is able to assure its suppliers that
the merchandise will be sold without disturbing the suppliers' regular channels
of distribution.
Although the Company cannot quantify the amount by which the prices it
pays for its special purchases are lower, if any, than the prices paid by its
competitors for similar purchases, the Company believes that such special
purchases are made at prices sufficiently favorable to enable it to offer
merchandise to its customers at prices that are significantly lower than those
prices offered by many of its competitors.
The Company purchases merchandise from more than 3,400 suppliers, none
of which accounted for a material percentage of the Company's purchases during
the past fiscal year. The Company does not maintain any long-term or exclusive
commitments to purchase merchandise from any one supplier. The Company
regularly purchases overstocked or overproduced items from manufacturers and
other retailers, including end-of-season, out-of-season and end-of-run
merchandise and manufacturers' slight irregulars. From time to time, the
Company also purchases all or substantially all of the inventories of
financially distressed retailers and makes other special purchases. The Company
contracts with overseas sources for the manufacture of certain apparel items
under the Company's own brand names. Also, the Company has begun to more
aggressively seek advantageous buying opportunities overseas, particularly in
non-apparel categories.
The Company's distribution facilities are designed to enable it to
prioritize the processing of merchandise on short notice and to deliver
merchandise to the stores within days of its receipt. This allows the Company's
buyers to purchase merchandise very late in the season, when prices are more
favorable, and still deliver the merchandise to the stores before the end of
the season. At the same time, the Company has devoted a separate warehouse to
out-of-season goods. This merchandise is held until the most opportune time to
offer it in the Company's stores, which in most cases is the next season. This
ability to purchase and quickly distribute or hold merchandise in substantial
quantities has enabled the Company to offer high-quality merchandise to
customers at prices significantly below usual retail prices while maintaining
favorable profit margins. The Company believes that this ability distinguishes
it from the typical discount or off-price retailer and provides it with a
competitive advantage in making purchases as favorable opportunities arise.
The relatively large size of the Company's stores provides Value City
with the flexibility to purchase full lots of merchandise that may not be
available to other off-price retailers with smaller stores requiring more
targeted purchases. Value City is also able to buy and economically distribute
short lots of merchandise. Although there is growing competition for the kinds
of special purchases that the Company seeks, the Company believes that, because
of the factors discussed above, it will be able to obtain sufficient supplies
of desirable merchandise at favorable prices in the future.
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DISTRIBUTION
The Company pursues a centralized distribution strategy with eight
distribution centers, all located in Columbus, Ohio. The aggregate area of the
centers is approximately 1,700,000 square feet, however, use of multi-tier
processing levels in some of the distribution centers substantially increases
their operating capacity. The distribution centers are organized by merchandise
type, with warehouses for hanging apparel, flat apparel, housewares, domestics
and overflow and buyout merchandise. One of the warehouses, approximately
123,000 square feet, is used by VCM in conjunction with the 50/50 joint venture
between the Company and Mazel. VCM reimburses the Company for the cost of
maintaining and operating the warehouse. The Company also maintains a
"packaway" warehouse facility where out-of-season merchandise acquired at
favorable prices is held for future sale. The Company's network of warehouses
enable it to make opportunistic purchases including late season, priority
delivery and end-of-season purchases.
The Company uses up-to-date material handling equipment in its
warehouses, including new mechanized conveyor systems to separate and collate
shipments to the stores. The Company's distribution facilities are designed to
allow priority delivery of late season purchases and fast-moving merchandise to
have it in the stores quickly to take full advantage of the remaining selling
season. The Company continues to focus on improving inventory turns by
implementing changes such as expediting the delivery of merchandise from the
store receiving area to the selling floor by distributing goods on hangers. The
Company believes that the existing distribution centers, with certain
modifications and additional equipment, will support store expansion for the
foreseeable future.
Goods are centrally received from suppliers and transferred to the
appropriate warehouses. Upon shipment to the stores, merchandise is
consolidated to ensure full-truck loads to minimize shipping costs. The Company
leases its fleet of road tractors and owns the majority of its semi-rig
trailers. The Company's fleet makes the majority of all deliveries from its
warehouses to the stores.
ADVERTISING AND PROMOTION
The Company commits substantial resources to advertising and believes
that its aggressive marketing strategy is one of the keys to its success. The
Company advertises frequently in print, including newspaper circulars and
flyers, and on local television and radio. The promotional strategy is
carefully planned and budgeted to include not only seasonal promotions, but
also weekly storewide sales events highlighting recent buy-outs and other
specially purchased brand name merchandise designed to maximize customer
interest. In some cases a supplier may prohibit the advertising or non-store
promotion of its brand name. See "Supplier Relationships and Purchasing."
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STORES
Store Location and Design
The Company's department stores average approximately 86,000 square
feet, with approximately 70% of the total area of each store representing
selling space. The Company's stores are generally laid out on a single level,
with central traffic aisles providing access to major departments. Each
department strives to display and stock large quantities and assortments of
merchandise, giving the store a very full appearance. Many of the Company's
stores have an attractive pavilion entrance that gives the customer a panoramic
view of the entire store. The stores are generally open from 9:30 am until 9:30
pm Monday through Saturday and 11:00 am until 6:00 pm on Sunday. All of the
stores are located in leased or subleased facilities.
Management has implemented several initiatives to enhance the
appearance of its stores and offer a more convenient and pleasurable shopping
experience for its customers. These initiatives include: increasing the number
of secondary aisles in the stores to improve the flow of traffic throughout the
stores; changing the fixtures and improving the use of existing space such as
columns and empty walls to display more merchandise; and, color-coding the
departments and improving the in-store signage to make it easier for customers
to identify department locations and find merchandise.
Management believes that customers are attracted to the Company's
stores principally by the wide assortment of quality items at substantial
savings and that its stores are destination stores. They do not rely on traffic
created by the presence of other stores in their vicinity but instead
successfully generate their own traffic. Of the 94 stores open as of October
1997, 18 are free-standing and 76 are in shopping centers, 22 of which are
enclosed malls in which they serve as an anchor. All of the Company's stores
are located in suburban areas, near large residential neighborhoods and away
from downtown commercial centers.
Store Operations
The Company is committed to offering customers a convenient,
pleasurable shopping experience and a high level of customer satisfaction. A
training program is utilized to assure that every associate maintains the
highest level of professionalism and places customer service at the forefront.
The Company's stores are designed for self-service shopping, although sales
personnel are available to help customers locate merchandise and to assist in
the selection and fitting of apparel. In all stores, a customer service desk is
conveniently located generally adjacent to the central check-out area. The
Company prides itself on ease of checkout and has invested in point of sale
scanning systems which expedite the checkout process by providing automated
check and credit approval and price lookup. Sales associates are trained to
create a "customer-friendly" environment. The Company accepts all major credit
cards, and also provides a private label credit card program in all markets.
Private label and other credit card sales are nonrecourse to the Company, with
the servicing agent assuming all of the credit risk. The Company offers a
convenient layaway program
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and maintains a liberal return policy.
The Company's stores are organized into separate geographic regions,
each with a regional manager. Regional managers are headquartered in their
region and spend the majority of their time in their stores to ensure adherence
to the Company's merchandising, operational and personnel standards. The
typical staff for a Value City store consists of a store manager, a number of
assistant store and department managers, and full and part-time hourly
associates. Each store manager reports directly to one of the regional
managers, and each of the regional managers reports to the Vice President of
Operations.
The Company's store managers function both as administrators and
merchants. All managers are responsible on a day-to-day basis for maintenance
of displays and inventories in all departments, for the overall condition of
their stores, for customer relations, personnel hiring and scheduling, and for
all other operational matters arising in the stores. Each store manager is
compensated, in part, based on the performance of his or her store. The
Company's store managers are an important source of information concerning
local market conditions, trends and customer preferences.
The Company prefers to fill management positions through promotion of
existing associates. A store management training program is maintained to
develop the management skills of associates and to provide a source of
management personnel for future store expansion.
Expansion
The Company has increased its store base from 56 stores at the start
of fiscal 1993 to 95 stores at the end of fiscal 1997. One store in western
Ohio was closed in September 1997 and another store is scheduled to close
during fiscal 1998. The Company has expanded both by leasing newly constructed
locations and by acquiring existing locations from other retailers. The Company
recently entered several new markets, including Chicago, Detroit and St. Louis
in fiscal 1995, Atlanta and Charlotte in fiscal 1996, and Memphis in fiscal
1997.
During fiscal 1998, the Company plans to focus on improving the
profitability of existing stores and does not anticipate opening any new
stores. Expansion will, however, continue to be an element of the Company's
business strategy with a view towards deepening penetration in existing or
contiguous markets. Factors considered in evaluating new store sites include
store size, configuration, demographics and lease terms. The Company seeks to
cluster stores in targeted metropolitan areas to enhance name recognition,
share advertising costs and achieve economies of scale in management and
distribution.
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The table below sets forth certain information relating to the
Company's stores during the last five fiscal years:
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------
1993 1994 1995 1996 1997(4)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Beginning of Year(1)........... 56 74 75 79 86
Opened(2).................... 18 3 6 7 9
Closed(3).................... 0 2 2 0 0
-- -- -- -- --
End of Year(1)................. 74 75 79 86 95
== == == == ==
</TABLE>
(1) Excludes apparel, domestics and housewares departments operated by the
Company in two Valley Fair department stores.
(2) For fiscal 1993, includes the 15 department stores obtained in the GB
Acquisition, the results of operations and financial position of which
are included in the Company's financial statements herein for all
periods.
(3) During 1995, two stores were closed pursuant to their lease expirations.
Two stores acquired in the GB Acquisition were closed during fiscal 1994
because they were in the same market area as existing Value City stores.
Fiscal 1993 does not include two junior apparel stores acquired in the GB
Acquisition, which were closed in the same year.
(4) In September 1997, the Company closed one store and has scheduled to
close one additional store during fiscal 1998 pursuant to lease
expiration and termination agreements.
In selecting a site for a new store, the Company considers such
factors as population, per capita income, traffic patterns, the visibility of
the prospective store location, parking, the security of the area and the
presence of other compatible stores, especially supermarkets or large drug
stores. The Company attempts to select a location on which there is a suitable
existing structure, generally a one-story building with a relatively open
interior, and alters the structure in accordance with the Company's
merchandising concept.
Based upon its past experience, the Company estimates the average cost
of opening a new store to range from approximately $5,000,000 to $6,500,000,
including leasehold improvements, fixtures, inventory, pre-opening expenses and
other costs. Preparation of a store for opening generally takes between eight
and twelve weeks. The Company charges pre-opening expenses to operations
ratably over the first twelve months of store operations. It has been the
Company's experience that new stores generally achieve profitability and
contribute to net income following the first year of operations.
The Company continually refurbishes its stores by updating the
merchandise displays and in-store signage. The costs of refurbishing on a per
store basis are generally not substantial. On an annual basis, the Company
selects stores to be remodeled, which generally involves more significant
changes to the interior or exterior of the store. The Company maintains its own
architectural design staff, construction crews and carpentry shop to refurbish
and remodel both new and existing store interiors and to build in-store display
tables and racks.
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MANAGEMENT INFORMATION AND CONTROL SYSTEMS.
The Company believes that a high level of automation is essential to
maintaining and improving its competitive position. The Company relies upon
computerized data systems to provide information at all levels, including
warehouse ordering, store billing, inventory control and automated accounting.
The Company utilizes two IBM AS/400 computer systems to help meet its growing
needs. The Company's inventory control and POS systems are not yet year 2000
compliant. The inventory control system will require approximately $200,000 of
programing changes which are scheduled for completion in 1998. The POS systems
will be addressed during 1998 in conjunction with an upgrade to IBM software at
a cost of approximately $1,000,000.
The Company utilizes point of sale ("POS") registers with full
scanning capabilities insuring speed and accuracy at customer check-outs and
facilitating inventory restocking. Since layaways represent an important part
of the business, an automated system to capture and control layaways is
integrated into the POS system.
ASSOCIATES
At September 12, 1997, the Company had approximately 12,300 associates
of which 7,400 were full-time and 4,900 were part-time. Some of these
associates are covered by collective bargaining agreements which are in effect
in 13 stores covering approximately 1,000 associates. The earliest contract
expiration date is February 1998.
Group hospitalization, surgical, medical, vision, dental, disability
and life insurance benefits and a 401(k) plan are provided to full-time
non-union associates. The Company is a co-sponsor with SSC in these plans. The
Company also sponsors an associate stock purchase plan.
The Company believes that in general it has satisfactory relations
with all of its associates.
COMPETITION
The retail industry is highly competitive. The Company generally
competes with a variety of conventional and discount retail stores, including
national, regional and local independent department and specialty stores, as
well as with catalog operations, factory outlet stores and other off-price
stores.
In the discount or off-price retailing segment, the Company
differentiates itself through its store format and the breadth of its product
offering. The Company's large departmentalized stores differ from most other
off-price retailers that tend to operate substantially smaller stores focusing
predominantly on either hard or soft goods. The Company's large stores
facilitate its full-line merchandise offering and broad range of brands and
products.
In addition, because the Company purchases much of its inventory
opportunistically, the Company competes for merchandise with other national and
regional off-price apparel and discount
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outlets. Many of the Company's competitors handle identical or similar lines of
merchandise and have comparable locations, and some have greater financial
resources than the Company.
Competitive factors important to the Company's customers include
fashion, value, merchandise selection, brand name recognition and, to a lesser
degree, store location. The Company competes primarily on the basis of value,
merchandise quality and selection. Management believes the Company's
competitive advantages include its reputation in the marketplace for being able
to purchase and promptly pay for entire lots of merchandise, together with its
ability to either quickly distribute or hold the merchandise for sale at the
most opportune time, as well as its full-line merchandise offering and range of
brand names.
SERVICE MARKS, TRADEMARKS AND TRADENAMES
The service mark "Value City" has been registered by SSC in the U.S.
Patent and Trademark Office. The Company's four department stores in Columbus
operate under the tradename "Schottenstein's," which has been registered by the
Company in the state of Ohio. The Company is entitled to use such names for the
sole purpose of operating department stores on an exclusive basis pursuant to a
perpetual, royalty-free license from SSC. SSC also operates a chain of
furniture stores under the name "Value City Furniture." The Company has also
registered in the U.S. Patent and Trademark Office various trademarks used in
its private label program. The Company is not aware of any conflicting use or
infringement by any third party with respect to any of the above names and
marks.
ITEM 2. PROPERTIES.
Of the Company's 95 department stores operating as of August 2, 1997,
24 are located in Ohio, 20 in Pennsylvania, seven in Indiana, six each in
Illinois, Maryland and Michigan, five in New Jersey, four each in Kentucky and
West Virginia, three each in Delaware, Georgia, and Virginia, and one each in
Missouri, North Carolina, Tennessee and Washington D.C.
The Company maintains buying offices in Columbus, Ohio, Boston,
Massachusetts and Los Angeles, California. The Company operates eight
warehouse/distribution complexes located in Columbus and occasionally utilizes
temporary warehouse space. One of the warehouses is used by VCM in conjunction
with the 50/50 joint venture between the Company and Mazel. VCM reimburses the
Company for the cost of maintaining and operating the warehouse. The Company's
executive offices occupy approximately 45,000 square feet in the building which
also serves as one of the Company's apparel distribution centers.
The stores and all of the warehouse, buying and executive office
facilities are leased or subleased. As of August 2, 1997 the Company leased or
subleased 32 department stores and all of its permanent warehouse and office
facilities from SSC or entities affiliated with SSC. The remaining 63
department stores were leased from unrelated entities. Most of the store leases
provide
13
<PAGE> 14
for an annual rent based upon a percentage of gross sales, with a specified
minimum rent. On August 12, 1997, seventeen of the related party leases (13
stores and four other facilities) were renegotiated and became new unrelated
party leases pursuant to a sale-leaseback transaction between SSC and a third
party. All of the new leases for the 13 stores covered by the SSC sale
leaseback transaction eliminate percentage rent and provide for increased fixed
rent for an initial 20 year term.
The Company's office, warehouse and distribution facilities are
adequate for its current needs and the Company believes that such facilities,
with certain modifications and additional equipment will be adequate for its
foreseeable future demands.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various legal proceedings that are
incidental to the conduct of its business. In the opinion of management, the
amount of any liability with respect to these proceedings will not be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
14
<PAGE> 15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The following table sets forth the high and low sales prices of the Common
Shares as reported on the NYSE Composite Tape during the periods indicated. As
of October 27, 1997, there were 638 shareholders of record.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Fiscal 1996:
First Quarter ......................................... $ 9 $ 6
Second Quarter ........................................ 7-5/8 5-3/4
Third Quarter ......................................... 10-1/8 6
Fourth Quarter ........................................ 13 9-1/2
Fiscal 1997:
First Quarter ......................................... $ 13-1/4 $ 8-1/8
Second Quarter ........................................ 14-3/8 9-1/8
Third Quarter ......................................... 9-1/2 7-1/2
Fourth Quarter ........................................ 9-1/4 8
</TABLE>
The Company has paid no dividends and presently anticipates that all of its
future earnings will be retained for the development of its business and does
not anticipate paying cash dividends on its Common Shares during fiscal 1998.
The payment of any future dividends will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, future earnings,
operations, capital requirements, general financial condition of the Company
and general business conditions.
15
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA.
(in thousands, except per share and per square foot amount and ratios)
<TABLE>
<CAPTION>
Fiscal Year 1997 1996(1) 1995 1994 1993(1)(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales (3) $1,073,399 $954,308 $871,949 $864,855 $842,199
Operating Profit $10,513 $36,213 $24,209 $62,237 $57,067
Net Income (4) $3,951 $21,718 $13,819 $38,936 $40,252
Earnings per Share (4) $0.12 $0.68 $0.43 $1.21 $1.25
Total Assets $457,973 $437,010 $361,887 $358,606 $356,718
Working Capital $158,476 $161,397 $154,112 $164,140 $139,928
Current Ratio 2.14 2.21 2.48 2.59 2.08
Long-term Obligations $57,763 $46,942 $20,853 $31,650 $42,396
Number of Stores (5) 95 86 79 75 74
Sales per Selling sq. ft (6) $217 $221 $220 $229 $222
Comp Store Sales Change (7) 0.1% (0.1)% (3.8)% 2.9% 0.2%
</TABLE>
(1) Fiscal years 1996 and 1993 include 53 weeks; all other years contain
52 weeks.
(2) On September 18, 1992, the Company acquired all of the outstanding
stock of GB Stores, Inc. from a partnership affiliated with
Schottenstein Stores Corporation ("GB Partnership") in exchange for
1,312,500 of the Company's common shares. As a result of the
acquisition, the Company acquired all of the net operating assets of
the Gee Bee Department Store Division ("GB Division") of GB
Partnership. The transaction was accounted for in a manner similar to
a pooling of interest, and accordingly, the financial statements for
1993 include the financial position and result of operations of the
combined entities.
(3) Excludes sales of licensed departments.
(4) Fiscal 1994 includes a tax benefit of $0.07 per share due primarily to
the elimination of deferred tax allowances. Fiscal 1993 net income and
earnings per share includes the benefit from a change in tax status of
the GB Division of $7.2 million or $0.22, respectively.
(5) Includes all stores operating at the end of the fiscal year, excluding
apparel, domestic and housewares departments operated by the Company
in two affiliated department stores.
(6) Excludes stores not operated during the entire year and licensed
departments.
(7) Comparable store sales change excludes licensed departments. A store
is considered to be comparable in its second full fiscal year of
operation. For fiscal 1996 and 1993, comparable store sales are
computed using like 52-week periods.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Net sales for the twelve month period increased from $954.3 million to
$1,073.4 million, an increase of $119.1 million, or 12.5%. Excluding the
additional $15.1 million week in last year's period due to the Company's
adoption in the prior year of the National Retail Federation's suggested retail
calendar, total sales increased 14.3% from $939.2 million to $1,073.4 million.
New stores contributed an increase in sales of $102.8 million and stores opened
during the prior year not yet considered comparable contributed an increase of
$30.1 million. Comparable store sales increased $1.3 million, or 0.1%, when
comparing like fifty-two week periods.
Gross profit increased from $354.8 million to $375.6 million, an
increase of $20.8 million or 5.8%. Expressed as a percentage of sales, gross
profit decreased from 37.2% to 35.0%, due primarily to higher markdowns than
last year, especially in the area of overstocked merchandise, and a less
favorable physical inventory variance than last year.
Selling, general and administrative expenses ("SG&A") increased $48.4
million, or 14.4%, from $337.1 million to $385.5 million, and increased as a
percentage of sales from 35.3% to 35.9%. New stores contributed an increase in
expenses of $33.3 million, and stores opened during the prior fiscal year that
are not yet considered comparable increased $10.4 million. New store SG&A, as a
percentage of sales, is higher than that of comparable stores, due primarily to
pre-opening expenses and the result of aggressive advertising to develop name
recognition in new markets. Home office expenses, including distribution costs,
increased by approximately $12.0 million, primarily to support the new stores.
Comparable store SG&A declined by approximately $2.1 million. The remaining
$5.2 million decline resulted from the extra week in last year's period.
Based upon its experience, the Company estimates the average cost of
opening a new store to range from approximately $5.0 million to $6.5 million,
including leasehold improvements, fixtures, inventory, pre-opening expenses and
other costs. Preparations for opening a store generally take between eight and
twelve weeks. The Company charges pre-opening expenses to operations ratably
over the first twelve months of store operations. It has been the Company's
experience that new stores generally achieve profitability and contribute to
net income after the first full year of operations. Twelve stores opened less
than twelve months had a pre-tax operating loss of $7.0 million for this year,
including $6.3 million of pre-opening expense amortization. Seven stores opened
less than twelve months during fiscal 1996 had pre-tax net operating losses of
$0.2 million in 1996, including $2.2 million of pre-opening expense
amortization. The Company does not currently plan to open any new stores in
fiscal 1998.
License fees from affiliates increased from $15.2 million to $17.7
million and remained
17
<PAGE> 18
constant as a percentage of sales at 1.6%.
During the year ended August 2, 1997, the Company recognized $0.4
million of net expenses for certain employee termination benefits and other
exit costs related to closing a store in September 1997. In September 1997, the
Company announced to employees the closing of another store pursuant to a lease
termination agreement. The Company expects the proceeds from the termination
agreement will exceed the related store closing costs.
Operating profit decreased from $36.2 million to $10.5 million, a
decrease of $25.7 million or 71.0%, and decreased as a percentage of sales from
3.8% to 1.0% as a result of the above factors.
Amortization of excess net assets over cost decreased from $1.4 million
to $0.9 million due to the amount being fully amortized as of the third quarter
of fiscal 1997.
Interest expense, net of interest income, increased from $1.3 million to
$5.1 million due to increased borrowings.
Other income, net, increased from $33,000 to $161,000 due primarily to a
non-cash gain on termination of a capital lease for transportation equipment.
The Company no longer incurs an expense related to the minority interest
in partnerships due to the Company's purchase of the 25% minority interest in
the partnerships during the prior year for approximately $1.3 million
representing the net book value of the minority interest in those partnerships.
Income before income taxes decreased from $36.3 million to $6.5 million,
a decrease of $29.8 million or 82.1%, and decreased as a percentage of sales
from 3.8% to 0.6% as a result of the above factors.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Net sales increased from $871.9 million to $954.3 million, an increase
of $82.4 million, or 9.4%. During fiscal 1996, the Company changed its fiscal
year end to the Saturday closest to July 31 to conform to the National Retail
Federation's suggested retail calendar. This resulted in fiscal 1996 having
fifty-three, rather than fifty-two weeks. Sales for the additional week
aggregated $16.8 million. New stores contributed an increase in sales of $54.2
million and stores opened during the prior fiscal year that were not yet
considered comparable contributed an increase of $22.5 million. These increases
were partially offset by $10.2 million for two stores closed in fiscal 1995.
Comparable store sales for the fifty-two week period decreased $0.9 million, or
0.1%. In determining comparable store sales growth, only stores open for like
fifty-two week periods are included.
18
<PAGE> 19
Gross profit increased from $324.6 million to $354.8 million, an
increase of $30.2 million or 9.3%. Expressed as a percentage of sales, gross
profit remained constant at 37.2%.
SG&A increased $20.1 million, or 6.3%, from $317.0 million to $337.1
million, but decreased as a percentage of sales from 36.4% to 35.3%. New stores
contributed an increase in expenses of $17.0 million, and stores opened during
the prior fiscal year that were not yet considered comparable increased $6.6
million. These increases were partially offset by $3.0 million for two stores
closed in fiscal 1995. All other expenses as a group decreased by $0.5 million.
New store SG&A, as a percentage of sales, is slightly higher than that of
comparable stores, due primarily to pre-opening expenses and the result of
aggressive advertising to develop name recognition in new markets. This
increase in SG&A percentage was more than offset by the savings achieved in
comparable stores SG&A, as a percentage of sales, and by the leveraging effect
of increased sales volume on administrative, warehousing and distribution
costs.
Seven stores opened less than twelve months had a pre-tax operating loss
of $0.2 million for fiscal 1996, including $2.2 million of pre-opening expense
amortization. Six stores opened less than twelve months during fiscal 1995 had
pre-tax net operating losses of $3.0 million, including $2.1 million of
pre-opening expense amortization.
License fees from affiliates increased from $14.0 million to $15.2
million and remained constant as a percentage of sales at 1.6%.
Operating profit increased from $24.2 million to $36.2 million, an
increase of $12.0 million or 49.6%, and increased as a percentage of sales from
2.8% to 3.8% as a result of the above factors.
Amortization of excess net assets over cost decreased from $1.5 million
to $1.4 million as a result of a write-off in the prior year of that portion
associated with a store that was closed.
Interest expense, net of interest income, decreased from $1.9 million to
$1.3 million due to lower outstanding borrowings and increased interest income
in fiscal 1996.
Minority interest in partnerships decreased from $232,000 to $41,000 as
a result of the Company purchasing the 25% minority interest in the
partnerships for approximately $1.3 million representing the net book value of
the minority interest in those partnerships.
Income before income taxes increased from $23.5 million to $36.3
million, an increase of $12.8 million or 54.4%, and increased as a percentage
of sales from 2.7% to 3.8% as a result of the above factors.
SEASONALITY
The Company's business is affected by the pattern of seasonality
common to most retail
19
<PAGE> 20
businesses. Historically, the majority of its sales and operating profit have
been generated during the first six months of its fiscal year, which includes
the back-to-school and Christmas selling seasons.
FISCAL YEAR
During 1996, the Company changed its fiscal year end from the last
Saturday in July to the Saturday closest to July 31 to conform to the
National Retail Federation's suggested retail calendar. As a result, fiscal
year 1996 had 53 weeks.
INCOME TAXES
The effective tax rate for the year ended August 2, 1997 was 39.0%. The
effective tax rate for the year ended August 3, 1996 was 40.1%. The 1.1%
reduction is due to lower state income taxes and anticipated jobs tax credits.
ADOPTION OF ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") periodically issues
Statements on Financial Accounting Standards ("SFAS"), some of which require
implementation by a date falling within or after the close of the Company's
fiscal year.
SFAS No. 128, "Earnings Per Share," specifies the computation,
presentation and disclosure requirements for basic and dilutive earnings per
share and is effective for annual and interim periods ending after December 15,
1997 with early application not permitted. The adoption of SFAS No. 128 is not
expected to have a significant impact on the reported earnings per share of the
Company.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements and is effective for fiscal years beginning after December 15, 1997.
At this time, the Company has not determined the impact this standard will have
on the Company's financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997. At this time, the
Company has not determined the impact, if any, this standard will have on the
Company's financial statements.
INFLATION
The results of operations and financial condition are presented based
upon historical cost. While it is difficult to accurately measure the impact of
inflation because of the nature of the
20
<PAGE> 21
estimates required, management believes that the effect of inflation, if any,
on the results of operations and financial condition has been minor.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital was $158.5 million and $161.4 million at August 2,
1997 and August 3, 1996, respectively. Current ratios at those dates were 2.14
and 2.21, respectively.
Net cash provided from operating activities totaled $38.7 million, $21.4
million and $28.5 million for fiscal years 1997, 1996 and 1995, respectively.
Net income, adjusted for depreciation and amortization, provided $33.5 million
of operating cash flow for fiscal year 1997. This was increased by $13.6
million representing a decrease in inventories including an increase in
accounts payable of $2.9 million. This amount was then partially offset by an
increase in prepaid expenses and other assets of $10.5 million.
During fiscal year 1996, net income, adjusted for depreciation and
amortization, provided $45.6 million of operating cash flow which was offset by
$19.2 million representing an increase in inventories net of an increase in
accounts payable of $22.6 million.
Net cash used for capital expenditures and other assets totaled $46.8
million, $47.7 million and $29.7 million for fiscal years 1997, 1996 and 1995,
respectively.
During 1997, capital expenditures for new stores aggregated $29.5
million, including $1.0 million for the purchase of land for future store
development which was sold along with the building and improvements on the
land, for a profit, during fiscal 1998. Other capital expenditures include $7.1
million for capital improvements in existing stores, $0.5 million for energy
management systems, $6.7 million for renovations in existing warehouses, $0.2
million for transportation equipment and $2.7 million for M.I.S. equipment
upgrades. Capital expenditures were offset by $0.1 million of proceeds from the
sale of property and equipment. Other investing activities include cash outlays
of $0.9 million, primarily for capitalized trademark and note issuance costs
and for point of sale and other related equipment to be put into service at the
stores, and cash receipts of $0.7 million from notes receivable. The Company's
inventory control and POS systems are not yet year 2000 compliant. The
inventory control system will require approximately $0.2 million of programing
changes which are scheduled for completion in 1998. The POS system will be
addressed during 1998 in conjunction with an upgrade to IBM software at a cost
of approximately $1.0 million. Total capital expenditures for 1998 are
estimated at $22.0 million.
Assets held for sale as of the year end include the land, building and
improvements mentioned above, leasehold improvements at an existing store for
which the lease rights will be sold for an expected profit in fiscal 1998, and
inventory and fixed assets related to the Company's toys and sporting goods
departments which were sold in fiscal 1998 pursuant to the transactions
described below.
21
<PAGE> 22
In July 1997, the Company entered into agreements to form a 50/50 joint
venture with Mazel Stores, Inc. ("Mazel") to create VCM, Ltd.("VCM"). An asset
and stock purchase agreement along with an operating agreement were signed on
July 14, 1997 pursuant to which VCM would 1) purchase 100% of the issued and
outstanding capital stock of L.F. Widmann, Inc. ("Widmann"), a related party
company, which operated the Company's health and beauty aid departments as
licensed departments and 2) purchase $15.0 million of inventory and other
assets from the Company related to its owned toys and sporting goods
departments. These transactions were completed in August 1997. VCM will operate
the health and beauty aids and toys and sporting goods departments in the
Company's stores as licensed departments. The license agreements provide for
fees based on a percentage of sales, as defined, for license fees, advertising
fees and administrative charges. The Company will also provide certain
personnel, administrative and service functions for which it will receive a
monthly fee from VCM to cover the related costs. The license and operating
agreements are for a term of ten years ending on the last day of fiscal 2007
and contain certain provisions whereby either business partner can initiate
renegotiations of terms if certain minimum requirements are not met. The
Company will account for its fifty percent interest in the joint venture under
the equity method.
At August 2, 1997 the Company had a $100.0 million credit facility with
its bank bearing interest at or below the prime lending rate depending on
certain borrowing elections made by the Company. At August 2, 1997 the prime
rate was 8.5%, borrowings aggregated $12.0 million and $21.0 million of letters
of credit were issued and outstanding for merchandise purchases leaving $67.0
million available under the facility. During the second quarter of fiscal 1997
the Company completed a private placement for $50.0 million of senior unsecured
notes and used the proceeds to repay demand notes payable. The senior unsecured
notes require principal payments of $2.1 million in December 1997 and 1998 and
payments of $9.1 million annually beginning December 1, 1999 through December
1, 2003 and bear interest at an average fixed rate of 7.22% per annum. In July
1997, the Company made the final $10.0 million payment on the senior notes
which carried a 5.73% fixed annual rate. The Company believes that the cash
generated by its operations, along with the available proceeds from the credit
facility and other sources of financing will be sufficient to meet its future
obligations including capital expenditures.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
The Company cautions that any forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) contained
in this Report, the Form 10-K or made by management of the Company involve
risks and uncertainties, and are subject to change based on various important
factors. The following factors, among others, in some cases have affected and
in the future could affect the Company's financial performance and actual
results and could cause actual results for 1998 and beyond to differ materially
from those expressed or implied in any such forward-looking statements: the
ability of the Company's new senior management team to implement its
strategies, changes in consumer spending patterns, consumer preferences and
overall economic conditions, the impact of competition and pricing, changes in
weather patterns, changes in existing or potential duties, tariffs or quotas,
paper and printing costs, and the ability to hire and train associates.
22
<PAGE> 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and financial statement schedules of the
Company and the Independent Auditors' Report thereon are filed pursuant to this
Item 8 and are included in this report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
On May 27, 1997, the Company engaged the services of Deloitte & Touche
LLP to serve as the Company's independent auditor. In connection with the
dismissal of Coopers & Lybrand L.L.P. and the retention of Deloitte & Touche
LLP, the Company filed a Current Report on Form 8-K relating thereto on May 27,
1997.
23
<PAGE> 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information appearing under the caption "PROPOSAL ONE: ELECTION OF
DIRECTORS" on pages 6 through 9 of the Company's Proxy Statement relating to
the Company's Annual Meeting of Shareholders to be held on December 2, 1997, is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing in the Company's Proxy Statement relating to
the Company's Annual Meeting of Shareholders to be held on December 2, 1997
under the caption "PROPOSAL ONE: ELECTION OF DIRECTORS" on pages 10 through 13,
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information appearing under the caption "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" appearing on pages 4 and 5 of the
Company's Proxy Statement relating to the Company's Annual Meeting of
Shareholders to be held on December 2, 1997, is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing under the caption "RELATIONSHIP WITH SSC AND
ITS AFFILIATES" appearing on pages 16 through 19 of the Company's Proxy
Statement relating to the Company's Annual Meeting of Shareholders to be held
on December 2, 1997, is incorporated herein by reference.
24
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K.
14(a)(1) FINANCIAL STATEMENTS
The documents listed below are filed as part of this Form 10-K:
<TABLE>
<CAPTION>
Page in
Form 10-K
---------
<S> <C>
Independent Auditors' Report F - 1
Consolidated Balance Sheets at August 2, 1997 and August 3, 1996 F - 3
Consolidated Statements of Income for the years ended August 2, 1997, August 3,
1996 and July 29, 1995 F - 4
Consolidated Statements of Shareholders' Equity for the years ended August 2,
1997, August 3, 1996 and July 29, 1995 F - 5
Consolidated Statements of Cash Flows for the years ended August 2,
1997, August 3, 1996 and July 29, 1995 F - 6
Notes to the Consolidated Financial Statements F - 7
14(a)(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
The schedule listed below is filed as part of this Form 10-K:
Schedule II. Valuation and Qualifying Accounts and Reserves S-1
</TABLE>
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the required
information is included in the financial statements or the notes
thereto.
14(a)(3) EXHIBITS:
See Index to Exhibits which begins on Page E-1.
14(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter
ended August 2, 1997.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
VALUE CITY DEPARTMENT STORES, INC.
Date: October 30, 1997 By: *
----------------------------------
(Martin P. Doolan, President and CEO)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
* Chairman of the 10/30/97
- ------------------------- Board of Directors
(Jay L. Schottenstein)
* Vice Chairman of the 10/30/97
- ------------------------- Board of Directors
(Saul Schottenstein) Director
* President, Chief Executive Officer 10/30/97
- ------------------------- (Principal Executive Officer) and Director
(Martin P. Doolan)
/s/ Robert M. Wysinski Senior Vice President, Secretary 10/30/97
- ------------------------- and Treasurer (Principal
(Robert M. Wysinski) Financial Officer)
Director
* Controller, Assistant Treasurer 10/30/97
- ------------------------- and Assistant Secretary (Principal
(Richard L. Walters) Accounting Officer)
* Director 10/30/97
- -------------------------
(Geraldine Schottenstein)
* Director 10/30/97
- -------------------------
(Jon P. Diamond)
* Director 10/30/97
- -------------------------
(Norman Lamm)
* Director 10/30/97
- -------------------------
(Richard Gurian)
* Director 10/30/97
- -------------------------
(Robert L. Shook)
Director 10/30/97
- -------------------------
(Ari Deshe)
*By:/s/ Robert M. Wysinski
----------------------
Robert M. Wysinski
(Attorney-in-Fact)
</TABLE>
26
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of Value City
Department Stores, Inc.:
We have audited the accompanying consolidated balance sheet
of Value City Department Stores, Inc. (a majority owned subsidiary of
Schottenstein Stores Corporation) and its wholly owned subsidiaries (the
Company) as of August 2, 1997 and the related consolidated statements of
income, shareholders' equity and cash flows for the year then ended. Our audit
also included its financial statement schedule for the year ended August 2,
1997 listed in the index at Item S-1. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule 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 consolidated financial statements
present fairly, in all material respects, the consolidated financial position
of Value City Department Stores, Inc. and its wholly owned subsidiaries as of
August 2, 1997 and the consolidated results of their operations and their cash
flows for the year then ended in conformity with generally accepted accounting
principles. Also, in our opinion, such 1997 financial statement schedule, when
considered in relation to the basic 1997 consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
Deloitte & Touche LLP
Columbus, Ohio
October 13, 1997
F - 1
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of Value City
Department Stores, Inc.:
We have audited the accompanying consolidated balance sheet and
financial statement schedule of Value City Department Stores, Inc. (a majority
owned subsidiary of Schottenstein Stores Corporation), its partnerships and its
wholly owned subsidiaries (the Company) as of August 3, 1996 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the two years in the period ended August 3, 1996. These financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule 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 consolidated financial position of Value
City Department Stores, Inc., its partnerships and its wholly owned
subsidiaries as of August 3, 1996 and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
August 3, 1996 in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Columbus, Ohio
October 28, 1996
F - 2
<PAGE> 29
CONSOLIDATED BALANCE SHEETS
at August 2, 1997 and August 3, 1996
(in thousands, except share amounts)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
ASSETS
1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $11,614 $10,484
Accounts receivable, net 5,683 4,525
Receivables from affiliates 1,084 769
Inventories 236,784 261,370
Prepaid expenses and other assets 12,137 8,569
Assets held for sale 20,776 -
Deferred income taxes 9,208 8,928
-------- --------
TOTAL CURRENT ASSETS 297,286 294,645
PROPERTY AND EQUIPMENT, AT COST:
Furniture, fixtures and equipment 141,588 129,081
Leasehold improvements 97,798 78,217
Building - 4,100
Capital leases 15,213 8,973
-------- --------
254,599 220,371
Accumulated depreciation and amortization (101,148) (87,610)
-------- --------
Property and equipment, net 153,451 132,761
NOTES RECEIVABLE, NONCURRENT - 2,613
OTHER ASSETS 7,236 6,991
-------- --------
TOTAL ASSETS $457,973 $437,010
======== ========
- ---------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $69,649 $70,711
Accounts payable to affiliates 11,344 7,402
Demand note payable 12,000 -
Accrued expenses:
Compensation 8,882 9,056
Taxes 11,753 12,216
Other 22,901 23,027
Current maturities of long-term obligations 2,281 10,836
------- --------
TOTAL CURRENT LIABILITIES 138,810 133,248
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES 57,763 46,942
DEFERRED INCOME TAXES AND OTHER NONCURRENT LIABILITIES 4,960 4,448
EXCESS NET ASSETS OVER COST OF ACQUIRED BUSINESS -- 927
SHAREHOLDERS' EQUITY:
Common shares, without par value;
80,000,000 authorized; issued, including
Treasury shares, 32,259,045 shares
and 32,058,745 shares, respectively 110,068 109,450
Contributed capital 10,728 9,688
Retained earnings 139,455 135,504
Deferred compensation expense, net (982) (368)
Treasury shares, at cost, 368,600 shares (2,829) (2,829)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 256,440 251,445
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $457,973 $437,010
======== ========
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 3
<PAGE> 30
CONSOLIDATED STATEMENTS OF INCOME
Years ended August 2, 1997, August 3, 1996 and July 29, 1995
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
52 Weeks 53 Weeks 52 Weeks
==================================================================================================================
<S> <C> <C> <C>
Net sales, excluding sales
of licensed departments $1,073,399 $954,308 $871,949
Cost of sales (697,822) (599,460) (547,377)
---------- -------- --------
Gross profit 375,577 354,848 324,572
Selling, general and administrative expenses (385,511) (337,097) (317,000)
License fees from affiliates 17,685 15,162 13,958
Other operating income 3,162 3,300 3,093
Restructuring charges (400) -- (414)
---------- -------- --------
Operating profit 10,513 36,213 24,209
Amortization of excess net assets over cost 927 1,390 1,451
Interest expense, net (5,126) (1,328) (1,921)
Other income(expense), net 161 33 (15)
---------- -------- ---------
Income before income taxes and minority
interest 6,475 36,308 23,724
Minority interest in partnerships -- (41) (232)
---------- -------- --------
Income before provision for income taxes 6,475 36,267 23,492
Provision for income taxes (2,524) (14,549) (9,673)
---------- -------- --------
Net income $3,951 $21,718 $13,819
========== ======== ========
- ------------------------------------------------------------------------------------------------------------------
Earnings per share $0.12 $0.68 $0.43
========== ======== ========
Weighted average number of common
and common equivalent shares 32,074 31,896 32,030
========== ======== ========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 4
<PAGE> 31
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
Years ended August 2, 1997, August 3, 1996, and July 29, 1995
(in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Number of Shares
Common Deferred
Common Shares Common Contributed Retained Compensation Treasury
Shares in Treasury Shares Capital Earnings Expense Shares Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 30, 1994 32,049 $109,354 $9,811 $99,967 $(1,754) $217,378
Net income 13,819 13,819
Exercise of stock options 2 31 7 38
Tax liability incurred on
vested restricted shares (114) (114)
Repurchase of common shares 149 $(1,231) (1,231)
Amortization of deferred
compensation expense 711 711
------------------------------------------------------------------------------------------------------------
BALANCE, JULY 29, 1995 32,051 149 109,385 9,704 113,786 (1,043) (1,231) 230,601
Net income 21,718 21,718
Exercise of stock options 8 65 7 72
Tax liability incurred on
vested restricted shares (23) (23)
Repurchase of common shares 220 (1,598) (1,598)
Amortization of deferred
compensation expense 675 675
------------------------------------------------------------------------------------------------------------
BALANCE, AUGUST 3, 1996 32,059 369 109,450 9,688 135,504 (368) (2,829) 251,445
Net income 3,951 3,951
Exercise of stock options 80 618 102 720
Tax liability incurred on
vested restricted shares (52) (52)
Grant of restricted shares 120 990 (990) --
Amortization of deferred
compensation expense 376 376
------------------------------------------------------------------------------------------------------------
BALANCE, AUGUST 2, 1997 32,259 369 $110,068 $10,728 $139,455 $(982) $(2,829) $256,440
============================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 5
<PAGE> 32
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended August 2, 1997, August 3, 1996 and July 29, 1995
(in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1997 1996 1995
52 Weeks 53 Weeks 52 Weeks
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,951 $ 21,718 $ 13,819
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 29,583 23,903 19,341
Amortization of excess net assets over cost (927) (1,390) (1,451)
Minority interest in partnerships -- 41 232
Deferred income taxes and other
noncurrent liabilities 232 (562) 4,130
(Gain) loss on disposal of property and equipment (161) (33) 15
Restructuring charges 400 -- 414
Change in working capital, assets
and liabilities:
Receivables 402 (632) (961)
Inventories 10,710 (41,894) 1,030
Prepaid expenses and other assets (10,511) (3,045) (8,201)
Accounts payable 2,880 22,646 (11,452)
Accrued expenses 2,184 674 11,594
-------- -------- --------
Net cash provided by operating activities 38,743 21,426 28,510
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (46,750) (45,407) (28,592)
Proceeds from sale of property and equipment 85 65 27
Notes receivable, noncurrent 738 (1,960) (653)
Other assets (900) (376) (457)
-------- -------- --------
Net cash used in investing activities (46,827) (47,678) (29,675)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from issuance of common shares 618 65 31
Net (payments) borrowings under
line-of-credit agreements (21,000) 33,000 --
Proceeds from issuance of
long-term obligations 50,000 -- --
Principal payments of long-term obligations (20,404) (10,777) (10,702)
Purchase of treasury shares -- (1,598) (1,231)
Distributions to partners in minority
partnerships, net -- (1,328) (225)
-------- -------- --------
Net cash provided by (used in)financing
activities 9,214 19,362 (12,127)
-------- -------- --------
Net increase (decrease) in cash and equivalents 1,130 (6,890) (13,292)
Cash and equivalents, beginning of year 10,484 17,374 30,666
-------- -------- --------
Cash and equivalents, end of year $ 11,614 $ 10,484 $ 17,374
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 6
<PAGE> 33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS OPERATIONS AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Value City Department Stores, Inc. ("VCDS") and its wholly owned subsidiaries
and for fiscal 1995, two partnerships. These entities are herein referred to
collectively as the "Company." The Company operates a chain of full-line
off-price department stores, principally under the name "Value City." As of
August 2, 1997 a total of 95 stores were open, located principally in Ohio (24
stores) and Pennsylvania (20 stores). The remaining stores are dispersed among
13 other states in the Midwest and Eastern sections of the country.
To facilitate comparisons with the current year, certain amounts in prior
years' financial statements have been reclassified to conform to the current
year presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR:
During 1996, the Company changed its fiscal year end from the last Saturday in
July to the Saturday closest to July 31 to conform to the National Retail
Federation's suggested retail calendar. As a result, fiscal year 1996 had 53
weeks. Reference herein to the years ended August 2, 1997 and July 29, 1995
include 52 weeks.
CONSOLIDATION:
The consolidated financial statements include the accounts of the Company,
including 75% owned partnerships in fiscal year 1995, after elimination of
material intercompany accounts and transactions. During 1996 the Company bought
the 25% minority interests for approximately $1,328,000 which represented the
net book value of the minority interests in those partnerships.
CASH EQUIVALENTS:
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES:
Merchandise inventories are stated at the lower of cost or market using the
retail method.
ASSETS HELD FOR SALE:
Assets held for sale, stated at lower of cost or market, represent: 1) land,
building and leasehold improvements related to a site originally purchased for
store development which were sold in September 1997; 2) leasehold improvements
at an existing store for which the lease rights will be sold; and 3) inventory
and fixed assets related to the Company's toys and sporting goods departments
which were sold in August 1997, at cost (see note 11, subsequent events).
PRE-OPENING EXPENSES:
Pre-opening expenses are charged to operations ratably over the first twelve
months of a new store's operations. Pre-opening costs expensed were $6,943,000,
$4,059,000 and $2,064,000 for fiscal years 1997, 1996 and 1995, respectively.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation and amortization are
recognized principally on the straight-line method in amounts adequate to
amortize costs over the estimated useful lives of the respective assets.
Leasehold improvements are amortized over the shorter of their useful lives or
lease term. The estimated useful lives by class of asset are:
Buildings 39 years
Furniture, Fixtures and Equipment 5 to 10 years
Leasehold improvements 10 to 20 years
The Company reviews long-lived assets, and reserves for impairment, whenever
events or changes in circumstances indicates the carrying amount of the assets
may not be fully recoverable.
NOTES RECEIVABLE:
To facilitate acquisitions of two store leases, the Company advanced funds to
two third party landlords in exchange for notes receivable bearing interest at
various levels above the bank prime lending rate. One of the notes was prepaid
in July 1997 and the other note in the amount of $1,906,000 as of August 2,
1997 is due in April 1998 and is classified
F - 7
<PAGE> 34
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
as accounts receivable. The note is collateralized by the property under lease.
REVENUE RECOGNITION:
Sales of merchandise and services are net of returns and allowances and exclude
sales tax. Layaway sales are recorded on the deposit method, whereby the sale
is recognized once the customer has paid for the merchandise in full.
ADVERTISING EXPENSE:
The cost of advertising is expensed as incurred. During fiscal years 1997, 1996
and 1995, advertising expense was $39,005,000, $36,020,000 and $34,129,000,
respectively.
EXCESS NET ASSETS OVER ACQUISITION COST OF ACQUIRED BUSINESS:
The excess of net assets over acquisition cost of acquired business was
amortized over seven years and was fully amortized in the third quarter of
fiscal 1997.
In fiscal year 1995, the Company wrote off $262,000 related to the closing of a
former GB store.
RESTRUCTURING CHARGES:
During fiscal years 1997 and 1995, the Company recognized $400,000 and
$414,000, respectively, of net expenses for certain employee termination
benefits and other exit costs related to closing one store in 1997 and two
stores in 1995 pursuant to their lease expirations. Net charges to the 1995
reserve aggregated $300,000 in 1995 and $114,000 in 1996. The operating losses
to close the two stores, exclusive of the restructuring charge, aggregated
approximately $600,000 during the year ended July 29, 1995.
EARNINGS PER SHARE:
Earnings per share are computed by dividing net income by the weighted average
number of common shares outstanding, including the effect of dilutive stock
options.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Although these estimates are based on management's knowledge of current
events and actions it may undertake in the future, they may ultimately differ
from actual results.
RECENT ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board ("FASB") periodically issues
Statements on Financial Accounting Standards ("SFAS"), some of which require
implementation by a date falling within or after the close of the Company's
fiscal year.
SFAS No. 128, "Earnings Per Share," specifies the computation, presentation and
disclosure requirements for basic and dilutive earnings per share and is
effective for annual and interim periods ending after December 15, 1997 with
early application not permitted. The adoption of SFAS No. 128 is not expected
to have a significant impact on the reported earnings per share of the Company.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements and is effective for fiscal years beginning after December 15, 1997.
At this time, the Company has not determined the impact, if any, this standard
will have on the Company's financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997. At this time, the
Company has not determined the impact, if any,
F - 8
<PAGE> 35
this standard will have on the Company's financial statements.
3. RELATED PARTY TRANSACTIONS
The Company purchases merchandise from and sells merchandise to affiliates of
Schottenstein Stores Corporation ("SSC"), direct owner of approximately 63% of
the Company's common shares. Sales of merchandise from the Company's warehouses
generally are at cost plus handling charges. The Company also purchases certain
directly shipped merchandise on behalf of affiliates of SSC. Such merchandise
is billed by the Company to affiliates at cost plus delivery charges. The
related party transactions are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Purchases of merchandise
from affiliates $4,477 $6,621 $4,446
Merchandise sold to
affiliates, including
handling charges 12 354 1,348
Merchandise purchased
on behalf of and shipped
directly to affiliates, at
cost plus delivery charges 4 46 --
- --------------------------------------------------------------
</TABLE>
Not included in the preceding table are purchases made through SSC's Importing
Division which charges the Company its cost plus an administrative charge.
The Company has license agreements with L.F. Widmann, Inc. ("Widmann") and
Shonac Corporation ("Shonac"), both related parties as a result of significant
ownership of such entities by SSC. The license agreement with Widmann for the
operation of health and beauty aid departments in certain of the Company's
stores expired in 1997 and all of the issued and outstanding capital stock of
Widmann was purchased by VCM, Ltd.("VCM")(see note 11, subsequent events). The
license agreement with Shonac is for the operation of shoe departments in all
of the Company's stores and expires in 2004. Both license agreements provide
for fees based on percentages of sales, as defined. Sales of licensed
departments and the related license fees earned are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Widmann
Sales $38,198 $40,643 $42,548
License fees 1,841 1,942 2,339
Shonac
Sales $144,035 $120,949 $105,615
License fees 15,844 13,220 11,619
- --------------------------------------------------------------
</TABLE>
The Company also leases certain store and warehouse locations owned by SSC as
described in Note 4.
Accounts receivable from and payable to affiliates principally result from
commercial transactions with entities owned or controlled by SSC or
intercompany transactions with SSC.
The Company shares certain personnel, administrative and service costs with SSC
and its affiliates. The costs of providing these services are allocated among
the Company, SSC and its affiliates without a premium. The allocated amounts
are not significant. SSC does not charge the Company for general corporate
management services. In the opinion of the Company and SSC management, the
aforementioned charges are reasonable.
The Company participates in SSC's self insurance program for general liability,
casualty loss and Ohio workers' compensation. The Company expensed $6,101,000,
$6,696,000 and $6,832,000 in fiscal years 1997, 1996 and 1995, respectively,
for such coverage.
During 1997 and 1996, the Company contributed $1,120,000 each year to a private
charitable foundation controlled by the Schottenstein family.
4. LEASES
The Company operates stores and warehouses under various arrangements with
related and unrelated parties. Such leases expire through 2017 and in most
cases provide for renewal options. Generally, the Company is required to pay
real estate taxes, maintenance, insurance and contingent rentals based on sales
in excess of specified levels.
The Company has entered into several leasing agreements with SSC and
affiliates. Under two Master Lease Agreements, as amended, the Company leases
fourteen store locations and
F - 9
<PAGE> 36
three other facilities owned by SSC for an annual minimum rent of $4,627,000
and additional contingent rents based on aggregate sales in excess of specified
sales levels for the store locations. The Company also leased or subleased from
SSC and affiliates eighteen store locations, six warehouse facilities and a
parcel of land for specified minimum rentals, plus contingent rents based on
sales in excess of specified sales levels for the store locations. Leases and
subleases with related parties are for initial periods generally ranging from
five to twenty years, provide for renewal options and require the Company to
pay real estate taxes, maintenance and insurance.
On August 12, 1997, seventeen of the related party leases (thirteen stores and
four other facilities) were renegotiated and became new unrelated party leases
pursuant to a sale-leaseback transaction between SSC and a third party. Eleven
of the properties (eight stores and three other facilities) had been leased
under the Master Lease agreements mentioned above. All of the new leases for the
thirteen stores covered by the SSC sale leaseback transaction eliminate
percentage rents and provide for increased fixed rents for an initial twenty
year term.
The Company had a capital lease agreement for transportation equipment that
expired in 1997. Similar equipment was obtained under a new operating lease
agreement. The Company incurred new capital lease obligations aggregating
$9,400,000 and $5,800,000 in 1997 and 1996, respectively, to obtain store
facilities. Assets held under capital leases are amortized over the terms of
the related leases. The accumulated amortization for these assets was $442,000
and $2,172,000 at August 2, 1997 and August 3, 1996, respectively.
Future minimum lease payments required under the aforementioned leases,
exclusive of real estate taxes, insurance and maintenance costs, at August 2,
1997 are as follows:
<TABLE>
<CAPTION>
Operating Leases
Fiscal Related
Year Capital Unrelated Party
Ending Leases Party Leases Leases Total
- ---------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
1998 $ 918 $25,637 $8,049 $34,604
1999 944 24,909 7,784 33,637
2000 944 22,442 7,710 31,096
2001 944 20,593 7,734 29,271
2002 944 19,705 5,745 26,394
Future Years 22,081 176,230 62,732 261,043
- ---------------------------------------------------------
Total minimum
lease payments 26,775
Less amount
representing
interest (16,791)
-------
Present value
of minimum
lease payments 9,984
Less current
portion (78)
-------
Total net $ 9,906
=======
</TABLE>
The Company operates apparel, houseware and domestic departments in two stores
owned by a related party under a license agreement and pays a license fee of
11% of sales against an aggregate minimum license fee of $733,000 per annum.
Two-thirds of this fee is charged to rent expense and the remainder is charged
to advertising expense.
The composition of rental expense is:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Minimum rentals:
Unrelated parties $14,878 $13,222 $11,625
Related parties 15,043 11,400 9,156
Contingent rentals:
Unrelated parties 2,469 2,288 2,580
Related parties 2,366 1,757 1,594
------- ------- -------
Total $34,756 $28,667 $24,955
======= ======= =======
- ---------------------------------------------------------
</TABLE>
Many of the Company's leases contain fixed escalations of the minimum annual
lease payments during the original term of the lease. For these leases, the
Company recognizes rental expense on a straight-line basis and records the
difference between the average rental amount charged to expense and the amount
payable under the lease as deferred rent. At the end of 1997 and 1996 the
balance of deferred rent was $856,000 and $560,000 and is included in other
noncurrent liabilities.
F - 10
<PAGE> 37
5. LONG-TERM OBLIGATIONS AND NOTES PAYABLE
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------
(in thousands)
<S> <C> <C>
Senior notes -- $20,000
Senior unsecured notes $50,000 --
Demand note payable
subsequently refinanced -- 33,000
Capital lease obligations 9,984 4,538
Other 60 240
------- -------
60,044 57,778
Less current maturities (2,281) (10,836)
------- -------
$57,763 $46,942
======= =======
- --------------------------------------------------------------
</TABLE>
The final annual principal payment of $10.0 million on the senior notes was
paid in July 1997.
During 1997, the Company completed a private placement for $50.0 million of
senior unsecured notes. The proceeds were used to repay demand notes payable.
At August 3, 1996, $33.0 million of the demand notes was classified as
long-term obligations as the Company had obtained commitments from investors
for the private placement. The senior unsecured notes require principal
payments of $2,143,000 in December 1997 and 1998 and payments of $9,143,000
annually beginning December 1999 through December 2003 and bear interest at an
average fixed rate of 7.2% per annum.
The terms of the senior unsecured notes require the Company to comply with
certain restrictive covenants, maintain minimum income and net worth levels and
meet certain financial ratio tests during the terms of the debt. The most
restrictive of these covenants is that the Company's consolidated funded debt
(as defined in the debt agreement) may not exceed 50% of consolidated total
capitalization (as defined). At August 2, 1997, the Company was in compliance
with the required covenants.
Other long-term obligations represent an Industrial Revenue Bond with interest
related to the prime rate and is payable through November 1997.
The book value of notes payable and long-term debt approximates fair value.
At August 2, 1997, the Company had available from its bank a $100.0 million
credit facility. All borrowings under the credit facility bear interest at or
below the prime lending rate depending on certain borrowing elections made by
the Company. At August 2, 1997, direct borrowings aggregated $12.0 million and
$21.0 million of letters of credit were issued and outstanding for merchandise
purchases leaving $67.0 million available under the facility. The weighted
average interest rate on short-term borrowings during fiscal years 1997 and
1996 was 7.11% and 7.30%, respectively.
6. BENEFIT PLANS
The Company participates in the SSC sponsored 401(k) savings plan (the "401(k)
Plan"). Full-time employees who have attained twenty-one years of age and have
completed one year of service can contribute up to fifteen percent of their
salaries to the 401(k) Plan on a pre-tax basis, subject to IRS limitations. The
Company will match up to three percent of participants' eligible compensation.
Additionally, the Company contributes a discretionary profit sharing amount to
the 401(k) Plan each year. The Company incurred costs associated with the
401(k) Plan of $3,540,000, $3,197,000 and $2,971,000 for fiscal years 1997,
1996 and 1995, respectively. Certain employees of the Company are covered by
union-sponsored, collectively bargained, multi-employer pension plans, the
costs of which are not material to the consolidated financial statements.
The Company provides an Associate Stock Purchase Plan. Eligibility requirements
are similar to the 401(k) Plan. Eligible employees can purchase common shares
of the Company through payroll deductions. The Company will match 15% of
employee investments up to a maximum investment level. Plan costs to the
Company for fiscal years 1997, 1996 and 1995 were not material to the
consolidated financial statements.
7. SHAREHOLDERS' EQUITY
During fiscal year 1993, the Company issued common shares to certain key
employees pursuant to its 1992 Bonus Stock Plan (the "1992 Plan"). The 1992
Plan consists of a one time grant of restricted shares issued pursuant to a
form of restricted stock agreement between the Company and the
F - 11
<PAGE> 38
employee. Also, during fiscal year 1997, the Company issued common shares to
certain new key employees pursuant to each individuals employment agreement.
The 1997 agreements were approved by the Board of Directors and each consists
of a one time grant of restricted shares. As a result, the Company recorded the
market value of the shares at the date of grant of $2,100,000 in 1993 and
$990,000 in 1997 as deferred compensation expense. The agreements condition the
vesting of the shares upon continued employment with the Company with such
restrictions expiring as to 20% of the shares on each of the five anniversary
dates of the grants. Deferred compensation is charged to income on a
straight-line basis over the period during which the restrictions lapse.
On December 21, 1994, the Board of Directors authorized the purchase during the
period through December 20, 1995 of up to $5,000,000 of the Company's common
shares. As of August 3, 1996, the Company acquired a total of 368,600 shares at
an average price of $7.67 per share for a total of $2,829,000.
8.STOCK OPTION PLANS
During fiscal year 1993, the Company adopted a Non-employee Director Stock
Option Plan (the "Non-employee Director Plan") which provides for the issuance
of options to purchase up to 130,000 common shares. Prior to March 30, 1995,
one option to purchase 2,000 common shares was automatically granted to each
non-employee director on the first New York Stock Exchange ("NYSE") trading day
in each calendar year for five years beginning in fiscal year 1993. An
amendment, effective March 30, 1995, increased the grant to one option to
purchase 1,000 common shares on the first NYSE trading day in each calendar
quarter. The exercise price for each option is the fair market value of the
common shares on the date of grant. All options become exercisable one year
after the grant date and remain exercisable for a period of ten years from the
grant date, subject to continuation of the option-holder's service as a
director of the Company.
The Company adopted the 1991 Stock Option Plan which provides for the grant of
options to purchase up to 2,500,000 common shares. Such options are exercisable
20% per year on a cumulative basis and remain exercisable for a period of ten
years from the date of grant.
On March 30, 1995, The Stock Options Committee ("the Committee") of the Board
of Directors determined that the outstanding options which had been granted
previously at exercise prices of $9.75 and higher would no longer provide
sufficient incentives as a result of the decline in market price of the
Company's common shares. Accordingly, the Committee authorized the "repricing"
of the originally issued options by canceling the outstanding options and
granting the same number of new options. The new options were priced at $8.06,
which, in accordance with the formula in the stock option plan, was determined
by averaging the low of $7.88 and the high of $8.25, the trading prices of the
Company's common shares on March 30, 1995.
The following table summarizes the Company's stock option plans and related
Weighted Average Exercise Prices ("WAEP") for fiscal years ended August 2,
1997, August 3, 1996 and July 29, 1995:
<TABLE>
<CAPTION>
1997 1996 1995
Shares WAEP Shares WAEP Shares WAEP
- -------------------------------------------------------------------------------------------------------------------
(Shares in thousands)
<S> <C> <C> <C> <C> <C> <C>
Outstanding
beginning
of year 1,603 $ 7.91 1,374 $8.20 811 $8.29
Granted 1,043 10.26 378 6.98 605 8.05
Exercised (79) 7.69 (8) 8.06 (2) 8.06
Cancelled (169) 8.44 (141) 8.14 (40) 8.06
------- ------ -------
Outstanding
end of
year 2,398 8.90 1,603 7.91 1,374 8.20
======= ====== =======
Options
exercisable
end of
year 808 $ 8.22 679 $8.28 441 $8.42
======= ====== =======
Shares
available for
additional
grants 80 174 412
======= ====== =======
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding as
of August 2, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
exercise Contract Exercise Exercise
prices Shares Life Price Shares Price
- --------------------------------------------------------------
(Shares in thousands)
<S> <C> <C> <C> <C> <C>
$5.87-
$7.94 258 8yrs $6.71 49 $6.91
$8.06-
$11.19 1,882 8yrs $8.47 743 $8.10
$13.69-
$20.25 258 9yrs $14.27 16 $17.47
- --------------------------------------------------------------
</TABLE>
F - 12
<PAGE> 39
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") and accordingly has
elected to retain the intrinsic value method of accounting for stock-based
compensation. Had the compensation cost for the Company's stock-option plans
been determined based on the fair value at the grant dates for awards under
those plans consistent with the methods of SFAS 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C>
Net income:
As reported $3,951 $21,718
Pro forma $3,373 $21,548
Primary and fully diluted
earnings per share:
As reported $0.12 $0.68
Pro forma $0.11 $0.68
- ----------------------------------------------------------------
</TABLE>
To determine the pro forma amounts, the fair value of each stock option has
been estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants in 1997
and 1996, respectively: expected volatility of 37.6% and 40.6%, dividend yield
of 0%, risk-free interest rates of 6.3% and 6.5%, and expected lives of 6.5
years. The weighted average fair value of options granted in 1997 and 1996 was
$5.06 and $3.68 respectively.
Consistent with SFAS No. 123, pro-forma net income and earnings per share have
not been calculated for options granted prior to July 30, 1995. Pro forma
disclosures may not be representative of that to be expected in future years.
9. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings that are incidental to the
conduct of its business. In the opinion of management, the amount of any
liability with respect to these proceedings will not be material.
The Company's inventory control and POS systems are not yet year 2000
compliant. The inventory control system will require approximately $200,000 of
programing changes which are scheduled for completion in 1998. The POS system
will be addressed during 1998 in conjunction with an upgrade to IBM software at
a cost of approximately $1,000,000.
10.INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $2,417 $11,315 $5,272
State and local 699 2,588 1,014
------ ------- ------
3,116 13,903 6,286
Deferred:
Federal (533) 474 2,865
State and local (59) 172 522
------ ------- ------
(592) 646 3,387
------ ------- ------
Income tax expense $2,524 $14,549 $9,673
====== ======= ======
- ----------------------------------------------------------------
</TABLE>
The provision (benefit) for deferred income taxes includes the following
amounts:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Type of temporary differences:
Basis differences
in inventory $(950) $(279) $70
Store closing reserve (183) 21 45
Depreciation 186 526 394
Amortization of excess
net assets over cost 382 572 612
Other (27) (194) 2,266
------- ---- ------
$(592) $646 $3,387
======= ==== ======
- ----------------------------------------------------------------
</TABLE>
A reconciliation of the expected income taxes based upon the statutory federal
rate and the effective rate for the years ended August 2, 1997, August 3, 1996
and July 29, 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Income tax expense at
federal statutory rate $2,266 $12,693 $8,222
Jobs credit (59) -- (495)
State and local taxes, net 161 1,794 1,344
Change in estimates -- -- 508
Other 156 62 94
------ ------- ------
$2,524 $14,549 $9,673
====== ======= ======
- -----------------------------------------------------------------------
</TABLE>
The components of the net deferred tax asset as of August 2, 1997 and August 3,
1996 are:
F - 13
<PAGE> 40
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------
(in thousands)
<S> <C> <C>
Deferred Tax Assets:
Basis differences in inventory $8,187 $7,237
Basis differences in fixed assets 2,302 2,467
Accrued expenses 181 1,616
Other state and local taxes 1,847 1,652
Excess net assets over cost of
acquired business -- 382
Deferred compensation 150 270
Amortization of lease
acquisition costs 2,174 1,002
Other 1,320 615
------ ------
16,161 15,241
Deferred Tax Liabilities:
Depreciation (7,508) (7,322)
Capital leases (1,915) (905)
Prepaid expenses (993) (838)
Other (640) (1,136)
------- -------
(11,056) (10,201)
------- -------
Total net $5,105 $5,040
======= =======
- ----------------------------------------------------------------
</TABLE>
The net deferred tax asset is recorded on the Company's consolidated balance
sheet as of August 2, 1997 and August 3, 1996 as follows:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------
(in thousands)
<S> <C> <C>
Current deferred tax asset $9,208 $8,928
Non-current deferred tax liability (4,103) (3,888)
------ ------
Net deferred tax asset $5,105 $5,040
====== ======
- ----------------------------------------------------------------
</TABLE>
11.SUBSEQUENT EVENTS
In July 1997, the Company entered into agreements to form a 50/50 joint venture
with Mazel Stores, Inc.("Mazel") to create VCM. An asset and stock purchase
agreement along with an operating agreement were signed on July 14, 1997
pursuant to which VCM would 1) purchase 100% of the issued and outstanding
capital stock of Widmann which operated the Company's health and beauty aid
departments as licensed departments and 2) purchase $15.0 million of inventory
and other assets from the Company related to its owned toys and sporting goods
departments. These transactions were completed in August 1997. VCM will operate
the health and beauty aids and toys and sporting goods departments in the
Company's stores as licensed departments. The license agreements provide for
fees based on a percentage of sales, as defined, for license fees, advertising
fees and credit and administrative charges. The Company will also provide
certain personnel, administrative and service functions for which it will
receive a monthly fee from VCM to cover the related costs. The license and
operating agreements are for a term of ten years ending on the last day of
fiscal 2007 and contain certain provisions whereby either business partner can
initiate renegotiation of terms if certain minimum requirements are not met.
The Company will account for its fifty percent interest in the joint venture
under the equity method.
F - 14
<PAGE> 41
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
FISCAL YEAR ENDED AUGUST 2, 1997
1st Qtr 2nd Qtr. 3rd Qtr. 4th Qtr.
11/2/96 2/1/97(1) 5/3/97 8/2/97
(13 weeks) (13 weeks) (13 weeks) (13 weeks)
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 266,076 $ 322,995 $ 233,660 $ 250,668
Cost of Sales (167,619) (204,706) (153,686) (171,811)
--------- --------- --------- ---------
Gross Profit 98,457 118,289 79,974 78,857
Selling, general and
administrative expenses (93,591) (102,085) (91,825) (98,010)
License fees and other
operating income 5,301 5,541 4,990 5,015
Restructuring charge -- -- -- (400)
--------- --------- --------- ---------
Operating profit (loss) 10,167 21,745 (6,861) (14,538)
Interest expense, net (1,194) (1,147) (1,271) (1,514)
Amortization of excess
net assets over cost 348 347 232 --
Other income (expense), net 153 (19) 4 23
--------- --------- --------- ---------
Income before (provision)
benefit for income taxes 9,474 20,926 (7,896) (16,029)
(Provision) benefit for
income taxes (3,772) (7,987) 3,034 6,201
--------- --------- --------- ---------
Net income (loss) $ 5,702 $ 12,939 $ (4,862) $ (9,828)
========= ========= ========= =========
Earnings (loss) per share $ 0.18 $ 0.40 $ (0.15) $ (0.31)
========= ========= ========= =========
FISCAL YEAR ENDED AUGUST 3, 1996
1st Qtr 2nd Qtr. 3rd Qtr. 4th Qtr.
10/28/95 2/3/96(1) 5/4/96 8/3/96
(13 weeks) (14 weeks) (13 weeks) (13 weeks)
----------------------------------------------------------------
Net Sales $ 217,790 $ 296,390 $ 207,620 $ 232,508
Cost of Sales (134,740) (184,833) (131,437) (148,450)
--------- --------- --------- ---------
Gross Profit 83,050 111,557 76,183 84,058
Selling, general and
administrative expenses (83,376) (89,523) (79,434) (84,764)
License fees and other
operating income 4,657 4,832 4,340 4,633
--------- --------- --------- ---------
Operating profit 4,331 26,866 1,089 3,927
Interest expense, net (446) (204) 13 (691)
Amortization of excess
net assets over cost 348 347 348 347
Other income (expense), net 40 3 4 (14)
--------- --------- --------- ---------
Income before minority interest 4,273 27,012 1,454 3,569
Minority Interest (41) -- -- --
--------- --------- --------- ---------
Income before provision
for income taxes 4,232 27,012 1,454 3,569
Provision for income taxes (1,730) (10,841) (556) (1,422)
--------- --------- --------- ---------
Net income $ 2,502 $ 16,171 $ 898 $ 2,147
========= ========= ========= =========
Earnings per share $ 0.08 $ 0.51 $ 0.03 $ 0.07
========= ========= ========= =========
</TABLE>
(1) The results of operations for the quarters ended 2/1/97 and 2/3/96
include reductions of $1.9 million and $4.4 million, respectively, to
cost of sales representing the annual book to physical adjustment for
the physical inventory completed in the respective quarters.
F - 15
<PAGE> 42
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash paid during the year for:
Interest $5,700 $ 2,255 $ 2,409
====== ======= =======
Income taxes $10,365 $ 8,972 $ 8,493
======= ======= =======
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
The Company incurred capital lease obligations to obtain new store facilities.
Non-cash amounts of $6,155,000 and $3,906,000 were capitalized as of August 2,
1997 and August 3, 1996, respectively, under the captions of property and
equipment and long-term obligations in relation to these leases.
Amounts of $3,297,000 and $5,992,000 were recorded under the captions of
property and equipment and accounts payable for real estate improvements and
construction at new stores as of August 2, 1997 and August 3, 1996,
respectively.
F - 16
<PAGE> 43
VALUE CITY DEPARTMENT STORES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------------------------------------------------------------
Balance at Charge to Balance at
Beginning Costs and End
Description Of Period Expenses Deductions (1) Of Period
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance deducted
from asset to which
it applies:
Allowance for
doubtful accounts:
Year ended:
July 29, 1995 $992 $467 $986 $473
August 3, 1996 473 294 276 491
August 2, 1997 491 531 659 363
Allowance for
Markdowns:
Year ended:
July 29, 1995 $ 0 $0 $0 $0
August 3, 1996 0 0 0 0
August 2, 1997 0 $4,311 0 $4,311
Reserves
Store Closing
Reserve:
Year ended:
July 29, 1995 $0 $414 $299 $115
August 3, 1996 115 (21) 94 0
August 2, 1997 0 400 5 395
</TABLE>
(1) The deductions in Column D are amounts written off against the respective
reserve.
S - 1
<PAGE> 44
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Exhibit Index
No. Description Page No.
- ------- ----------- --------
<S> <C> <C>
3.1 First Amended and Restated Articles Previously filed as Exhibit 3.2 to Registration
of Incorporation of the Company. Statement on Form S-1 (file no. 33-40214)
filed April 29, 1991, and incorporated herein
by reference.
3.2 Code of Regulations of the Previously filed as Exhibit 3.3 to Registration
Company. Statement on Form S-1 (file no. 33-40214)
filed April 29, 1991, and incorporated herein
by reference.
10.1.1 Corporate Services Agreement, dated Previously filed on Exhibit 10.1.1
to Form October 12, 1994, between the Company 10-Q (file no. 1-10767) filed December 12,
and Schottenstein Stores Corporation. 1994, and incorporated herein by reference.
10.1.2 Corporate Services Agreement, dated Previously filed as Exhibit 10.1.2 to
September 27, 1995 between Form 10-K (file no. 1-10767) filed
the Company and SSC. October 27, 1995, and incorporated
herein by reference.
10.1.3 Corporate Services Agreement, dated Previously filed as Exhibit 10.1.3 to
October 1996 between the Company Form 10-K (file no. 1-10767) filed
and SSC. November 1, 1996, and incorporated
herein by reference.
10.2 License Agreement, dated June 5, 1991, Previously filed as Exhibit 10.2 to
between the Company and SSC Amendment No. 1 to Form S-1
re Service Marks. Registration Statement (file no. 33-40214)
filed June 6, 1991, and incorporated herein
by reference.
10.3 License Agreement, dated July 1989, Previously filed as Exhibit 10.3 to
between the Company, by assignment Form S-1 Registration Statement ( file no.
from SSC, and Shonac Corporation 33-40214) filed April 29, 1991, and
re shoe departments. incorporated herein by reference.
</TABLE>
E - 1
<PAGE> 45
<TABLE>
<S> <C> <C>
10.3.1 Amendments dated November 9, 1993 Previously filed as Exhibit 10.3.1 to
to License Agreement dated in July Form 10-K (file no. 1-10767) filed
1989, between the Company and Shonac October 26, 1994, and incorporated
Corporation re shoe departments. herein by reference.
10.3.2 Amendment dated 1995, to Previously filed as Exhibit 10.3.2 to
License Agreement dated in July 1989, Form 10-Q (file no. 1-10767) filed
between the Company and Shonac December 12, 1995, and incorporated
Corporation re shoe departments. herein by reference.
10.4 License Agreement, dated July 1, 1987, Previously filed as Exhibit 10.4 to
as amended, between the Company, by Form S-1 Registration Statement (file no.
assignment from SSC, and L.F. Widmann, 33-40214) filed April 29, 1991, and
Inc. re health and beauty aids departments. incorporated herein by reference.
10.4.1 Amendment dated June 23, 1993 to Previously filed as Exhibit 10.4.1 to
License Agreement, dated July 1, 1987, Form 10-K (file no. 1-10767) filed
as amended, between the Company, by October 26, 1993, and incorporated
assignment from SSC, and L.F. Widmann, herein by reference.
Inc. re health and beauty aids departments.
10.4.2 Amendment dated September 2, 1993 to Previously filed as Exhibit 10.3.1 to
License Agreement dated July 1, 1987, as Form 10-K (file no. 1-10767) filed
amended, between the Company, by October 26, 1994, and incorporated
assignment from SSC, and L.F. Widmann, herein by reference.
Inc. re health and beauty aids departments.
10.4.3 Amendment dated December 5, 1995 to Previously filed as Exhibit 10.4.3 to
License Agreement dated July 1, 1987, as Form 10-Q (file no. 1-10767) filed
as amended, between the Company by December 12, 1995, and incorporated
assignment from SSC, and herein by reference.
L.F. Widmann, Inc. re health and
beauty aids department.
10.4.4 Letter Agreement dated May 1, 1996, Previously filed as Exhibit 10.4.4 to
between the Company and L.F. Widmann, Form 10-K (file no. 1-10767) filed
Inc. extending the license agreement dated November 1, 1997, and incorporated
July 1, 1987 to June 30, 1997. herein by reference.
10.6 Employment Agreement, dated April 26, Previously filed as Exhibit 10.6 to
1991, between George Iacono and Form S-1 Registration Statement (file no.
the Company. 33-40214) filed April 29, 1991, and
incorporated herein by reference.
</TABLE>
E - 2
<PAGE> 46
<TABLE>
<S> <C> <C>
10.6.1 Agreement, effective as of May 13, 1997
between George Iacono and the Company
re non-renewal of employment contract.
10.7 Form of Indemnification Agreement, Previously filed as Exhibit 10.7 to
dated 1991, between the Company Amendment No. 1 to Form S-1
and its directors and executive officers. Registration Statement (file no. 33-40214)
filed June 6, 1991, and incorporated herein
by reference.
10.8 Form of Company's 1991 Stock Previously filed as Exhibit 10.8 to
Option Plan. Amendment No. 1 to Form S-1
Registration Statement (file no. 33-40214)
filed June 6, 1991, and incorporated herein
by reference.
10.9 Master Store Lease, dated April 25, 1991, Previously filed as Exhibit 10.9 to
between the Company, as lessee, and SSC, Form S-1 Registration Statement (file no.
as lessor, re fourteen stores. 33-40214) filed April 29, 1991, and
incorporated herein by reference.
10.9.1 First Amendment to Master Store Lease, Previously filed as Exhibit 10.9.1 to
dated February 1991, between the Form S-1 Registration Statement (file no.
Company, as lessee, and SSC, 33-47252) filed April 16, 1992, and
as lessor, re fourteen stores. incorporated herein by reference.
10.9.2 Lease Modification Agreement to Master Previously filed as Exhibit 10.9.2 to
Store Lease, dated June 5, 1995, between Form 10-K (file no. 1-10767) filed
the Company, as lessee, and SSC, October 27, 1995, and incorporated
as lessor, re Beckley, West Virginia. herein by reference.
10.9.3 Exercise of the first five-year renewal Previously filed as Exhibit 10.9.3 to
option commencing August 1, 1996 Form 10-Q (file no. 1-10767) filed
under Master Store Lease, dated March 19, 1996, and incorporated
June 5, 1995, as amended, between herein by reference.
the Company, as lessee, and SSC, as
lessor, re fourteen stores.
10.10 Master Warehouse Lease, dated April 25, Previously filed as Exhibit 10.10 to
1991, between the Company, as lessee, Form S-1 Registration Statement (file no.
and SSC, as lessor, re three warehouses, 33-40214) filed April 29, 1991, and
office, and shop locations. incorporated herein by reference.
</TABLE>
E - 3
<PAGE> 47
<TABLE>
<S> <C> <C>
10.10.1 First Amendment to Master Warehouse Previously filed as Exhibit 10.10.1 to
Lease, dated February 1992, between the Form S-1 Registration Statement (file no.
Company, as lessee, and SSC, as lessor, re 33-47252) filed April 16, 1992, and
three warehouse, office, and shop. incorporated herein by reference.
locations.
10.10.2 Second Amendment to Master Warehouse Previously filed as Exhibit 10.10.2 to
Lease, dated June 1993, between the Form 10-K (file no. 1-10767) filed
Company, as lessee, and SSC, as lessor, re October 26, 1993, and incorporated
three warehouse, office, and shop herein by reference.
locations.
10.10.3 Exercise of the first five-year renewal Previously filed as Exhibit 10.10.3 to
option commencing August 1, 1996 Form 10-Q (filed no. 1-10767) filed
under Master Store Lease, dated March 19, 1996, and incorporated
April 25, 1991, as amended, between herein by reference.
the Company, as lessee and SSC, as
lessor, re three warehouse
locations.
10.11 Master Sublease, dated April 25, 1991, Previously filed as Exhibit 10.11 to
between the Company, as sublessee, and Form S-1 Registration Statement (file no.
SSC, as sublessor, re three stores. 33-40214) filed April 29, 1991, and
incorporated herein by reference.
10.12 Sublease, dated April 25, 1991, between Previously filed as Exhibit 10.12 to
the Company, as sublessor, and SSC, as Form S-1 Registration Statement (file no.
sublessee, re one warehouse, with 33-40214) filed April 29, 1991 and
underlying Lease, dated July 15, 1981, incorporated herein by reference.
between SSC, as lessee, and J.A.L. Realty
Co., an affiliate of SSC, as lessor.
10.12.1 Exercise of five-year renewal option Previously filed as Exhibit 10.12.1 to
commencing July 16, 1996 under Form 10-Q (file no. 1-10767) filed
Sublease, dated April 25, 1991 between March 19, 1996, and incorporated
the Company, as sublessee, and SSC, as herein by reference.
sublessor, re 3681 Westerville
Road warehouse.
10.13 Lease, dated July 7, 1987, between the Previously filed as Exhibit 10.13 to
Company, by assignment from SSC, as Amendment No. 1 to Form S-1
</TABLE>
E - 4
<PAGE> 48
<TABLE>
<S> <C> <C>
lessee, and Schottenstein Trustees, an Registration Statement (file no.
affiliate of SSC, as lessor, re one store. 33-40214) filed June 6, 1991, and
incorporated herein by reference.
10.14.1 Lease, dated June 28, 1989, between Previously filed as Exhibit 10.14.1 to
the Company, by assignment from SSC, Form S-1 Registration Statement (file no.
as lessor, re one warehouse. 33-40214) filed April 29, 1991, and
incorporated herein by reference.
10.14.2 Lease, dated October 27, 1989, between Previously filed as Exhibit 10.14.2 to
the Company, by assignment from SSC, Form S-1 Registration Statement (file no.
as lessee, and Southeast Industrial 33-40214) filed April 29, 1991, and
Park Realty Company, an affiliate of incorporated herein by reference.
SSC, as lessor, re one warehouse.
10.14.3 Lease, dated March 7, 1989, between Previously filed as Exhibit 10.14.3 to
the Company, by assignment from SSC, Form S-1 Registration Statement (file no.
as lessee, and Southeast Industrial Park 33-40214) filed April 29, 1991, and
Realty Company, an affiliate of SSC, incorporated herein by reference.
as lessor, re one warehouse.
10.15.1 Sublease, dated April 25, 1991, between Previously filed as Exhibit 10.15.1 to
the Company, as sublessor, and SSC, as Form S-1 Registration Statement (file no.
sublessee, re Baltimore, MD (Eastpoint) 33-40214) filed April 29, 1991, and
furniture store location. incorporated herein by reference.
10.15.2 Sublease, dated April 25, 1991, between Previously filed as Exhibit 10.15.2 to
the Company, as sublessor, and SSC, as Form S-1 Registration Statement (file no.
sublessee, re Baltimore, MD (Westview) 33-40214) filed April 29, 1991, and
furniture store location. incorporated herein by reference.
10.15.3 Sublease, dated April 25, 1991, between Previously filed as Exhibit 10.15.3 to
the Company, as sublessor, and SSC, as Form S-1 Registration Statement (file no.
sublessee, re Lansing, MI furniture 33-40214) filed April 29, 1991, and
store location. incorporated herein by reference.
10.15.4 Sublease, dated April 25, 1991, between Previously filed as Exhibit 10.15.4 to
the Company, as sublessor, and SSC, as Form S-1 Registration Statement (file no.
sublessee, re Louisville, KY (Preston 33-40214) filed April 29, 1991, and
Highway) furniture store location. incorporated herein by reference.
</TABLE>
E - 5
<PAGE> 49
<TABLE>
<S> <C> <C>
10.16 Form of Assignment and Assumption Previously filed as Exhibit 10.16 to
Agreement between the Company, as Form S-1 Registration Statement (file no.
assignee, and SSC, as assignor, re 33-40214) filed April 29, 1991, and
separate assignments of leases incorporated herein by reference.
for 31 stores.
10.17 Form of Restricted Stock Agreement, Previously filed as Exhibit 10.17 to
dated 1991, among SSC, the Amendment No. 1 to Form S-1
Company and certain officers. Registration Statement (file no. 33-40214)
filed June 6, 1991, and incorporated herein
by reference.
10.18 License Agreements, dated April 13, Previously filed as Exhibit 10.18 to
1984, as amended, between the Company, Form S-1 Registration Statement (file no.
by assignment from SSC, and the Valley 33-40214) filed April 29, 1991, and
Fair Corporation for licensed apparel incorporated herein by reference.
departments operated by the Company.
10.19 Lease Agreement, dated as of July 1, Previously filed as Exhibit 10.19 to
1988, between SSC as sublessor and the Form 10-K (file no.1-10767) filed
Company as sublessee, by assignment October 24, 1991, and incorporated
dated April 25, 1991, re Benwood, W.Va. herein by reference.
store location.
10.20 Lease, dated July 2, 1991, between the Previously filed as Exhibit 10.20 to
Company as lessee and Allied Company/ Form 10-K (file no.1-10767) filed
Saul Schottenstein Realty Company October 24, 1991, and incorporated
as lessor re Springfield, Ohio store. herein by reference.
10.20.1 Exercise of the first five-year renewal Previously filed as Exhibit 10.20.1 to
option commencing November 1, 1996 Form 10-Q (file no. 1-10767) filed
under Lease dated July 2, 1991 March 19, 1996, and incorporated
between the Company, as lessee, and herein by reference.
Allied Company/Saul Schottenstein
Realty Company, as lessor, re
Springfield, Ohio store.
10.27 Form of Restricted Stock Agreement, Previously filed as Exhibit 10.27 to
dated 1992, between the Company Amendment No. 1 to Form S-1 Registration
and certain employees Statement (file no. 33-47252) filed April 27,
1992, and incorporated herein by reference.
10.28 The Company's Non-employee Director Previously filed as Exhibit 10.28 to
Stock Option Plan Form 10-K (file no.1-10767) filed
</TABLE>
E - 6
<PAGE> 50
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October 22, 1992, and incorporated
herein by reference.
10.29 Lease, dated September 1, 1992, between Previously filed as Exhibit 10.29 to
the Company, as lessee, and SSC, as Form 10-K (file no.1-10767) filed
lessor, re South Bend, IN store. October 22, 1992, and incorporated
herein by reference.
10.30 Lease, dated January 27, 1992, between Previously filed as Exhibit 10.30 to
the Company, as lessee, and J.A.L. Realty Form 10-K (file no.1-10767) filed
Company, as lessor, as amended on July October 22, 1992, and incorporated
29, 1992, re 3080 Alum Creek warehouse. herein by reference.
10.30.1 Exercise of the first five-year renewal Previously filed as Exhibit 10.30.1 to
option commencing February 1, 1997 Form 10-Q (file no. 1-10767) filed
under lease, dated January 27, 1992, March 19, 1996, and incorporated
as amended, between the Company, as herein by reference.
lessee, and J.A.L. Realty Company, as
lessor, re 3080 Alum Creek warehouse.
10.31 Lease, dated July 29, 1992, between the Previously filed as Exhibit 10.31 to
Company, as lessee, and J.A.L. Realty Form 10-K (file no.1-10767) filed
Company, as lessor, re 3232 Alum Creek October 22, 1992, and incorporated
warehouse. herein by reference.
10.32 License Agreements, dated as of June 1, Previously filed as Exhibit 10.32 to
1992, between the Company, as licensee, Form 10-K (file no.1-10767) filed
and Valley Fair, as licensor, re Linen October 22, 1992, and incorporated
Depts. herein by reference.
10.32.1 Letter Agreement, dated December 18, Previously filed as Exhibit 10.32.1 to
1995, extending License Agreements, Form 10-Q (file no. 1-10767) filed
dated as of June 1, 1992 and as of March 19, 1996, and incorporated
January 12, 1994, between the Company, herein by reference.
as licensee, and Valley Fair Corporation,
as licensor, re Apparel and Linen
Departments and Housewares
Departments, respectively.
10.33 Lease, dated October 26, 1993 between Previously filed as Exhibit 10.33 to
the Company, as lessee, and J.A.L. Realty Form 10-Q (file no. 1-10767) filed
Company, as lessor. re 2560 Valuway, March 14, 1994, and incorporated
</TABLE>
E - 7
<PAGE> 51
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Columbus, OH 43224. herein by reference.
10.33.1 Lease Modification Agreement dated Previously filed as Exhibit 10.33.1 to
June 16, 1995 to Lease, dated October Form 10-K (file no.1-10767) filed
26, 1993, between the Company, as October 27, 1995, and incorporated
lessee, and J.A.L. Realty Company, herein by reference.
as lessor, re 2560 Valuway, Columbus,
Ohio 43224.
10.34 License Agreement dated as of January Previously filed as Exhibit 10.34 to
12, 1994 between the Company, as Form 10-K (file no. 1-10767) filed
licensee, and Valley Fair Corporation, October 26, 1994, and incorporated
as licensor, re Housewares Depts. herein by reference.
10.35 Ground lease, dated April 15, 1994, Previously filed as Exhibit 10.35 to
between the Company, as lessee, and Form 10-K (file no 1-10767) filed
J.A.L. Realty Company, as lessor, re October 26, 1994, and incorporated
19 acres. herein by reference.
10.36 Agreement of Lease dated September 1, Previously filed as Exhibit 10.36 to Form 10-Q
1994, between Company, as tenant, and (file no. 1-10767) filed December 12, 1994,
Jubilee Limited Partnership, as landlord, and incorporated herein by reference.
re Carol Stream, IL store.
10.37 Agreement of Lease, dated March 1, 1994, Previously filed as Exhibit 10.37 to Form 10-Q
between the Company, as tenant, and (file no. 1-10767) filed December 12, 1994,
Jubilee Limited Partnership, as landlord, and incorporated herein by reference.
re Hobart, IN store.
10.38 Agreement of Lease, date February 10, Previously filed as Exhibit 10.38 to Form 10-Q
1995, between the Company, as tenant, (file no. 1-10767) filed March 14, 1995 and
and Jubilee Limited Partnership, as incorporated herein by reference.
landlord, re Gurnee Mills, IL store.
10.39 Agreement of Lease, dated January 13, Previously filed as Exhibit 10.39 to Form 10-Q
1995, between the Company, as tenant, (file no. 1-10767) filed March 14, 1995 and
and Westland Partners, as landlord, re incorporated herein by reference.
Westland, MI store
10.40 Agreement of Lease, dated January 31, Previously filed as Exhibit 10.40 to Form 10-Q
</TABLE>
E - 8
<PAGE> 52
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1995, between the Company, as tenant, (file no. 1-10767) filed March 14, 1995 and
and Taylor Partners, as landlord, re incorporated herein by reference.
Taylor, MI store.
10.41 Sublease, dated December 28, 1994, Previously filed as Exhibit 10.41 to Form 10-Q
between the Company, as subtenant, and (file no. 1-10767) filed March 14, 1995 and
Shonac Corporation, as sublandlord, re incorporated herein by reference.
Alum Creek Drive warehouse space.
10.42 Employment Agreement, dated Previously filed as Exhibit 10.42 to
September 11, 1995, between the Form 10-K (file no. 1-10767) filed
Company and Donald R. Andrus. October 27, 1995, and incorporated
herein by reference.
10.43 Analysis sheet for Lease re Ft. Wayne, Previously filed as Exhibit 10.43 to
Indiana acquired by SSC pursuant to Form 10-K (file no. 1-10767) filed
Assignment and Assumption Agreement October 27, 1995, and incorporated
dated July 21, 1995. herein by reference.
10.44 Merchandise Royalty Agreement, dated Previously filed as Exhibit 10.44 to
July 15, 1995, between American Eagle Form 10-Q (file no. 1-10767) filed
Outfitters, Inc., and the Company December 12, 1995, and incorporated
re American Eagle merchandise sold herein by reference.
to Value City Department Stores, Inc.
10.45 Agreement of Lease, dated April 10, 1995, Previously filed as Exhibit 10.45 to
between the Company as tenant, and Form 10-Q (file no. 1-10767) filed
Independence Limited Liability Company, December 12, 1995, and incorporated
as landlord, re Charlotte, North Carolina herein by reference.
Store.
10.46 Sublease and Occupancy Agreement, Previously filed as Exhibit 10.46 to
dated December 15, 1995, between the Form 10-Q (file no. 1-10767) filed
Company, SSC and SSC dba Value City March 19, 1996, and incorporated
Furniture, re Louisville, Kentucky herein by reference.
(Preston Highway) store.
10.47 Agreement of Lease, dated March 13, Previously filed as Exhibit 10.47 to
1996, between the Company as tenant, Form 10-Q (file no. 1-10767) filed
and Jubilee Limited Partnership, as March 19, 1996, and incorporated
landlord, re Saginaw, Michigan herein by reference.
store.
10.48 Asset Purchase Agreement, dated as of Previously filed as Exhibit 10.48 to
April 24, 1996, between the Company, Form 10-Q (file no. 1-10767) filed
</TABLE>
E - 9
<PAGE> 53
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as buyer and Steinbach Stores, Inc., a June 18, 1996 and incorporated
subsidiary of SSC, as seller, re the herein by reference.
Seaview, Shore Mall, Paramus and
Manalapan, NJ Stores.
10.49 Agreement of lease, dated 1996 Previously filed as Exhibit 10.49 to
between the Company, as tenant, Form 10-K (file no. 1-10767) filed
and SSC, as landlord, re the Melrose November 1, 1997 and incorporated
Park, IL store. herein by reference.
10.50 Agreement of Lease, dated October 4, Previously filed as Exhibit 10.50 to
1996, between the Company, as tenant, Form 10-K (file no. 1-10767) filed
and Hickory Ridge Pavilion, Ltd., as November 1, 1997 and incorporated
landlord, re the Memphis, TN store. herein by reference.
10.51 Asset and Stock Purchase Agreement,
dated as of July 14, 1997, by and among
VCM, LTD., Mazel Stores, Inc., Valley
Fair Corporation L.F. Widmann, Inc. and
Value City Department Stores, Inc.
10.52 Employment Agreement, dated July 15,
1997, between Martin P. Doolan and the
Company.
10.53 Restricted Stock Agreement dated
July 14, 1997 between Martin P. Doolan and the
Company.
16.1 Letter re change in certifying Accountant Previously filed as Exhibit 16.1 to
Form 8-K (file no. 1-10767) filed
May 27, 1997 and incorporated
herein by reference.
21 List of Subsidiaries
23 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
</TABLE>
E - 10
<PAGE> 1
Exhibit 10.6.1
AGREEMENT BETWEEN GEORGE IACONO,
VALUE CITY DEPARTMENT STORES, INC., AND
SCHOTTENSTEIN STORES CORPORATION
The parties to this matter, George Iacono ("Executive") and Value City
Department Stores, Inc., Schottenstein Stores Corporation, their related
enterprises, shareholders, partners, corporations in common control, and
affiliated businesses (collectively referred to as "Employer") agree that:
This Agreement is the product of negotiation and compromise between Executive
and Employer.
Executive has been afforded an adequate opportunity to read and consider the
terms of this Agreement. He has been advised to consult an attorney of his
choosing. He understands and agrees that this Agreement settles, bars and
waives any and all claims that he has or could possibly have against Employer
arising out of or relating to his employment as President and General
Merchandise Manager or removal therefrom.
THEREFORE, Executive and Employer, for the good and valuable consideration
stated below, the sufficiency of which is acknowledged, agree as follows:
1. In exchange for Employer's promises set forth below, Executive, along with
his heirs, estate, successors and assigns, knowingly releases Employer,
completely and forever, from any and all claims, causes of action, charges,
suits, contracts, promises, or demands of any kind, which he may now have,
whether known or unknown, as of the effective date of this Agreement, arising
from or relating to his employment as President and General Merchandise Manager
or removal therefrom.
2. Executive understands that this Agreement covers Employer's officers,
directors, employees, former employees, consultants, independent contractors
and/or agents, whether alleged to have acted in their official capacity or
personally.
3. Executive understands and agrees that this Agreement covers all claims
described in Paragraph 1, including, but not limited to, any alleged violation
of the Civil Rights Act of 1991; Title VII of the Civil Rights Act of 1964, as
amended; the Age Discrimination in Employment Act (ADEA); the Americans With
Disabilities Act (ADA); Ohio's fair employment statute, workers' compensation
statute, and wage/hour statute; and any other federal, state, or local civil,
labor, pension, wage-hour or human rights law, federal or state public policy,
contract law, tort law; any claim arising under the federal or Ohio common law,
including breach of contract, wrongful termination, or intentional or negligent
infliction of emotional
<PAGE> 2
distress; and any claim for attorney's fees. Nothing in this paragraph is
intended to limit Executive's right to file a civil action to enforce the terms
of this Agreement.
4. Executive understands and agrees that he is waiving the right to receive any
monetary awards from any charge or civil action under the federal statutes
listed above.
5. Executive agrees to continue to hold all confidential and/or privileged
information in confidence and to treat it as proprietary to Employer. He
warrants that he has not used or disclosed any confidential and/or privileged
information and that he has not taken or copied any documents that constitute
or contain confidential and/or privileged information. "Confidential and/or
privileged information" includes, but is not limited to, any confidential data,
figures, projections, estimates, pricing data, customer lists, policy and/or
procedure manuals or handbooks, supplier information, tax records, personnel
histories and records, information regarding sales, information regarding
properties, information or advice obtained or discussed with Employer's
attorneys, and any other confidential information regarding the business,
operations, properties or personnel of Employer which were disclosed to or
learned by Executive as a result of his employment. Confidential and/or
privileged information shall not include any information that Executive had in
his possession prior to his employment or which becomes a matter of public
knowledge hereafter through sources independent of Executive.
6. Executive agrees that through and including November 30, 1998, he shall not,
either directly or indirectly, solicit or encourage Employer's employees to
leave their employment; provided, however, that this does not apply to
Executive's immediate family members.
7. Executive agrees that for 18 months (i.e., through November 30, 1998), he
shall not, either directly or indirectly, accept employment with, act as a
consultant to, or otherwise perform services for (which shall be determined
regardless of job title) Employer's competitors Ross Stores, Consolidated
Stores, or T.J. Maxx.
8. Executive agrees that effective May 13, 1997 he will no longer act in the
capacity of President and General Merchandise Manager. He also agrees to submit
his written resignation from Employer's Board of Directors when he signs this
Agreement.
9. Executive understands and agrees that his employment contract with
Schottenstein Stores Corporation dated April 26, 1991 expires effective June 4,
1997, and will not be renewed. Executive agrees that Employer thereafter has no
further obligations or liabilities thereunder, including reimbursement for
living expenses or commuting expenses, or to provide an automobile.
10. 10.1. Executive agrees not to communicate with or give statements or
testimony to any opposing attorney, opposing attorney's representative
(including private investigator), or current or former employee relating to any
matter about which Executive has knowledge or information as a result of his
position with Employer unless compelled to do so by lawfully-served subpoena or
court order. Such matters specifically include, but are not limited to, any
pending or threatened lawsuits or administrative investigations. Executive also
agrees to notify Employer's Chairman immediately if he is contacted by any
third parties or compelled by subpoena or court order to appear and testify,
whichever occurs first.
10.2. Executive agrees not to communicate with or give statements to any
member of the media (print, television or radio), the retail financial
community, or brokerage firm relating to any matter about which Executive has
knowledge or information as a result of his position with Employer, unless the
parties have mutually agreed upon the content of such communication. Such
matters specifically include, but are not limited to, Executive's change of
duties, any business decisions or strategies, pending or threatened lawsuits,
or administrative investigations. Executive also agrees to notify Employer's
Chairman immediately if he is so contacted by the media, a brokerage firm, or
anyone in the retail financial community.
<PAGE> 3
11. Executive agrees to cooperate with Employer during the course of all
matters arising out of Employer's business about which Executive has knowledge
or information. Such matters may include, but are not limited to, search for
documents or information, contacts with vendors, internal investigations,
administrative investigations or proceedings, and lawsuits (including pre-trial
discovery). "Cooperation" includes, but is not limited to, Executive's making
himself available at mutually convenient times for meetings, depositions,
hearings or trials without the need for subpoena.
12. In exchange for Executive's promises contained herein, Employer agrees to
do the following:
12.1. Pay Executive the gross sum of $225,000, less required
deductions, on June 1, 1997 if the seven-day revocation period
has expired or on the day following the seven-day revocation
period (see paragraph 21 below);
12.2. Pay Executive his current salary through June 4, 1997;
12.3. Pay Executive an annual salary of $300,000 through November 30,
1998, less required wage deductions (i.e., 18 months at
$300,000/year = $450,000); and
12.4 Continue Executive's current health care coverage under
Employer's multiple-employer plan (Schottenstein SS-2 Plan)
through November 30, 1998.
13. In exchange for Employer's promise to pay Executive through November 30,
1998, Executive agrees to perform special projects as are mutually agreed upon
by Employer's Chairman (or his designee) and Executive which are consistent
with Executive's skill and experience. Executive shall be reimbursed for
reasonable business expenses incurred in performing such projects upon
submission of expense reports and receipts in accordance with Employer's usual
practice.
14. Executive understands and agrees that he will be 100% vested in all stock
grants as of June 18, 1997. Executive also understands and agrees that the
exercise of any vested stock options shall be governed by Employer's 1991 Stock
Option Plan, which requires, among other things, that such options be exercised
within 30 days after Executive's last day of service (i.e., by December 30,
1998). Executive also understands and agrees that he must satisfy any
outstanding loan(s) owed to Employer related to his restricted stock upon sale
of the same.
15. Executive agrees not to make any disparaging statements about Employer, its
senior management, its buying staff, or its operations to any business, media,
brokerage firm, or the retail financial community.
16. Executive understands that this Agreement is not an admission of any
wrongdoing by Employer. On the contrary, Employer specifically denies any
wrongdoing under any federal, state or local statute, public policy, tort law,
contract law, or common law.
17. This Agreement can only be used as evidence in a subsequent proceeding in
which either party claims that it has been breached.
18. Executive agrees that if any provision of this Agreement is declared
illegal or unenforceable by any court of competent jurisdiction and cannot be
modified to be enforceable, including the general release language, such
provision shall immediately
<PAGE> 4
become null and void, leaving the remainder of this Agreement in full force and
effect. In addition, Executive agrees that he shall not seek, either directly
or indirectly, to have any term of this Agreement held unenforceable, including
the general release language.
19. This Agreement supersedes and replaces any prior agreements, whether
written or oral, between them and contains the complete understanding between
the parties. No promises or agreements shall be binding or shall modify this
understanding unless in writing and signed by both parties.
20. By signing this Agreement, Executive agrees that he had a reasonable
opportunity (at least 21 days) to read and consider its contents. Executive
agrees that if he signs this Agreement before the 21-day period expires, he has
done so voluntarily and knowingly. Further, Executive agrees that he has
carefully read this Agreement and knows its contents, and that he signs it
knowingly and voluntarily, with a full understanding of its terms and
significance, and intending to be bound by its terms.
21. Executive may revoke and cancel this Agreement in writing at any time
within seven days after signing by providing written notification to Employer's
Chairman, at 1800 Moler Road, Columbus, Ohio 43207. For this written revocation
to be effective, Employer must receive it no later than the close of business
on the seventh day after Executive signs this Agreement. If Executive revokes,
this Agreement becomes null and void and Employer shall have no obligations
hereunder. This Agreement shall become fully effective and enforceable after
the seven-day revocation period expires.
22. Executive and Employer agree that the promises made to each other under
this Agreement are made solely in exchange for the other party's promises
herein.
23. If either party signs a facsimile copy of this Agreement, they will
thereafter provide the other party with a conforming original.
24. The validity, construction, and interpretation of this Agreement and the
rights and duties of the parties shall be governed by the laws of the State of
Ohio without regard to any state conflict of law rules.
The parties agree that they have read this Agreement, consisting of five pages,
understand and agree to its terms, and have knowingly and voluntarily signed it
on the dates written below.
_______________________________
GEORGE IACONO / DATE
<PAGE> 5
SCHOTTENSTEIN STORES CORPORATION AND
VALUE CITY DEPARTMENT STORES, INC.
BY:
---------------------------
JAY SCHOTTENSTEIN / DATE
CHAIRMAN
<PAGE> 1
Exhibit 10.51
ASSET AND STOCK PURCHASE AGREEMENT
BY AND AMONG
VCM, LTD.,
MAZEL STORES, INC.,
VALLEY FAIR CORPORATION
L. F. WIDMANN, INC.
and
VALUE CITY DEPARTMENT STORES, INC.
(and certain of its direct and indirect subsidiaries)
TABLE OF CONTENTS
<TABLE>
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SECTION 1 - DEFINITIONS. . . . . . . . . . . . . . . . . . . . .2
1.1 "Assets" . . . . . . . . . . . . . . . . . . . . . . .2
1.2 "Asset Closing Statement". . . . . . . . . . . . . . .2
1.3 "Audited Stock Closing Statement". . . . . . . . . . .2
1.4 "Buyer's Product Liability Obligations". . . . . . . .3
1.5 "Closing". . . . . . . . . . . . . . . . . . . . . . .3
1.6 "Closing Date" . . . . . . . . . . . . . . . . . . . .3
1.7 "Claims" . . . . . . . . . . . . . . . . . . . . . . .3
1.8 "COBRA" . . . . . . . . . . . . . . . . . . . . . . .3
1.9 "Code" . . . . . . . . . . . . . . . . . . . . . . . .3
1.10 "Damages" . . . . . . . . . . . . . . . . . . . . . .3
1.11 "Effective Date" . . . . . . . . . . . . . . . . . . .3
1.12 "ERISA" . . . . . . . . . . . . . . . . . . . . . . .3
1.13 "Excluded Widmann Assets". . . . . . . . . . . . . . .3
1.14 "GAAP" . . . . . . . . . . . . . . . . . . . . . . . .3
1.15 "HBA Inventory". . . . . . . . . . . . . . . . . . . .3
1.17 "Intellectual Property". . . . . . . . . . . . . . . .4
1.18 "Net Book Value of the Assets" . . . . . . . . . . . .4
1.19 "Net Book Value of the Widmann Assets" . . . . . . . .4
1.20 "Other Group Members". . . . . . . . . . . . . . . . .4
1.21 "Plan" or "Plans". . . . . . . . . . . . . . . . . . .4
1.22 "Related Entity" . . . . . . . . . . . . . . . . . . .4
1.23 "Specified Losses" . . . . . . . . . . . . . . . . . .5
1.24 "Stipulated Rate". . . . . . . . . . . . . . . . . . .5
1.25 "Taxes". . . . . . . . . . . . . . . . . . . . . . . .5
</TABLE>
<PAGE> 2
1.26 "Tax Returns". . . . . . . . . . . . . . . . . . . . .5
1.27 "Toys/Sports Department Inventory" . . . . . . . . . .5
1.28 "Toy/Sports License Agreement" . . . . . . . . . . . .5
1.29 "Trade Secrets". . . . . . . . . . . . . . . . . . . .5
1.30 "Valley Fair Stores" . . . . . . . . . . . . . . . . .6
1.31 "Valley Fair Store Lease". . . . . . . . . . . . . . .6
1.32 "VCD Employee" . . . . . . . . . . . . . . . . . . . .6
1.33 "VCD's Product Liability Obligations". . . . . . . . .6
1.34 "VCD's Warranty Claims". . . . . . . . . . . . . . . .6
1.35 "VCD Warehouse Facilities" . . . . . . . . . . . . . .6
1.36 "VCD Warehouse Facilities Leases" . . . . . . . . . .6
1.37 "WARN" . . . . . . . . . . . . . . . . . . . . . . . .6
1.38 "Widmann Financial Statements" . . . . . . . . . . . .6
1.39 "Widmann Product Liability Obligations". . . . . . . .7
1.40 "Widmann Stock". . . . . . . . . . . . . . . . . . . .7
1.41 "Widmann Warehouse Facility" . . . . . . . . . . . . .7
1.42 "Widmann Warehouse Facility Lease" . . . . . . . . . .7
1.43 "Widmann Warranty Claims". . . . . . . . . . . . . . .7
SECTION 2 - SALE AND PURCHASE OF ASSETS. . . . . . . . . . . . .7
2.1 Sale of Assets . . . . . . . . . . . . . . . . . . . .7
2.2 Excluded Assets. . . . . . . . . . . . . . . . . . . .7
2.3 Consideration. . . . . . . . . . . . . . . . . . . . .8
2.4 Asset Purchase Price And Payment . . . . . . . . . . .8
(a) Final Asset Purchase Price . . . . . . . . . . .8
(b) Estimated Asset Purchase Price . . . . . . . . .8
(c) Determination of Final Asset Purchase Price. . .8
(d) Settlement of Final Asset Purchase Price . . . 10
2.5 Allocation of Purchase Price . . . . . . . . . . . . 10
2.6 Prorations. . . . . . . . . . . . . . . . . . . . . 10
2.7 Assumption of Liabilities. . . . . . . . . . . . . . 11
2.8 Unassumed Liabilities. . . . . . . . . . . . . . . . 11
2.9 Further Assurances . . . . . . . . . . . . . . . . . 12
SECTION 3 - PURCHASE OF WIDMANN STOCK. . . . . . . . . . . . . 12
3.1 Purchase of Widmann Stock. . . . . . . . . . . . . . 12
3.2 Inventory Taking . . . . . . . . . . . . . . . . . . 12
3.3 . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Stock Purchase Price and Payment . . . . . . . . . . 12
(a) Final Stock Purchase Price . . . . . . . . . . 12
(b) Estimated Stock Purchase Price . . . . . . . . 12
(c) Determination of Final Stock Purchase Price. . 13
(d) Settlement of Purchase Price . . . . . . . . . 14
(e) Purchase Price Adjustment for Specified Losses 14
<PAGE> 3
SECTION 4 - CLOSING DATE AND EFFECTIVE DATE. . . . . . . . . . 16
SECTION 5 - REPRESENTATIONS AND WARRANTIES OF VCD. . . . . . . 16
5.1 Organization, Qualification and Authority of VCD.. . 16
(a) Due Organization and Qualification . . . . . . 17
(b) Power and Authority to Conduct Business. . . . 17
(c) No Defaults or Violations. . . . . . . . . . . 17
(d) Power and Authority to Enter Into Agreements . 17
(e) Due Execution and Enforceability . . . . . . . 18
5.2 Title to Assets; No Claims, Liens, Etc.. . . . . . . 18
5.3 Intellectual Property. . . . . . . . . . . . . . . . 18
5.4 Trade Secrets. . . . . . . . . . . . . . . . . . . . 18
5.5 Contracts. . . . . . . . . . . . . . . . . . . . . . 18
5.6 Toys/Sports Department Inventory . . . . . . . . . . 18
5.7 Product Warranties . . . . . . . . . . . . . . . . . 19
5.8 Tax Returns. . . . . . . . . . . . . . . . . . . . . 19
5.9 Pending Claims, Litigation and Governmental
Proceedings . . . . . . . . . . . . . . . . . . . . 19
5.10 Judgments, Orders and Consent Decrees . . . . . . . 19
5.11 VCD Employees. . . . . . . . . . . . . . . . . . . . 20
5.12 Labor Matters. . . . . . . . . . . . . . . . . . . . 20
5.13 Employee Benefit Plans . . . . . . . . . . . . . . . 20
5.14 Environmental Matters. . . . . . . . . . . . . . . . 20
5.15 OSHA Matters . . . . . . . . . . . . . . . . . . . . 21
5.16 Customer Deposits. . . . . . . . . . . . . . . . . . 21
5.17 Compliance with Laws. . . . . . . . . . . . . . . . 21
5.18 Conduct of Business in Ordinary Course . . . . . . . 21
5.19 Broker's or Finder's Fees. . . . . . . . . . . . . . 21
5.20 Full Disclosure . . . . . . . . . . . . . . . . . . 22
5.21 Duty of VCD to Make Inquiry. . . . . . . . . . . . . 22
SECTION 6 - REPRESENTATIONS AND WARRANTIES OFVALLEY FAIR AND
WIDMANN22
6.1 Organization, Qualification and Authority of Valley Fair
and Widmann . . . . . . . . . . . . . . . . . . . . 22
(a) Due Organization and Qualification of
Valley Fair. . . . . . . . . . . . . . . . . . . . 22
(b) Due Organization and Qualification of Widmann. 22
(c) Power and Authority to Conduct Business. . . . 23
(d) No Defaults or Violations. . . . . . . . . . . 23
(e) Power and Authority to Enter Into Agreements . 23
(f) Due Execution and Enforceability . . . . . . . 24
6.2 Capital Structure. . . . . . . . . . . . . . . . . . 24
6.3 Title to Shares and Widmann Assets . . . . . . . . . 24
6.4 Widmann Financial Statements . . . . . . . . . . . . 24
6.5 Intellectual Property. . . . . . . . . . . . . . . . 25
6.6 Trade Secrets. . . . . . . . . . . . . . . . . . . . 25
<PAGE> 4
6.7 Licenses . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Conduct of Business in Ordinary Course . . . . . . . 25
6.9 Environmental Matters. . . . . . . . . . . . . . . . 26
6.10 Taxes. . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 HBA Inventory. . . . . . . . . . . . . . . . . . . . 27
6.12 Product Warranties . . . . . . . . . . . . . . . . . 28
6.13 Real Property. . . . . . . . . . . . . . . . . . . . 28
6.14 Tangible Personal Property . . . . . . . . . . . . . 28
6.15 Other Property . . . . . . . . . . . . . . . . . . . 29
6.16 Banking Facilities . . . . . . . . . . . . . . . . . 29
6.17 Loan Agreements, Etc.. . . . . . . . . . . . . . . . 29
6.18 Other Contracts. . . . . . . . . . . . . . . . . . . 29
6.19 Defaults and Third Party Consents. . . . . . . . . . 30
6.20 Employee Benefit Plans. . . . . . . . . . . . . . . 34
6.21 Insurance. . . . . . . . . . . . . . . . . . . . . . 34
6.22 Pending Claims, Litigation and Governmental
Proceedings . . . . . . . . . . . . . . . . . . . . 34
6.23 Judgments, Orders and Consent Decrees. . . . . . . . 35
6.24 Employment/Labor Matters . . . . . . . . . . . . . . 35
6.25 Customer Deposits. . . . . . . . . . . . . . . . . . 36
6.26 Purchase Orders. . . . . . . . . . . . . . . . . . . 36
6.27 Compliance with Laws . . . . . . . . . . . . . . . . 36
6.28 Broker's or Finder's Fees. . . . . . . . . . . . . . 36
6.29 Full Disclosure. . . . . . . . . . . . . . . . . . . 36
6.30 Duty of Valley Fair to Make Inquiry. . . . . . . . . 36
SECTION 7 - REPRESENTATIONS AND WARRANTIES OF MAZEL. . . . . . 37
7.1 Organization, Qualification and Authority of Mazel . 37
(a) Due Organization and Qualification . . . . . . 37
(b) Power and Authority to Conduct Business. . . . 37
(c) No Defaults or Violations. . . . . . . . . . . 37
(d) Power and Authority to Enter Into Agreements . 37
(e) Due Execution and Enforceability . . . . . . . 38
7.2 Judgments, Orders and Consent Decrees. . . . . . . . 38
7.3 Broker's or Finder's Fees. . . . . . . . . . . . . . 38
7.4 Compliance with Laws . . . . . . . . . . . . . . . . 38
7.5 Full Disclosure. . . . . . . . . . . . . . . . . . . 39
7.6 Duty of Mazel to Make Inquiry. . . . . . . . . . . . 39
SECTION 8 - COVENANTS OF VCD, WIDMANN AND/OR VALLEY FAIR . . . 39
8.1 Conduct and Preservation of Business . . . . . . . . 39
8.2 Injunctions. . . . . . . . . . . . . . . . . . . . . 39
8.3 Conduct Prior to Effective Date. . . . . . . . . . . 40
8.4 Resignations . . . . . . . . . . . . . . . . . . . . 41
8.5 Further Assurances . . . . . . . . . . . . . . . . . 41
<PAGE> 5
SECTION 9 - CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO
CLOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.1 Representations and Warranties True on Effective Date45
9.2 Compliance with Agreement. . . . . . . . . . . . . . 45
9.3 Secretary's Certificate. . . . . . . . . . . . . . . 45
9.4 Compliance Certificate . . . . . . . . . . . . . . . 45
9.5 No Litigation. . . . . . . . . . . . . . . . . . . . 46
9.6 Proceedings and Instruments Satisfactory . . . . . . 46
9.7 Consents and Approvals . . . . . . . . . . . . . . . 46
9.8 Damage or Destruction. . . . . . . . . . . . . . . . 46
9.9 No Material Adverse Change . . . . . . . . . . . . . 46
9.10 Warehouse Arrangements . . . . . . . . . . . . . . . 46
9.11 Injunctions. . . . . . . . . . . . . . . . . . . . . 46
9.12 License Agreements . . . . . . . . . . . . . . . . . 46
9.13 Insurance Arrangements . . . . . . . . . . . . . . . 46
9.14 Valley Fair Store Lease. . . . . . . . . . . . . . . 46
9.15 Dissolution of Widmann . . . . . . . . . . . . . . . 47
9.16 Good Standing Certificates . . . . . . . . . . . . . 47
9.17 Corporate Authority. . . . . . . . . . . . . . . . . 47
SECTION 10 - CONDITIONS PRECEDENT TO VCD'S AND VALLEY FAIR'S
OBLIGATION TO CLOSE. . . . . . . . . . . . . . . . . . . . . . 47
10.1 Representations and Warranties True at the Effective
Date . . . . . . . . . . . . . . . . . . . . . . . . 47
10.2 Compliance With Agreement. . . . . . . . . . . . . . 47
10.3 No Litigation. . . . . . . . . . . . . . . . . . . . 47
10.4 License Agreements . . . . . . . . . . . . . . . . . 47
10.5 Warehouse Arrangements . . . . . . . . . . . . . . . 48
10.6 Insurance Arrangements . . . . . . . . . . . . . . . 48
10.7 Valley Fair Store Lease. . . . . . . . . . . . . . . 48
10.8 Proceedings and Instruments Satisfactory . . . . . . 48
10.9 Consents and Approvals . . . . . . . . . . . . . . . 48
SECTION 11 - FURTHER AGREEMENTS OF THE PARTIES . . . . . . . . 48
11.1 Employees. . . . . . . . . . . . . . . . . . . . . . 48
11.2 Nondisclosure. . . . . . . . . . . . . . . . . . . . 49
SECTION 12 - RISK OF LOSS. . . . . . . . . . . . . . . . . . . 50
12.1 Risk of Loss . . . . . . . . . . . . . . . . . . . . 50
SECTION 13 - TERMINATION AND ABANDONMENT . . . . . . . . . . . 50
13.1 Termination. . . . . . . . . . . . . . . . . . . . . 50
13.2 Notice of Termination. . . . . . . . . . . . . . . . 50
SECTION 14 - INDEMNIFICATION AND REIMBURSEMENT . . . . . . . . 50
14.1 Indemnification by VCD and Valley Fair . . . . . . . 50
<PAGE> 6
14.2 Indemnification by Buyer and Mazel . . . . . . . . . 52
14.3 Claims for Reimbursement . . . . . . . . . . . . . . 53
14.4 Defense of Third-Party Claims. . . . . . . . . . . . 53
14.5 Provisions Regarding Indemnities . . . . . . . . . . 54
(a) Insurance Recoveries . . . . . . . . . . . . . 54
(b) Exclusivity. . . . . . . . . . . . . . . . . . 54
(d) Limitations on Liability . . . . . . . . . . . 54
(e) Waiver of Consequential and Punitive Damages . 55
SECTION 15 - MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . 55
15.1 Costs and Expenses . . . . . . . . . . . . . . . . . 55
15.2 Amendment and Modification . . . . . . . . . . . . . 55
15.3 No Assignment. . . . . . . . . . . . . . . . . . . . 55
15.4 Notices. . . . . . . . . . . . . . . . . . . . . . . 55
15.5 Counterparts . . . . . . . . . . . . . . . . . . . . 57
15.6 Headings . . . . . . . . . . . . . . . . . . . . . . 57
15.7 Recitals, Exhibits and Schedules . . . . . . . . . . 57
15.8 Schedules and Exhibits . . . . . . . . . . . . . . . 57
15.9 Waiver; Remedies . . . . . . . . . . . . . . . . . . 57
15.10 Governing Law . . . . . . . . . . . . . . . . . 57
15.11 Severability. . . . . . . . . . . . . . . . . . 57
15.12 Entire Agreement. . . . . . . . . . . . . . . . 57
<PAGE> 7
ASSET AND STOCK PURCHASE AGREEMENT
THIS AGREEMENT, made and entered into as of the 14th day of July, 1997, by
and among VALUE CITY DEPARTMENT STORES, INC., an Ohio corporation and its
direct and indirect subsidiaries identified on the signature pages herein
(collectively, "VCD"), VALLEY FAIR CORPORATION, a Delaware corporation ("Valley
Fair") (VCD and Valley Fair are sometimes referred to collectively herein as
"Sellers"), L. F. WIDMANN, INC., a Pennsylvania corporation and a wholly-owned
subsidiary of Valley Fair ("Widmann"), VCM, Ltd., an Ohio limited liability
company ("Buyer"), and MAZEL STORES, INC., an Ohio corporation ("Mazel") is to
evidence the following agreements and understandings:
W I T N E S S E T H:
WHEREAS, VCD owns and operates retail department stores specializing in
the sale of retail merchandise consisting in part of certain toys and sporting
goods departments (the "Toys/Sports Departments") located in the VCD department
stores;
WHEREAS, Widmann operates the health and beauty aids departments in the
VCD department stores and the two department stores operated by Valley Fair
(the "HBA Departments") and operates health and beauty aid retail stores at
other locations (the "Non-VCD Stores"), each of which is listed on EXHIBIT "A"
hereof;
WHEREAS, VCD, through its indirect wholly-owned subsidiary, GB Retailers,
Inc., a Delaware corporation, and Mazel, through its indirect wholly-owned
subsidiary, Odd Job Trading Corp., a New York corporation, each own fifty
percent (50%) membership interests in Buyer and have formed Buyer for the
purpose of acquiring and operating the Toys/Sports Departments and acquiring
and operating Widmann;
WHEREAS, Buyer desires to purchase from VCD, and VCD desires to sell to
Buyer, substantially all of the properties, rights and assets of VCD used in
connection with the operation of the Toys/Sports Departments on the terms and
conditions hereinafter set forth;
WHEREAS, Valley Fair owns all of the issued and outstanding shares of
Widmann; and
WHEREAS, Buyer desires to purchase from Valley Fair 100% of the issued and
outstanding capital stock of Widmann.
NOW, THEREFORE, in consideration of the mutual promises made herein and
for other good and valuable consideration, the receipt, adequacy and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1 - DEFINITIONS
<PAGE> 8
Capitalized terms not otherwise defined in this Agreement shall have the
meanings set forth in this Section 1.
1.1 "Assets" means the following assets, rights, interests and properties of
VCD:
(a) All Toys/Sports Department Inventory;
(b) Packaging and labeling material and sales literature relating
exclusively to the Toys/Sports Department Inventory;
(c) All of VCD's Warranty Claims relating exclusively to the Toys/Sports
Department Inventory;
(d) All books, accounts, and records relating exclusively to the
Toys/Sports Department Inventory;
(e) VCD's unfulfilled purchase commitments relating to the Toys/Sports
Department Inventory (the "Purchase Orders") as identified on SCHEDULE 1.1(e)
to be attached at Closing; and
(f) VCD's equipment, machinery, vehicles, leasehold improvements,
warehouse supplies and other fixed assets relating exclusively to the
Toys/Sports Department Inventory as identified on SCHEDULE 1.1(f).
1.2 "Asset Closing Statement" means the portion of the balance sheet of VCD
that pertains to the Assets, as of the Effective Date, prepared by VCD in a
manner consistent with its normal practices for financial accounting purposes.
1.3 "Audited Stock Closing Statement" means the balance sheet of Widmann
reflecting the assets and liabilities of Widmann (excluding the Excluded
Widmann Assets) as of the Effective Date, prepared in accordance with GAAP, and
as audited by Alpern, Rosenthal & Company.
1.4 "Buyer's Product Liability Obligations" means any claims for product
liability (whether for bodily injury or death or property loss or damage or
otherwise) arising from inventory sold by Buyer on or after the Effective Date.
1.5 "Closing" means the Closing defined in Section 4.
1.6 "Closing Date" means the Closing Date defined in Section 4.
1.7 "Claims" means all liens, encumbrances, security interests, mortgages,
charges, equities, interests, options or pledges of every kind, nature and
description.
1.8 "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985.
<PAGE> 9
1.9 "Code" means the Internal Revenue Code of 1986 and any amendments,
predecessor laws, or successor laws.
1.10 "Damages" means all liabilities, deficiencies, losses, costs or expenses,
including, but not limited to, reasonable attorneys' and other professional
fees, costs of litigation, interest and penalties.
1.11 "Effective Date" means the end of August 2, 1997.
1.12 "ERISA" means the Employee Retirement Income Securities Act of 1974, as
amended.
1.13 "Excluded Widmann Assets" means the Widmann Warehouse Facility and the
Valley Fair Stores.
1.14 "GAAP" means generally accepted accounting principles consistently
applied.
1.15 "HBA Inventory" means, collectively, the inventory owned by Widmann and
located in the HBA Departments, the Non-VCD Stores and the Widmann Warehouse
Facility and the replenishment inventory and all related points of sale
inventory, i.e., displays, display headers (on pallets and dies) and components
thereof.
1.16 "HBA License Agreements" means the license agreements by and between Buyer
and VCD and by and between Buyer and Valley Fair with respect to the HBA
Departments in the form attached as SCHEDULE 1.16.
1.17 "Intellectual Property" includes, but is not limited to: all Trade
Secrets, patents, and patent applications, if any, trade names, trademarks,
trade dress, logos and service marks (whether domestic or foreign, registered
or unregistered), and all copyrights (registered or unregistered).
1.18 "Net Book Value of the Assets" means the adjusted book value of the Assets
as of the Effective Date based on the books and records of VCD maintained for
financial accounting purposes, which in the case of Toys/Sports Department
Inventory reflect VCD's normal and customary shrinkage factor of three percent
(3%).
1.19 "Net Book Value of the Widmann Assets" means the adjusted book value of
the Widmann assets, reduced by the liabilities of Widmann, as of the Effective
Date based on the books and records of Widmann maintained for financial
accounting purposes excluding the Excluded Widmann Assets.
1.20 "Other Group Members" has the meaning set forth in Section 6.10(a).
1.21 "Plan" or "Plans" means any: single and/or multi-employer "employee
benefit plan" as defined by Section 3(3) and/or Section 3(37) of ERISA, fringe
benefit plan as defined in Code Section 6039D and any other bonus, incentive
compensation, deferred compensation, profit sharing, stock option, stock
purchase, tax-sheltered annuity, medical reimbursement, stay,
<PAGE> 10
flexible benefit, cafeteria, hospitalization, disability insurance, accident,
workers compensation, accident, savings, severance, supplemental unemployment,
layoff, golden parachute, executive compensation, salary continuation,
retirement, pension, health, life insurance, disability, group insurance,
vacation, holiday, sick leave, fringe benefit or welfare plan, or any other
similar plan, contract, fund, arrangement, program, practice, agreement, policy
or understanding (whether written or oral, formal or informal, qualified or
nonqualified, and whether or not in effect at the Effective Date), and any
trust, escrow, custody or other agreement related thereto, which provides or
provided benefits, or describes policies or procedures applicable to any
officer, employee, agent, representative, service provider, former officer or
former employee or the dependents of any thereof, regardless of whether funded.
1.22 "Related Entity". means any entity required to be aggregated with VCD or
Widmann, as the context requires, under Code Section 414.
1.23 "Specified Losses" means the net losses realized by Buyer within two (2)
years of the Effective Date (based on Buyer's books and records maintained for
financial accounting purposes prepared on a basis consistent with Widmann's
past practices) directly attributable to (i) moving the HBA Inventory from the
Widmann Warehouse Facility to a different warehouse facility, and (ii) closing
any of the Non-VCD Stores, but excluding losses incurred in the operation of a
Non-VCD Store prior to the date of the final determination by Buyer to close
such store. For purposes of calculating the net losses realized by Buyer under
this definition, items of income or loss realized by Buyer from matters not
identified in (i) or (ii) of the preceding sentence shall not be taken into
account.
1.24 "Stipulated Rate" means the rate of interest publicly announced as the
"prime rate" of interest by National City Bank, Cleveland (or its successor)
and will float on a daily basis.
1.25 "Taxes" shall mean any taxes, charges, fees, levies, penalties, or other
assessments imposed by any United States federal, state, local or foreign
taxing authority, including, but not limited to, income, excise, property,
sales, use, gross receipts, transfer, franchise, capital stock, net worth,
equity, payroll, gains, withholding, ad valorem, social security, or other
taxes including any interest, penalties or additions attributable to taxes.
1.26 "Tax Returns". shall mean any return, report or information return
required to be filed with any taxing authority with respect to Taxes.
1.27 "Toys/Sports Department Inventory" means, collectively, the inventory
owned by VCD and located in the Toys/Sports Departments, in lay-away or at the
VCD Warehouse Facilities and the replenishment inventory and all related
point-of-sale inventory, i.e., displays, display headers (on pallets and dies)
and components thereof that relates exclusively to the Toys/Sports Departments,
as and to the extent such inventory is identified on SCHEDULE 1.27.
1.28 "Toy/Sports License Agreement" means the license agreement by and between
Buyer and VCD with respect to the Toys/Sports Departments in the form attached
as SCHEDULE 1.28.
<PAGE> 11
1.29 "Trade Secrets" includes, but is not limited to any confidential computer
software and data bases, records, development data and reports, quality control
specifications, cost analysis, flow charts, process sheets, "know-how",
memoranda, customer lists, vendor lists, or other confidential information
relating to sales, pricing and marketing data and any other confidential
information of like nature.
1.30 "Valley Fair Stores" means the real property currently owned by Widmann
and to be distributed to Valley Fair prior to the Effective Date on which the
three (3) Non-VCD stores identified on SCHEDULE 1.30 operate.
1.31 "Valley Fair Store Lease" means the master store lease in the form
attached as SCHEDULE 1.31, pertaining to the Valley Fair Stores.
1.32 "VCD Employee" means any person employed by VCD pursuant to either a
contractual or at will relationship who works for VCD at the VCD Warehouse
Facilities in connection with the Toys/Sports Department Inventory or is a
buyer with respect to the Toys/Sports Department Inventory.
1.33 "VCD's Product Liability Obligations" means any claims for product
liability (whether for bodily injury or death or property loss or damage or
otherwise) in respect of the Toys/Sports Department Inventory sold by VCD prior
to the Effective Date.
1.34 "VCD's Warranty Claims" means all warranty, indemnification, or other
contract claims of VCD against third parties whether implied, express or
otherwise, or refunds due to VCD from third party manufacturers, vendors, or
carriers arising from or relating to the sale of the Toys/Sports Department
Inventory.
1.35 "VCD Warehouse Facilities" means the warehouse located at 2025 Corvair
Avenue, Columbus, Ohio, leased by VCD and one-half (1/2) of the warehouse
located at 2020 Corvair Avenue, Columbus, Ohio, leased by VCD.
1.36 "VCD Warehouse Facilities Leases" means the two (2) leases in the form
attached as SCHEDULE 1.36 pertaining to the VCD Warehouse Facilities.
1.37 "WARN" means the Worker Adjustment Retraining Notification Act of 1988.
1.38 "Widmann Financial Statements" means the balance sheets of Widmann as of
January 28, 1996 and February 2, 1997, and the related operating statements for
the fiscal years then ended, attached hereto as SCHEDULE 1.38, each audited by
Alpern, Rosenthal & Company as a part of their audit of the consolidated
financial statements of Valley Fair and without a separate audit report for the
Widmann financial statements. Also attached as part of schedule 1.38 is a
statement providing the adjusted cost basis of the Widmann assets for federal
income tax purposes as of February 2, 1997.
1.39 "Widmann Product Liability Obligations" means any claim for product
liability (whether for
<PAGE> 12
bodily injury or death or property loss or damage or otherwise) in respect of
the HBA Inventory sold by Widmann prior to the Effective Date.
1.40 "Widmann Stock" means all of the capital stock of Widmann consisting of 51
shares of common stock, $2121.50 par value per share, all of which 51 shares
are issued and outstanding.
1.41 "Widmann Warehouse Facility" means the warehouse located at Clinton County
Industrial Park, McElhattan, Pennsylvania currently owned by Widmann but to be
distributed to Valley Fair prior to the Effective Date.
1.42 "Widmann Warehouse Facility Lease" means the one (1) lease in the form
attached as SCHEDULE 1.42.
1.43 "Widmann Warranty Claims" means all warranty, indemnification, or other
contact claims of Widmann against third parties whether implied, express or
otherwise, or refunds due to Widmann from third party manufacturers, vendors,
carriers or utilities arising from or relating to the sale of HBA Inventory.
SECTION 2 - SALE AND PURCHASE OF ASSETS
2.1 Sale of Assets. Subject to the terms and conditions of this Agreement, VCD
agrees to sell, transfer, assign, grant, set-over and deliver the Assets to
Buyer, free and clear of all Claims of title to the Assets excepting only the
Excluded Assets (as defined in Section 2.2).
The Assets of VCD constituting tangible personal property shall be
conveyed to Buyer by execution and delivery of a General Assignment and Bill of
Sale in the form attached hereto as EXHIBIT "B".
2.2 Excluded Assets. Buyer shall not purchase or acquire hereunder any right,
title or interest in or to any of the properties, rights or assets of VCD not
described in Section 2.1 hereof (collectively, the "Excluded Assets"). Such
Excluded Assets include, but are not limited to (a) any right, title, interest,
liability or obligation of VCD or of any Related Entity under any Plans adopted
by VCD or by any Related Entity in favor of the employees of VCD or of any
Related Entity, or under any trust agreement, escrow or custody arrangement
related to any Plan, (b) VCD's franchise to be a corporation and its articles
of incorporation, corporate seal, minute books, stock books and other corporate
records pertaining to its corporate existence and (c) any Intellectual Property
owned by VCD.
2.3 Consideration. Upon the terms and subject to the conditions set forth in
this Agreement and in consideration for the Assets, Buyer shall pay and remit
to VCD the Final Asset Purchase Price (as defined in Section 2.4 hereof) in the
manner described in Section 2.4 hereof.
2.4 Asset Purchase Price And Payment.
(a) Final Asset Purchase Price. The aggregate purchase price payable to
VCD for the Assets
<PAGE> 13
(the "Final Asset Purchase Price") will be an amount equal to the Net Book
Value of the Assets as shown on the books and records of VCD as determined
pursuant to Section 2.4(c), plus or minus the proration adjustments described
in Section 2.6.
(b) Estimated Asset Purchase Price. The amount payable to VCD at Closing
("Estimated Asset Purchase Price") shall be based on the "Estimated Asset
Closing Statement" provided to Buyer on the Closing Date, which presents VCD's
best estimate of the Net Book Value of the Assets on the Effective Date, plus
or minus the proration adjustments described in Section 2.6. The Estimated
Asset Purchase Price reduced by (in order to reflect that such amount is being
paid prior to the Effective Date) interest thereon at the Stipulated Rate
calculated from the Closing Date through the Effective Date shall be paid by
wire transfer of immediately available funds to an account designated by VCD
pursuant to wire transfer instructions that VCD will deliver to Buyer not less
than two (2) business days prior to the Closing Date.
(c) Determination of Final Asset Purchase Price.
(i) VCD shall, on or before the forty-fifth (45th) day following the
Closing Date, cause to be prepared and delivered to Buyer, at Buyer's expense,
the Asset Closing Statement reflecting VCD's determination of the Net Book
Value of the Assets and a statement providing the adjusted cost basis of the
Assets for federal income tax purposes as of the Effective Date. Buyer shall be
entitled to inspect and review the work papers, other materials, reporting
methodologies, and reporting systems used by VCD to prepare the Asset Closing
Statement. Buyer shall also be entitled to conduct due diligence, which may
include physical inspections and pricing checks at the Toys/Sports Departments
and the VCD Warehouse to ensure that the Asset Closing Statement accurately
reflects the Net Book Value of the Assets. The Asset Closing Statement shall be
accompanied by a schedule showing, in reasonable detail, the manner and method
in which VCD made its determination of the Net Book Value of the Assets. If
after such review Buyer does not object to the amounts reflected on the Asset
Closing Statement, the Net Book Value of the Assets shall be based on such
statement for purposes of determining the Final Asset Purchase Price.
(ii) If Buyer has any objection to any amounts reflected on the Asset
Closing Statement, Buyer shall so notify VCD in writing, within thirty (30)
days after its receipt of the Asset Closing Statement, specifying its
objections in reasonable detail. Buyer and VCD shall attempt to resolve any
disputed amounts. If they are unable to reach a resolution within thirty (30)
days of written notice of objection to VCD, then the disputed items shall be
resolved as provided in Section 2.4(c)(iii).
(iii) VCD and Buyer shall submit the remaining disputed items to
mediation in accordance with the Commercial Mediation Rules of the American
Arbitration Association (hereinafter the "AAA"), using a mutually agreed upon
neutral Mediator. The locale of such mediation shall be in Columbus, Ohio. If
Buyer and VCD cannot mutually agree upon a Mediator, one will be selected in
accordance with the Rules of the AAA. Any administrative fees that may be
levied by the AAA and the costs of the Mediator shall be borne equally by Buyer
and VCD. Each party shall bear its own costs and attorneys fees. The parties
may, by
<PAGE> 14
written agreement, forego mediation. If they are unable to reach a resolution
through mediation, the items remaining in dispute shall be submitted for
resolution to the accounting firm of Arthur Anderson or another national
certified public accounting firm reasonably satisfactory to Buyer and VCD (the
"Deciding CPA's"). The Deciding CPA's shall be instructed by VCD and Buyer to
determine and report to the parties within twenty (20) business days after
submission of such remaining disputed items (or as soon thereafter as the
Deciding CPA's deem practicable), and such report shall be final, binding and
conclusive on the parties hereto. The fees and disbursements of the Deciding
CPA's shall be allocated between VCD and Buyer in the same proportion that the
aggregate amount of the disputed amounts, as finally determined by the Deciding
CPA's, bears to the total sum of disputed amounts. The Deciding CPA's shall
have no right, authority or discretion to employ any accounting standard or
principles except for those used by VCD in accordance with GAAP.
(d) Settlement of Final Asset Purchase Price. To the extent that the Final
Asset Purchase Price, as finally determined pursuant to Section 2.4(c), is
greater or less than the Estimated Asset Purchase Price (such excess or
deficiency being hereinafter referred to as the "Adjustment"), not later than
the third (3rd) business day following the date upon which the Final Asset
Purchase Price is finally determined, Buyer shall pay to VCD (if the Final
Asset Purchase Price is greater than the Estimated Asset Purchase Price) or VCD
shall pay to Buyer (if the Final Asset Purchase Price is less than the
Estimated Asset Purchase Price), by certified check or by wire transfer of
immediately available federal funds pursuant to wire transfer instructions
received at least two (2) days prior to the date of payment, the amount of the
Adjustment plus interest thereon at the Stipulated Rate calculated from the
Effective Date to the date of payment of such amounts.
2.5 Allocation of Purchase Price. The Final Asset Purchase Price represents the
amount agreed upon by the parties to be the fair market value of the Assets.
The Final Asset Purchase Price shall be allocated for income tax purposes among
the Assets in accordance with the amounts ultimately agreed upon by the parties
for each class of Assets as determined pursuant to Section 2.4 above, which
allocation shall be consistent with Code Section 1060 ("Purchase Price
Allocation"). Each of the parties hereby covenants and agrees that it will not
take a position on any federal, state or local tax return, before any
governmental agency charged with the collection of any tax, or in any judicial
proceeding that is in any way inconsistent with the Purchase Price Allocation
and will cooperate with one another in the timely filing consistent with such
Purchase Price Allocation on Form 8594 with the Internal Revenue Service.
2.6 Prorations. The following items shall be prorated as of the Effective Date
to the extent that VCD has paid for such items for any period after the
Effective Date or Buyer will be required to pay such items for any period prior
to the Effective Date:
(a) Personal property taxes and other taxes with respect to the Assets;
(b) amounts payable by VCD or Buyer in respect of the use and occupancy of
the VCD Warehouse Facilities ; and
(c) any other item that may be mutually agreed to by the parties.
<PAGE> 15
Any net amount owed hereunder shall be paid within thirty (30) days
following the Closing Date by the party owing such amount.
2.7 Assumption of Liabilities.
Buyer and VCD agree that Buyer is assuming and accepting any debts,
liabilities or obligations of VCD, contingent or non-contingent, liquidated or
unliquidated, asserted or unasserted under the Purchase Orders and Buyer's
Product Liability Obligations (collectively, the "VCD Assumed Liabilities").
2.8 Unassumed Liabilities. Other than the VCD Assumed Liabilities and Buyer's
obligations prescribed in the VCD Warehouse Facilities Leases, the Toy/Sports
License Agreement, and the HBA License Agreements, Buyer shall not assume or be
liable to VCD or any other person or entity for or in respect of any debts,
liabilities and obligations of VCD whatsoever, including but not limited to,
the following debts, liabilities and obligations of VCD:
(a) Any debt, liability or obligation of VCD to taxing or other
governmental authorities for any foreign or domestic, federal, state or local
income taxes or similar taxes based upon the income of VCD;
(b) Any debt, liability or obligation of VCD with respect to any event
that shall have occurred on or prior to the Effective Date whether or not such
event and the liability relating thereto is insured against under any of the
coverages under the insurance policies and/or self-insurance programs of VCD;
(c) VCD's Product Liability Obligations;
(d) Any debt, liability or obligation of VCD under or in respect of any
compensation or benefit plan, policy or arrangement in favor of the employees
of VCD;
(e) Any debt, liability or obligation of VCD to any of its shareholders,
directors, officers or employees arising out of the transactions contemplated
hereby, including, without limitation, any liability for severance or
termination pay; or
(f) Any debt, liability, cost, contribution, or obligation of VCD or of
any Related Entity arising from or relating to, directly or indirectly, any
Plan of VCD or of any Related Entity, including, but not limited to, excise
taxes, interest, and penalties, and whether to current or former employees,
retired employees, alternative payees under qualified domestic relations
orders, any eligible participants, or the beneficiaries of any such party or
parties, to the Internal Revenue Service, Department of Labor, Pension Benefit
Guaranty Corporation or other government agency, to any multi-employer plan or
fund or to any other party, and Buyer shall not be a successor employer under
any such Plan.
2.9 Further Assurances. VCD, from time to time after the Closing Date, at
Buyer's request and expense, shall execute, acknowledge and deliver to Buyer
such other instruments of conveyance
<PAGE> 16
and transfer and shall take such other actions and execute and deliver such
other documents, certificates and further assurances as Buyer may reasonable
require to vest more effectively in Buyer or to put Buyer more fully in
possession of, any of the Assets.
SECTION 3 - PURCHASE OF WIDMANN STOCK
3.1 Purchase of Widmann Stock. Pursuant to the terms and provisions of this
Agreement and subject to the conditions hereinafter set forth, on the Closing
Date, Buyer shall purchase from Valley Fair, and Valley Fair shall sell,
assign, tender and deliver to Buyer all of the issued and outstanding Widmann
Stock free and clear of all Claims thereon.
3.2 Inventory Taking. Preceding the Effective Date, a "wall-to-wall" physical
inventory of the HBA Inventory to be purchased on such date will be conducted
at the HBA Warehouse Facility, the HBA Departments and the Non-VCD Stores by a
third party selected by Valley Fair and by Mazel. Buyer will pay the expense of
such inventory taking. In order to facilitate the taking of the "wall-to-wall"
physical inventory, no HBA Inventory shall be shipped and no goods or materials
shall be received during the taking of such physical inventory. Representatives
of Mazel and Valley Fair shall be entitled to participate at their respective
cost and expense in the observation of the taking of the physical inventory.
3.3 Stock Purchase Price and Payment.
(a) Final Stock Purchase Price. The aggregate purchase price payable to
Valley Fair for the Widmann Stock (the "Final Stock Purchase Price") will be an
amount equal to the Net Book Value of the Widmann Assets as shown on the books
and records of Widmann as determined pursuant to Section 3.3(c).
(b) Estimated Stock Purchase Price. The amount payable to Valley Fair at
Closing ("Estimated Stock Purchase Price") shall be based on an estimated stock
closing statement provided to Buyer on the Closing Date, which presents Valley
Fair's best estimate of the Net Book Value of the Widmann Assets. The Estimated
Stock Purchase Price reduced by (in order to reflect that such amount is being
paid prior to the Effective Date) interest thereon at the Stipulated Rate
calculated from the Closing Date through the Effective Date shall be paid by
wire transfer of immediately available funds to an account designated by Valley
Fair pursuant to wire transfer instructions that Valley Fair will deliver to
Buyer not less than two (2) business days prior to the Closing Date.
(c) Determination of Final Stock Purchase Price.
(i) Valley Fair shall, on or before the forty-fifth (45th) day
following the Closing Date, cause to be prepared and delivered to Buyer, at
Buyer's expense, the Audited Stock Closing Statement reflecting Valley Fair's
accountant's determination of the Net Book Value of the Widmann Assets and a
statement providing the adjusted cost basis of the Widmann assets for federal
income tax purposes as of the Effective Date. Buyer (or its accountants) shall
be entitled to inspect and review the work papers, other materials, reporting
methodologies, and reporting
<PAGE> 17
systems used by Valley Fair and its accountants to prepare the Audited Stock
Closing Statement. Buyer shall also be entitled to conduct due diligence, which
may include physical inspections and pricing checks at the HBA Departments,
Non-VCD Stores, and the Widmann Warehouse Facility to ensure that the Audited
Stock Closing Statement accurately reflects the Net Book Value of the Widmann
Assets. If Mazel does not object to the amounts reflected on the Audited Stock
Closing Statement, the Net Book Value of the Widmann Assets shall be based on
such statement for purposes of determining the Final Stock Purchase Price.
(ii) If Buyer has any objection to any amounts reflected on the
Audited Stock Closing Statement, Buyer shall so notify Valley Fair in writing,
within thirty (30) days after its receipt of the Audited Stock Closing
Statement, specifying its objections in reasonable detail. Buyer and Valley
Fair shall attempt to resolve any disputed amounts. If they are unable to reach
a resolution within thirty (30) days of written notice of objection to Valley
Fair, then the disputed items shall be resolved as provided in Section
3.3(c)(iii).
(iii) Valley Fair and Buyer shall submit the remaining disputed items
to mediation in accordance with the Commercial Mediation Rules of the American
Arbitration Association (hereinafter the "AAA"), using a mutually agreed upon
neutral Mediator. The locale of such mediation shall be in Columbus, Ohio. If
Buyer and Valley Fair cannot mutually agree upon a Mediator, one will be
selected in accordance with the Rules of the AAA. Any administrative fees that
may be levied by the AAA and the costs of the Mediator shall be borne equally
by Buyer and Valley Fair. Each party shall bear its own costs and attorneys
fees. The parties may, by written agreement, forego mediation. If they are
unable to reach a resolution through mediation, the items remaining in dispute
shall be submitted for resolution to the accounting firm of Arthur Anderson or
another national certified public accounting firm reasonably satisfactory to
Buyer and Valley Fair (the "Deciding CPA's"). The Deciding CPA's shall be
instructed by Valley Fair and Buyer to determine and report to the parties
within twenty (20) business days after submission of such remaining disputed
items (or as soon thereafter as the Deciding CPA's deem practicable), and such
report shall be final, binding and conclusive on the parties hereto. The fees
and disbursements of the Deciding CPA's shall be allocated between Valley Fair
and Buyer in the same proportion that the aggregate amount of the disputed
amounts, as finally determined by the Deciding CPA's, bears to the total sum of
disputed amounts. The Deciding CPA's shall have no right, authority or
discretion to employ any accounting standard or principles except for those
used by Widmann in accordance with GAAP.
(d) Settlement of Purchase Price. To the extent that the Final Stock
Purchase Price, as finally determined pursuant to Section 3.3(c), is greater or
less than the Estimated Stock Purchase Price (such excess or deficiency being
hereinafter referred to as the "Adjustment"), not later than the third (3rd)
business day following the date upon which the Final Stock Purchase Price is
finally determined, Buyer shall pay to Valley Fair (if the Final Stock Purchase
Price is greater than the Estimated Stock Purchase Price) or Valley Fair shall
pay to Buyer (if the Final Stock Purchase Price is less than the Estimated
Stock Purchase Price), by certified check or by wire transfer of immediately
available federal funds pursuant to wire transfer instructions received at
least two (2) days prior to the date of payment, the amount of the Adjustment
plus interest thereon at the Stipulated Rate calculated from the Effective Date
to the date of payment of such amounts.
<PAGE> 18
(e) Purchase Price Adjustment for Specified Losses.
(i) Buyer shall cause to be prepared and delivered to Valley Fair, at
Buyer's expense, two statements, one for each fiscal year following the
Effective Date (the "Specified Losses Statements"), showing in detail the
computation of the amount of the Specified Losses actually realized during each
of the twelve fiscal month periods ending nearest to the first two
anniversaries of the Effective Date. Valley Fair (or its accountants) shall be
entitled to inspect and review the work papers, other materials, reporting
methodologies, and reporting systems used by Buyer to prepare each Specified
Losses Statement. Valley Fair shall also be entitled to conduct due diligence,
which may include physical inspections and pricing checks at the HBA
Departments, Non-VCD Stores, and the Widmann Warehouse Facility to ensure that
each Specified Losses Statement accurately reflects the Specified Losses for
the period. If Valley Fair does not object to the amounts reflected on a
Specified Losses Statement, the Specified Losses for that period shall be as
set forth in the Specified Losses Statement. However, if Valley Fair has any
objection to any amounts reflected on a Specified Losses Statement, Valley Fair
shall so notify Buyer in writing within thirty (30) days after its receipt of
the Specified Losses Statement, specifying its objections in reasonable detail.
Buyer and Valley Fair shall attempt to resolve any disputed amounts. If they
are unable to reach a resolution within thirty (30) days of written notice of
objection to Buyer, then the disputed items shall be resolved as provided in
Section 3.3(e)(ii).
(ii) Valley Fair and Buyer shall submit the remaining disputed items
to mediation in accordance with the Commercial Mediation Rules of the American
Arbitration Association (hereinafter the "AAA"), using a mutually agreed upon
neutral Mediator. The locale of such mediation shall be in Columbus, Ohio. If
Buyer and Valley Fair cannot mutually agree upon a Mediator, one will be
selected in accordance with the Rules of the AAA. Any administrative fees that
may be levied by the AAA and the costs of the Mediator shall be borne equally
by Buyer and Valley Fair. Each party shall bear its own costs and attorneys
fees. The parties may, by written agreement, forego mediation. If they are
unable to reach a resolution through mediation, the items remaining in dispute
shall be submitted for resolution to the accounting firm of Arthur Anderson or
another national certified public accounting firm reasonably satisfactory to
Buyer and Valley Fair (the "Deciding CPA's"). The Deciding CPA's shall be
instructed by Valley Fair and Buyer to determine and report to the parties
within twenty (20) business days after submission of such remaining disputed
items (or as soon thereafter as the Deciding CPA's deem practicable), and such
report shall be final, binding and conclusive on the parties hereto. The fees
and disbursements of the Deciding CPA's shall be allocated between Valley Fair
and Buyer in the same proportion that the aggregate amount of the disputed
amounts, as finally determined by the Deciding CPA's, bears to the total sum of
disputed amounts. The Deciding CPA's shall have no right, authority or
discretion to employ any accounting standard or principles except for those
used by Widmann in accordance with GAAP.
(iii) Upon the final determination of the Specified Losses, if any,
for each one of the two fiscal years, Valley Fair shall refund the portion of
the Final Stock Purchase Price equal to (i) one-third of the cumulative total
Specified Losses for both years that are less than or equal to Six Million
Dollars ($6,000,000), plus (ii) the amount of the cumulative total Specified
Losses for
<PAGE> 19
both years in excess of Six Million Dollars ($6,000,000). Additionally, the
license fee provided under the Toys/Sports License Agreement shall be reduced
from 11% of net sales to 10% of net sales (as defined in the Toys/Sports
License Agreement) until the time that the cumulative amount of the 1%
reductions equal the amount of the Specified Losses not otherwise refunded to
Buyer under the above provisions of this Section 3.3(e) (which amount will not
exceed Four Million Dollars ($4,000,000)).
SECTION 4 - CLOSING DATE AND EFFECTIVE DATE
The transactions contemplated by this Agreement shall be deemed to have
occurred simultaneously and shall be effective as of the end of August 2, 1997
unless otherwise agreed to by the parties hereto. The Closing will occur at the
offices of Porter, Wright, Morris & Arthur, 41 South High Street, Columbus,
Ohio on or before August 1, 1997 (the "Closing Date"). Concurrently with the
Closing, Buyer will deliver to Seller, and Seller will deliver (or cause to be
delivered) to Buyer, those agreements and certificates required to be delivered
hereunder.
SECTION 5 - REPRESENTATIONS AND WARRANTIES OF VCD
In order to induce Buyer to purchase the Assets and perform its other
obligations herein, VCD hereby makes the following representations, warranties
and covenants, each of which shall be true and correct on the date hereof and
shall be true and correct on the Effective Date and which shall survive the
Effective Date to the extent specified in Section 14 herein.
5.1 Organization, Qualification and Authority of VCD.
(a) Due Organization and Qualification. VCD is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio and is qualified to transact business as a foreign corporation in all
jurisdictions where the nature of its business or the ownership, leasing or
operation of VCD's properties or assets requires qualification and where the
failure to so qualify would have a material adverse effect on the business,
results of operations or financial condition of VCD.
(b) Power and Authority to Conduct Business. VCD has the full power and
authority to own or lease its properties and to conduct its business in the
manner and in the places where such property is owned or leased and its
business is conducted by it. VCD possesses all permits and licenses from state,
local, or Federal agencies or subdivisions necessary to operate its business,
all of which are in full force and effect, the absence of which permits and
licenses would have a material adverse effect on the business, results of
operations or financial condition of VCD.
(c) No Defaults or Violations. As of the Effective Date, except as
disclosed in SCHEDULE 5.1(c), the execution and delivery of this Agreement, and
the performance of the obligations by VCD under this Agreement: (i) will not
violate, contravene, be in conflict with, result in a breach of or constitute
(with or without notice or lapse of time or both) a default under or violation
of: (A) any provision of law; (B) any order, rule or regulation of any court,
arbitrator or
<PAGE> 20
other agency of government; (C) any provision of the Articles of Incorporation
or Code of Regulations of VCD; or (D) any lease, indenture, agreement or other
instrument to which VCD, or any of the Assets is or may be bound; (ii) will not
result in the creation or imposition of any Claim of any nature whatsoever upon
the Assets.
(d) Power and Authority to Enter Into Agreements. VCD has the right, power
and authority to enter into and perform its obligations under this Agreement
and the other agreements provided for herein by and on behalf of VCD. No
consent, approval or authorization of, or registration, declaration, or filing
with any court, governmental authority (federal, state or local), collective
bargaining unit, lending institution or other third party is required in
connection with the execution and delivery by VCD of this Agreement or its
performance of, or compliance with, the terms, provisions, and conditions
hereof.
(e) Due Execution and Enforceability. The execution, delivery and
performance of this Agreement and the other agreements provided for herein by
and on behalf of VCD have been duly and validly authorized and approved by the
Board of Directors of VCD. VCD has taken and will take all such other corporate
action as is necessary or required to enter into, execute and deliver this
Agreement and the other agreements provided for herein and to perform its
obligations hereunder and thereunder. This Agreement and the other agreements
provided for herein constitute the valid and legally binding obligations of
VCD, enforceable against VCD in accordance with their respective terms and
conditions (except to the extent the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally or by general equitable principles).
5.2 Title to Assets; No Claims, Liens, Etc. As of the Effective Date, VCD will
have good and marketable title to all of the Assets to be transferred and sold
to Buyer on the Effective Date, free and clear of all Claims whatsoever.
5.3 Intellectual Property. VCD has not received any notification, and has no
knowledge that it has infringed, nor is now infringing, on any trade name,
trademark, service mark or copyright belonging to any other person, firm, or
corporation relating to the Assets. To the knowledge of VCD, it owns or holds
adequate licenses or other rights to use all trademarks, service marks, trade
names, and copyrights necessary for its business as now conducted, and that use
does not, and will not, conflict with, infringe on, or otherwise violate any
rights of others relating to the Assets.
5.4 Trade Secrets. To the knowledge of VCD, it is not using, or in any way
making use of, any Trade Secrets of any third party relating to the Assets in
violation of the rights of any such third party.
5.5 Contracts. Except for this Agreement and as set forth on SCHEDULE 5.5, VCD
is not, and on the Closing Date will not be a party to any contracts or
commitments (whether oral or written), including, without limitation, any
franchise agreement, licensing agreement, sales representative agreement,
distributorship agreement, or employment agreement, that relates exclusively to
the sale of the Toys/Sports Department Inventory.
<PAGE> 21
5.6 Toys/Sports Department Inventory.
(a) To be attached hereto as SCHEDULE 1.27 (which Schedule shall be
separately furnished to Buyer at the same time the Asset Closing Statement is
provided to Buyer pursuant to Section 2.4(c)(i), initialed by the parties
hereto and deemed delivered hereunder) are the stock ledgers prepared under
VCD's customary practices that completely and accurately in all material
respects identify the cost to VCD (computed using the retail method) of all
Toys/Sports Department Inventory owned by VCD on the Effective Date with such
costs adjusted to reflect VCD's normal and customary shrinkage factor of 3%
used for financial accounting purposes in accordance with GAAP.
(b) All of the Toys/Sport Department Inventory is located at the VCD
Warehouse Facilities and/or at the Toys/Sports Departments and/or in transit
between the two and is owned by VCD, and none of such inventory is on
consignment from, or has been consigned to others.
5.7 Product Warranties. Except for any manufacturer's warranties or those
implied by law, there are no outstanding product warranty obligations of VCD,
nor any representations, guarantees or indemnifications given or made by VCD in
connection with the sale of Toys/Sports Department Inventory.
5.8 Tax Returns. VCD has filed with the Internal Revenue Service and with all
other appropriate foreign, federal, state, provincial and local governmental
agencies, and will continue to file through and after the Effective Date, all
personal property tax returns and tax reports required to be filed by VCD in
respect of its ownership of the Assets prior to the Effective Date and has paid
and will pay or continue to pay when due all amounts due in connection
therewith. No claims for assessment or collection of taxes in respect of the
Assets has been asserted against VCD, and VCD does not know of any proposed tax
assessment against or in respect of the Assets. There are no tax liens on the
Assets.
5.9 Pending Claims, Litigation and Governmental Proceedings. Set forth on
SCHEDULE 5.9 is a list and description of each complaint, claim, suit, action,
arbitration or regulatory, administrative, or governmental proceeding or
investigation or any other proceeding or investigation relating to the Assets
filed against or commenced by VCD in the last year. Except as set forth on
SCHEDULE 5.9, no proceeding or investigation is pending or, to the knowledge of
VCD, threatened against VCD which relates to or affects the Assets.
5.10 Judgments, Orders and Consent Decrees. VCD is not subject to any judgment,
ruling, injunction, order, writ or decree of, or agreement with, any court,
arbitrator or regulatory authority limiting, restricting or adversely affecting
the sale by VCD of the Toys/Sports Department Inventory or VCD's ownership of
the Assets.
5.11 VCD Employees. [INTENTIONALLY OMITTED]
5.12 Labor Matters.
<PAGE> 22
(a) VCD acknowledges that Buyer is not assuming any of VCD's obligations
or liabilities relating to or arising from any employment contract, collective
bargaining agreement, Plan or program in favor of VCD's employees, all of which
remain the sole obligation of VCD.
(b) Except as disclosed in SCHEDULE 5.12 to VCD's knowledge, no unions or
other collective bargaining units have been, or are required to be, certified
or recognized by VCD as representing the VCD Employees, and no union organizing
efforts exist with respect to any of the VCD Employees.
(c) Except as disclosed in SCHEDULE 5.12 there are no controversies
pending or, to the best of VCD's knowledge, threatened between VCD and any of
the VCD Employees; and there has not been within the last year, nor was there,
or is there threatened or contemplated, any strike, slowdown, picketing or work
stoppage by any employees against VCD, wherever located, any lockout by VCD of
any of its employees or other occurrence, event or condition of a similar
character affecting or which affected VCD. To the knowledge of VCD, it has
complied in all material respects with all laws relating to the employment of
labor, including, but not limited to, any provisions thereof relating to equal
employment opportunities, civil rights, working conditions, wages, hours,
COBRA, WARN, and the payment of social security and similar taxes, and VCD is
not liable for any arrearage of wages or any taxes or penalties for failure to
comply with any of the foregoing.
5.13 Employee Benefit Plans. VCD and/or any Related Entity will comply with
Code Section 4980B and ERISA Sections 601-609 with respect to matters arising
out of the transactions contemplated by this Agreement.
5.14 Environmental Matters. As relates solely to the operation of the VCD
Warehouse Facilities, to the knowledge of VCD, it is in compliance in all
material respects with all federal, state, and local laws, regulations, and
ordinances relating to the environment or to the discharge of matter into the
air, water, or earth, including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, and
the Resource Conservation and Recovery Act of 1976, as amended. There are no
actions, suits, or proceedings pending or, to the knowledge of VCD, threatened
against VCD in connection with the VCD Warehouse Facilities by or before any
federal, state, or local court or government authority or agency concerning any
non-compliance or alleged non-compliance with any such laws, regulations, and
ordinances in respect of said facility.
5.15 OSHA Matters. As relates solely to the operation of the VCD Warehouse
Facilities, to the knowledge of VCD, it is in compliance in all material
respects with all requirements of the Occupational Safety and Health Act
("OSHA") the regulations promulgated thereunder and the Ohio state, local, and
regional laws relating to employee health, welfare and safety. VCD has not
received any citation from the OSHA, any inspector therefor, or any state,
local or regional agency setting forth any reason for which the VCD Warehouse
Facilities is not in compliance with OSHA, the regulations thereunder, or any
comparable state, local, or regional law.
5.16 Customer Deposits. Except for customer layaway deposits in the ordinary
course of
<PAGE> 23
business, VCD has not received, and will not receive prior to the Closing Date,
any deposits, payments on account or similar payment with respect to the
Toys/Sports Department Inventory, and no such deposits, payments on account or
similar payments are due or owing to VCD.
5.17 Compliance with Laws. To the knowledge of VCD, it has at all times
conducted its business in compliance and in conformity in all material respects
with all applicable federal, state and local laws, statutes and ordinances and
the rules and regulations promulgated thereunder relating to the Assets; and,
to the knowledge of VCD, there are no pending or threatened claims or notices
of violation by VCD of any such laws, statutes, ordinances, rules and
regulations or claims which are likely of assertion relating to the Assets.
5.18 Conduct of Business in Ordinary Course. Except as set forth on SCHEDULE
5.18, since May 3, 1997, the Toys/Sports Departments have been operated in the
usual and ordinary course consistent with past practice and there has not been
any change since May 3, 1997 in the properties, assets, business or condition
of the Toys/Sports Departments, financial or otherwise, that have resulted in
or which might reasonably be expected to result in a material adverse change in
the business, results of operations, or financial condition of the Toys/Sports
Departments taken as a whole.
5.19 Broker's or Finder's Fees. No person or firm other than VCD (and its
directors, officers, employees and independent accountants and attorneys) have
arranged, or participated in arranging, on behalf of VCD, the transactions
provided for herein. There are no broker's or finder's fees to be paid by VCD
and except as described in this Section, VCD has no knowledge of any claim (or
the reasonable basis therefor) for a broker's or finder's fee to be paid by
Buyer in connection with the consummation of the transactions provided for
herein.
5.20 Full Disclosure. No representation or warranty by VCD and Schedule or
Exhibit furnished by VCD to Buyer pursuant to this Agreement omits to state a
material fact necessary to make the representations and warranties of VCD under
this Agreement not misleading.
5.21 Duty of VCD to Make Inquiry. To the extent that any of the representations
and warranties made by VCD in this Agreement are qualified by the knowledge or
belief of VCD, VCD represents and warrants that it has made reasonable inquiry
and investigation concerning the matters to which such representations and
warranties relate, including, without limitation, diligent inquiry of any
relevant management personnel of VCD.
SECTION 6 - REPRESENTATIONS AND WARRANTIES OF
VALLEY FAIR AND WIDMANN
In order to induce Buyer to purchase the Widmann Stock and perform its
other obligations herein, Valley Fair and Widmann, jointly and severally,
hereby make the following representations, warranties and covenants, each of
which shall be true and correct on the date hereof and shall be true and
correct on the Effective Date and which shall survive the Effective Date to the
extent specified in Section 14 herein:
<PAGE> 24
6.1 Organization, Qualification and Authority of Valley Fair and Widmann.
(a) Due Organization and Qualification of Valley Fair. Valley Fair is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and is qualified to transact business as a
foreign corporation in all jurisdictions where the nature of its business or
the ownership, leasing or operation of its properties or assets requires
qualification and where the failure to so qualify would have a material adverse
effect on the business, results of operations or financial condition of Valley
Fair.
(b) Due Organization and Qualification of Widmann. Widmann is a
corporation duly organized, validly existing and in good standing under the
laws of the Commonwealth of Pennsylvania and is qualified to transact business
as a foreign corporation in Ohio and in all jurisdictions where the nature of
its business or the ownership, leasing or operation of its properties or assets
requires qualification and where the failure to so qualify would have a
material adverse effect on the business, results of operations or financial
condition of Widmann.
(c) Power and Authority to Conduct Business. Each of Valley Fair and
Widmann has the full power and authority to own or lease its properties and to
conduct its business in the manner and the places where such property is owned
or leased and the business is conducted by it. Valley Fair and Widmann possess
all material permits and licenses from state, local or Federal agencies or
subdivisions necessary to operate their respective businesses, all of which are
in full force and effect, the absence of which permits and licenses would have
a material adverse effect on the business, results of operations or financial
condition of Widmann.
(d) No Defaults or Violations. As of the Effective Date, except as
disclosed in SCHEDULE 6.1(d), the execution and delivery of this Agreement, and
the performance of the obligations by Valley Fair under this Agreement: (i)
will not violate, contravene, be in conflict with, result in a breach of or
constitute (with or without notice or lapse of time or both) a default or
violation under: (A) any provision of law; (B) any order, rule or regulation of
any court, arbitrator or other agency of government; (C) any provision of the
Articles of Incorporation or By-laws of Valley Fair; or (D) any lease,
indenture, agreement or other instrument to which Valley Fair or Widmann,
respectively, or any of the assets of either of them is or may be bound; and
(ii) will not result in the creation or imposition of any Claim of any nature
whatsoever upon the Widmann Stock.
(e) Power and Authority to Enter Into Agreements. Each of Valley Fair and
Widmann has the right, power and authority to enter into and perform their
respective obligations under this Agreement and the other agreements provided
for herein. No consent, approval or authorization of, or registration,
declaration, or filing with any court, governmental authority (federal, state
or local), collective bargaining unit, lending institution or other third party
is required in connection with the execution and delivery by Valley Fair or
Widmann of this Agreement or their respective performance of, or compliance
with, the terms, provisions, and conditions hereof, except as disclosed in
SCHEDULE 6.1(e)
(f) Due Execution and Enforceability. The execution, delivery and
performance of this
<PAGE> 25
Agreement and the other agreements provided for herein by and on behalf of
Valley Fair and Widmann have been duly and validly authorized and approved by
the Shareholders and Board of Directors of Valley Fair. Valley Fair has taken
and will take all such other corporate action as is necessary or required to
enter into, execute and deliver this Agreement and the other agreements
provided for herein and to perform its obligations hereunder and thereunder.
This Agreement and the other agreements provided for herein constitute the
valid and legally binding obligations of Valley Fair, enforceable against
Valley Fair in accordance with their respective terms and conditions (except to
the extent the same may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditor's rights generally or by general
equitable principles).
6.2 Capital Structure. The authorized capital stock of Widmann consists solely
of 51 shares of common stock, par value $2,121.50 per share. As of the date
hereof, 51 shares of Widmann Stock are issued and outstanding and no shares are
held in treasury. All of the outstanding shares of Widmann Stock are owned by
Valley Fair and are validly issued, fully paid and nonassessable. Except for
this Agreement, there are no outstanding options, warrants or rights to acquire
or other commitments or agreements with respect to, or any outstanding
securities or obligations convertible into, any shares of Widmann Stock or
other securities of Widmann, or any interest therein, nor are there any
obligations to pay any dividend or to make any distribution in respect thereof.
No shares of Widmann Stock are reserved for issuance. There are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting of the Widmann stock. There are no restrictions on the transferability
of the Widmann Stock.
6.3 Title to Shares and Widmann Assets. Valley Fair has good and marketable
title to the Widmann Stock, free and clear of any Claims. At the Closing,
Valley Fair will transfer assign, and deliver good and marketable title to the
Widmann Stock to Buyer, free and clear of any and all Claims whatsoever.
Additionally, at the Closing, Widmann will have good marketable title to all of
its assets, free and clear of all Claims whatsoever other than the Claims shown
on the Audited Stock Closing Statement.
6.4 Widmann Financial Statements. The Widmann Financial Statements fairly
present the financial position of Widmann as of January 28, 1996 and February
2, 1997, and the results of Widmann's operations for the twelve (12) month
periods then ended, all in accordance with GAAP other than the absence of
footnote disclosures. Since February 2, 1997, other than the closing of one
Non-VCD Store and the transactions contemplated herein, there have been no
asset dispositions or obligations incurred by Widmann other than in the
ordinary course.
6.5 Intellectual Property.
(a) Set forth on SCHEDULE 6.5 is a list of all Intellectual Property both
domestic and foreign, owned by Widmann and used in its business at the date
hereof (the "Widmann Intellectual Property"), and indicating any registration
numbers and dates of registration. Except as set forth on SCHEDULE 6.5 hereto,
Widmann owns all right, title and interest in and to the Widmann Intellectual
Property.
<PAGE> 26
(b) Widmann has not received any notification, and has no knowledge that
it has infringed, nor is now infringing, on any trade name, trademark, service
mark or copyright belonging to any other person, firm, or corporation. To the
knowledge of Valley Fair and Widmann, Widmann owns or holds adequate licenses
or other rights to use all trademarks, service marks, trade names, and
copyrights necessary for its business as now conducted, and that use does not,
and will not, conflict with, infringe on, or otherwise violate any rights of
others.
6.6 Trade Secrets. To the knowledge of Valley Fair and Widmann, Widmann does
not use any Trade Secrets in its business operations. To the knowledge of
Valley Fair and Widmann, Widmann is not using, or in any way making use of, any
Trade Secrets of any third party in violation of the rights of any of such
third parties. There are no suits pending or to Widmann's knowledge, threatened
with respect to any Trade Secrets involving Widmann.
6.7 Licenses. Set forth on SCHEDULE 6.7 attached hereto is a list and
description of all licenses of computer programs, software, technology or
similar rights granted to Widmann and used in connection with its business.
6.8 Conduct of Business in Ordinary Course. Except as set forth on SCHEDULE
6.8, since February 2, 1997, Widmann has been operated in the usual and
ordinary course consistent with past practice and there has not been any change
since February 2, 1997 in the properties, assets, business or condition of
Widmann, financial or otherwise, which has resulted in or which might
reasonably be expected to result in a material adverse change in the business,
results of operations, or financial condition of Widmann taken as a whole,
other than ongoing and continuing significant operating losses. Except as set
forth on SCHEDULE 6.8, since February 2, 1997, there has not been (a) any
increase in compensation payable or to become payable by Widmann to its
employees (except in the ordinary course of business and consistent with past
practices) or the adoption of any bonus, pension or other employee benefit plan
or arrangement, (b) any cancellation or waiver of any claims or rights with a
value to Widmann in excess of $100,000, individually or in the aggregate or (c)
any agreements, oral or written, by Widmann to take any action described in
this sentence.
6.9 Environmental Matters. To the knowledge of Valley Fair and Widmann, Widmann
is in compliance in all material respects with all federal, state, and local
laws, regulations, and ordinances relating to the environment or to the
discharge of matter into the air, water, or earth, including, but not limited
to, the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, and the Resource Conservation and Recovery Act of 1976, as
amended. There are no actions, suits, or proceedings pending or, to the
knowledge of Valley Fair or Widmann, threatened against Widmann by or before
any federal, state, or local court or governmental authority or agency
concerning any non-compliance or alleged non-compliance with any such laws,
regulations, and ordinances in respect of Widmann's facilities.
6.10 Taxes.
(a) Except as disclosed on SCHEDULE 6.10(a), Valley Fair, Widmann and any
corporation that is a member of an affiliated group with Valley Fair or Widmann
for federal income tax
<PAGE> 27
purposes under Code Section 1504 or similar provisions of state, local or
foreign law ("Other Group Members") have duly filed with the appropriate
federal, state, local, and foreign taxing authorities all Tax Returns required
to be filed by Valley Fair, Widmann and the Other Group Members on or before
the date hereof, and such tax returns are true, correct and complete in all
material respects and, as of the time of filing, correctly in all material
respects reflected the facts regarding the income, business, activities, status
and other relevant matters of Valley Fair, Widmann and the Other Group Members,
or any other information required to be shown thereon. All monies that Valley
Fair, Widmann and the Other Group Members are required by law to withhold from
employees have been withheld and either timely paid to the proper governmental
authority or set aside in accounts for such purposes and accrued on the books
of Valley Fair, Widmann or the Other Group Members, as the case may be. Valley
Fair, Widmann and the Other Group Members have paid in full on a timely basis
all Taxes due on such Tax Returns or such Taxes that are otherwise due. Except
as disclosed on SCHEDULE 6.10(a), the balance for Taxes on Valley Fair's,
Widmann's and the Other Group Members' most recent balance sheets, for the
payment of all accrued but unpaid Taxes through the date thereof has been
determined in accordance with GAAP.
(b) Except as set forth in SCHEDULE 6.10(b), neither Valley Fair , Widmann
nor the Other Group Members have received any notice of a deficiency or
assessment with respect to Taxes of Valley Fair, Widmann and the Other Group
Members from any federal, state, local, or foreign taxing authority that have
not been fully paid or finally settled, and any such deficiency or assessment
shown on SCHEDULE 6.10(b) is being contested in good faith through appropriate
proceedings described in SCHEDULE 6.10(b). There are no ongoing audits or
examinations of any Tax Return that includes Widmann, Valley Fair or the Other
Group Members and no notice of audit or examination of any such Tax Return has
been received by Valley Fair, Widmann or the Other Group Members; and no issue
has been raised (either in writing or verbally, formally or informally) on
audit or in any other proceeding (and is currently pending) with respect to
Taxes of Valley Fair, Widmann or the Other Group Members by any federal, state,
local, or foreign taxing authority which, if resolved against Widmann, Valley
Fair or the Other Group Members would have a material adverse effect on the
business, results of operations or financial condition of Widmann.
(c) After the date hereof, no election with respect to taxes will be made
by Widmann without the prior written consent of Buyer provided Valley Fair may
make a Code Section 338(h)(10) election and Buyer shall consent to same.
(d) Widmann is not a party to or bound by (nor will Widmann become a party
to or be bound by) any tax-indemnity, tax-sharing, or tax allocation agreement
other than pursuant to rules provided in Treasury Regulations.
6.11 HBA Inventory.
(a) To be attached hereto as SCHEDULE 6.11(a) (which Schedule shall be
separately furnished to Buyer at the same time the Audited Stock Closing
Statement is provided to Buyer pursuant to Section 3.3(c)(i), initialed by the
parties hereto and deemed delivered hereunder) are
<PAGE> 28
the stock ledgers prepared under Widmann's customary practices that in all
material respects identify the cost to Widmann of all HBA Inventory items owned
by Widmann (computed using the retail method for store inventory and the
average cost method for warehouse inventory) on the Effective Date.
(b) Except as described in SCHEDULE 6.11(a), all of the HBA Inventory is
located at the Widmann Warehouse Facility, the HBA Departments, the Non-VCD
Stores, or in transit between any of the foregoing and is owned by Widmann, and
none of such inventory is on consignment from, or has been consigned to others.
6.12 Product Warranties. Except for manufacturer's warranties or warranties
implied by law, there are no outstanding product warranty obligations of
Widmann, nor any representations, guarantees or indemnifications given or made
by Widmann in connection with the sale of HBA Inventory.
6.13 Real Property. Set forth on SCHEDULE 6.13 attached hereto is a list and
brief description of each lease, easement, royalty and other agreement under
which Widmann will be lessee of, or will hold or operate, any real property as
of the Effective Date.
To the knowledge of Widmann, each lease or such similar agreement listed
on SCHEDULE 6.13 is in full force and effect and constitutes a legal, valid and
binding obligation of Widmann, enforceable in accordance with its terms
(subject to bankruptcy, insolvency, fraudulent transfer and other laws of
general applicability affecting creditors' rights generally and to general
principles of equity (whether applied in a proceeding in equity or at law);
there has been no pledge or assignment of Widmann's rights thereunder; all
rents due thereunder have been paid; and Widmann has taken no action, or failed
to take any action, which action or failure would constitute an event of
default (or with notice or lapse of time, or both, would constitute an event of
default) thereunder, except in each case as listed on SCHEDULE 6.13.
6.14 Tangible Personal Property. To be attached hereto as SCHEDULE 6.14 (which
Schedule shall be separately furnished to Buyer on the Closing Date, initialed
by the parties hereto and deemed delivered hereunder) is a list, brief
description, cost and net book value by category of all machinery, equipment
and all other tangible personal property (other than HBA Inventory and items of
tangible personal property not having an individual net book value of more than
$5,000) owned or leased by Widmann on the Effective Date. All such property is
owned or leased by Widmann free and clear of all Claims except as set forth in
the Widmann Financial Statements or in SCHEDULE 6.14. To the knowledge of
Widmann, except as set forth in the Widmann Financial Statements or in SCHEDULE
6.14, all leases pursuant to which it leases personal property are in full
force and effect and constitute legal, valid and binding obligations of
Widmann, enforceable against Widmann, in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, or other similar laws affecting
the enforcement of creditors' rights generally and by general principles of
equity (whether applied in a proceeding in equity or at law).
6.15 Other Property. Widmann owns outright all other properties and assets
(other than leased
<PAGE> 29
assets) shown on Widmann's balance sheet as of February 2, 1997, as being owned
outright, and all such other properties acquired since that date, except, in
either case, as subsequently sold or otherwise disposed of in the ordinary
course of business, and to the knowledge of Widmann, all such other properties
and assets are free and clear of all Claims whatsoever except those described
in the Widmann financial Statements or in SCHEDULE 6.15 hereto.
6.16 Banking Facilities. Attached hereto as SCHEDULE 6.16 is a true and
complete list and brief description of all bank accounts, lock box arrangements
and safety deposit boxes in which Widmann has any interest, with the names of
authorized signatories or persons having access thereto.
6.17 Loan Agreements, Etc. Attached hereto as SCHEDULE 6.17 is a true and
complete list of all instruments, agreements or arrangements pursuant to which
Widmann has borrowed money, incurred any indebtedness or established any line
of credit or guaranteed the payment by any party of any indebtedness which
represents a liability of Widmann's on the date hereof. Widmann has performed
all the obligations required to be performed by it, to date, and, is not in
default in any material respect under any mortgage, indenture, note or other
obligation for, or related to, borrowed money to which Widmann is a party, or
to which any business property or asset of Widmann is subject, and there has
not occurred any event, which, but for the passage of time or giving of notice
or both, would constitute such a default.
6.18 Other Contracts. Attached hereto as SCHEDULE 6.18 is a true, complete and
correct list and brief description of all material contracts, agreements, or
other commitments, whether oral or written, to which Widmann is a party as of
the date hereof. For purposes of this Section 6.18, any routine purchase order
or sales order entered into in the ordinary and regular course of business
which do not involve an amount greater than One Hundred Thousand Dollars
($100,000) shall be deemed not to be a material contract, agreement or other
commitment. Except as described on SCHEDULE 6.18, Widmann is not a party to
any material oral or written (a) contract for the employment of any officer or
employee which is not terminable without premium or penalty on no more than
thirty (30) days' notice; (b) license agreement or distributor, dealer,
manufacturer's representative, sales agency or advertising contract which is
not terminable without premium or penalty on no more than thirty (30) days'
notice; (c) contract for the future purchase of materials, supplies, services,
utilities, merchandise or equipment continuing from the date hereof for a
period of more than six (6) months or involving either truck leases or payments
of more than One Hundred Thousand Dollars ($100,000) over its remaining term
(including periods covered by any option to renew); (d) trade discount, trade
promotion, selling or distribution contract; (e) bonus, deferred compensation,
stock option, severance pay or other such employee agreements other than as
shown on SCHEDULE 6.18; (f) agreement or arrangement for the sale of, or the
grant of any preferential rights to, or requiring the consent of any party to
the transfer and assignment of any of the assets or properties of Widmann,
except in the ordinary and regular course of business; (g) agreement to
indemnify any officer, employee, director or creditor of Widmann or to hold any
of them harmless from any type of liability except as otherwise provided in the
articles of organization of bylaws of Widmann; or (h) any other significant
written or oral contract, or agreement, or instruction of any kind or
character. To the knowledge of Widmann, each of Widmann's material contracts
are valid and binding obligations
<PAGE> 30
of Widmann, are in full force and effect and are enforceable against Widmann,
in accordance with their terms, subject to the bankruptcy, insolvency,
fraudulent transfer, or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether
applied in a proceeding in equity or at law). Except as set forth on SCHEDULE
6.18, there is no pending or, to the knowledge of Widmann, threatened
cancellation or termination of any material contract. Widmann has not
repudiated or waived any provision of any such material contract which
repudiation or waiver would result in a materially adverse effect on the
business, results of operations or financial condition of Widmann taken as a
whole and no third party is in default under any such material contract that
would result in a materially adverse effect on the business, results of
operations or financial conditions of Widmann taken as a whole.
6.19 Defaults and Third Party Consents. Except as otherwise noted in SCHEDULE
6.19, Widmann has not been advised that it is in default on any agreement,
lease, contract, commitment, instrument or obligation to which it is a party.
Except for any consents required for the transactions contemplated by this
Agreement, to the knowledge of Valley Fair and Widmann, there is no condition
constituting a default of any material contract to which it is a party and
there exists no event which, after notice or lapse of time, or both, would
constitute a default by it under any such contract, or would permit
termination, modification, or acceleration against Widmann under any such
contract. Furthermore, to the knowledge of Widmann, no state of facts exists
in connection with any material contract, whether or not a default, which is
reasonably likely to materially adversely affect the business, results of
operations or financial condition of Widmann, taken as a whole.
6.20 Employee Benefit Plans. Except as disclosed on SCHEDULE 6.20, neither
Widmann nor any Related Entity sponsors, maintains, has any obligation to
contribute to, has liability under or is otherwise a party to any Plan or has
acted in such capacity or had such liability in the past. With respect to each
Plan listed on SCHEDULE 6.20 to the extent applicable:
(a) (i) To the best knowledge of Widmann, each such Plan has been
administered, maintained and operated in full compliance with its terms and
with applicable provisions of ERISA, the Code, all requirements, regulations,
rulings and other authority issued thereunder, and all other applicable
governmental laws and regulations, including, without limitation, bonding
requirements, and requirements for the filing of applicable reports, documents,
and notices with the Secretary of Labor and the Secretary of the Treasury, and
for the furnishing of documents to the participants or beneficiaries of each
such Plan; (ii) no notice has been received of the violation of the terms of
any Plan or of any applicable laws, requirements, regulations, rulings or other
authority and (iii) to the best knowledge of Widmann, there is no reason to
believe any action or notice with respect to a violation is forthcoming;
(b) Neither Widmann nor any Related Entity sponsors, maintains, has any
obligation to contribute to, has liability under or is otherwise a party to any
Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Code Section
412, or Title IV of ERISA;
(c) Each such Plan intended to qualify under Code Section 401(a) is
qualified under Code Section 401(a) and is the subject of a favorable unrevoked
determination letter issued by the IRS
<PAGE> 31
as to its qualified status under the Code, and each trust established in
conjunction with each such Plan is exempt from federal income tax under Code
Section 501 (a) and is the subject of a favorable unrevoked determination
letter issued by the IRS as to its exempt status under the Code, which
determination letter may still be relied upon as to such tax qualified and
exempt status, and no circumstances have occurred that would adversely affect
the tax qualified status of any such Plan or the exempt status of any such
trust or which would result in, or be likely to result in, the revocation of
such determination;
(d) There is no suit, action, dispute, claim, arbitration or legal,
administrative or other proceeding or governmental investigation pending or to
the best knowledge of Widmann, threatened, alleging any breach of the terms of
any such Plan or of any fiduciary duties thereunder or violation of any
applicable law with respect to any such Plan, nor any arbitration, proceeding
or investigation;
(e) To the best knowledge of Widmann, Widmann, each Related Entity, each
"party in interest" (as defined in ERISA Section 3(14)), and each "disqualified
person" (as defined in Code Section 4975) or any agent of any such party with
respect to any such Plan has not engaged in a "prohibited transaction" within
the meaning of Code Section 4975 or a violation of ERISA Sections 404, 405, 406
or 407, and no actions have been taken, or have failed to have been taken,
which could subject Widmann, the Plans, any Related Entity, any Plan fiduciary
or administrator, or Buyer, or any agent of any such party to any excise tax,
penalty, claim or liability thereunder for any prohibited transaction, for any
breach of any fiduciary duty or for any other action or failure to act with
respect to a Plan;
(f) Except as disclosed on SCHEDULE 6.20(f), (i) none of such Plans that
are "employee welfare benefit plans" as defined in ERISA Section 3(1) provides
for continuing benefits or coverage for any participant or beneficiary of a
participant after such participant's retirement or termination of employment,
except to the extent required by law; (ii) there has been no violation of Code
Section 4980B or ERISA Sections 601-608 with respect to any such Plan; (iii) no
such Plans are "multiple employer welfare arrangements" within the meaning of
ERISA Section 3 (40); (iv) with respect to any such Plans that are
self-insured, no claims have been made pursuant to any such Plan that have not
yet been paid other than in the normal course of business and to the best
knowledge of Widmann, no injury, sickness or other medical condition has been
incurred with respect to which claims may be made pursuant to any such Plan
(such disclosure to include the amount thereof); (v) Widmann and each Related
Entity do not maintain and do not have any obligation to contribute to any
"voluntary employees' beneficiary association" within the meaning of Code
Section 501(c)(9) or other funding arrangement for the provision of welfare
benefits (such disclosure to include the amount of any such funding); and (vi)
each Plan which is an employee welfare benefit plan as defined in ERISA Section
3(1) is adequately funded through insurance or otherwise, using reasonable
actuarial assumptions, to provide the benefits contemplated thereunder;
(g) Widmann, each Related Entity and each trade or business (whether or
not incorporated) under common control with Widmann or a Related Entity within
the meaning of ERISA Section 4001 (b)(1) has not, and at any time has not had,
any liability or any funding deficiency with
<PAGE> 32
respect to or obligation to contribute to any "multi-employer plan" as defined
in ERISA Section 3(37) or ERISA Section 4001 (a)(3), Widmann, each Related
Entity and each trade or business (whether or not incorporated) under common
control with Widmann or a Related Entity within the meaning of ERISA Section
4001(b)(1) has not at any time withdrawn in any complete or partial withdrawal
from any "multi-employer plan" as defined in ERISA Section 3(37) or ERISA
Section 4001(a)(3) and no event has occurred and there exists no condition or
set of circumstances which presents a risk of the occurrence of the withdrawal
from or the partition, termination, reorganization, or insolvency of any
multi-employer plan which would result in any liability to Buyer with respect
to a multi-employer plan;
(h) With respect to each such Plan, true, correct, and complete copies of
the applicable following documents have been delivered to Buyer: (i) all
current Plan documents and related trust documents, and any amendment thereto;
(ii) Forms 5500, financial statements, annual reports, and actuarial reports
for the last three Plan Years; (iii) the most recently issued IRS determination
letter; and (iv) summary plan description and summary of material
modifications;
(i) Except as listed in SCHEDULE 6.20(i) the consummation of the
transactions contemplated by this Agreement will not: (i) entitle any current
or former employee or officer of Widmann or of any Related Entity to severance
pay or to any other payment, (ii) accelerate the time of payment or vesting, or
increase the amount of compensation due any such employee or officer, or (iii)
directly or indirectly cause Widmann, any Related Entity or Buyer to transfer
or set aside any assets to fund or otherwise provide for benefits for any
current or former employee or officer; and none of the Plans provides benefits
or payments contingent upon, triggered by or increased as a result of a change
in the ownership or effective control of Widmann, or in the ownership of a
substantial portion of its assets (within the meaning of Code Section 280G);
(j) To the best knowledge of Widmann, all benefit payments due from any
Plan or trust established thereunder have been paid through normal
administrative proceedings to the Plan participants or beneficiaries entitled
thereto in accordance with the terms of said Plan and applicable law,
requirements, regulations, rulings, and other authority applicable thereto;
(k) (i) Neither the Plans, Widmann, nor any Related Entity has any
liability to the Department of Labor or to the Internal Revenue Service under
the provisions of ERISA, the Code, or other applicable laws, requirements,
regulations, rulings or other authority, and (ii) to the best knowledge of
Widmann, there are no facts or circumstances which could give rise to any
liability of or claims against the Plans, Widmann, any Related Entity or Buyer
to or by the Department of Labor or the Internal Revenue Service.
(l) All contributions to or benefit payments under the Plans for any
required period have been or will be timely paid by Widmann, the termination of
or withdrawal from any Plan (as a result of the transactions contemplated by
this Agreement and as a result of the terms and conditions of any such Plan)
immediately after the Effective Date will not subject Buyer to any liability,
tax or penalty whatsoever, and the execution or performance of the transactions
contemplated by this Agreement will not create, accelerate or increase any
obligations under any Plan; and
<PAGE> 33
(m) To the best knowledge of Widmann, no representation or communication,
oral or written, with respect to participation, eligibility for benefits,
vesting, benefit accrual or coverage under any Plan has been made to the
employees of Widmann or any Related Entity which are not in accordance with the
terms of the Plan and applicable laws, requirements, regulations, rulings and
other authority applicable thereto.
6.21 Insurance. SCHEDULE 6.21 sets forth all of the insurance policies,
binders, or bonds maintained by or on behalf of Widmann (the "Insurance
Policies"). To the knowledge of Widmann, all of the Insurance Policies are in
full force and effect prior to the Effective Date, neither Valley Fair nor
Widmann is in default thereunder and all claims thereunder have been filed in a
due and timely fashion.
6.22 Pending Claims, Litigation and Governmental Proceedings. Set forth on
SCHEDULE 6.22 is a list and description of each complaint, claim, suit, action,
arbitration or regulatory, administrative, or governmental proceeding or
investigation or any other proceeding or investigation filed against or
commenced by Widmann in the last year. Except as set forth on SCHEDULE 6.22, no
proceeding or investigation is pending or, to the knowledge of Widmann,
threatened against Widmann.
6.23 Judgments, Orders and Consent Decrees. Widmann is not subject to any
judgment, ruling, injunction, order, writ or decree of, or agreement with, any
court, arbitrator or regulatory authority materially limiting, restricting or
adversely affecting the business operations of Widmann.
6.24 Employment/Labor Matters. To Widmann's knowledge, attached hereto as
SCHEDULE 6.24 is a complete current list of the names and addresses of all
sales representatives, employees, agents, independent consultants (excluding
attorneys and accountants), and contractors currently providing services to
Widmann stating the rates of compensation payable to each of them and their
titles or job classifications.
(a) Except as set forth on SCHEDULE 6.24(a), To Widmann's knowledge,
Widmann is in compliance in all material respects with all applicable laws
regarding employment matters, including, without limitation, laws related to
the termination of employment.
(b) Except as disclosed in SCHEDULE 6.24(b), no unions or other collective
bargaining units have been, or are required to be, certified or recognized by
Widmann as representing Widmann's employees, and no union organizing efforts
exist with respect to any employees of Widmann.
(c) Except as disclosed in SCHEDULE 6.24(c), there are no material
controversies pending or, to Valley Fair's knowledge, threatened between
Widmann and any of its employees. To Widmann's knowledge, there has not been
within the last year, nor was there, or is there threatened or contemplated,
any strike, slowdown, picketing or work stoppage by any employees against
Widmann, wherever located, any lockout by Widmann of any of its employees or
any
<PAGE> 34
labor trouble or other occurrence, event or condition of a similar character
affecting or which affect Widmann. To the knowledge of Widmann, it has complied
in all material respects with all laws relating to the employment of labor,
including, but not limited to, any provisions thereof relating to equal
employment opportunities, civil rights, working conditions, wages, hours,
COBRA, WARN, and the payment of social security and similar taxes, and Widmann
is not liable for any arrearage of wages or any taxes or penalties for failure
to comply with any of the foregoing.
6.25 Customer Deposits. Except for customer layaway deposits, Widmann has not
received, and will not receive prior to the Closing Date, any deposits,
payments on account or similar payment with respect to any of its HBA
Inventory, contracts or orders, and no such deposits, payments on account or
similar payments are due or owing to Widmann.
6.26 Purchase Orders. Identified on SCHEDULE 6.26 are all unfulfilled purchase
commitments of Widmann as of the Effective Date (which Schedule shall be
furnished to Buyer on the Closing Date, initialed by the parties hereto and
deemed delivered hereunder).
6.27 Compliance with Laws. To the knowledge of Widmann, it has at all times
conducted its business in compliance and in conformity in all material respects
with all applicable federal, state and local laws, statutes and ordinances and
the rules and regulations promulgated thereunder; and, there are no pending or
threatened claims or notices of violation by Widmann of any such laws,
statutes, ordinances, rules and regulations or claims which are likely of
assertion.
6.28 Broker's or Finder's Fees. No person or firm other than Valley Fair,
Widmann and/or VCD (and their respective directors, officers, employees and
independent accountants and attorneys) have arranged, or participated in
arranging, on behalf of Valley Fair, the transactions provided for herein.
There are no broker's or finder's fees to be paid by Valley Fair, Widmann
and/or VCD, and except as described in this Section, Valley Fair, Widmann
and/or VCD have no knowledge of any claim (or the reasonable basis therefor)
for a broker's or finder's fee to be paid by Buyer in connection with the
consummation of the transactions provided for herein.
6.29 Full Disclosure. No representation or warranty by Valley Fair or Widmann
pursuant to this Agreement omits to state a material fact necessary to make the
representations and warranties of Valley Fair or Widmann under this Agreement
not misleading.
6.30 Duty of Valley Fair to Make Inquiry. To the extent that any of the
representations and warranties made by Valley Fair in this Agreement is
qualified by the knowledge or belief of Valley Fair, Valley Fair represents and
warrants that it has made reasonable inquiry and investigation concerning the
matters to which such representations and warranties relate, including, without
limitation, diligent inquiry of any relevant personnel of Valley Fair or
Widmann.
SECTION 7 - REPRESENTATIONS AND WARRANTIES OF MAZEL
In order to induce VCD to sell the Assets and perform its other
obligations hereunder and in
<PAGE> 35
order to induce Valley Fair to sell the Widmann Stock and perform its other
obligations hereunder, Mazel hereby makes the following representations and
warranties to Sellers, each of which shall be true and correct as of the date
hereof and shall be true and correct on the Effective Date and which shall
survive the Effective Date to the extent specified in Section 14.
7.1
Organization, Qualification and Authority of Mazel
(a) Due Organization and Qualification. Mazel is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio and is qualified to transact business as a foreign corporation in all
jurisdictions where the nature of its business or the ownership, leasing or
operation of Mazel's properties or assets requires qualification.
(b) Power and Authority to Conduct Business. Mazel has the full power and
authority to own or lease its properties and to conduct its business in the
manner and in the places where such property is owned or leased and its
business is conducted by it. Mazel possesses all permits and licenses from
state, local, or Federal agencies or subdivisions necessary to operate its
business, all of which are in full force and effect.
(c) No Defaults or Violations. As of the Effective Date, the execution and
delivery of this Agreement, and the performance of the obligations by Mazel
under this Agreement: (i) will not violate, contravene, be in conflict with,
result in a breach of or constitute (with or without notice or lapse of time or
both) a default under (A) any provision of law; (B) any order, rule or
regulation of any court, arbitrator or other agency of government; (C) any
provision of the Articles of Incorporation or Code of Regulations of Mazel, or
(D) any lease, indenture, agreement or other instrument to which Mazel, or any
of its assets is or may be bound; (ii) will not result in the creation or
imposition of any Claim of any nature whatsoever upon the assets of Mazel or
Buyer.
(d) Power and Authority to Enter Into Agreements. Mazel has the right,
power and authority to enter into and perform its obligations under this
Agreement and the other agreements provided for herein by and on behalf of
Mazel. No consent, approval or authorization of, or registration, declaration,
or filing with any court, governmental authority (federal, state or local),
collective bargaining unit, lending institution or other third party is
required in connection with the execution and delivery by Mazel of this
Agreement or its performance of, or compliance with, the terms, provisions, and
conditions hereof.
(e) Due Execution and Enforceability. The execution, delivery and
performance of this Agreement and the other agreements provided for herein by
and on behalf of Mazel have been duly and validly authorized and approved by
the Board of Directors of Mazel. Mazel has taken and will take all such other
corporate action as is necessary or required to enter into, execute and deliver
this Agreement and the other agreements provided for herein and to perform its
obligations hereunder and thereunder. This Agreement and the other agreements
provided for herein constitute the valid and legally binding obligations of
Mazel, enforceable against Mazel in accordance with their respective terms and
conditions (except to the extent the same may be
<PAGE> 36
limited by bankruptcy; insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally or by general equitable principles).
7.2 Judgments, Orders and Consent Decrees. Mazel is not subject to any
judgment, ruling, injunction, order writ or decree of , or Agreement with, any
court, arbitrator or regulatory authority limiting, restricting or adversely
affecting the performance by Mazel of its obligations under this Agreement and
the other agreements provided for herein.
7.3 Broker's or Finder's Fees. No person or firm other than Mazel and its
affiliated companies (and their respective partners, directors, officers,
employees and independent accountants and attorneys) have arranged or
participated in arranging, on behalf of Mazel or Buyer, the transactions
provided for herein. There are no broker's or finder's fees to be paid by Mazel
or Buyer, and Mazel has no knowledge of any claim (or the reasonable basis
therefor) for a broker's or finder's fee to be paid by Buyer, VCD or Valley
Fair in connection with the consummation of the transactions provided for
herein.
7.4 Compliance with Laws. To the knowledge of Mazel, it has at all times
conducted its business in compliance and in conformity in all material respects
with all applicable federal, state and local laws, statutes and ordinances and
the rules and regulations promulgated thereunder; and, to the knowledge of
Mazel, there are no pending or threatened claims or notices of violation by
Mazel of any such laws, statutes, ordinances, rules and regulations or claims
which are likely of assertion.
7.5 Full Disclosure. No representation or warranty by Mazel pursuant to this
Agreement omits to state a material fact necessary to make the representations
and warranties of Mazel under this Agreement not misleading.
7.6 Duty of Mazel to Make Inquiry. To the extent that any of the
representations and warranties made by Mazel in this Agreement is qualified by
the knowledge or belief of Mazel, Mazel represents and warrants that it has
made reasonable inquiry and investigation concerning the matters to which such
representations and warranties relate, including, without limitation, diligent
inquiry of any relevant personnel of Mazel.
SECTION 8 - COVENANTS OF VCD, WIDMANN AND/OR VALLEY FAIR
8.1 Conduct and Preservation of Business. From and after the date of this
Agreement and until the Effective Date, VCD, Valley Fair, and Widmann each
hereby covenant and agree as follows:
(a) Full Access. Buyer and its authorized representatives shall have full
access during normal business hours, but without unreasonably interrupting
business, to the premises and to all books of account, financial records,
contracts, pricing practices and other business information of VCD, Valley Fair
and/or Widmann and to each of their respective personnel, and each of VCD,
Valley Fair and Widmann shall furnish or cause to be furnished to Buyer and its
authorized representatives all information with respect to the business and
affairs of VCD, Valley Fair and Widmann as Buyer and its authorized
representatives may reasonably request in each case to the
<PAGE> 37
extent that it relates to the Toy/Sports Departments or Widmann.
(b) Compliance with Laws. VCD, Valley Fair and Widmann shall comply in all
material respects with all applicable statutes, laws, ordinances, rules and
regulations as may be required in connection with the maintenance and operation
of the Assets or the operation of the business of Widmann or for the valid and
effective transfer to Buyer of the Assets or the Widmann Stock and the
consummation of the transactions contemplated by this Agreement.
8.2 Injunctions. If any court of competent jurisdiction over VCD, Valley Fair
or Widmann, as the case may be, or the Assets or Widmann Stock, issues or
otherwise promulgates any injunction order or decree that prohibits the sale
of, or otherwise adversely affects the Assets or the Widmann Stock, VCD, Valley
Fair or Widmann, as the case may be, shall use their best efforts to have such
injunction dissolved or otherwise eliminated as promptly as possible or,
alternatively, may terminate this Agreement, without liability to the other
parties..
8.3 Conduct Prior to Effective Date. During the period from the date of this
Agreement to the Effective Date, and except as otherwise contemplated herein,
or consented to by Buyer, Valley Fair shall cause Widmann to use best efforts
to preserve intact its existing organization, properties, businesses and
relations. Without limiting the generality of the foregoing, except as
otherwise contemplated herein or consented to by Buyer, Valley Fair shall cause
Widmann to conduct its business only in the ordinary course and shall not
permit Widmann, to:
(a) issue, sell or deliver any shares of its capital stock or issue or
sell any securities convertible into its capital stock or warrants to purchase
or other rights to subscribe for or acquire any shares of its capital stock;
(b) declare or pay any dividend or distribution in cash or other property,
effect any recapitalization, reclassification, stock dividend, stock split or
like change in capitalization, other than the distribution prior to the Closing
Date to Valley Fair as a dividend of Widmann's entire right and interest in the
Excluded Widmann Assets;
(c) amend its Articles of Incorporation or Bylaws (or similar governing
documents);
(d) merge or consolidate with, acquire the capital stock of, or acquire
substantially all of the assets of any other entity;
(e) sell, transfer, lease, or encumber a material amount of assets, other
than the sale of inventory in the ordinary course;
(f) grant to any officer, employee, or consultant any material increase in
compensation or benefits, except in the ordinary course of business, consistent
with past practice;
(g) grant any severance or termination pay to, or enter into or materially
amend any employment or severance agreement with, any person;
<PAGE> 38
(h) adopt any new or amend any existing Plan;
(i) incur any amount of debt above the amounts currently available to
Widmann and Valley Fair under existing lending arrangements (in this regard,
the parties acknowledge that Widmann will borrow on its bank line to pay
intercompany liabilities to Valley Fair on or prior to the Effective Date);
(j) make any change in the accounting principles or methods from those
currently employed, except as required by GAAP;
(k) grant any mortgage or security interest in, or make any pledge of, or
permit any Claim to be placed on, any of its assets or properties;
(l) make any capital expenditures in excess of $25,000 per project or
$100,000 in the aggregate.
(m) accelerate, terminate or cancel any material contract;
(n) terminate, cancel or fail to renew any insurance coverage maintained
by or for the benefit of Widmann which is not replaced by insurance coverage
that is at least as broad in scope, with limits as high as the limits on the
insurance being replaced, maintained with or provided by reputable insurers,
and deductibles or retentions no higher than those being replaced, or amend any
insurance coverage maintained by or for the benefit of Widmann unless such
amendment enhances, broadens, or increases the limits of such insurance
coverage;
(o) establish any new facilities;
(p) settle or compromise any claims in excess of $50,000 but not in the
aggregate amount of more than $100,000; or
(q) agree to any of the foregoing.
8.4 Resignations. Valley Fair shall cause to be delivered to Buyer at the
Closing duly signed resignations, effective immediately upon the Effective Date
of all directors and officers of Widmann not being retained by Buyer.
8.5 Further Assurances. On and after the Closing, the parties will take all
appropriate action and execute all documents, instruments or conveyances of any
kind which may reasonably be necessary or advisable to carry out any of the
provisions of this Agreement.
8.6 Widmann Tax Covenants.
(a) Valley Fair Consolidated Group. Valley Fair and Buyer agree that
Widmann will be included in the consolidated Federal income tax return filed by
Valley Fair (or Other Group Member) for the period from February 2, 1997,
through the Effective Date and Valley Fair shall
<PAGE> 39
be responsible for making all required payments associated with such return.
(b) Tax Liability Proration.
(i) Valley Fair shall indemnify and hold Buyer harmless against any
and all Taxes of the affiliated group of which Valley Fair and Widmann are
members for federal income tax purposes or similar provision of state, local or
foreign law or of Widmann for any taxable year or period ending on or before
the Effective Date, and Valley Fair shall be entitled to all refunds of such
Taxes. Taxes attributable to intercompany transactions recognized or taken
into account by reason of this sale of Widmann (including restoration of
deferrals) under the provisions of Code Section 1502 or the regulations
thereunder by Valley Fair, Widmann, or any Other Group Member (as defined in
Section 6.10) or any prior consolidated return of them (and similar Taxes under
state and local tax laws), and Taxes attributable to adjustments under Code
Section 481 (or any predecessor Code or similar provisions of other tax laws)
with respect to pre-sale changes of accounting methods shall be treated as
Taxes for a taxable year or period ending on or before the Effective Date.
(ii) Buyer shall indemnify and hold Valley Fair harmless against any and
all Taxes, interest, and penalties due by Widmann or any affiliated group of
which Widmann becomes a member after the Effective Date for any taxable year or
period beginning on or after the Effective Date and Buyer shall be entitled to
all refunds of such Taxes.
(iii) The Taxes of Widmann for a taxable year or period that begins before
and ends after the Effective Date shall be apportioned between Buyer and Valley
Fair, with Buyer responsible for Taxes attributable to the post-sale portion of
such period and Valley Fair responsible for taxes attributable to the pre-sale
portion of such period. The determination of the Taxes attributable to each
portion shall be made by assuming that Widmann had two taxable periods, with
the pre-sale portion representing the first such period and the post-sale
portion representing the second such period. Exemptions, allowances or
deductions that are calculated on an annual basis, such as the deduction for
depreciation, shall be apportioned on a daily basis. If necessary, the actual
tax for such taxable year or period shall be apportioned between the two
portions of such year or period in proportion to the ratio of taxes that would
result for such portions if such portions were separate taxable periods.
(a) Preparation of Tax Returns.
(i) Buyer shall file or cause to be filed when due all returns in
respect of Taxes of Widmann for taxable years or periods ending after the
Effective Date and shall pay or cause to be paid the taxes shown to be due on
any such return. Upon notification and satisfactory documentation from the
Buyer, Valley Fair shall pay to Buyer the Taxes to be paid with such return
that Valley Fair is liable for pursuant to Section 8.6(b) of this Agreement.
(ii) Valley Fair agrees that it shall be responsible for the
preparation of all returns in respect of Taxes for Widmann for taxable years or
periods ending on or before the Effective Date. To the extent that any such
return requires a tax payment, Valley Fair shall deliver such
<PAGE> 40
return to Buyer who will pay or cause to be paid the amount due with the return
and file the return with the proper tax authority. Buyer's responsibility for
the payment of such Taxes shall be limited to amounts as to which Valley Fair
has set up an adequate reserve on the Audited Stock Closing Statement of
Widmann. Buyer also agrees that it will be responsible for payment of all other
Taxes as to which Valley Fair has set up an adequate reserve on the Audited
Stock Closing Statement of Widmann. To the extent any Taxes payable hereunder
by Buyer exceed such reserve, Valley Fair shall reimburse Buyer such excess
amount prior to the due date of such Taxes.
(b) Assistance and Cooperation. After the Closing Date, Buyer and Valley
Fair agree to:
(i) assist the other party and cooperate in preparing any Tax Returns
or other tax filings in connection with or resulting from the transactions
contemplated by this Agreement or with respect to Widmann.
(ii) assist and cooperate fully in preparing for any audits of, or
disputes with taxing authorities regarding any tax returns or other tax filings
in connection with or resulting from the transactions contemplated by this
Agreement or with respect to Widmann.
(iii) make available to the other and to any taxing authority as
reasonably requested all relevant information, records and documents relating
to Taxes with respect to Widmann; and
(iv) retain and maintain accounting and tax records used in preparing
any Tax Returns or other tax filings contemplated by this Agreement until such
time as Valley Fair and Buyer reasonably agree that such retention and
maintenance is no longer necessary.
(c) Disputes.
(i) Buyer shall notify Valley Fair in writing promptly after learning
of any governmental inquiry, examination or proceeding (a "tax proceeding")
that could result in a determination with respect to Taxes due or payable by
Buyer for which Valley Fair is liable or against which Valley Fair may be
required to reimburse or indemnify Buyer pursuant to the terms of this
Agreement. Valley Fair shall exercise at its cost and expense control over the
handling, disposition and settlement of any such tax proceeding for any tax
period ending on or prior to the Effective Date; provided that Buyer may
participate at its cost and expense, in the handling, disposition and
settlement thereof; and provided, further, that Valley Fair shall not enter
into any compromise or agreement with respect to any such tax proceeding
without the prior written consent of Buyer, which consent shall not be
unreasonably withheld or delayed. Buyer shall exercise at its cost and expense
control over the handling, disposition and settlement of any such tax
proceedings for any tax period ending after the Effective Date, provided, that
Valley Fair may participate at its sole cost and expense in the handling,
disposition and settlement thereof and provided, further, the Buyer shall not
enter into any compromise or agreement with respect to any such tax proceeding
if such compromise or agreement would give rise to an indemnification
obligation for Valley Fair hereunder without the prior written consent of
Valley Fair, which consent shall not be unreasonably withheld or delayed. Each
of Buyer and Valley Fair shall cooperate with the other
<PAGE> 41
party and the affiliates of such other party during the course of any such tax
proceeding.
(ii) If Buyer and Valley Fair are unable to agree on any issue
arising in connection with any Tax Return that either Buyer or Valley Fair is
entitled to review hereunder, then Buyer and Valley Fair shall each submit
their position with respect to the Tax Return to the accounting firm of Arthur
Anderson or another national certified public accounting firm reasonably
satisfactory to Buyer and Valley Fair (the "Deciding CPA's"). The Deciding
CPA's shall be instructed by Valley Fair and Buyer to determine and report to
the parties within twenty (20) business days after submission of such remaining
disputed items (or as soon thereafter as the Deciding CPA's deem practicable),
and such report shall be final, binding and conclusive on the parties hereto.
The fees and disbursements of the Deciding CPA's shall be allocated between
Valley Fair and Buyer in the same proportion that the aggregate amount of the
disputed amounts, as finally determined by the Deciding CPA's, bears to the
total sum of disputed amounts. The Deciding CPA's shall have no right,
authority or discretion to employ any accounting standard or principles except
for those used by Widmann in accordance with GAAP.
SECTION 9 - CONDITIONS PRECEDENT TO BUYER'S
OBLIGATION TO CLOSE
Each and every obligation of Buyer to be performed on the Effective Date
shall be subject to the satisfaction on or prior thereto of each of the
following conditions any one or more of which conditions may be waived by Buyer
in writing in its sole and absolute discretion:
9.1 Representations and Warranties True on Effective Date. The representations
and warranties made by VCD, Valley Fair and Widmann in this Agreement and in
the Schedules and Exhibits hereto shall be true and correct in all material
respects on and as of the Effective Date as though such representations and
warranties had been made again and reaffirmed on and as of the Effective Date.
9.2 Compliance with Agreement. Each of VCD, Valley Fair and Widmann shall have
performed and complied in all material respects with all of their respective
obligations under this Agreement which are to be performed or complied with by
them on or prior to the Effective Date.
9.3 Secretary's Certificate. Each of VCD and Valley Fair shall have delivered
to Buyer the certificate of their respective Secretary or Assistant Secretary
certifying as of the Effective Date to the authorization and approval of this
Agreement and the transactions provided for herein by duly adopted resolutions
of each of their Boards of Directors and the shareholders of Valley Fair.
9.4 Compliance Certificate. Each of VCD and Valley Fair shall have delivered to
Buyer the certificate of the President and/or Chief Executive Officer of each
of them certifying, as of the Effective Date, the fulfillment of the conditions
set forth in Sections 9.1, 9.2, 9.3, 9.15, and 9.16 hereof.
<PAGE> 42
9.5 No Litigation. No investigation, suit, action or other proceeding shall be
pending or threatened before or by any court of governmental agency which in
the reasonable opinion of Buyer, may adversely affect this Agreement or the
consummation of the transactions provided for herein.
9.6 Proceedings and Instruments Satisfactory. All proceedings, corporate or
otherwise, to be taken by each of VCD, Valley Fair and Widmann, respectively,
in connection with the transactions provided for herein, and all documents
incident thereto, shall be reasonably satisfactory in form and substance to
Buyer; and each of VCD, Valley Fair and Widmann shall have made available to
Buyer for examination the originals or true and correct copies of all documents
which Buyer may reasonably request in connection with said transactions.
9.7 Consents and Approvals. All of the parties hereto shall have obtained all
necessary and material authorizations, consents and approvals required for the
valid consummation of the transactions provided for in this Agreement, and each
of them shall be in full force and effect.
9.8 Damage or Destruction. There shall not have been any damage to or
destruction of a material portion of the Assets; the HBA Inventory, the Widmann
Warehouse Facility or any other material properties of Widmann (whether or not
covered by insurance).
9.9 No Material Adverse Change. Since the date of execution of this Agreement,
there shall not be any event or condition that materially and adversely affects
the Assets, or the operations of the Toys/Sports Department.
9.10 Warehouse Arrangements. Buyer and the respective landlords shall have
entered into the VCD Warehouse Facilities Leases and the Widmann Warehouse
Facility Lease.
9.11 Injunctions. There shall not be in effect any injunctions, decrees or
orders prohibiting the sale of, or otherwise adversely affecting, the Assets or
the operations of Widmann.
9.12 License Agreements. Buyer and VCD shall have entered into the Toy/Sports
License Agreement and Buyer and VCD or Valley Fair (as the case may be) shall
have entered into the HBA License Agreements.
9.13 Insurance Arrangements. Buyer shall have obtained adequate product
liability insurance coverage for the Toys/Sports Department Inventory and the
HBA Inventory as is customary for retailers of such goods.
9.14 Valley Fair Store Lease. Buyer shall have entered into the Valley Fair
Store Lease.
9.15 Dissolution of Widmann. Except as otherwise agreed upon, Valley Fair and
Buyer have prepared, executed and filed all necessary documents to cause
Widmann to merge into Buyer or dissolve immediately upon Buyer's acquisition of
Widmann hereunder.
9.16 Good Standing Certificates. Buyer shall have received good standing
certificates from the
<PAGE> 43
respective states of incorporation of each of VCD, Valley Fair and Widmann,
copies of articles of incorporation (or similar charter documents) certified by
their respective states of incorporation; and by-laws (or similar governing
documents) of each entity certified by the secretary or assistant secretary of
each entity.
9.17 Corporate Authority. Buyer shall have received certified copies of
resolutions adopted by the Board of Directors of VCD and Valley Fair,
respectively, and Shareholders of Valley Fair approving the execution, delivery
and performance of this Agreement.
SECTION 10 - CONDITIONS PRECEDENT TO VCD'S AND VALLEY FAIR'S
OBLIGATION TO CLOSE
Each and every obligation of VCD and Valley Fair to be performed on the
Effective Date shall be subject to the satisfaction on or prior thereto of each
of the following conditions any one or more of which conditions may be waived
in writing by VCD or Valley Fair, in their sole and absolute discretion:
10.1 Representations and Warranties True at the Effective Date. The
representations and warranties of Mazel contained in this Agreement shall be
true and correct in all material respects on and as of the Effective Date as
though such representations and warranties had been made again and reaffirmed
on and as of the Effective Date.
10.2 Compliance With Agreement. Buyer and Mazel shall have each performed and
complied in all material respects with all of its obligations under this
Agreement that are to be performed or complied with by it on or prior to the
Effective Date.
10.3 No Litigation. No investigation, suit, action or other proceeding shall be
pending or threatened before or by any court or governmental agency which in
the reasonable opinion of VCD or Valley Fair may adversely affect this
Agreement or the consummation of the transactions provided for herein.
10.4 License Agreements. Buyer and VCD shall have entered into the Toys/Sports
License Agreement and Buyer and VCD or Valley Fair (as the case may be) shall
have entered into the HBA License Agreement.
10.5 Warehouse Arrangements. Buyer shall have entered into the VCD Warehouse
Facilities Leases and the Widmann Warehouse Facility Lease.
10.6 Insurance Arrangements. Buyer shall have obtained adequate product
liability insurance coverage for the Toys/Sports Department Inventory and the
HBA Inventory as is customary for retailers of such goods.
10.7 Valley Fair Store Lease. Buyer shall have entered into the Valley Fair
Store Lease.
10.8 Proceedings and Instruments Satisfactory. All proceedings to be taken by
Buyer and Mazel
<PAGE> 44
in connection with the transactions provided for herein, and all documents
incident thereto, shall be reasonably satisfactory in form and substance to VCD
and Valley Fair; and Buyer and Mazel shall make available to VCD and Valley
Fair for examination the originals or true and correct copies of all documents
that VCD and Valley Fair reasonably request in connection with said
transactions.
10.9 Consents and Approvals. All of the parties hereto shall have obtained all
necessary and material authorizations, consents and approvals required for the
valid consummation of the transactions provided for in this Agreement, and each
of them shall be in full force and effect.
SECTION 11 - FURTHER AGREEMENTS OF THE PARTIES
11.1 Employees.
(a) VCD agrees to notify Buyer prior to terminating, laying off or
otherwise taking any action directly affecting the employment status of the VCD
Employees. Buyer may, but shall not be obligated pursuant to this Agreement or
for any other reason, to offer full or part-time employment to any present or
future employees of VCD on such terms and conditions as Buyer, in its sole
discretion, may determine. Buyer may communicate with the VCD Employees prior
to the Closing upon reasonable prior notice to VCD. VCD shall not directly or
indirectly induce, suggest or recommend to the VCD Employees that they reject
offers of employment or other association with Buyer. VCD shall cooperate with
Buyer in all reasonable respects in connection with any offers of employment or
other association that Buyer may make to the VCD Employees and to transition
any such employees from VCD's employment to possible association with Buyer.
(b) VCD hereby agrees that it will not, without the prior written consent
of Buyer, notify, promise, represent, advise, state or otherwise communicate to
any employee of VCD that Buyer will be hiring any or all such employees or make
any offer of employment or other association on behalf of Buyer.
(c) Widmann agrees to notify Buyer prior to terminating, laying off or
otherwise taking any action directly affecting the employment status of Widmann
employees. Buyer may, but shall not be obligated pursuant to this Agreement or
for any other reason, to offer full or part-time employment to any present
employee of Widmann on such terms and conditions as Buyer, in its sole
discretion, may determine. Buyer may communicate with the Widmann employees, or
their representatives, prior to the Closing upon reasonable prior notice to
Widmann. Widmann shall not directly or indirectly induce, suggest or recommend
to the Widmann employees that they reject offers of employment or other
association with Buyer. Widmann shall cooperate with Buyer in all reasonable
respects in connection with any offers of employment or other association that
Buyer may make to the Widmann employees and to transition any such employees
from Widmann's employment to possible association with Buyer.
(d) Widmann hereby agrees that it will not, without the prior written
consent of Buyer, notify, promise, represent, advise, state or otherwise
communicate to any employee of Widmann
<PAGE> 45
that Buyer will be hiring any or all such employees or make any offer of
employment or other association on behalf of Buyer.
(e) After the Effective Date, Buyer will be responsible for complying with
all applicable laws regarding employment matters relating to employees of
Widmann and the VCD Employees retained by Buyer, including, without limitation,
laws relating to the termination of employment, e.g., WARN.
11.2 Nondisclosure. Each of the parties shall not disclose, directly or
indirectly, the terms of this Agreement to any person, firm or entity other
than their respective attorneys, accountants, lenders, and representatives who
are required to be informed thereof in connection with their representation of
the parties in connection with the transactions contemplated hereby. No press
release or governmental notification, report or other filing by any of the
parties shall be made without the prior written approval of the content thereof
by all parties. The parties will issue a joint press release upon the
consummation of the transactions contemplated by this Agreement.
SECTION 12 - RISK OF LOSS
12.1 Risk of Loss. Risk of Loss with respect to the Assets and the assets of
Widmann being transferred on the Effective Date shall pass to Buyer effective
as of the end of August 2, 1997 (i.e., the Effective Date).
SECTION 13 - TERMINATION AND ABANDONMENT
13.1 Termination. This Agreement may be terminated forthwith upon the receipt
of notice of termination as provided for in Section 13.2 hereof, and the
purchase and sale and the other transactions provided for by this Agreement may
be abandoned, without liability on the party of either party to the other:
(a) By mutual written consent of the parties hereto;
(b) By Buyer, if any of the conditions of Section 9 of this Agreement have
not been satisfied on the Closing Date and have not been waived by Buyer in
writing;
(c) By VCD, Valley Fair or Widmann, if any of the conditions of Section 10
of this Agreement have not been satisfied on the Closing Date and have not been
waived by Sellers in writing;
(d) By any party hereto, if any of them files on or before the Closing
Date a petition in bankruptcy, reorganization, liquidation or receivership or a
petition in bankruptcy, reorganization, liquidation or receivership is filed on
or before the Closing Date against such other party.
13.2 Notice of Termination. In the event of termination and abandonment by any
party as provided in Section 13.1 hereof, prompt written notice thereof shall
forthwith be given to the other party.
<PAGE> 46
SECTION 14 - INDEMNIFICATION AND REIMBURSEMENT
14.1 Indemnification by VCD and Valley Fair.
(a) In order to induce Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, each of VCD and Valley Fair
covenants and agrees severally and not jointly, to indemnify Buyer and its
members, officers, employees and agents, and their successors and assigns
(collectively, the "Buyer Interests") and shall hold the Buyer Interests
harmless against and with respect to any and all Damages incurred in connection
with or arising out of or resulting from or incident to:
(i) any misrepresentation, omission, breach of warranty,
representation or covenant, or non-fulfillment of any obligation on the part of
VCD, Valley Fair or Widmann, respectively, under this Agreement, any
certificate, Schedule or Exhibit, or other instrument furnished to Buyer in
connection with this Agreement;
(ii) any debt, liability or obligation of Widmann with respect to any
matter, transaction or event that existed, arose or occurred on or prior to the
Effective Date other than (A) the liabilities expressly identified on the
Audited Closing Stock Statement, which are assumed only up to the amount as
finally determined pursuant to Section 3.3(c), (B) Buyer's Product Liability
Obligations, (C) any continuing contractual obligations disclosed in the
Agreement, and the Schedules and Exhibits attached hereto for goods and
services to be provided after the Effective Date, and (D) the Specified Losses,
which shall be indemnified only to the extent and as provided in Section 3.3(e)
herein;
(iii) the filing (or failure to file) or payment (or non-payment) of
any Taxes by VCD, Valley Fair or the Other Group Members, respectively, any
deficiencies in any taxes payable by or on behalf of VCD, Valley Fair or the
Other Group Members;
(iv) the filing (or failure to file) or payment (or non-payment) of
any Taxes by Widmann as provided in Section 8.6;
(v) any and all suits, actions, liabilities, or claims arising under
or resulting from any Plan of VCD, Widmann or any Related Entity of VCD and/or
of Widmann pertaining to periods on or prior to the Effective Date and not
accrued on the Audited Stock Closing Statement, including, but not limited to,
any suit, action, liability or claim arising out of the allegation or
imposition of successor employer status upon Buyer, any suit, action, liability
or claim for benefits or contributions, or any suit, action, liability or claim
for taxes, including without limitation, income taxes, excise taxes, penalties
or interest with regard to any Plan; and
(vi) any and all actions, suits, proceedings, demands, assessments,
penalties, fines, judgments, costs and legal and other expenses incident to any
of the foregoing.
<PAGE> 47
(b) The indemnification of this Section shall survive the Effective Date
for a period of two (2) years except that matters relating to Taxes shall
survive until the expiration of any applicable statute of limitations
pertaining thereto.
14.2 Indemnification by Buyer and Mazel.
(a) In order to induce VCD and Valley Fair to enter into this Agreement
and to consummate the transactions contemplated hereby, each of Buyer and Mazel
covenants and agrees severally and not jointly, to indemnify each of VCD and
Valley Fair, their shareholders, directors, officers, employees, agents,
successors and assigns (collectively, the "VCD Interests") and shall hold the
VCD Interests harmless against and with respect to any and all Damages,
incurred in connection with or arising out of or resulting from or incident to:
(i) any misrepresentation, omission, breach of warranty,
representation or covenant, or non-fulfillment of any obligation on the part of
Buyer or Mazel, respectively, under this Agreement, any certificate, Schedule
or Exhibit, or other instrument furnished to VCD or Valley Fair in connection
with this Agreement;
(ii) Buyer's Product Liability Obligations;
(iii) the failure of Buyer to pay or perform any of the VCD Assumed
Liabilities; and
(iv) any and all actions, suits, proceedings, demands, assessments,
penalties, fines, judgments, costs and legal and other expenses incident to any
of the foregoing.
(b) The indemnification in this Section shall survive the Effective Date
for a period of two (2) years, except that matters relating to Taxes shall
survive until the expiration of any applicable statute of limitations
pertaining thereto.
14.3 Claims for Reimbursement. In the event that the Buyer Interests or the VCD
Interests shall have suffered any Damages (as hereinabove defined) with respect
to any liability or claim to which the foregoing indemnities relate, the party
seeking indemnity hereunder (the "Indemnified Party"), shall give the party
from whom indemnity is sought (the "Indemnifying Party"), prompt written notice
of the nature and amount of such Damages and the Indemnified Party's claim for
reimbursement therefor. The Indemnifying Party shall have thirty (30) days from
the date of said notice to investigate and dispute the nature, validity or
amount of any such claim. During said 30-day period, the Indemnifying Party
shall have reasonable access, during normal business hours, to the books and
records of the Indemnified Party for the purpose of such investigation. In the
event that the Indemnifying Party shall dispute the nature, validity or amount
of said claim, the Indemnifying Party shall give the Indemnified Party written
notice of such dispute within said 30-day period, and the parties shall attempt
in good faith to resolve such dispute.
In the absence of a dispute, the Indemnifying Party shall promptly, and in
any event not later than the expiration of said 30-day period, reimburse the
Indemnified Party in full for any such Damages, as set forth in the Indemnified
Party's notice. In the event that the Indemnifying Party
<PAGE> 48
shall dispute only the amount of the claim, the Indemnifying Party shall,
concurrently with the delivery of its notice of dispute, pay to the Indemnified
Party the undisputed portion of the claim.
14.4 Defense of Third-Party Claims. If any lawsuit or enforcement action is
filed against an Indemnified Party by a third party and the Indemnified Party
is entitled to indemnification pursuant to this Agreement, written notice
thereof shall be given to the Indemnifying Party as promptly as practicable
(and in any event within thirty (30) days after the service of the citation or
summons); provided, however, that the failure of any Indemnified Party to give
timely notice shall not affect rights to indemnification hereunder except to
the extent that the Indemnifying Party demonstrates actual damages caused by
such failure, if (i) such failure to give timely notice does not materially
affect the ability or right of the Indemnifying Party to participate in the
defense of such lawsuit or enforcement action, (ii) actual notice is given to
the Indemnifying Party within a reasonable time, and (iii) to the extent that
such failure to give timely notice causes the Indemnifying Party to incur
additional expense with respect to such lawsuit or enforcement action, the
Indemnified Party promptly reimburses the Indemnifying Party for such
additional expense.
After such notice, if the Indemnifying Party shall acknowledge in writing
to such Indemnified Party that such Indemnifying Party may be obligated under
the terms of its indemnity hereunder in connection with such lawsuit or action,
then the Indemnifying Party shall be entitled, if it so elects, to take control
of the defense and investigation of such lawsuit or action, and to employ and
engage attorneys of its own choice to handle and defend the same, at the
Indemnifying Party's cost, risk and expense; and such Indemnified Party shall
cooperate in all reasonable respects, at its cost, risk and expense, with the
Indemnifying Party and such attorneys in the investigation, trial and defense
of such lawsuit or action any appeal arising therefrom. No such lawsuit or
action shall be settled without the prior written consent of the Indemnified
Party. If a firm written offer is made to settle any such lawsuit or action and
the Indemnifying Party proposes to accept such settlement and the Indemnified
Party refuses to consent to such settlement, then: (i) the Indemnifying Party
shall be excused from, and the Indemnified Party shall be solely responsible
for, all further defense of such third party claim, demand, action or
proceeding; (ii) the maximum liability of the Indemnifying Party relating to
such lawsuit or action shall be the amount of the proposed settlement if the
amount thereafter recovered from the Indemnified Party on such lawsuit or
action is greater than the amount of the proposed settlement; and (iii) the
Indemnified Party shall pay all attorney's fees and legal costs and expenses
incurred after rejection of such settlement by the Indemnified Party, but if
the amount thereafter recovered by such third party from the Indemnified Party
is less than the amount of the proposed settlement, the Indemnified Party shall
be reimbursed by the Indemnifying Party for such attorneys' fees and legal
costs and expenses up to a maximum amount equal to the difference between the
amount recovered by such third party and the amount of the proposed settlement.
14.5 Provisions Regarding Indemnities.
(a) Insurance Recoveries. The amounts of Damages for which an Indemnifying
Party shall be liable under this Agreement shall be net of any insurance
proceeds and tax benefits actually
<PAGE> 49
received by the Indemnified Party in connection with the facts giving rise to
the right of indemnification.
(b) Exclusivity. The rights of indemnity provided by this Section 14 of
this Agreement shall be exclusive of all other rights of indemnity or
contribution, whether created by Law or otherwise, either before or after the
Closing, relating in any way to the subject matter of this Agreement.
(c) Termination of Rights. The termination of the rights of an Indemnified
Party to receive indemnity under this Agreement shall not affect that party's
right to prosecute to conclusion any claim made by that party in writing in
accordance with Section 14.3 of this Agreement prior to the time that the
relevant right of indemnity terminates.
(d) Limitations on Liability. Except in the case of the Specified Losses,
which shall not be indemnified by Sellers and which the provisions of Section
3.3(e) shall control, the liability of an Indemnifying Party under this
Agreement shall be recoverable only if and to the extent the cumulative damages
suffered by the party for all indemnifiable breaches under this Section 14
exceed Five Hundred Thousand Dollars ($500,000). An Indemnified Party shall not
be entitled to more than one recovery for any single loss, Damage, cost,
expense, liability, obligation or claim even though such may have resulted from
the breach or inaccuracy of more than one of the representations, warranties or
provisions of this Agreement.
(e) Waiver of Consequential and Punitive Damages. Each party hereby waives
and agrees to forfeit any right it may have to seek consequential or punitive
damages under or related to this Agreement.
SECTION 15 - MISCELLANEOUS PROVISIONS
15.1 Costs and Expenses.
Each party covenants and agrees that its respective costs and expenses in
connection with, or arising out of, the negotiation and execution of this
Agreement and consummation of the transactions provided for herein, including,
but not limited to, any and all sales or transfer taxes applicable to the
transfer of Assets provided for herein shall be paid by the Buyer as an expense
of the acquisition of the Assets and Widmann Stock.
15.2 Amendment and Modification. This Agreement may be amended, modified or
supplemented only in writing executed by each of the parties hereto.
15.3 No Assignment. No party hereto shall assign, in whole or in part, this
Agreement or its respective rights and obligations hereunder without the prior
written consent of the other party hereto, not to be unreasonably withheld or
delayed, and, absent such consent, any assignment (including, without
limitation, any assignment by merger, death, dissolution or operation of law)
shall be null and void.
<PAGE> 50
15.4 Notices. All notices, requests, demands or other communications hereunder
must be in writing executed by an authorized representative of the party
responsible therefor, and must be given either by hand or telex, telecopy,
telefax or other telecommunications device capable of creating a written record
(confirmed by registered or certified mail or by overnight courier) as follows
or to such other person or place as any party shall furnish to the others in
writing:
To VCD: Value City Department Stores, Inc.
3241 Westerville Road
Columbus, Ohio 43224
Attn.: Robert M. Wysinski,
Senior Vice President
Telecopier No.: 614-337-4681
With a copy to: Irwin A. Bain, Esq.
c/o Schottenstein Stores Corporation
1800 Moler Road
Columbus, Ohio 43207
Telecopier No.: 614-443-0972
To Valley Fair or Thomas R. Ketteler, Vice President
Widmann: c/o Schottenstein Store Corporation
1800 Moler Road
Columbus, Ohio 43207
Telecopier No.: 614-443-0972
To Buyer: VCM, Ltd.
c/o Mazel Stores, Inc.
31000 Aurora Road
Solon, Ohio 44139
Attn.: Reuven D. Dessler, Chairman
Telecopier No.: (216) 349-1543
With a copy to: Kahn, Kleinman, Yanowitz & Arnson, Co., L.P.A.
1301 East 9th Street, Suite 2600
Tower at Erieview
Cleveland, Ohio 44114
Attn.: Marc H. Morgenstern
Telecopier No.: (216) 696-1009
To Mazel: c/o Mazel Stores, Inc.
31000 Aurora Road
Solon, Ohio 44139
Attn.: Reuven D. Dessler, Chairman
Telecopier No.: (216) 349-1543
15.5 Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
<PAGE> 51
15.6 Headings. Section and paragraph headings in this Agreement are provided
for convenience of reference only and shall not be deemed to constitute a part
hereof.
15.7 Recitals, Exhibits and Schedules. The recitals contained at the beginning
of this Agreement and all Schedules and Exhibits attached hereto shall be
deemed an integral part of this Agreement and shall be incorporated herein by
reference.
15.8 Schedules and Exhibits. Any Schedules and Exhibits which are to be
attached hereto at Closing or thereafter, updated as of the Closing Date or
thereafter, or delivered separately upon execution hereof or on the Closing
Date or thereafter shall be initialed by the parties hereto and shall be deemed
delivered under this Agreement.
15.9 Waiver; Remedies. No waiver of any breach of any provision of this
Agreement shall be held to be a waiver of any other subsequent breach, and the
failure of a party to enforce at any time any provision hereof shall not be
deemed a waiver of any right of such party to subsequently enforce such
provision or any other provision hereof. All remedies afforded in this
Agreement shall be taken and construed as cumulative, that is, in addition to
every other remedy provided herein or by law.
15.10 Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the State of Ohio and applicable
federal law.
15.11 Severability. In the event that any provision or any portion of any
provision of this Agreement shall be held invalid, illegal or unenforceable
under applicable law, the remainder of this Agreement shall remain valid and
enforceable to the maximum extent permitted by law.
15.12 Entire Agreement. This Agreement, the Schedules and Exhibits hereto and
the ancillary documents executed hereunder set forth the entire agreement and
understanding between the parties hereto with respect to the transactions
provided for herein and supersede and cancel any and all prior discussions,
correspondence, agreements or understandings (whether oral or written) between
the parties hereto with respect to such matters (including, but not limited to,
the Letter of Intent dated as of April 9, 1997.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto, intending to be legally
<PAGE> 52
bound, have caused this Agreement to be executed by their authorized
representatives on and as of the date first above set forth.
VCM, LTD.
By:__________________________________
J. L. Schottenstein, Director
By:__________________________________
Robert M. Wysinski, Director
By:__________________________________
Reuven D. Dessler, Director
By:__________________________________
Brady Churches, Director
MAZEL STORES, INC.
By:__________________________________
Reuven D. Dessler, Chairman
By:__________________________________
Brady Churches, President
L.F. WIDMANN, INC.
By:__________________________________
Jay L. Schottenstein, Chairman
VALLEY FAIR
By:_________________________________
<PAGE> 53
Jay L. Schottenstein, Chairman
VALUE CITY DEPARTMENT STORES, INC.
and its direct and indirect subsidiaries:
Value City of Michigan, Inc. a Michigan
corporation
VC Retailers, Inc., a Delaware corporation
GB Retailers, Inc., a Delaware corporation
Westerville Road GP, Inc., a Delaware
corporation,
as general partner of Value City LP,
an Ohio limited partnership
By:____________________________________
Jay L. Schottenstein, Chairman
By:____________________________________
Robert M. Wysinski, Sr. Vice President
<PAGE> 1
Exhibit 10.52
EMPLOYMENT AGREEMENT
(Martin P. Doolan)
THIS AGREEMENT is by and between Value City Department Stores, Inc.
("Company") and Martin P. Doolan ("Executive"), and is effective as of the date
it has been fully executed by both parties.
Company agrees to employ Executive as President and Chief Executive Officer,
and to appoint Executive to Company's Board of Directors, and Executive hereby
accepts such employment and appointment and agrees to serve Company subject to
the general supervision, advice and direction of Company's Board of Directors
("Board"), and upon the following terms and conditions:
1. Position and Duties. Effective July 1, 1997, Executive shall be employed as
Company's President and Chief Executive Officer, with such authority and duties
as are customary for this position, and shall perform such other services and
duties as the Board may from time to time designate.
1.1. Executive agrees to devote his full business time, best efforts,
and undivided attention to the business and affairs of Company, except for any
vacations, illness, or disability. Executive shall not engage in any other
businesses that would interfere with his duties, provided that nothing
contained herein is intended to limit Executive's right to make passive
investments in the securities of publicly-owned companies or other businesses
which will not interfere or conflict with his duties hereunder or, with the
prior consent of the Chairman, to sit on the boards of other businesses. The
Company hereby consents to Executive's current and future investment in the
securities of American Eagle Outfitters, U.S. Netting, Inc., Walt's Radiator
and Muffler, Inc., Baxter, Inc., OK Industries, Inc. and Air Shield, Inc.
(collectively, the "Businesses"), together with Executive's continued and/or
future position as a director and/or officer of one or more of the Businesses.
1.2. Executive agrees that he shall at all times observe and be bound
by all rules, policies, practices, and resolutions heretofore or hereafter
adopted in writing by the Company which are generally applicable and provided
to Company's officers and employees and which do not otherwise conflict with
this Agreement.
1.3. Company shall indemnify Executive in the performance of his
duties and responsibilities and advance expenses in connection therewith to the
same extent as other senior executives and officers. Such rights shall not be
subject to arbitration under paragraph 7.
2. Term. This Agreement shall terminate two years from Executive's first date
of employment unless sooner terminated as provided herein; provided, however,
that this Agreement shall be extended automatically for successive 12-month
periods unless either party notifies the other of an intent to terminate, in
writing, at least 60 calendar days prior to the date of automatic extension
(July 1).
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<PAGE> 2
3. Compensation.
3.1. Base Salary. Beginning on July 1, 1997, Company shall pay
Executive an annual base salary of $600,000 as compensation for his services
hereunder, payable in equal installments in accordance with Company's payroll
practices for executive employees. Company's Board may increase Executive's
base salary at their discretion.
3.2. Bonus.
3.2.1. Performance Bonus. During the term of this Agreement,
Executive will be eligible to receive an annual performance bonus targeted at
100% of his base salary. This bonus shall be calculated based on agreed- upon,
Board-approved, pre-determined performance targets and measures set prior to
the end of each fiscal year. Any performance bonus determined to be due will be
paid within 120 calendar days after the close of Company's fiscal year and
completion of an outside audit by Company's then current outside audit firm.
3.2.2. Signing Bonus. Executive shall receive a lump-sum
payment of $350,000 within 30 days after this Agreement has been signed by both
parties.
3.3. Stock.
3.3.1. Stock Grant. Executive or, at Executive's sole
discretion, the Doolan Family First Limited Partnership shall receive a stock
grant of 75,000 shares of common stock of the Company ("restricted stock"),
which stock is traded under the symbol "VCD" on the New York Stock Exchange,
within 30 calendar days after this Agreement has been signed by both parties.
This stock grant will be subject to all terms and conditions set forth in the
"Restricted Stock Agreement" attached hereto which provides, among other
things, that (i) the grant vests at the rate of 20% per anniversary year of
employment, (ii) any unvested portion will be forfeited upon Executive's
voluntary resignation, and (iii) the grant will vest 100% if Company terminates
Executive's employment involuntarily either during or at the end of the term of
this Agreement, except for cause.
3.3.2. Stock Options. Executive or, at Executive's sole
discretion, the Doolan Family First Limited Partnership shall receive 325,000
incentive stock options for common stock of the Company granted as of his first
day of employment. All options granted hereunder shall be priced at the
publicly-traded price of the Company's stock at the close of trading on July 1,
1997, and subject to exercise in accordance with Company's "1991 Stock Option
Plan" attached hereto.
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<PAGE> 3
3.4. Vacation. During the term of this Agreement, Executive shall be
entitled to vacation commensurate with other senior executives. The dates of
said vacations shall be mutually agreed upon by Company's Chairman and
Executive.
3.5. Car. During the term of this Agreement, Company will pay
Executive a car allowance of $15,000 per year, grossed up for tax purposes, to
be paid on a monthly basis. (The term " grossed up" as used in this Agreement
refers to a payment to Executive in an amount that, after reduction for any
income or excise taxes due, is equal to the net amount payable.)
3.6. Business Expenses. Company shall pay, advance or reimburse
Executive for all normal and reasonable business-related expenses, including
travel expenses, incurred in the performance of his duties on the same basis as
paid to other senior executives. Company shall furnish Executive with company
credit cards provided to other senior executives for use solely in the
performance of his duties.
3.7. Taxes. The compensation provided to Executive hereunder shall be
subject to any withholdings and deductions required by any applicable tax laws.
3.8. Benefit Plans. Executive is entitled to participate in any
deferred compensation or other employee benefit plans, including any profit
sharing or 401(k) plans; group life, health, hospitalization and disability
insurance plans; discount privileges; and other employee welfare benefits made
available generally to, and under the same terms as, Company's executives.
Until Executive is eligible to participate in Company's health plan (September
1, 1997), Company will pay Executive its share of the Company's monthly health
plan premium, grossed up for tax purposes, to apply toward continuing health
coverage with his prior employer (COBRA).
4. Relocation.
4.1. For two years Company will pay Executive's and his spouse's
commuting expenses between Columbus, OH, and his primary residence, and his
living expenses in Columbus, OH, in a temporary residence that is agreed upon
mutually by the parties. The foregoing commuting expenses shall include
expenses for Executive's and his spouse's commute between Columbus, OH and his
primary residence on weekends during the term of this Agreement.
4.2. Company will pay reasonable and customary relocation expenses for
Executive if he were to relocate himself and his spouse from his primary
residence in Dallas, TX, to Columbus, OH. (By way of example, "reasonable and
customary" does not include horses, large boats, or antique automobiles.)
Subject to any other provisions of this Agreement, Executive agrees to handle
relocation in accordance with Company's standard relocation practice for senior
executives. Company agrees to reimburse Executive, after submission of the
appropriate expense reports and receipts,
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<PAGE> 4
for all reasonable out-of-pocket expenses related to said relocation.
4.3. If any of these expenses are determined to be taxable, they will
be grossed up.
5. Executive's Obligations.
5.1. Confidential Information. Executive agrees that during and after
his employment, any "confidential information" as defined below shall be held
in confidence and treated as proprietary to Company. Executive agrees not to
use or disclose any confidential information except to promote and advance the
business interests of Company. Executive agrees that upon his separation from
employment, for any reason whatsoever, he shall not take or copy, and shall
immediately return to Company, any documents that constitute or contain
confidential information. "Confidential information" includes, but is not
limited to, any confidential data, figures, projections, estimates, pricing
data, customer lists, buying manuals or procedures, distribution manuals or
procedures, other policy and procedure manuals or handbooks, supplier
information, tax records, personnel histories and records, information
regarding sales, information regarding properties and any other confidential
information regarding the business, operations, properties or personnel of
Company which are disclosed to or learned by Executive as a result of his
employment, but shall not include his personal personnel records. Confidential
information shall not include any information that (i) Executive had in his
possession prior to his first performing services for Company; (ii) becomes a
matter of public knowledge thereafter through sources independent of Executive;
(iii) is disclosed by Company without restriction on its use; or (iv) is
required to be disclosed by law or governmental order or regulation.
5.2. Solicitation.
5.2.1. Employees. Executive agrees that during his employment
and for two years after the end of his employment, for any reason, he shall
not, directly or indirectly, solicit Company's employees to leave their
employment; he shall not employ or seek to employ them; and, he shall not cause
or induce any of Company's competitors to solicit or employ Company's
employees.
5.2.2. Third Parties. Executive agrees that during his
employment and for two years following the end of his employment, for any
reason, he shall not, either directly or indirectly, recruit, solicit or
otherwise induce or influence any customer, supplier, sales representative,
lender, lessor or any other person having a business relationship with Company
to discontinue or reduce the extent of such relationship except in the course
of his duties pursuant to this Agreement and with the good faith objective of
advancing Company's business interests.
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<PAGE> 5
5.3. Noncompetition. Executive agrees that for any period of salary
continuation following the end of his employment, for any reason, he shall not,
either directly or indirectly, accept employment with, act as a consultant to,
or otherwise perform the same services (which shall be determined regardless of
job title) for any business that directly competes with Company's business,
which shall be understood as the sale of off-price merchandise.
5.4. Cooperation.
5.4.1. With Company. Executive agrees to cooperate with
Company during the course of all third-party proceedings arising out of
Company's business about which Executive has knowledge or information. Such
proceedings may include, but are not limited to, internal investigations,
administrative investigations or proceedings, and lawsuits (including pre-trial
discovery). For purposes of this paragraph, cooperation includes, but is not
limited to, Executive's making himself available for interviews, meetings,
depositions, hearings, and/or trials without the need for subpoena or
assurances by Company, providing any and all documents in his possession that
relate to the proceeding, and providing assistance in locating any and all
relevant notes and/or documents.
5.4.2. With Third Parties. Executive agrees to communicate
with, or give statements to, third parties relating to any matter about which
Executive has knowledge or information as a result of his employment only to
the extent that it is Executive's good faith belief that such communication or
statement is in Company's business interests.
5.4.3. With Media. Executive agrees to communicate with, or
give statements to, any member of the media (print, television or radio)
relating to any matter about which Executive has knowledge or information as a
result of his employment only to the extent that it is Executive's good faith
belief that such communication or statement is in Company's business interests.
5.5. Remedies. Executive agrees that any disputes under paragraph 5
shall not be subject to arbitration. If Executive breaches paragraph 5, the
damage will be substantial, although difficult to quantify, and money damages
may not afford Company an adequate remedy; therefore, if Employee breaches or
threatens to breach this paragraph, Company shall be entitled, in addition to
other rights and remedies, to specific performance, injunctive relief and other
equitable relief to prevent or restrain such conduct.
6. Termination and Related Benefits.
6.1. Death. This Agreement shall terminate automatically upon
Executive's Death, and Company shall pay his surviving spouse, or if he leaves
no spouse, his
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<PAGE> 6
estate, any base salary earned by Executive, and any rights or benefits that
have vested. In addition, Company shall pay Executive's surviving spouse, or if
he leaves no spouse, his estate, the pro rata share of any bonus that, but for
Executive's death, would otherwise have been payable to Executive, including
any unpaid signing bonus. Any pro rata share shall be determined based on the
number of days that Executive was actively employed on a full-time basis during
the bonus year.
6.2. Permanent Disability. Upon Executive's permanent disability,
Company shall have the right to terminate this Agreement immediately with
written notice. For these purposes, permanent disability shall mean that
Executive fails to perform his duties on a full-time basis for a period of more
than 90 calendar days during any 12-month period, due to a physical or mental
disability or infirmity. If this Agreement is terminated due to Executive's
permanent disability, Company shall pay Executive any base salary earned and
any rights or benefits that have vested. In addition, Company shall pay
Executive the pro rata share of any bonus that, but for termination, would
otherwise have been payable to Executive. Any pro rata share shall be
determined based on the number of days that Executive was actively employed on
a full-time basis during the bonus year.
6.3. Termination by Company.
6.3.1. At End of Term. Company may terminate this Agreement
at the end of its term or any extension of this Agreement by giving 60 calendar
days' written notice to Executive. Company may, in its sole discretion, require
Executive to cease active employment and pay out the 60-day notice period.
Company shall thereafter have no obligations or liabilities under this
Agreement, unless otherwise provided herein.
6.3.2. During the Term. Except as provided below in paragraph
6.3.3., Company may terminate this Agreement during its term, for any reason,
upon 30 days' written notice to Executive. Company may, in its sole discretion,
require Executive to cease active employment immediately. In the event of such
a termination, or a termination by Executive pursuant to paragraph 6.4.3,
Company shall have the following obligations:
Pay Executive a severance amount equal to the greater of (a)
Executive's base salary through the remainder of the term of
this Agreement, or (b) one year's base salary;
If Executive has been employed the full fiscal year prior to the date
of termination, pay Executive any performance bonus declared,
but unpaid;
(iii) Provide health benefits (including dental, disability, and
life insurance) for one year under the same terms as provided
to other Company executives;
6
<PAGE> 7
(iv) Executive's stock options shall be vested and exercisable as
if Executive had remained employed by Company either (a)
through the remainder of the term of this Agreement, or (b)
for one year following date of termination, whichever is
longer; and
(v) Company shall thereafter have no further obligations or
liabilities under this Agreement, unless otherwise provided
herein.
6.3.3. For Cause. Company may terminate this Agreement during
its term if it has "cause" to do so. For purposes of this paragraph, the term
"cause" means the following:
(i) willful violation of laws and regulations governing Company;
(ii) willful failure to substantially comply with any material terms
of this Agreement, provided Company shall make a written demand
for substantial compliance setting forth the specific reason(s)
for same and Executive shall have 60 days to cure, if possible;
(iii) willful breach of fiduciary duties;
(iv) willful damage, willful misrepresentation, or willful dishonesty
which Company determines has had or is likely to have a material
adverse effect upon Company's operations, assets, or financial
conditions; or
(v) willful breach of any stated material employment policy of
Company.
Failure to meet performance targets and measures shall not constitute "cause"
as that term is used herein. Executive may have an opportunity to be heard by
the Board prior to a termination for cause. For purposes of this paragraph,
Executive's acts or omissions shall be considered "willful" if done without a
good faith, reasonable belief that such act or omission was in Company's best
interest. In the event of termination for cause, Company's obligations
hereunder cease on Executive's last day of active employment, unless otherwise
provided herein.
6.3.4. Method of Payment. Executive agrees that Company shall
have the option of paying the present value of any amount(s) due under this
paragraph in a lump sum or in the form of salary continuation, but in no event
shall such payout period exceed the longer of (i) the remainder of the term of
this Agreement, or (ii) one year. For purposes of paragraph 5 (noncompetition),
if a present value lump sum is paid, the period of salary continuation shall be
the period covered by the lump sum. Present value shall be calculated based
upon National City Bank's prime interest rate.
7
<PAGE> 8
6.4. Termination by Executive.
6.4.1. At End of Term. Executive may terminate this Agreement
at the end of its term or any extension of this Agreement by giving 60 calendar
days' written notice to Company's Chairman. Company may, in its sole
discretion, accept Executive's termination effective immediately; provided,
however, that it shall continue to pay Executive for 60 calendar days. Company
shall thereafter have no obligations to Executive under this Agreement.
6.4.2. Voluntary Resignation. Executive may terminate this
Agreement by his voluntary resignation. Executive shall give at least 60
calendar days' written notice of his intention to resign to Company's Chairman,
which Company may accept immediately. In the event of Executive's resignation,
Company will have no further obligations or liability hereunder except as
provided herein.
6.4.3. For Good Reason. Executive may terminate his
employment hereunder for good reason, which shall mean (i) Company's failure to
substantially comply with any material terms of this Agreement, provided that
Executive has given written notice to Company of any alleged noncompliance and
such alleged noncompliance continues for 30 days after receipt, or (ii) a
material change in Executive's position, authority, functions, duties or
responsibilities including, without limitation, material changes in Company's
control or structure about which Executive has no knowledge, which would reduce
Executive's position, authority, functions, duties or responsibilities during
the Agreement.
6.5. Salary Due at Termination. In the event of any termination of
Executive's employment under this Agreement, Executive (or his estate) shall be
paid any unpaid portion of his salary that has accrued by virtue of his
employment during the period prior to termination, and any unpaid, declared
bonus, together with any unpaid business expenses properly incurred under this
Agreement prior to termination. Such amounts shall be paid within 15 days of
the date of termination, unless otherwise provided herein.
6.6. "Parachute Payments" under the Internal Revenue Code ("Code").
6.6.1. For purposes of paragraph 6.6., the terms " parachute
payment," "excess parachute payment," "present value," "base amount," and
"excise tax" have the meanings ascribed to them in Sections 280G and 4999 of
the Code.
6.6.2. The amounts, benefits, and rights to be provided to
Executive upon a termination of employment under this Agreement are considered
"severance benefits." No severance benefits shall be payable to Executive to
the extent that the total of such benefits and any payments, which would be
deemed under Section 280 of the Code to constitute "parachute payments," would
equal or exceed in their present
8
<PAGE> 9
value three times Executive's base amount. If this were to occur, any severance
benefits payable to Executive shall be made only in accordance with
subparagraph 6.6.3 below, notwithstanding any other provision in this
Agreement.
6.6.3. Not later than 30 days after the date of termination,
Company shall provide Executive with a schedule specifying the present value of
the severance benefits that, in Company's opinion, could constitute parachute
payments under Section 280G of the Code. No severance benefits payable under
this Agreement shall be made until 30 days from the receipt of such schedule by
Executive. At any time prior to the expiration of said 30-day period, Executive
may select from all or part of any category of payment to be made under this
Agreement those payments to be made to him in an amount the present value of
which (when combined with the present value of any other payments otherwise
payable to Executive by Company that may be deemed parachute payments) is less
than three times Executive's base amount. If Executive fails to make such
selection, Company shall do so.
6.6.4. The references to Code Sections 280G and 4999 are
specific references to such sections as in effect on the date of this
Agreement. If either section is amended prior to the expiration or termination
of this Agreement, or replaced by a successor statute, the limitations imposed
by this paragraph upon payments to be made to Executive shall be deemed
modified without further action of the parties so as to provide only for such
limitations that are consistent with such amendment(s) or successor statute(s),
as the case may be. If Section 4999, or its successor statute, is repealed,
this paragraph shall cease to be effective as of the date of such repeal. The
parties to this Agreement recognize that final Treasury Regulations under
Section 280G may affect the amounts payable hereunder and agree that, upon
issuance of any such final Regulations, this paragraph may be modified as in
good faith deemed necessary in light of the provisions of such final
Regulations to achieve the purposes hereof, and that consent to such
modification(s) shall not be unreasonably withheld.
7. Arbitration. Unless stated otherwise herein, the parties agree that
arbitration shall be the sole and exclusive remedy to redress any dispute,
claim or controversy involving the interpretation of this Agreement or the
terms, conditions or termination of this Agreement or the terms, conditions or
termination of Executive's employment with Company. The parties intend that any
arbitration award shall be final and binding and that a judgment on the award
may be entered in any court of competent jurisdiction and enforcement may be
had according to its terms. This paragraph shall survive the termination or
expiration of this Agreement.
7.1. Arbitration shall be held in Columbus, Ohio, and shall be
conducted by a retired federal judge or other qualified arbitrator mutually
agreed upon by the parties in accordance with the Voluntary Arbitration Rules
of the American Arbitration Association then in effect. The parties shall have
the right to conduct discovery pursuant the Federal Rules of Civil Procedure;
provided, however, that the Arbitrator shall have the
9
<PAGE> 10
authority to establish an expedited discovery schedule and cutoff and to
resolve any discovery disputes. The Arbitrator shall not have jurisdiction or
authority to change any provision of this Agreement by alterations of,
additions to or subtractions from the terms hereof. The Arbitrator's sole
authority in this regard shall be to interpret or apply any provision(s) of
this Agreement. The Arbitrator shall be limited to awarding compensatory
damages, including unpaid wages or benefits, but shall have no authority to
award punitive, exemplary or similar-type damages.
7.2. Any claim or controversy not sought to be submitted to
arbitration, in writing, within 120 days of when it arose shall be deemed
waived and the moving party shall have no further right to seek arbitration or
recovery with respect to such claim or controversy.
7.3. The arbitrator shall be entitled to award expenses, including the
costs of the proceeding, and reasonable counsel fees.
7.4. The parties hereby acknowledge that since arbitration is the
exclusive remedy, neither party has the right to resort to any federal, state
or local court or administrative agency concerning breaches of this Agreement,
except as otherwise provided herein in paragraph 5, and that the decision of
the Arbitrator shall be a complete defense to any suit, action or proceeding
instituted in any federal, state or local court before any administrative
agency with respect to any arbitrable claim or controversy.
8. General Provisions.
8.1. The parties agree that the covenants and promises set forth in
paragraphs 5, 6 and 7 shall survive the termination of this Agreement and
continue in full force and effect.
8.2. Except as otherwise provided in paragraph 7.2 above, failure to
insist upon strict compliance with any term hereof shall not be considered a
waiver of any such term.
8.3. Company shall pay Executive's reasonable legal fees incurred in
the negotiation of this Agreement up to a maximum of $4,000, upon receipt of an
appropriate invoice.
8.4. This Agreement and its two attachments, along with any other
document or policy or practice referenced herein (which are collectively
referred to as "Agreement" herein), contain the entire agreement of the parties
regarding Executive's employment and supersede any prior written or oral
agreements or understandings relating to the same. No modification or amendment
of this Agreement shall be valid unless in writing and signed by or on behalf
of both parties.
10
<PAGE> 11
8.5. If Executive's employment terminates, for any reason whatsoever,
he shall immediately tender his written resignation from the Board, which
resignation the Chairman may or may not accept.
8.6. Once signed by both parties, this Agreement shall be binding upon
and shall inure to the benefit of the heirs, successors, and assigns of the
parties.
8.7. This Agreement is intended to be performed in accordance with,
and only to the extent permitted by, all applicable laws, ordinances, rules and
regulations. If any provisions of this Agreement, or the application thereof to
any person or circumstance, shall, for any reason and to any extent, be held
invalid or unenforceable, such invalidity and unenforceability shall not affect
the remaining provisions hereof and the application of such provisions to other
persons or circumstances, all of which shall be enforced to the greatest extent
permitted by law.
8.8. The validity, construction, and interpretation of this Agreement
and the rights and duties of the parties hereto shall be governed by the laws
of the State of Ohio, without reference to the Ohio choice of law rules.
8.9. Any written notice required or permitted hereunder shall be
mailed, certified mail (return receipt requested) or hand-delivered, addressed
to Company's Chairman at Company's then principal office, or to Executive at
the most recent home address. Notices are effective upon receipt.
8.10. The rights of Executive under this Agreement shall be solely
those of an unsecured general creditor of Company.
8.11. The headings in this Agreement are inserted for convenience of
reference only and shall not be a part of or control or affect the meaning of
any provision hereof.
IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement
consisting of 11 pages.
EXECUTIVE
_____________________________
Martin P. Doolan
Signed: July ___, 1997
11
<PAGE> 12
VALUE CITY DEPARTMENT STORES, INC.
By: _____________________________________
Jay Schottenstein
Chairman
Signed: July ___, 1997
12
<PAGE> 1
Exhibit 10.53
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement (the "Agreement") is entered into as of the
14th day of July, 1997, by and between, Value City Department Stores, Inc., an
Ohio corporation (the "Company") and Martin P. Doolan, an officer of the
Company (the "Employee").
Recitals
The Company desires to provide the Employee with an ownership interest and an
incentive to contribute to the growth and profits of the Company.
Agreement
1. Issue of Restricted Stock. In consideration of the Employee's employment by
the Company, the Company hereby agrees to deliver to Employee or, at Employee's
sole discretion, the Doolan Family First Limited Partnership (the "Family
Partnership"), Seventy Five Thousand (75,000) common shares of the Company (the
"Shares"), subject to all of the terms and conditions set forth in this
Agreement. If the Shares are delivered to the Family partnership, the Family
Partnership's ownership of the Shares will continue to be subject to the risk
of forfeiture and vesting provisions of this Agreement applicable to the
Employee. The Company shall cause a certificate or certificates for the Shares
to be issued in the Employee's name and the Employee shall thereupon be a
shareholder of the Company with respect to all of the Shares represented by
such certificate or certificates and shall have all of the rights of a
shareholder with respect to the Shares, including the right to vote the Shares
and to receive all dividends and other distributions paid with respect to the
Shares; provided, however, that the Shares shall be subject to the restrictions
hereinafter described. Certificates representing Shares shall be imprinted, in
conspicuous type, with the following legend:
THE SALE, EXCHANGE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE AND ANY INTEREST THEREIN IS
RESTRICTED BY AN AGREEMENT DATED AS OF JULY 14, 1997, A COPY OF WHICH IS
LOCATED AT THE OFFICE OF THE SECRETARY OF THE CORPORATION. THE SECRETARY OF THE
CORPORATION WILL MAIL WITHOUT CHARGE TO A SHAREHOLDER, WITHIN FIVE DAYS AFTER
WRITTEN REQUEST THEREFOR FROM SUCH SHAREHOLDER, A COPY OF SUCH AGREEMENT.
Delivery of the Shares shall occur as soon as practicable.
2. Escrow Agent. The Employee shall, immediately upon receipt of the
certificate or certificates for the Shares, deposit such certificate or
certificates together with a stock power or other instrument of transfer,
appropriately endorsed in blank, with Irwin A. Bain, or his designee, as escrow
agent (the "Escrow Agent"). Any expenses of such escrow shall be borne by the
Company. The Escrow Agent shall hold the certificate or certificates for the
Shares until the restrictions hereinafter set forth in Section 3 are satisfied.
On each anniversary of the Effective
<PAGE> 2
Date during the Restricted Period (as those terms are defined in Section 3),
the Escrow Agent shall release to the Employee a certificate or certificates
representing the appropriate Vested Percentage of the Shares, as determined in
accordance with Section 3, without the legend set forth in Section 1 (but with
the legend set forth in Section 6).
3. Restrictions. Commencing on July 14, 1997 (the "Effective Date") and ending
on the fifth anniversary of the Effective Date (the "Restricted Period"), the
Employee shall not sell, exchange, transfer, pledge, hypothecate or otherwise
dispose of any legal or beneficial ownership interest in the Shares; provided,
however, that, subject to Section 6 of this Agreement, the Employee may sell,
exchange, transfer, pledge, hypothecate or otherwise dispose of the Shares to
the extent of the percentage of the Shares which have vested (the "Vested
Percentage"), based upon the Employee's continuous employment by the Company,
on a full-time basis, as determined in accordance with the following schedule:
Years of Continuous
Employment by the
Company After
Effective Date Vested Percentage
1 20%
2 40%
3 60%
4 80%
5 100%
To the extent that the Shares vest during the Restricted Period, then as to
such vested Shares the restrictions of this Section 3 shall lapse.
4. Termination of Employment.
(a) If the Company's full-time employment of Employee should be terminated
voluntarily by Employee, unless for good reason (as defined in Section 6.4.3.
of the Employment Agreement dated July 14, 1997 between the Company and
Employee (the "Employment Agreement")) at any time prior to the end of the
Restricted Period or should the Company terminate Employee for cause (as
defined in Section 6.3.3. of the Employment Agreement) at any time prior to the
end of the Restricted Period, all of the Shares which have not previously
vested, based upon the Employee's Vested Percentage, shall be forfeited by the
Employee and the certificate or certificates for such Shares shall be delivered
to the Company by the Escrow Agent upon the Escrow Agent's receipt of written
notice from the Company of such termination. Employee hereby appoints the
Company as his attorney-in-fact to transfer any of such forfeited shares on the
books of the Company.
(b) If the Company's employment of Employee is terminated otherwise than (i)
voluntarily by the Employee, unless for good reason by Employee (as defined in
Section 6.4.3. of the
<PAGE> 3
Employment Agreement), or (ii) for cause by the Company (as defined in Section
6.4.3. of the Employment Agreement), including as a result of Employee's death
or disability or the Company's nonrenewal of Executive's employment agreement
(unless for cause), 100% of the Shares shall vest and Employee, Employee's
personal representative or the person or persons to whom his rights pass by
will or the laws of descent and distribution may sell, exchange, transfer,
pledge, hypothecate or otherwise dispose of the Shares without reference to the
restrictions set forth in Section 3 (but subject, to the extent then
applicable, to the restrictions set forth in Section 6). Upon written notice
from the Company of such an event, the Escrow Agent shall release to Employee
or Employee's legal representative or beneficiary all of the certificates
representing the Shares without the legend set forth in Section 1.
5. Reorganization.
(a) If shares of common stock of the Company should, as a result of a stock
split, stock dividend, combination of shares or any other change, or exchange
for other securities, by reclassification, reorganization, merger,
consolidation, recapitalization or otherwise, be increased or decreased or
changed into or exchanged for a different number or kind of shares of stock or
other securities of the Company or of another corporation, the number of Shares
shall be appropriately adjusted to reflect such action. If any such adjustment
shall result in a fractional share, such fraction shall be disregarded.
(b) If, as a result of one of the events set forth in paragraph (a) of this
Section 5, the Employee shall, as owner of the Shares, be entitled to new or
additional or different shares of stock or securities, the certificate or
certificates therefor, or other evidences of such new or additional or
different shares or securities, shall be imprinted with the legends set forth
in Sections 1 and 6, and together with a stock power or other instrument of
transfer appropriately endorsed, shall be deposited by Employee with the Escrow
Agent, and all the provisions of this Agreement shall be applicable to such new
or additional or different shares or securities to the extent applicable to the
Shares.
6. Securities Laws Compliance. Employee understands that the Shares have not
been registered under the Securities Act of 1933, as amended (the "Act") and
are, therefore, "restricted shares" within the meaning of Rule 144 of the
Securities and Exchange Commission ("SEC"). Employee further understands that,
regardless of the termination of the Restricted Period and the vesting
provisions set forth in Section 3, he may not sell or otherwise dispose of the
Shares unless they are registered under the Act and any applicable state
securities law or an exemption from such registration is available. Employee
therefore agrees that the certificate or certificates for the Shares delivered
to him pursuant to Section 3 shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD OR OTHERWISE DISPOSED OF UNLESS THEY ARE SO REGISTERED OR UNLESS,
IN THE OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION, AN EXEMPTION FROM THE
REQUIREMENT
<PAGE> 4
FOR SUCH REGISTRATION IS AVAILABLE.
Employee agrees that he will advise the Secretary of the Company prior to any
sale or other transfer of the Shares.
7. Withholding Taxes. The Company shall have the right to require the Employee
to remit to the Company, or to withhold from other amounts payable to the
Employee, as compensation or otherwise, an amount sufficient to satisfy all
federal, state and local withholding tax requirements.
8. No Contract of Employment. Nothing in this Agreement shall confer on the
Employee any right to continue in the service of the Company or interfere with
the right of the Company to terminate at will such Employee's employment or
other services at any time. This Agreement shall in no way, now or hereafter,
reduce, enlarge or modify the employment relationship between the Company and
the Employee. The Shares and the Vested Percentage shall not be affected by any
change of duties or position as long as the Employee continues to be employed
on a full-time basis by the Company.
9. Notices. All notices required pursuant to this Agreement shall be in
writing and shall be personally delivered or sent by registered or certified
mail, postage prepaid, (a) if to the Company, at its principal office, Attn:
Legal Department; (b) if to the Escrow Agent, to Irwin Bain, Esq., at 1800
Moler Road, Columbus, Ohio 43207; or (c) if to Employee, to Employee's last
known address on the personnel records of the Company.
10. General. This Agreement shall be construed as a contract under the laws of
the State of Ohio, without reference to its choice of law rules. It may be
executed in several counterparts, all of which shall constitute one agreement.
It shall bind and benefit the parties and their respective successors, assigns,
heirs and legal representatives.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
VALUE CITY DEPARTMENT STORES, INC. EMPLOYEE:
By:
Jay L. Schottenstein, Chairman Martin P. Doolan
4
<PAGE> 1
EXHIBIT 21
VALUE CITY DEPARTMENT STORES, INC.
List of Subsidiaries
--------------------
<TABLE>
<CAPTION>
State of Percentage Doing
Name Incorporation Ownership Business as
- ---- ------------- ---------- -----------
<S> <C> <C> <C>
GB Retailers, Inc. Delaware 100% indirect Value City
J.S. Overland Delivery, Inc. Delaware 100% J.S. Overland Delivery, Inc.
Penn Management Delaware 100% indirect N/A
Value City of Michigan, Inc. Michigan 100% Value City
Value City Limited Partnership Ohio* 100% indirect Value City of Kentucky LP
VC Retailers, Inc. Delaware 100% indirect Value City
Westerville Road LP, Inc. Delaware 100% Value City
Westerville Road GP, Inc. Delaware 100% Value City
</TABLE>
*This is a limited partnership, not an incorporated entity.
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements of
Value City Department Stores, Inc. on Form S-8 (File Nos. 33-44207, 33-50198,
33-55348, 33-55350, 33-78586, 33-80588, 33-92966, 333-15957 and 333-15961) of
our report dated October 13, 1997, appearing in the Annual Report on Form 10-K
of Value City Department Stores, Inc. for the year ended August 2, 1997.
Deloitte & Touche LLP
Columbus, Ohio
October 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-02-1997
<PERIOD-START> AUG-04-1996
<PERIOD-END> AUG-02-1997
<CASH> 11,614
<SECURITIES> 0
<RECEIVABLES> 7,130
<ALLOWANCES> 363
<INVENTORY> 236,784
<CURRENT-ASSETS> 297,286
<PP&E> 254,599
<DEPRECIATION> 101,148
<TOTAL-ASSETS> 457,973
<CURRENT-LIABILITIES> 138,810
<BONDS> 57,763
0
0
<COMMON> 110,068
<OTHER-SE> 146,372
<TOTAL-LIABILITY-AND-EQUITY> 457,973
<SALES> 1,073,399
<TOTAL-REVENUES> 1,073,399
<CGS> 697,822
<TOTAL-COSTS> 697,822
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 531
<INTEREST-EXPENSE> 5,126
<INCOME-PRETAX> 6,475
<INCOME-TAX> 2,524
<INCOME-CONTINUING> 3,951
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,951
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
