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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-K
_______________________
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended January 31, 1997
_______________________
Commission File No. 0-23570
JUST FOR FEET, INC.
An Alabama Corporation
(IRS Employer Identification No. 63-0734234)
153 Cahaba Valley Parkway North
Birmingham, Alabama 35124
(205) 403-8000
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
None
_______________________
Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
Common Stock, par value $.0001 per share
_______________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ______
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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. [_]
The aggregate market value of the Common Stock of the registrant held by
nonaffiliates of the registrant (16,625,806 shares) on April 21, 1997 was
$260,817,332. For the purposes of this response, officers, directors and
holders of 5% or more of the registrant's common stock are considered the
affiliates of the registrant at that date.
The number of shares outstanding of the registrant's Common Stock, par value
$.0001 per share, as of April 21, 1997: 28,832,956 shares.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Registrant's definitive Proxy Statement for its Annual
Meeting of Shareholders to be held in 1997 are incorporated by reference into
Part III of this Report, with the exception of information regarding executive
officers required under Item 10 of Part III, which information is included in
Part I, Item 1.
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PART I
ITEM 1. BUSINESS.
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The Private Securities Litigation Reform Act of 1995 provides a safe harbor
to encourage companies to provide prospective information so long as it is
identified as forward-looking and accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed. Forward-looking statements are related
to the plans and objectives of management for the future operations, economic
performance, of projections of revenues, income, earnings per share, capital
expenditures, dividends, capital structure, or other financial items. In the
following discussion and elsewhere in this report, statements containing words
such as "expect," "anticipate," "believe," "goal," "objective," or similar words
are intended to identify forward-looking statements. The Company undertakes no
obligation to update such forward-looking statements, and it wishes to identify
important factors that could cause actual results to differ materially from
those projected in the forward-looking statements contained in the following
discussion and elsewhere in this report. The risks and uncertainties that may
affect the operations, performance, development and results of the Company's
business include but are not limited to the following: (1) heightened
competition, particularly intensified price competition; (2) general economic
and business conditions which are less favorable than expected; (3)
unanticipated changes in industry trends; and (4) other risks detailed herein
and from time to time in the Company's other reports.
Just For Feet, Inc. ("Just for Feet" or the "Company") operates superstores
specializing in brand-name athletic and outdoor footwear. Unless otherwise
indicated, references herein to "Just For Feet" refer to Just For Feet
superstores. The Company, which began with a single mall-based store in 1977,
opened its first superstore in 1988 and since that time has focused on
developing and refining its superstore concept. In March 1997, the Company also
entered the small store segment of the athletic and outdoor footwear market with
the acquisition of Athletic Attic, a privately owned athletic footwear and
apparel retailer based in Gainesville, Florida, and the execution of an
agreement to acquire Imperial Sports, a privately owned, Flint, Michigan-based
athletic and outdoor footwear and apparel retailer. See "Recent Entry into Small
Store Market." At January 31, 1997, there were 57 "Just For Feet" stores
operating in 14 states, including seven stores operated by a single franchisee.
As a result of its acquisition of Athletic Attic, the Company presently operates
30 smaller company-owned Athletic Attic stores in eight states. An additional 48
Athletic Attic stores are operated by 17 franchisees in 16 states and Puerto
Rico. Upon the closing of the acquisition of Imperial Sports (expected in May
1997), the Company will also operate 57 Imperial Sports stores in Michigan,
Illinois, Indiana and Ohio.
In 1996, total retail sales of athletic and outdoor footwear in the United
States were over $13 billion. The industry historically has been served by a
variety of distribution channels, including mall-based specialty athletic
footwear retailers, department stores, traditional shoe stores, traditional
sporting goods stores and, more recently, sporting goods superstores. The
Company believes each of these formats serves a unique niche in the industry.
To capitalize on these distinct distribution channels, the Company has
historically operated from a superstore format and has recently entered the
small store segment of the industry.
RECENT ENTRY INTO SMALL STORE MARKET
While it has traditionally operated from a superstore format, the Company
believes that the parallel development of smaller stores will provide additional
growth opportunities by targeting for expansion a much broader range of markets
without detracting from the Company's focus on its core
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superstore business. Although the large store format has proven to be successful
in larger population centers, the Company believes that its future expansion
plans should be two-tiered: continued expansion of superstores in carefully
chosen, highly populated areas, and entry into markets considered too small for
a traditional Just For Feet superstore with the development of a new smaller
store concept.
On March 17, 1997, the Company entered the small store segment of the
athletic and outdoor footwear market through its acquisition of Athletic Attic
for approximately $9.2 million in cash and approximately $5.5 million in Just
For Feet common stock. Athletic Attic was a privately owned athletic footwear
and apparel retailer based in Gainesville, Florida. Athletic Attic operates 30
company-owned stores in eight states. An additional 48 franchised stores are
operated in 16 states and Puerto Rico by 17 franchisees. Athletic Attic stores
are located primarily in enclosed shopping malls and, to a lesser extent, in
retail strip centers. For its fiscal year ended December 31, 1996, the 30
company-owned Athletic Attic stores had net sales of approximately $23 million.
On March 17, 1997, the Company entered into an agreement to acquire
Imperial Sports, a privately owned, Flint, Michigan-based athletic and outdoor
footwear and apparel retailer, for between $25 million and $30 million in Just
For Feet common stock (depending on certain variables to be determined prior to
closing). Imperial Sports currently operates 57 stores in Michigan, Illinois,
Indiana and Ohio, primarily in major enclosed shopping malls and retail strip
centers. Closing of the acquisition is expected to occur during May 1997. For
its fiscal year ended February 28, 1997, Imperial Sports had net sales of
approximately $45 million.
JUST FOR FEET SUPERSTORE
Large Store Format. The prototype 15,000 to 20,000 square foot Just For
Feet superstore has approximately three to four times the selling space of
leading mall-based specialty athletic footwear retailers. This large store
format enables each Just For Feet superstore to offer approximately 2,500 to
4,500 footwear styles as compared to an estimated 200 to 700 footwear styles
typically offered in a conventional mall-based athletic footwear store. The
store layout permits customers to locate shoes by brand (e.g. Nike, Reebok, New
Balance) or category (e.g. running, basketball, tennis). One shoe of each
regularly stocked style is located in the appropriate branded concept shop and
the other is presented on a full three-wall display arranged by category which
surrounds the fitting area at the back of the store. These displays, which
emphasize current, in-season products, are complemented by the "Combat Zone,"
where Just For Feet regularly highlights special values on close-outs and other
special-purchase merchandise. Just For Feet strives to create an exciting and
high-energy shopping experience in its superstores through the use of bright
colors, upbeat music, an enclosed "half-court" basketball court for use by
customers, a multi-screen video bank and a snack bar featuring popcorn and
Chicago-style hot dogs.
In-Store Warehousing. Just For Feet does not operate a centralized
distribution center but typically devotes approximately 45% of the square
footage of each superstore to warehouse space.
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Each superstore receives regular shipments directly from vendors and stocks
merchandise in an area behind (or above) the selling floor not visible to
customers. Just For Feet employs warehouse personnel at each superstore in
order to free sales associates to attend to customers and to enhance inventory
control. This decentralized distribution system enables Just For Feet to receive
merchandise at each superstore on a timely basis and avoid the time and expense
of handling merchandise twice. Just For Feet believes its in-store warehousing
strategy also permits it to maintain deep inventory positions in core styles and
to stock its superstores more fully in advance of peak selling periods.
Operations. Just For Feet employs a three-tiered management system for
store operations, presently consisting of four regional directors, 13 divisional
directors and a store director for each store. Each superstore is managed by a
store director, two store managers, an office manager, an operations manager and
up to six assistant managers, depending on the sales volume of the store. Store
directors report to a divisional director, who in turn reports to a regional
director.
The sales staff of individual superstores ranges from approximately 55 to
230 employees depending on the size of the store and the time of year. The
Company's policy is to staff its superstores sufficiently to ensure that all
customers receive prompt personalized attention. Store directors and managers
are paid a salary, while all other superstore employees are paid on an hourly
basis. Just For Feet provides an incentive compensation plan for virtually all
employees. Store director and manager incentive plans are based primarily upon a
combination of store sales, payroll level relative to sales and inventory
variance compared to budget. Sales associates are eligible for semi-annual bonus
payments based on their individual sales performances.
Just For Feet experiences inventory shrinkage rates which it believes are
below the retail industry average. Management attributes its low shrinkage rate
to stocking footwear off the selling floor, the presence of an operations
manager and security personnel at each superstore, the use of surveillance
systems and the reduced handling of merchandise associated with Just For Feet's
in-house warehousing system.
Customer Convenience. Just For Feet superstores operate seven days per
week. To enhance customer convenience, normal hours for superstores located on
outparcels of shopping malls are thirty minutes prior to the mall's opening
until thirty minutes after the mall's closing. Superstores are open on all
holidays except Christmas, Thanksgiving and Easter.
MERCHANDISING
Just For Feet seeks to offer a larger selection of brand-name athletic and
outdoor footwear in terms of styles, sizes and price points than any of its
competitors. The Company carries most of the leading athletic footwear brands
including Nike, Reebok, New Balance, Adidas, Fila, K-Swiss, Asics and Converse,
as well as outdoor footwear brands such as Timberland and Rockport. Just For
Feet seeks to offer virtually all styles in the brands it carries. The Company's
superstores sell shoes for almost every sport and recreational activity,
including running, basketball, cross training, tennis, aerobics, hiking, golf,
football, baseball, soccer, walking and wrestling. Just For Feet also carries a
selection of in-line skates. Just For Feet carries shoes in sizes ranging from
infants' size one to men's size 21. In addition to offering most sizes in most
styles, Just For Feet carries a complete selection of widths in those styles
which are offered in multiple widths.
Just For Feet also offers a limited selection of brand-name apparel and
accessories including warm-up suits, T-shirts, athletic shorts, caps, socks and
shoe care products. Apparel and accessory brands include Nike, Reebok, Adidas,
Starter, Fila, Timberland, Ridgeview and Thor-lo. These
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apparel and accessory items, which include professional and collegiate licensed
apparel, add color and variety to Just For Feet's product offering and generate
additional sales. The Company believes these items also add freshness to the
product offering because they turn faster than footwear.
Just For Feet constantly monitors product trends through its management
information systems in order to identify and rapidly replenish styles which are,
or may become, popular. Just For Feet seeks to manage the risk associated with
purchasing large volumes of merchandise by first testing new products on a
limited basis in selected stores before placing substantial orders.
Just For Feet also regularly makes special purchases of merchandise made
available to it by leading vendors at close-out prices. These items are
primarily sold in an area in front of each superstore called the "Combat Zone"
at prices generally ranging from 30% to 60% below manufacturers' suggested
retail prices. This specially priced merchandise, which represented
approximately 24% of total shoe sales in fiscal 1996, is the primary focus of
Just For Feet's price advertising, and the Company believes it serves to attract
new customers to the superstores, enhances Just For Feet's reputation for
value-oriented pricing and adds to the sense of excitement in the superstores.
Prices for products sold in the "Combat Zone" typically range from $19.99 to
$59.99. Merchandise margins on these products are generally consistent with Just
For Feet's average.
Because Just For Feet is not a discount retailer, the Company believes it
is able to engender vendor loyalty allowing it to purchase a broad assortment of
the most popular athletic and outdoor footwear. In turn, carrying a broad
selection permits Just For Feet to offer its customers a wide range of prices
appealing to all income levels. Prices for Just For Feet's regularly stocked
footwear generally range from $19.99 to $199.99. In addition, Just For Feet
guarantees it will match any competitor's advertised price.
Just For Feet uses replaceable price signage posted on shelving instead
of directly on each item, enabling rapid price changes on any item in the
superstore. Just For Feet's policy is to rapidly and aggressively mark down slow
moving merchandise in order to minimize the quantity of outdated inventory in
its stores.
CUSTOMER SERVICE
The Company believes the level of service it provides to customers is an
important competitive advantage. Just For Feet is committed to making shopping
for athletic and outdoor footwear an enjoyable experience through the employment
of knowledgeable, well-trained and energetic sales associates. Because of the
large selection of footwear carried and to further differentiate its superstores
from other retailers, Just For Feet devotes substantial time and resources to
training and testing its employees in footwear technology, the performance
attributes of Just For Feet's merchandise and common foot problems. The initial
phase of employee training entails a two-week program in which the new employee
shadows experienced employees to learn the sales and technical aspects of the
business. Employees are allowed to sell Just For Feet's more technical products
as they demonstrate increased proficiency. In addition, new store managers and
other management personnel undergo an intensive two- to three- week training
program at "Just For Feet University" to enhance their understanding of all
aspects of Just For Feet's business. Each employee receives ongoing training
through frequent clinics sponsored by vendors and consultation with Just For
Feet's technical specialists. Just For Feet intends to utilize satellite
technology for two-way, interactive broadcasting between corporate headquarters
and individual superstores. Management
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believes that such satellite technology, if properly employed, could be an
effective and cost-efficient way to facilitate communication and continuing
education on a company-wide basis.
Just For Feet strives to staff its superstores with a high ratio of sales
associates to customers. Because Just For Feet sells almost every athletic shoe
offered by leading brands, sales associates are able to act as problem solvers
for customers and to recommend the ideal shoe with less risk of losing a sale.
Just For Feet seeks to retain its nucleus of well-trained sales personnel
through bonus payments and opportunities for advancement.
ADVERTISING AND PROMOTION
Management believes that the entertaining atmosphere, broad merchandise
selection and extensive customer service in its superstores produce substantial
word-of-mouth advertising and repeat business. In addition, Just For Feet makes
extensive use of television and print media to generate customer visits. Just
For Feet typically runs at least one television spot on the local affiliate of
each major network five days per week in most of its markets. Most of Just For
Feet's media advertising highlights current price promotions on "Combat Zone"
merchandise. These promotions are typically of short duration to instill a sense
of urgency in customers. Management believes that, as it adds new stores in
existing markets, it will benefit from print and television cost efficiencies.
Just For Feet strives to make each new superstore opening a major retail event
by widely advertising through newspaper and television. The Company has an in-
house advertising staff which works with outside advertising agencies to prepare
its advertising materials. A special effort is made to utilize cooperative
advertising dollars offered by vendors whenever possible.
Just For Feet currently has over 2,400,000 families enrolled in its family
frequent buyer program, operating under the slogan "Just For Feet - Where the
13th Pair is Free!(R) ". The Company considers this program one of its most
effective marketing tools. The frequent buyer program gives participating
customers the thirteenth pair of shoes free (up to the average purchase price of
the previous twelve pairs). In addition, Just For Feet extensively uses unique
promotional events which add to the fun and excitement of the superstore,
including appearances by sports celebrities such as Bart Starr, a director of
the Company and Company spokesperson, "Midnight Madness" sales and trade-in
sales.
PURCHASING AND DISTRIBUTION
Just For Feet primarily purchases regularly stocked merchandise in large
volume and supplements its offering with close-outs and other special-purchase
items. As a result of its consistently large volume of purchases, Just For Feet
believes it has significant purchasing power allowing it to obtain favorable
trade terms from its vendors. The Company further believes that its vendors view
Just For Feet favorably due to the unique presentation of their products and
promotion of the vendor's image. Just For Feet has approximately 120 vendors.
Approximately 50% of Just For Feet's purchases for fiscal 1996 were from Nike
and Reebok, combined. Just For Feet purchased approximately 66% of its
merchandise during fiscal 1996 from five vendors.
Substantially all of Just For Feet's merchandise is shipped directly from
vendors to its superstores. Just For Feet's relationships with commercial
freight carriers permits it to monitor and control the status of merchandise
deliveries by the carrier via the Company's computer system, providing important
inventory management information.
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MANAGEMENT INFORMATION SYSTEM
To manage its expansion, the Company is continually evaluating the adequacy
of its existing systems and procedures. Control of Just For Feet's merchandising
activities is currently maintained by a fully integrated point-of-sale (POS),
inventory, and management information system which permits management personnel
to monitor inventory and store operations on a daily basis. Bar-coding all
merchandise and using scanners for receiving and at the point of sale allows the
inventories of all superstores to be automatically adjusted and sales
automatically logged as customers check out. Purchasing, tracking and receiving
systems provide efficient and timely distribution of merchandise to each
superstore. Systems are in place to review sales information by store, category
or employee in order to focus on store needs and employee productivity and
motivation. In-store information systems are linked directly to the corporate
office by leased lines.
In order to improve operational productivity, facilitate timely decision
making and support the Company's future growth, in late 1995, the Company
implemented enhanced systems capabilities utilizing a fully integrated software
system on an IBM AS/400 platform. The Company's enhanced systems provide
management with the capability to track sales, gross margin and inventory levels
by store on a real-time basis. In addition, system enhancements were made
during 1996 for a Human Resource/Time Management/Payroll system that allows
daily analysis of labor costs by location. Management believes that the
Company's enhanced systems will be able to support the Company's planned growth
for the foreseeable future.
COMPETITION
The retail athletic footwear industry is highly competitive. The Company
competes primarily with sporting goods superstores, athletic footwear specialty
stores, department stores, discount stores, traditional shoe stores, traditional
sporting goods stores and mass merchandisers and other athletic footwear
superstores, many of which are units of national or regional chains that have
substantially greater financial and marketing resources than the Company and
several of which have developed their own superstore concepts. Within the past
few years, new independent athletic footwear retailers have opened superstores
similar in format to those of the Company that, in some instances, are competing
directly with the Company. The Company believes that competition in the retail
athletic footwear industry is based primarily on the number of styles of brand-
name athletic and outdoor shoes offered, pricing and customer service. The
Company believes that its superstore concept and larger mall-based stores will
allow it to carry and display a larger number of the more popular styles of
athletic and outdoor footwear. Additionally, the Company believes that its
pricing strategy and frequent buyer program encourages repeat shopping and
customer loyalty. The Company may face periods of intense competition in the
future which could have an adverse effect on its financial results.
EXPANSION STRATEGY
The Company intends to strengthen its position as a leading operator of
athletic footwear superstores by opening approximately 20 stores in fiscal 1997.
In addition to its prototype stores, Just For Feet has opened three, and has
plans to open an additional three, high-visibility, high-profile "flagship"
stores in key locations. Flagship stores, which are not necessarily larger than
the prototypical Just For Feet superstore, provide added entertainment features
designed to generate and maintain customer excitement. The Company's expansion
strategy is to open superstores in new and existing markets, including those
markets with the potential for multiple sites, which enables the Company to take
advantage of advertising and operating efficiencies. In addition, Just For Feet
will continue
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to open superstores in smaller markets which can accommodate only one
superstore. The Company has either executed or negotiated leases with respect to
all of the superstores currently slated to open during fiscal 1997 and is
actively reviewing numerous additional sites.
Management generally seeks to open one superstore in a chosen market for
every 400,000 to 500,000 residents. As a result, multiple superstores opened in
larger markets such as Atlanta, Phoenix and Kansas City derive significant
benefit from advertising and operating efficiencies. More recently, the Company
has also focused on operating single superstores in mid-sized metropolitan
markets such as Huntsville, Alabama and Jackson, Mississippi. In addition, the
Company continues to evaluate select opportunities to expand internationally,
but presently has no formal plans for such expansion.
Because its vendors drop ship merchandise directly to the superstores, Just
For Feet's expansion plans are dependent more on the attractiveness of
individual superstore sites than the logistical constraints that would be
imposed by a central distribution center. Just For Feet plans to open primarily
free-standing superstores in high traffic, high visibility locations typically
on outparcels of or adjacent to shopping malls. The Company's strategy is to
concentrate its efforts on opening Company operated stores.
Just For Feet leases all but three of its existing superstores and intends
to lease all new superstores. The Company estimates that its total cash
requirements to open each new prototype superstore, including store fixtures and
equipment, leasehold improvements, net working capital and store opening costs,
typically ranges from $1.2 to $2.2 million, depending on the extent of vendor
and landlord assistance, while the total cash outlay required to open a flagship
superstore typically approximates $2.5 million.
In order to take advantage of additional growth opportunities, the Company
has entered the small store segment of the athletic footwear market with the
acquisition of Athletic Attic and the pending acquisition of Imperial Sports.
See "Recent Entry into Small Store Market." The Company believes that entry into
the small store segment of the market will allow the Company to continue its
aggressive growth strategy by opening up markets considered too small for a
Just For Feet superstore.
EMPLOYEES
At January 31, 1997, the Company had approximately 6,900 employees, of
which approximately 3,900 were employed on a part-time or seasonal basis. The
number of employees fluctuates during the year primarily due to seasonality.
None of the Company's employees is represented by a labor union.
Management attributes a large portion of the Company's success in driving
sales and various areas of cost control to its inclusion of virtually all
employees in incentive compensation plans. The Company also contributes to the
cost of medical insurance coverage for those employees who are eligible to
participate in Company sponsored plans. All employees also receive discounts on
Company merchandise. The Company considers its relationship with its employees
to be good.
TRADEMARKS
The Company owns the following federally registered service marks (in
design form): "Just For Feet," "Just For Feet, World's Largest Athletic Shoe
Store," "Just For Feet, Where The 13th
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Pair is FREE!" and "Athletic Attic." The Company believes its marks are valuable
and, accordingly, intends to maintain its marks and the related registrations.
The Company is not aware of any pending claims of infringement or other
challenges to the Company's right to use its marks in the United States.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
NAME AGE POSITION
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Harold Ruttenberg 54 Chairman of the Board,
President
and Chief Executive Officer
Robert C. Wabler 48 Executive Vice President, Chief
Financial Officer and Director
Adam J. Gilburne 34 Executive Vice President -
Merchandising
Alex M. Bond 27 Executive Vice President -
Strategic Development
Don-Allen Ruttenberg 30 Executive Vice President - New
Store Development
Scott C. Wynne 30 Executive Vice President -
Operations and Secretary
Mr. Harold Ruttenberg is the founder of the Company and has served as its
Chairman, President and Chief Executive Officer since its inception in 1977.
Mr. Wabler has been employed by the Company since May 1993 and was elected
Executive Vice President, Chief Financial Officer and a director in August 1993.
From 1989 to May 1993, Mr. Wabler was Senior Vice President-Finance and
Administration of The Athlete's Foot Group where his responsibilities included
personnel, inventory systems, financial controls and reporting, and commercial
and investment banking relationships.
Mr. Gilburne served as Vice President-Store Operations of the Company from
March 1994 to December 1994, at which time he was promoted to Executive Vice
President - Merchandising. Mr. Gilburne previously owned and operated a
franchised Just For Feet store in San Antonio, Texas, which the Company acquired
in March 1994. From 1986 until 1993, Mr. Gilburne was the President of a chain
of baby and children's furniture stores located in Las Vegas, Nevada.
Mr. Bond joined the Company in February 1997 as Executive Vice President -
Strategic Development with primary responsibility for the development and
operation of the Company's smaller store format. From January 1995 to January
1997, Mr. Bond was Vice President of Strategic Development for Hollywood
Entertainment Corporation, a publicly traded operator of video retail
superstores. From January 1993 to January 1995, Mr. Bond was an investment
banker with Montgomery Securities, where he focused on the high growth specialty
retail sector.
Mr. Don-Allen Ruttenberg, who joined the Company in 1987, served as Vice
President-Merchandising from January 1994 to February 1997, when he was elected
Executive Vice
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President-New Store Development. Since 1987, Mr. Ruttenberg also has been
actively involved in various merchandising aspects of the Company, focusing on
footwear technology. Mr. Ruttenberg is the son of Mr. Harold Ruttenberg.
Mr. Wynne has been employed by the Company since 1985 and has served as
Operations Manager since 1990 with specific responsibilities in inventory
control, distribution, management information systems and traffic. He was
elected Vice President-Store Operations in January 1994, corporate secretary in
August 1995 and Executive Vice President-Operations in February 1997.
ITEM 2. PROPERTIES.
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The Company presently operates 50 Just For Feet stores, six of which are
located in enclosed malls and 44 of which are free-standing. With the exception
of the Company's Birmingham-Galleria store (which is subject to a ground lease),
Orlando and Knoxville stores, all of the Company's facilities are leased.
The Company also owns and operates 30 Athletic Attic stores, each of which is
leased. Athletic Attic stores are located primarily in enclosed shopping malls
and, to a lesser extent, in retail strip centers.
Certain leases for existing stores provide for fixed minimum rentals and
provide for contingent rental payments based upon various specified percentages
of sales above minimum levels. Certain leases also contain escalation clauses
for increases in minimum rentals, operating costs and taxes. Certain other
leases provide for future rent increases based upon increases in the Consumer
Price Index. The leases carry varying terms expiring between 2003 and 2016,
excluding applicable option periods.
The Company's corporate offices are presently located in a combination
corporate headquarters and mini-storage facility, aggregating approximately
20,000 square feet, on 2.25 acres of land in Birmingham, Alabama.
The Company is currently constructing a new corporate headquarters facility
on approximately 25 acres of land in Birmingham, Alabama purchased for
approximately $1,150,000. The Company intends to construct an approximately
42,000 square foot, three-story building and a warehouse of approximately 36,000
square feet on the site. The Company currently estimates total construction
costs to be between $10 million and $11 million, of which the Company is
financing approximately $6.0 million with a construction line of credit.
Construction of the corporate headquarters facility began in the third quarter
of fiscal 1996 and is scheduled for completion during May 1997.
ITEM 3. LEGAL PROCEEDINGS.
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The Company is involved in various routine legal proceedings incidental to
the conduct of its business. The Company currently is not a party to any
material pending legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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No matter was submitted to a vote of security holders of the Company during
the fourth quarter ended January 31, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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The Company's Common Stock trades on The Nasdaq Stock Market under the
symbol FEET. The following table sets forth, by fiscal quarter, the high and low
sale prices of the Common Stock reported by The Nasdaq Stock Market for the last
eight fiscal quarters ended January 31, 1997. All share prices give effect to
3-for-2 stock splits effected on each of November 30, 1994, July 10, 1995 and
October 15, 1996.
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<CAPTION>
Fiscal Year Ended January 31, 1996
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High Sale Low Sale
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First Quarter ended April 30, 1995 $13.50 $ 8.61
Second Quarter ended July 31, 1995 20.42 12.39
Third Quarter ended October 31, 1995 23.92 15.09
Fourth Quarter ended January 31, 1996 24.66 16.09
<CAPTION>
Fiscal Year Ended January 31, 1997
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High Sale Low Sale
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First Quarter ended April 30, 1996 $32.92 $18.75
Second Quarter ended July 31, 1996 38.25 23.33
Third Quarter ended October 31, 1996 36.67 24.75
Fourth Quarter ended January 31, 1997 32.00 22.25
</TABLE>
As of April 21, 1997, the number of shareholders of record of the Company's
Common Stock was approximately 285 and the number of beneficial holders of the
Company's Common Stock was approximately 6,800. The Company has not declared or
paid any cash dividends on its Common Stock. The policy of the Board of
Directors of the Company is to retain earnings for the expansion and
development of the Company's business. Future dividend policy and the payment
of dividends, if any, will be determined by the Board of Directors in light of
circumstances then existing, including the Company's earnings, financial
condition, contractual restrictions and other factors deemed relevant by the
Board.
ITEM 6. SELECTED FINANCIAL DATA.
- ------- -----------------------
The following income statement and balance sheet data, at the end of and
for fiscal 1992, 1993, 1994, 1995 and 1996 have been derived from the Company's
audited consolidated financial statements. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Company's Consolidated
Financial Statements and related notes and other financial information included
elsewhere herein. The Company's fiscal year ends on January 31. References to
fiscal years by date refer to the fiscal year beginning February 1 of that
calendar year; for example, "fiscal 1996" began on February 1, 1996 and ended on
January 31, 1997.
As is discussed in Note 1 to the Company's Consolidated Financial
Statements, effective February 1, 1996, the Company changed its method of
accounting for store opening costs, which are costs principally for pre-opening
employee salaries and travel that are incremental and directly attributable to
the opening of a new store. Under the new method, the Company charges these
costs
-10-
<PAGE>
to operations in the month that the store opens. Previously, store opening costs
were capitalized and amortized over the twelve months following the store
opening. Pro forma amounts are shown for all periods which are affected to
reflect amounts as if the change had been applied retroactively.
(In thousands, except per share and selected operating data)
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------------------------
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $17,155 $ 23,678 $56,363 $119,819 $256,397
Cost of sales 10,260 14,067 32,492 68,969 147,526
------- ----------- ------- -------- --------
Gross profit 6,895 9,611 23,871 50,850 108,871
Franchise fees and royalties earned 257 417 379 485 581
Operating expenses:
Store operating 4,649 6,628 16,197 33,264 69,329
Store opening costs 140 130 699 2,712 11,240
General and administrative 1,276 1,995 2,584 3,732 8,058
Executive options -- 1,222/(1)/ -- -- --
------- ----------- ------- -------- --------
Operating income 1,087 53 4,770 11,627 20,825
Interest income (expense), net (185) (85) 376 2,931 3,918
------- ----------- ------- -------- --------
Income (loss) before income taxes and 902 (32) 5,146 14,558 24,743
cumulative effect of change in accounting
principle
Provision for income taxes 343 171 1,928 4,836 8,783
------- ----------- ------- -------- --------
Income (loss) before cumulative 559 (203) 3,218 9,722 15,960
effect of change in accounting
principle
Cumulative effect on prior years (to January 31, -- -- -- -- 2,041
1996) of change in accounting principle ------- ----------- ------- -------- --------
Net income (loss) $ 559 $ (203) $ 3,218 $ 9,722 $ 13,919
======= =========== ======= ======== ========
Net income (loss) per common and common $ 0.05 $ (0.02) $ 0.18 $ 0.38 $ 0.55
equivalent share before cumulative
effect of change in accounting principle
Cumulative effect on prior years (to January 31, -- -- -- -- $ 0.07
1996) of change in accounting principle ------- ----------- ------- -------- --------
Net income (loss) per common and common $ 0.05 $ (0.02) $ 0.18 $ 0.38 $ 0.48
equivalent share ======= =========== ======= ======== ========
Weighted average number of common and 10,523 11,408 17,948 25,545 29,096
common equivalent shares outstanding
Pro forma Amounts Assuming the Change in
Accounting Principle is Applied
Retroactively:
Net income (loss) $ 559 ($ 397) $ 2,607 $ 8,487 $ 15,960
======= =========== ======= ======== ========
Net income (loss) per common and $ 0.05 $ (0.03) $ 0.15 $ 0.33 $ 0.55
common equivalent share ======= =========== ======= ======== ========
SELECTED OPERATING DATA:
Increase in comparable store sales/(2)/ 11.8% 6.2% 10.2% 17.9% 24.7%
Number of comparable stores /(2)/ 2 3 5 15 27
</TABLE>
_______________
/(1)/ Represents the expense attributable to the issuance of certain executive
options, primarily a non-cash charge.
/(2)/ Company operated stores are included in the comparable store sales
calculation beginning generally in the thirteenth month of operation or
upon their acquisition, assuming at least twelve months of prior
operations.
-11-
<PAGE>
<TABLE>
<CAPTION>
January 31,
----------------------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 668 $ 2,192 $64,617 $108,304 $168,355
Total assets 7,342 16,012 89,505 243,580 375,834
Long-term debt obligations 865 902 3,102 6,696 7,014
Redeemable convertible -- 3,017 -- -- --
preferred stock
Shareholders' equity 1,431 1,483 72,983 149,270 218,556
</TABLE>
-12-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------ ---------------------------------------------------------------
RESULTS OF OPERATIONS.
---------------------
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, income statement
data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0%
Cost of sales............................. 57.7 57.6 57.5
----- ----- -----
Gross Profit......................... 42.3 42.4 42.5
Franchise fees and royalties earned....... 0.6 0.5 0.2
Operating expenses:
Store operating........................... 28.7 27.7 27.0
Store opening costs....................... 1.2 2.3 4.4
General and administrative................ 4.6 3.1 3.1
----- ----- -----
Operating income..................... 8.4 9.8 8.1
Interest income (expense), net............ 0.7 2.4 1.5
----- ----- -----
Income before income taxes and
cumulative effect of change in
accounting principle................... 9.1 12.2 9.7
Provision for income taxes................ 3.4 4.1 3.4
----- ----- -----
Income before cumulative effect of change
in accounting principle ............... 5.7 8.1 6.2
Cumulative effect on prior years
(to January 31, 1996) of change
in accounting principle................ -- -- 0.8
----- ----- -----
Net income............................. 5.7% 8.1% 5.4%
===== ===== =====
Pro forma Amounts Assuming the Change
in Accounting Principle is Applied
Retroactively:
Net income........................... 4.6% 7.1% 6.2%
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales. Net sales increased $136.6 million or 114.0% for fiscal 1996 to
$256.4 million compared to net sales of $119.8 million for fiscal 1995. This
increase was primarily attributable to 23 new stores opened during the year.
These new stores accounted for $73.7 million in additional net sales compared to
fiscal 1995. In addition, there was an increase in comparable store sales of
24.7%. The calculation of comparable store sales for the period includes 27
stores.
Gross Profit. Gross profit as a percentage of net sales increased to 42.5%
in fiscal 1996 from 42.4% in fiscal 1995.
Store Operating Expenses. Store operating expenses increased $36.1 million
or 108% to $69.3 million in fiscal 1996 from $33.3 million in fiscal 1995. This
increase was primarily attributable to the operating expenses of the 23 stores
opened during fiscal 1996. As a percentage of net sales, store operating
expenses decreased to 27.0% in fiscal 1996 from 27.7% in fiscal 1995.
-13-
<PAGE>
Store Opening Costs. As is discussed in Note 1 to the Company's
Consolidated Financial Statements, effective February 1, 1996, the Company
changed its method of accounting for store opening costs, which are costs
principally for pre-opening salaries and travel that are incremental and
directly attributable to the opening of a new store. Under the new method, the
Company charges these costs to operations in the month that the store opens.
Previously, store opening costs were capitalized and amortized over the twelve
months following the store opening. The cumulative effect of this change in
accounting principle resulted in a $2.04 million charge to operations for the
year ended January 31, 1997, net of income taxes of $1.1 million. This change
increased operating expenses for the year ended January 31, 1997 by
approximately $5.1 million and decreased income before the cumulative effect of
change in accounting principles by approximately $3.3 million ($0.11 per share).
Had the statements of income for the years ended January 31, 1996 and 1995 been
restated for the effects of this change, store opening costs for these years
would have increased from the amounts reported in the accompanying statements of
income to approximately $4.6 million and $1.7 million, respectively. The
increase in store opening costs in fiscal 1996 to $11.2 million from the pro
forma amount of $4.6 million in fiscal 1995 resulted from increased store
openings and an increase in the dedicated corporate staff to support new store
openings.
General and Administrative Expense. General and administrative expense
increased $4.3 million or 116% from $3.7 million to $8.0 million. The increase
was primarily attributable to the addition of corporate personnel to Just For
Feet and in anticipation of continued growth and development of the small store
concept.
Operating Income. Operating income increased to $20.8 million in fiscal
1996 from $11.6 million in fiscal 1995 but decreased as a percentage of net
sales from 9.8% in fiscal 1995 to 8.1% in fiscal 1996. This decrease is due to
the increase in store opening costs associated with the change in accounting
principle. Had fiscal 1995 been restated for the effects of the change in
accounting principle, operating income for fiscal 1995 would have decreased to
approximately $9.8 million or 8.1% of sales.
Net Interest Income. Net interest income increased to $3.9 million in
fiscal 1996 from $2.9 million in fiscal 1995. The change was primarily
attributable to investing the proceeds of the public offering of the Company's
common stock in June 1996.
Income Before Cumulative Effect of Change in Accounting Principle and Net
Income. As a result of the above factors, income before cumulative effect of
change in accounting principle increased to $16.0 million in fiscal 1996 from
income before cumulative effect of change in accounting principle of $9.7
million ($8.5 million on a pro forma basis) in fiscal 1995. Net income
increased to $13.9 million in fiscal 1996 from net income of $9.7 million ($8.5
million on a pro forma basis) in fiscal 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Net sales increased $63.4 million or 113% for fiscal 1995 to
$119.8 million compared to net sales of $56.4 million for fiscal 1994. This
increase was primarily attributable to 12 new stores opened during the year.
These new stores accounted for $29.7 million in additional net sales compared
with fiscal 1994. In addition, there was an increase in comparable store sales
of 17.9%. The calculation of comparable store sales for the period includes 15
stores.
Gross Profit. Gross profit as a percentage of net sales increased to 42.4%
in fiscal 1995 from 42.3% for fiscal 1994.
-14-
<PAGE>
Store Operating Expenses. Store operating expenses increased $17.0 million
or 105.0% to $33.2 million in fiscal 1995 from $16.2 million in fiscal 1994.
This increase was primarily attributable to the operating expenses of the 12 new
stores opened during fiscal 1995. As a percentage of net sales, store operating
expenses decreased to 27.7% in fiscal 1995 from 28.7% in fiscal 1994.
Store Opening Costs. Store opening costs, which were amortized over the 12
months following a store opening, increased to $2.7 million in fiscal 1995 from
$699,000 in fiscal 1994. Had the accompanying statements of income for the years
ended January 31, 1996 and 1995 been restated for the effects of the change in
accounting for store opening costs (see Note 1 to the accompanying consolidated
financial statements) store opening costs would have increased to approximately
$4.6 million and $1.7 million, respectively. The increase in the pro forma
amount of $1.7 million in fiscal 1994 to the pro forma amount of $4.6 million in
fiscal 1995 resulted from increased store openings.
General and Administrative Expense. General and administrative expense
increased $1.2 million or 44.4% but decreased as a percentage of net sales in
fiscal 1995 to 3.1% from 4.6% in fiscal 1994. The dollar increase was primarily
due to increasing the store operations and management information systems
infrastructure.
Operating income. Operating income increased to $11.6 million ($9.8
million on a pro forma basis) in fiscal 1995 from $4.8 million ($3.8 million on
a pro forma basis) in fiscal 1994 and increased as a percentage of net sales to
9.7% from 8.4% in the prior year. This increase was primarily due to the 12 new
stores opened since during fiscal 1995.
Net Interest Income. Net interest income was $2.1 million in fiscal 1995
compared to $376,000 in fiscal 1994. The increase was primarily attributable to
investing the proceeds of two public offerings of the Company's common stock
during January and September 1995.
Net Income. As a result of the above factors, net income increased to $9.7
million in fiscal 1995 from $3.2 million in fiscal 1994. On a pro forma basis
net income increased from $2.6 million in fiscal 1994 to $8.5 million in fiscal
1995.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company does not experience significant seasonal fluctuations in its
business. However, the highest sales periods for the Company are the spring,
back-to-school and Christmas selling seasons. The Company also generally
experiences lower gross margins during January and February due to retail
markdowns taken to clear seasonal merchandise. Quarterly results may fluctuate
materially depending on the timing of new store openings and related store
opening expenses, net sales contributed by new stores and increases or decreases
in comparable store sales.
The following table sets forth certain unaudited results of operations for
the Company's last eight fiscal quarters ended January 31, 1997. The unaudited
information includes all normal recurring adjustments which management considers
necessary for a fair presentation of the information shown. All amounts shown
are in thousands, except per share and store data.
-15-
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------
FISCAL 1996
-------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net sales...................................................... $49,150 $58,379 $69,739 $79,129
Gross profit................................................... 20,753 24,812 29,439 33,867
Income before income taxes and cumulative effect
of change in accounting principle.......................... 4,899 4,535 7,902 7,407
Income before cumulative effect of change
in accounting principle.................................... 3,176 2,930 5,028 4,826
Cumulative effect on prior years of change
in accounting principle.................................... 2,041 -- -- --
Net income..................................................... $ 1,135 $ 2,930 $ 5,028 $ 4,826
Income per common and common equivalent share
before cumulative effect of change in accounting
principle.................................................. $ 0.11 $ 0.10 $ 0.17 $ 0.17
Net income per common and common equivalent share.............. $ 0.04 $ 0.10 $ 0.17 $ 0.17
Weighted average shares outstanding............................ 27,959 28,888 29,763 29,713
Company stores at end of period................................ 30 39 44 50
<CAPTION>
-------------------------------------------------
FISCAL 1995
-------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net sales...................................................... $21,136 $25,435 $34,770 $38,478
Gross profit................................................... 8,859 10,811 14,596 16,893
Income before income taxes..................................... 2,079 3,105 4,279 4,041
Net income..................................................... $ 1,459 $ 2,056 $ 2,951 $ 3,256
Net income per common and common equivalent share.............. $ 0.06 $ 0.08 $ 0.11 $ 0.13
Weighted average shares outstanding............................ 23,974 24,558 26,348 27,759
Company stores at period end................................... 16 21 24 27
Pro Forma Amounts Assuming the Change
in Accounting Principle is Applied Retroactively:
Net income.............................................. $ 1,553 $ 1,344 $ 2,113 $ 3,477
Net income per common and
common equivalent share.............................. $ 0.06 $ 0.08 $ 0.08 $ 0.13
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Just For Feet's primary sources of working capital are cash flow from
operations and borrowings under its line of credit. In addition, the Company's
working capital was augmented by a portion of the proceeds of three public
offerings of common stock in January and September 1995 and June 1996. The
Company had working capital of $64.6 million, $108.3 million and $167.8 million
at January 31, 1995, 1996 and 1997, respectively. The principal use of working
capital has been to purchase inventory, equipment and fixtures and the
acquisition of the land for and construction of its new corporate headquarters.
During fiscal 1996, the Company acquired property and equipment of $20.0 million
to open 23 new stores, spent $6.7 million as an investment in corporate
management information systems and store level systems and equipment and $2.7
million on the construction of the new corporate headquarters, including
approximately $1.4 million for the purchase of the land. The Company's short-
term operational cash requirements are not highly seasonal. The Company had
$172.7 million and $129.5 million in cash and marketable securities as of
January 31, 1997 and 1996, respectively.
-16-
<PAGE>
In June 1996, the Company completed an additional public offering of
1,638,750 shares of Common Stock at $34.25 per share. Net proceeds of
approximately $52 million are being used primarily to acquire fixed assets and
inventory for the opening of new stores.
As an Alabama corporation, the Company is subject to Alabama shares tax on
the value of the Company's common stock less certain exclusions. As part of its
planning for taxes, the Company makes temporary investments in short-term
federal obligations which are excludable for determining the taxable value of
the shares. At January 31, 1996 and January 31, 1997 the Company had borrowed
$55,000,000 and $100,000,000, respectively, on a short-term basis from a bank
with the funds used to purchase U.S. Treasury securities. The total investment
in U.S. Treasury securities at January 31, 1996 was $89,984,000 and January 31,
1997 was $125,000,000. These securities were sold in the following month (which
is the beginning of the next fiscal year) with the proceeds utilized to repay
the short-term borrowings.
As of January 31, 1997, the Company had no borrowings under its revolving
bank line of credit. The line of credit, which expires July 1, 1997, permits the
Company to borrow up to $20.0 million for general working capital purposes.
Borrowings, if any, under such line of credit bear interest at either the bank's
prime rate or at the LIBOR rate plus 1.25% (6.75% at January 31, 1997) and are
unsecured. The line of credit contains certain financial covenants and other
restrictions. The Company also has several lease arrangements with leasing
companies that the Company uses to finance certain store fixtures, point-of-sale
equipment and management information systems.
Just For Feet's current primary capital requirements are for completing
construction of the new corporate headquarters, estimated to be between $10
million and $11 million; cash payments related to the acquisitions of Athletic
Attic and Imperial Sports (See "Recent Entry into Small Store Market") and the
related remodeling, new POS and corporate computer systems implementation and
restocking of these stores; and for the opening of new superstores. The Company
estimates that the total cash required to remodel and restock one of the
acquired smaller stores should range from approximately $25,000 to approximately
$250,000, depending on the amount of remodeling which will be required and the
mix and quantity of each of the acquired stores' inventory. The Company
estimates that the total cash required to open a new 15,000 to 20,000 square
foot prototype superstore, including store fixtures and equipment, leasehold
improvements, net working capital and pre-opening costs, typically ranges from
$1.2 to $2.0 million, depending on the amount of vendor and landlord assistance.
The Company expects to open approximately 20 superstores in fiscal 1997.
The Company is not currently planning any major expenditures other than
those mentioned above and believes that the proceeds of its public stock
offerings, internally generated funds, cash on hand and its line of credit will
be adequate to fund its anticipated needs through at least the end of fiscal
1997.
IMPACT OF INFLATION
The Company does not believe that inflation has had a material, adverse
effect on net sales or results of operations. The Company has generally been
able to pass on increased costs through increases in selling prices.
-17-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS.
- ------- ---------------------
The following financial statements are filed with this report:
Independent Auditors' Report
Consolidated Balance Sheets as of January 31, 1997 and 1996
Consolidated Statements of Income for the years ended
January 31, 1997, 1996 and 1995.
Consolidated Statements of Shareholders' Equity for the years ended
January 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended
January 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements
-18-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Just For Feet, Inc.:
We have audited the accompanying consolidated balance sheets of Just For Feet,
Inc. and subsidiaries as of January 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended January 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Just For Feet, Inc. and
subsidiaries as of January 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 1997 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for store opening costs effective February 1,
1996.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
March 17, 1997
-19-
<PAGE>
<TABLE>
<CAPTION>
JUST FOR FEET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------
January 31,
------------------------------------
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 138,784,600 $ 96,854,200
Marketable securities available for sale 33,961,300 32,634,200
Accounts receivable 6,552,800 3,409,500
Merchandise inventories 133,323,200 56,637,900
Other 2,121,200 4,166,100
------------- -------------
Total current assets 314,743,100 193,701,900
PROPERTY AND EQUIPMENT, NET 54,922,200 23,387,900
MARKETABLE SECURITIES AVAILABLE FOR SALE 2,966,200 22,647,400
REPURCHASED FRANCHISE RIGHTS - net of accumulated
amortization of $492,400 (1997) and $312,100 (1996) 3,112,900 3,293,200
OTHER ASSETS 90,000 549,500
------------- -------------
$ 375,834,400 $ 243,579,900
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 100,000,000 $ 55,000,000
Accounts payable 38,896,900 22,268,600
Accrued expenses 5,486,400 2,777,200
Income taxes 425,400 3,552,000
Deferred income taxes 681,100
Current maturities:
Long-term debt 1,225,700 786,000
Capital lease obligations 879,500 333,500
------------- -------------
Total current liabilities 146,913,900 85,398,400
CAPITAL LEASE OBLIGATIONS 2,038,800 1,456,200
LONG-TERM DEBT 4,449,000 5,239,500
DEFERRED LEASE RENTALS 3,036,600 1,580,400
DEFERRED INCOME TAXES 839,700 635,600
------------- -------------
Total liabilities 157,278,000 94,310,100
------------- -------------
COMMITMENTS
SHAREHOLDERS' EQUITY:
Common stock - par value $.0001 per share; 70,000,000 shares
authorized; 28,494,646 (1997) and 26,298,145 (1996) shares
issued and outstanding 2,800 2,600
Paid-in capital 190,491,700 135,124,200
Retained earnings 28,061,900 14,143,000
------------- -------------
Total shareholders' equity 218,556,400 149,269,800
------------- -------------
$ 375,834,400 $ 243,579,900
============= =============
</TABLE>
See notes to consolidated financial statements.
-20-
<PAGE>
<TABLE>
<CAPTION>
JUST FOR FEET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------------------------------------------------------------------------------------------------
For the Years Ended January 31,
1997 1996 1995
<S> <C> <C> <C>
NET SALES $ 256,397,400 $ 119,819,000 $ 56,363,600
COST OF SALES 147,525,900 68,969,300 32,492,100
------------- ------------- ------------
GROSS PROFIT 108,871,500 50,849,700 23,871,500
------------- ------------- ------------
FRANCHISE FEES AND ROYALTIES EARNED 581,400 485,300 379,200
------------- ------------- ------------
OPERATING EXPENSES:
Store operating 69,329,300 33,264,400 16,196,900
Store opening costs 11,240,500 2,711,900 699,500
General and administrative 8,057,700 3,731,400 2,584,400
------------- ------------- ------------
Total operating expenses 88,627,500 39,707,700 19,480,800
------------- ------------- ------------
OPERATING INCOME 20,825,400 11,627,300 4,769,900
INTEREST INCOME 4,748,700 3,633,600 669,000
INTEREST EXPENSE (831,500) (703,100) (292,800)
------------- ------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES 24,742,600 14,557,800 5,146,100
PROVISION FOR INCOME TAXES 8,783,000 4,835,800 1,928,000
------------- ------------- ------------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 15,959,600 9,722,000 3,218,100
CUMULATIVE EFFECT ON PRIOR YEARS (TO
JANUARY 31, 1996) OF CHANGE IN ACCOUNTING
PRINCIPLE, NET OF INCOME TAXES 2,040,700
------------- ------------- ------------
NET INCOME $ 13,918,900 $ 9,722,000 $ 3,218,100
============= ============= ============
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE:
BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE $ 0.55 $ 0.38 $ 0.18
CUMULATIVE EFFECT ON PRIOR YEARS (TO
JANUARY 31, 1996) OF CHANGE IN
ACCOUNTING PRINCIPLE 0.07
------------- ------------- ------------
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.48 $ 0.38 $ 0.18
============= ============= ============
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 29,096,263 25,545,659 17,948,480
============= ============= ============
PRO FORMA AMOUNTS ASSUMING THE CHANGE IN
ACCOUNTING PRINCIPLE IS APPLIED RETROACTIVELY:
NET INCOME $ 8,486,600 $ 2,606,700
============= ============
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.33 $ 0.15
============= ============
</TABLE>
See notes to consolidated financial statements.
-21-
<PAGE>
<TABLE>
<CAPTION>
JUST FOR FEET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------
Common Stock Paid-in Retained
------------------------- Capital Earnings
Shares Par Value
<S> <C> <C> <C> <C>
BALANCE, FEBRUARY 1, 1994 9,688,923 $1,000 $ 279,300 $ 1,202,900
Public offerings of common stock,
net of offering costs 10,870,988 1,200 63,040,900
Conversion of preferred stock 1,693,113 100 3,016,500
Exercise of options and warrant 469,440 746,000
Issuance of shares in connection
with acquisition 315,801 1,310,000
Other capital transactions 10,152 167,400
Net income 3,218,100
---------- ------ ------------ -----------
BALANCE, JANUARY 31, 1995 23,048,417 2,300 68,560,100 4,421,000
Public offering of common stock,
net of offering costs 3,150,000 300 65,637,100
Exercise of options 97,461 429,100
Income tax benefit from exercise
of options 467,900
Other capital transactions 2,267 30,000
Net income 9,722,000
---------- ------ ------------ -----------
BALANCE, JANUARY 31, 1996 26,298,145 2,600 135,124,200 14,143,000
Public offering of common stock,
net of offering costs 1,638,750 200 52,899,800
Exercise of options 556,851 1,822,700
Income tax benefit from exercise
of options 620,000
Other capital transactions 900 25,000
Net income 13,918,900
---------- ------ ------------ -----------
BALANCE, JANUARY 31, 1997 28,494,646 $2,800 $190,491,700 $28,061,900
========== ====== ============ ===========
</TABLE>
See notes to consolidated financial statements.
-22-
<PAGE>
<TABLE>
<CAPTION>
JUST FOR FEET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended January 31,
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 13,918,900 $ 9,722,000 $ 3,218,100
Adjustments to reconcile net income to net cash used by
operating activities:
Cumulative effect of change in accounting principle 2,040,700
Depreciation and amortization 3,971,000 2,209,200 867,600
Deferred income taxes (743,900) 515,300 219,800
Deferred lease rentals 1,456,200 1,028,400 317,300
Changes in assets and liabilities providing (using) cash,
net of effects of acquisitions in 1995:
Accounts receivable (3,143,300) (3,071,200) (273,300)
Merchandise inventories (76,685,300) (31,539,700) (14,247,700)
Other assets 270,900 (2,604,400) (999,600)
Accounts payable 16,628,300 15,199,100 (1,423,100)
Accrued expenses 2,709,200 688,300 39,400
Income taxes (2,506,200) 2,085,500 1,355,800
------------ ------------ -----------
Net cash used by operating activities (42,083,500) (5,767,500) (10,925,700)
------------ ------------ -----------
INVESTING ACTIVITIES:
Purchases of marketable securities (44,777,800) (94,086,400) (15,496,100)
Sales of marketable securities 63,131,900 51,600,000 5,694,900
Purchases of property and equipment (33,667,000) (14,194,100) (5,951,700)
Acquisitions (net of cash acquired) (443,400)
Other 459,500 (185,600) (183,800)
------------ ------------ -----------
Net cash used by investing activities (14,853,400) (56,866,100) (16,380,100)
------------ ------------ -----------
FINANCING ACTIVITIES:
Net repayments under credit agreement (2,013,700)
Net short-term borrowings 45,000,000 55,000,000
Borrowings of long-term debt 479,300 3,101,900 3,395,600
Principal payments on long-term debt (830,100) (874,000) (1,132,900)
Repayment of loan to shareholder of Lone Star Feet, Inc. (755,100)
Principal payments on capital lease obligations (504,600) (159,800) (76,000)
Exercise of options and warrant 1,822,700 429,000 746,000
Public offerings of common stock (net) 52,900,000 65,637,400 63,042,100
------------ ------------ -----------
Net cash provided by financing activities 98,867,300 123,134,500 63,206,000
------------ ------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 41,930,400 60,500,900 35,900,200
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR 96,854,200 36,353,300 453,100
------------ ------------ -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $138,784,600 $ 96,854,200 $ 36,353,300
============ ============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for:
Interest, net of amounts capitalized $ 831,500 $ 724,200 $ 284,700
------------ ------------ -----------
Income taxes $ 7,878,000 $ 2,291,400 $ 549,400
============ ============ ===========
Fair value of assets acquired under capital leases $ 1,633,000 $ 1,749,100 $ 59,700
============ ============ ===========
See notes to consolidated financial statements.
</TABLE>
-23-
<PAGE>
JUST FOR FEET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Just For Feet, Inc. is a national retailer of
athletic and outdoor footwear and activewear for men, women and children.
Just For Feet operated 50 company-owned stores and it's sole franchisee
operated seven franchise stores at January 31, 1997. The stores are located
primarily in the southeast and southwest regions of the United States.
Principles of Consolidation - The accompanying financial statements include
the consolidated accounts of Just For Feet, Inc. and its wholly-owned
subsidiaries (collectively, "the Company"). All significant intercompany
transactions and balances have been eliminated.
Cash and Cash Equivalents - The Company considers highly liquid investments
with original maturities of three months or less to be cash equivalents.
Merchandise Inventories - Merchandise inventories consist of athletic and
outdoor footwear and clothing and are valued at the lower of cost (first-in,
first-out method) or market. Costs associated with certain purchasing and
merchandise handling activities are included in inventories.
Property and Equipment - Property and equipment are stated at cost.
Depreciation and amortization are computed using the straight-line method
over the lesser of the estimated useful lives of the related assets or the
relevant lease term. Estimated useful lives range from two to ten years for
furniture, fixtures and equipment, up to fifteen years for leasehold
improvements, and up to thirty years for buildings. Maintenance and repairs
are expensed as incurred. Renewals and betterments which extend the useful
lives of assets are capitalized.
Store Opening Costs - Effective February 1, 1996, the Company changed its
method of accounting for store opening costs, which are costs principally for
pre-opening employee salaries and travel that are incremental and directly
attributable to the opening of a new store. The cumulative effect of this
change in accounting principle resulted in a $2,040,700 ($0.07 per share)
charge to operations for the year ended January 31, 1997, net of income taxes
of $1,136,600. This change increased operating expenses for the year ended
January 31, 1997 by approximately $5,081,000 and decreased income before
cumulative effect of change in accounting principle by approximately
$3,277,400 ($0.11 per share). Under the new accounting principle, the
Company charges store opening costs to operations in the month the store
opens. Previously, store opening costs were capitalized and amortized over
the twelve months following the store opening.
At January 31, 1997 and 1996, capitalized store opening costs of $623,500 and
$3,307,000 are included in other current assets of the accompanying balance
sheets.
Fair Value of Financial Instruments - Statement of Financial Accounting
Standards No. 107 Disclosures about Fair Value of Financial Instruments
requires certain disclosures for financial instruments for which it is
practicable to estimate the fair value. The Company's financial instruments
consist of cash and cash equivalents, receivables, marketable securities,
payables, accrued expenses and interest-bearing debt. The fair value of each
of the Company's financial instruments approximate the carrying values
reflected in the accompanying consolidated balance sheets at January 31, 1997
and 1996, primarily because of the short-term nature of these instruments.
The Company's debt is a combination of
-24-
<PAGE>
fixed and variable rates which approximate market rates at January 31, 1997
and 1996. As such, the carrying value of the debt is not significantly
different than its fair value.
Accounting for Stock-Based Compensation - Statement of Financial Accounting
Standards ("FAS") No. 123, Accounting for Stock-Based Compensation, provides
an option either to continue to account for stock-based compensation in
accordance with APB No. 25, Accounting for Stock Issued to Employees, or to
adopt the fair value method of accounting which would require the Company to
expense, over the service or vesting period, the fair value of employee
stock-based compensation at the date of grant. The Company has elected to
continue to account for such plans under the provisions of APB No. 25. The
pro forma disclosures of net income and net income per share as if the
Company had adopted the fair value methods required by FAS No. 123 are
presented in Note 11.
Repurchased Franchise Rights - Franchise rights repurchased in connection
with acquisitions of franchisees are being amortized over 20 years using the
straight-line method.
Revenue Recognition - Revenues from retail sales are recognized at the time
of sale. The Company maintains an incentive program for frequent buyers of
footwear. Estimated future costs associated with providing incentives under
this program are included in accrued expenses.
Franchise fees received which involve significant future obligations are
deferred. Franchise fee income is recognized when the related franchise
store begins operations which coincides with substantial performance of
initial services to the franchisee. Royalty revenues are recognized as
earned. Sales of merchandise to franchisees (and related cost of sales) are
netted in net sales in the accompanying statements of operations as such
amounts, and the resulting gross profit, are immaterial.
Advertising - The Company expenses the cost of advertising as incurred.
Advertising expense, net of co-op credits, charged to operations was
$17,720,000, $9,186,000 and $3,855,000 for the years ended January 31, 1997,
1996 and 1995, respectively.
Income Taxes - The Company accounts for income taxes using the liability
method. Deferred tax assets and liabilities are recorded based on the
differences between the financial statement and tax bases of assets and
liabilities and the tax rates in effect.
Net Income Per Common and Common Equivalent Share - Net income per common and
common equivalent share is computed by dividing net income by the weighted
average number of common and common equivalent shares (from the assumed
exercise of stock options) outstanding during the periods.
The Company effected 3 for 2 stock splits in November 1994, July 1995, and
October 1996. All share and per share information in the accompanying
consolidated financial statements and notes have been restated to reflect the
stock splits as if they had occurred as of the beginning of the earliest
period presented.
Accounting Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results may differ from those estimates.
New Accounting Standards Not Yet Adopted - Statement of Financial Accounting
Standards No. 128, Earnings Per Share,
-25-
<PAGE>
will require the presentation of basic and diluted net income per share.
Basic net income per share excludes common stock equivalents such as options,
while diluted net income per share considers the possible effect of all
common shares which can be potentially issued. The Statement will be
effective for financial statements issued for periods ending after December
15, 1997, including interim periods. Early adoption of this Statement is not
permitted. On a pro forma basis, basic earnings per share before cumulative
effect of change in accounting principle for the years ended January 31,
1997, 1996, and 1995 would be $.58, $.40, and $.19, respectively. Diluted net
income per share for the years ended January 31, 1997, 1996, and 1995 would
be the same as currently reported net income per share for these years.
Reclassifications - Certain reclassifications have been made in the January
31, 1996 and 1995 presentations to conform to the January 31, 1997
presentation.
2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
January 31,
1997 1996
<S> <C> <C>
Owned:
Land $ 3,537,200 $ 2,181,600
Store facilities and corporate office 7,254,100 6,020,300
Furniture, fixtures and equipment 21,424,400 8,861,300
Leasehold improvements 23,717,500 6,456,300
Construction-in-progress 1,752,300 499,000
----------- -----------
57,685,500 24,018,500
Accumulated depreciation and amortization (5,866,500) (2,487,200)
----------- -----------
51,819,000 21,531,300
----------- -----------
Under capital lease -
Furniture, fixtures and equipment 3,796,500 2,163,500
Accumulated amortization (693,300) (306,900)
----------- -----------
3,103,200 1,856,600
----------- -----------
$54,922,200 $23,387,900
=========== ===========
</TABLE>
3. MARKETABLE SECURITIES
<TABLE>
<CAPTION>
January 31,
1997 1996
<S> <C> <C>
Marketable securities available for sale:
Short term -
State and municipal bonds $32,916,500 $27,059,200
Other securities 1,044,800 5,575,000
----------- -----------
Total 33,961,300 32,634,200
Long term -
State and municipal bonds 2,966,200 22,647,400
----------- -----------
$36,927,500 $55,281,600
=========== ===========
</TABLE>
These investments have been accounted for as securities "available for sale"
whereby unrealized holding gains and losses are reported as a separate
component of shareholders' equity until realized. At January 31, 1997 and
1996, there were no material unrealized holding gains or losses as the market
value of these investments approximated their cost. For the years ended
January 31, 1997, 1996 and 1995,
-26-
<PAGE>
there were no significant realized gains or losses from these investments.
Gains and losses on the sale of marketable securities are determined using
the specific identification method.
4. LINE OF CREDIT AND OTHER SHORT-TERM BORROWINGS
The Company has an agreement with a bank for a $20,000,000 line of credit
which expires on July 1, 1997. (The president of one of the bank's
subsidiaries is also a director of the Company.) Amounts borrowed under the
agreement, if any, are unsecured. The Company pays commitment fees on the
unused portion of the line of credit and no compensating balances are
required under the agreement. Borrowings under this line of credit bear
interest at the libor rate plus 1.25% (6.75% at January 31, 1997) with a
minimum rate of 5.0%. The agreement contains covenants which include the
maintenance of a minimum net worth and certain financial ratios. At January
31, 1997 and 1996, there were no borrowings outstanding under this agreement.
At January 31, 1997 and 1996, the Company had $100,000,000 and $55,000,000
respectively, of short-term borrowings that were used to purchase U.S.
Treasury securities for Alabama share tax planning purposes. These
securities, which were pledged as collateral on this debt, were sold in early
February 1997 and 1996 respectively; the respective sale proceeds were
utilized to repay such borrowings.
5. LONG-TERM DEBT
Long-term debt consists of various notes payable due in monthly installments
through 2010 which bear interest at variable and fixed rates ranging from
8.05% to 12.0% at January 31, 1997. Such debt is collateralized principally
by land, buildings, and equipment with an aggregate carrying value of
$8,060,900 at January 31, 1997.
Scheduled maturities of long-term debt at January 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending January 31,
<S> <C>
1998 $1,225,700
1999 559,700
2000 370,000
2001 354,100
2002 299,300
Thereafter 2,865,900
----------
Total $5,674,700
==========
</TABLE>
-27-
<PAGE>
6. CAPITAL LEASES
The Company leases furniture, fixtures and equipment under long-term
agreements which are accounted for as capital leases. Scheduled maturities
of obligations under these capital leases at January 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending January 31,
<S> <C>
1998 $1,115,800
1999 900,500
2000 818,200
2001 556,900
2002 31,600
Thereafter 7,400
----------
3,430,400
Less amounts representing interest (512,100)
----------
Total capital lease obligations 2,918,300
Less current portion (879,500)
----------
Long-term capital lease obligations $2,038,800
==========
</TABLE>
In July 1994, the Company purchased a store facility for $832,300, which was
previously leased from its major shareholders (including the Company's
President) under a capital lease arrangement. The excess of the purchase
price over the carrying value of the capital lease obligation is included in
property in the Company's consolidated balance sheets. In connection with
this purchase, the Company assumed the shareholders' mortgage obligation of
approximately $438,300 and paid these shareholders approximately $394,000 in
cash.
The Company obtained a valuation from an independent party which indicated
the market value of the store facility at the acquisition date was
approximately $963,100. The excess of the market value over the purchase
price ($130,800) was added to property and paid-in capital in the Company's
consolidated balance sheet.
The underlying land related to this store facility was formerly leased by and
from these shareholders and accounted for as an operating lease (Note 7).
This land lease was assigned to the Company in connection with the purchase.
The Company paid these shareholders $62,600 related to the above lease
agreements during the year ended January 31, 1995.
Included in other current assets at January 31, 1997 and 1996 was $183,100
and $101,400, respectively, due from the Company's President.
-28-
<PAGE>
7. OPERATING LEASE COMMITMENTS
The Company leases certain store facilities and land (see Note 6) under
agreements which are accounted for as operating leases. Lease terms range
from approximately five years to twenty years. Certain leases contain
renewal options. At January 31, 1997, future annual minimum lease payments
under operating leases with remaining terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
Store
Facilities Land Total
<S> <C> <C> <C>
Year Ending
January 31,
1998 $ 19,438,400 $ 75,000 $ 19,513,400
1999 22,998,200 75,000 23,073,200
2000 23,290,600 75,000 23,365,600
2001 23,661,900 75,000 23,736,900
2002 24,176,900 75,000 24,251,900
Thereafter 243,874,800 468,700 244,343,500
------------ -------- ------------
$357,440,800 $843,700 $358,284,500
============ ======== ============
</TABLE>
The Company has subleased a portion of two facilities to third parties.
Future sublease rentals are not material.
The above table includes lease payments for 16 store facilities not yet
opened at January 31, 1997. In addition, from February 1 to March 17, 1997,
the Company has entered into lease agreements for two store facilities which
require rental payments aggregating $6,211,400 through 2013. These
commitments are not reflected in the above table.
Total rent expense under all operating leases was as follows:
<TABLE>
<CAPTION>
Year Ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Minimum rentals $10,189,723 $5,372,200 $2,789,300
Additional rentals (based on sales volumes) 709,600 474,500 338,400
----------- ---------- ----------
$10,899,323 $5,846,700 $3,127,700
=========== ========== ==========
</TABLE>
Rent expense for operating leases which contain scheduled rent increases is
recognized for financial reporting purposes on the straight-line method.
Consequently, amounts which have been expensed for financial reporting
purposes, but not yet paid, are reflected as deferred lease rentals in the
accompanying consolidated balance sheets. Certain other leases provide for
future rent increases based upon increases in the Consumer Price Index.
-29-
<PAGE>
8. INCOME TAXES
The consolidated provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
Year Ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $7,397,400 $3,982,300 $1,554,500
State 1,244,500 338,200 153,700
----------- --------- ----------
8,641,900 4,320,500 1,708,200
----------- --------- ----------
Deferred:
Federal 129,700 475,600 200,000
State 11,400 39,700 19,800
---------- ---------- ----------
141,100 515,300 219,800
---------- ---------- ----------
$8,783,000 $4,835,800 $1,928,000
========== ========== ==========
</TABLE>
Following is a reconciliation of the applicable U.S. federal income tax rates
and the effective tax rates reflected in the statement of income, excluding
the cumulative effect of the accounting change:
<TABLE>
<CAPTION>
Year Ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Federal income tax at statutory rate $8,659,900 $4,949,700 $1,749,700
State income taxes, net of federal tax effect 820,400 265,500 109,300
Tax exempt interest income (855,900) (603,600)
Non-deductible operating expenses 23,700 46,400
Other 134,900 177,800 69,000
---------- ---------- ----------
$8,783,000 $4,835,800 $1,928,000
========== ========== ==========
</TABLE>
Deferred tax assets and liabilities that arise as a result of temporary
differences are summarized as follows at January 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets:
Accrued expenses $ 625,200 $ 307,100
Inventory valuation 370,000 298,600
Executive options 139,700
Deferred lease rentals 1,123,500 621,200
Other 6,500
----------- -----------
Total gross deferred tax assets 2,118,700 1,373,100
----------- -----------
Deferred tax liabilities:
Store pre-opening costs (230,700) (1,030,300)
Other prepaid expenses (212,800) (396,200)
Franchise rights (953,800) (990,100)
Depreciation (1,042,600) (273,200)
----------- -----------
Total deferred tax liabilities (2,439,900) (2,689,800)
----------- -----------
$ (321,200) $(1,316,700)
=========== ===========
</TABLE>
-30-
<PAGE>
9. FRANCHISE ACTIVITIES
At January 31, 1997 the Company's only franchisee operates seven stores and
has exclusive rights to establish stores in the State of Ohio and any area
within 100 miles of its borders; the cities of Indianapolis, Indiana,
Louisville, Kentucky and Pittsburgh, Pennsylvania; and, with Just for Feet
approval, any area within 100 miles of each store opened by the franchisee.
This territory remains exclusively available only if the franchisee opens
additional stores within specified time frames. Just For Feet also has the
right of first refusal to purchase these franchise rights or purchase the
franchisee's assets under certain conditions.
In early 1994 the Company acquired its two other franchised operations, which
each operated one store, for approximately $2.9 million. In connection with
these acquisitions, the Company issued common stock with a then fair value of
$1,310,000 and a note payable of $784,500, which both represent non-cash
financing activities for purposes of the statement of cash flows for the year
ended January 31, 1995.
The Company generally receives initial franchise fees on a per store basis
for providing pre-opening training to the franchisee's employees, assisting
with acquisition of initial inventories, certain fixtures, computer systems
and related software, and providing other advice related to opening a
franchise store. In addition, the Company receives royalties based on a
percentage of franchise sales.
Revenues from franchisees included in the accompanying consolidated
statements of income are as follows:
<TABLE>
<CAPTION>
Year Ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Initial franchisee fees $ 15,000 $ 30,000 $ 30,000
Royalties 566,400 455,300 349,200
-------- --------- ----------
$581,400 $ 485,300 $ 379,200
======== ========= ==========
Merchandise sales to franchisees $399,400 $ 135,000 $ 187,200
======== ========= ==========
</TABLE>
Included in accounts receivable at January 31, 1997 and 1996 is $433,400 and
$98,700, respectively, due from the franchisee.
10. COMMON STOCK
Since March 1994, the Company has completed four public offerings of its
common stock selling an aggregate of 15,659,738 shares for net proceeds of
$181.6 million (after offering costs). Concurrent with the Company's initial
public offering, the Company converted all of its then outstanding shares of
the Series A Preferred Stock into 1,693,113 shares of common stock.
During the years ended January 31, 1997, 1996, and 1995, the Company awarded
to one of its directors 900, 2,267, and 10,152 shares of its common stock at
the then fair market value aggregating $25,000, $30,000, and $50,000,
respectively. These common stock awards were made in exchange for services
provided to the Company and, accordingly, related compensation expense has
been charged to operations.
Certain shares of the Company's common stock are subject to registration
rights.
-31-
<PAGE>
11. STOCK OPTION PLANS
The Company maintains a Stock Option Plan which provides for option grants
covering an aggregate of 4,500,000 shares of the Company's common stock to
Company employees. Options may be granted at prices which are equal to or
greater than the fair market value of the shares at the date of grant and
become exercisable over periods of generally one to five years. Options
expire ten years from the date of the grant. At January 31, 1997, the
Company has 654,795 options available for future grants under this plan.
In June 1995, the Company adopted its Non-Employee Director Stock Option
Plan. This plan provides for option grants to non-employee directors of up
to 281,250 shares of the Company's common stock. Options may be granted at
prices which are equal to or greater than the fair market value of the shares
at the date of grant and become exercisable ratably over the first three
years from grant. At January 31, 1997, the Company has 48,750 options
available for future grants under this plan.
Information regarding these option plans is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Options Price
<S> <C> <C>
Outstanding at February 1, 1994 1,217,910 $ 1.48
Granted 1,211,468 8.09
Exercised (385,004) 1.48
Forfeited (224,334) 2.32
---------
Outstanding at January 31, 1995 1,820,040 5.77
Granted 873,526 13.55
Exercised (93,626) 4.52
Forfeited (94,711) 8.48
---------
Outstanding at January 31, 1996 2,505,229 8.43
Granted 1,381,163 25.78
Exercised (559,702) 3.38
Forfeited (279,868) 21.21
---------
Outstanding at January 31, 1997 3,046,822 16.08
=========
</TABLE>
The following table summarizes information about stock options at January
31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- -----------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Range of Number Exercise Life Number Exercise
Exercise Price Outstanding Price (Years) Exercisable Price
<S> <C> <C> <C> <C> <C>
$1.48 - $4.15 323,260 $2.97 6.9 163,927 $2.65
$8.69 - $17.68 1,376,895 10.01 8.1 320,998 9.83
$18.55 - $27.75 1,068,624 23.44 9.6 34,076 23.00
$28.08 - $37.50 278,043 32.68 9.4
--------- -------
3,046,822 519,001
========= =======
</TABLE>
-32-
<PAGE>
The Company has adopted the disclosure-only provisions of FAS No. 123.
Accordingly, no compensation cost has been recognized in the Company's
financial statements for stock option plans. The weighted average fair value
of options granted during the years ended January 31, 1997 and 1996 was $9.86
and $4.05, respectively. Had compensation cost for the Company's option plans
been determined based on the fair value at the grant date for awards granted
in the years ended January 31, 1997 and 1996 consistent with the provisions
of the FAS No. 123, the Company's net income (and net income per share) prior
to the cumulative effect of change in accounting principle would have been
reduced to $12,667,700 ($.44 per share) and $9,003,000 ($.35 per share),
respectively.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions: expected volatility of 34%; risk-free interest rate of 6.5%;
expected life of 4.6 years; and no dividends paid during the option life.
12. SUBSEQUENT EVENTS
On March 17, 1997, the Company acquired Athletic Attic, a privately owned
footwear and apparel retailer based in Gainesville, Florida for approximately
$9.2 million in cash and $5.5 million of the Company's common stock.
Athletic Attic operates 30 company-owned stores in eight states and an
additional 48 franchised stores in 16 states and Puerto Rico. For its year
ended December 31, 1996, Athletic Attic had net sales of approximately $23
million.
On March 17, 1997, the Company also entered into an agreement to acquire
Imperial Sports, a privately owned Flint, Michigan based athletic footwear
and apparel retailer which currently operates 56 stores in four states,
primarily located in major enclosed malls and retail strip centers. The
transaction is expected to be completed in the second quarter of fiscal 1997
at an estimated cost of approximately $25 to $30 million payable in the
Company's common stock or cash. For its fiscal year ended February 28, 1997,
Imperial Sports had net sales of approximately $45 million.
* * * * *
-33-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
There has been no occurrence requiring a response to this item.
PART III
Except as to information with respect to executive officers which is
contained in a separate heading under Item 1 to this Form 10-K, the information
required by Part III of Form 10-K is, pursuant to General Instruction G(3) of
Form 10-K, incorporated by reference from the Company's definitive proxy
statement to be filed pursuant to Regulation 14A for the Company's 1997 Annual
Meeting of Shareholders (the "Proxy Statement"). The Company will, within 120
days of the end of its fiscal year, file with the Securities and Exchange
Commission a definitive proxy statement pursuant to Regulation 14A.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------- --------------------------------------------------
The information concerning directors and executive officers of the
Registrant is set forth in the Proxy Statement under the headings "Election of
Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of
1934," which information is incorporated herein by reference. The name, age and
position of each executive officer of the Company is set forth under the heading
"Executive Officers" in Item 1 of this Report.
ITEM 11. EXECUTIVE COMPENSATION.
- -------- ----------------------
The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Executive Compensation," which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------- --------------------------------------------------------------
The information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management," which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------- ----------------------------------------------
The information concerning certain relationships and related transactions
is set forth in the Proxy Statement under the headings "Certain Transactions"
and "Compensation Committee Interlocks and Insider Participation," which
information is incorporated herein by reference.
-34-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
- -------- ----------------------------------------------------------------
(a)(1) Financial Statements.
---------------------
The following financial statements and auditors' report have been filed
with Item 8 in Part II of this report:
Independent Auditors' Report
Consolidated Balance Sheets as of January 31, 1997 and 1996
Consolidated Statements of Income for the years ended
January 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the years ended
January 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended
January 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules.
------------------------------
All financial statement schedules are omitted as the required
information is inapplicable.
(3) Exhibits.
---------
The exhibits listed below are filed with or incorporated by reference
into this Report. The exhibits which are denominated with an asterisk (*) were
previously filed as part of, and are hereby incorporated by reference from
either (i) the Company's Registration Statement on Form S-1 under the Securities
Act of 1933, Registration No. 33-74404 ("1994 S-1") or (ii) the Company's
Registration Statement on Form S-1 under the Securities Act of 1933,
Registration No. 33-87414 (the "1995 S-1"). Unless otherwise indicated, the
exhibit number corresponds to the exhibit number in the referenced document.
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
2.1 Asset Purchase Agreement dated March 17, 1997 by and between
Owensboro Investment Company, Inc. and Just For Feet, Inc.
2.2 Stock Purchase Agreement dated March 17, 1997 by and among
Just For Feet, Inc., Premium Sports, Inc. and John Gasser
2.3 Agreement and Plan of Merger dated March 17, 1997, by and
among Just For Feet, Inc., an Alabama corporation, IAC
Acquisition Corporation, a Michigan corporation and wholly
owned subsidiary of Just For Feet, Imperial Acquisition
Corporation, a Michigan corporation, and certain of the
shareholders of Imperial Acquisition Corporation.
-35-
<PAGE>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
*3(i) Amended and Restated Certificate of Incorporation of Just
For Feet, Inc. (1994 S-1, Exhibit 3(a))
*3(ii) Amended and Restated Bylaws of Just For Feet, Inc. (1994 S-
1, Exhibit 3(b))
*4 Specimen of Common Stock Certificate of the Company. (1994
S-1)
*9 Voting Trust Agreement dated August 10, 1993, by and among
the Company, Pamela Beryl Ruttenberg and Harold Ruttenberg.
(1994 S-1)
*10.1 Employment Agreement dated May 9, 1993, between the Company
and Robert C. Wabler, as amended on January 11, 1994. (1994,
S-1, Exhibit 10(a))
10.2 Employment Agreement dated November 6, 1996, between the
Company and Alex Bond
*10.3 Employment Agreement dated August 17, 1993, between the
Company and Harold Ruttenberg, as amended on January 18,
1994. (1994 S-1, Exhibit 10(c))
*10.4 Employment Agreement dated March 18, 1994 between the
Company and Adam Gilburne. (1995 S-1)
*10.5 Stock Option Agreement dated March 18, 1994 between the
Company and Adam Gilburne. (1995 S-1)
*10.6 Just For Feet, Inc. Employee Incentive Stock Option Plan, as
amended. (1994 S-1, Exhibit 10(g))
*10.6.1 Amendment No. 2 to the Just For Feet, Inc. Employee
Incentive Stock Option Plan. (1994 S-1)
10.6.2 Amendment No. 3 to the Just For Feet, Inc. Employee
Incentive Stock Option Plan.
*10.7 Franchise Agreement dated November 20, 1989, between Casual
Wear II, Inc. and MBA Marketing Corporation. (1994 S-1,
Exhibit 10(h))
*10.8 Franchise Agreement dated May 19, 1992, between Casual Wear
II, Inc. and MBA Marketing Corporation. (1994 S-1, Exhibit
10(i))
*10.9 Franchise Agreement dated April 1, 1993, between Casual Wear
II, Inc. and MBA Marketing Corporation. (1994 S-1, Exhibit
10(k))
-36-
<PAGE>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
*10.10 Revolving Credit and Security Agreement dated January 10,
1990, as amended June 7, 1990, September 12, 1990, October
3, 1990, May 23, 1991, August 30, 1991, October 22, 1991,
November 13, 1992, January 8, 1993, August 11, 1993,
November 18, 1993, and January 12, 1994, with Compass Bank
(formerly known as Central Bank of the South), together with
Revolving Credit Commercial Note date January 10, 1990, in
the amount of $800,000 executed by the Company. (1994 S-1,
Exhibit 10(aa))
*10.10.1 Twelfth Loan Modification Agreement and Amendment to Loan
Documents dated May 24, 1994 between Compass Bank and the
Company. (1995 S-1, Exhibit 10.31.1)
*10.10.2 Thirteenth Loan Modification Agreement and Amendment to Loan
Documents dated August 16, 1994 between Compass Bank and the
Company. (1995 S-1, Exhibit 10.31.2)
*10.10.3 Form of Fourteenth Loan Modification Agreement and Amendment
to Loan Documents dated November 14, 1994 between Compass
Bank and the Company. (1995 S-1, Exhibit 10.31.3)
*10.11 Loan Agreement dated January 15, 1988, by and between Harold
Ruttenberg, Pamela B. Ruttenberg (Borrowers), Casual Wear,
Inc. (Guarantor) and Warrior Savings Bank, together with
Note in the amount of $400,000 and Guaranty Agreement. (1994
S-1, Exhibit 10(bb))
*10.12 Loan Agreement dated December 1, 1988, by and between Harold
Ruttenberg, Pamela B. Ruttenberg (Borrowers), Casual Wear,
Inc. (Guarantor) and Warrior Savings Bank, together with
Note in the amount of $200,000 and Guaranty Agreement. (1994
S-1, Exhibit 10(cc))
*10.13 Purchase and Sale Agreement dated July 14, 1993, between
Florida Mall Peripheral Associates and the Company. (1994 S-
1, Exhibit 10(dd))
*10.14 Sales Contract dated January 18, 1994, between Harold
Ruttenberg and Pam Ruttenberg and the Company. (1994 S-1,
Exhibit 10(jj))
*10.15 Personal Service Agreement dated August 17, 1994 between the
Company and Bart Starr, Sr. (1995 S-1, Exhibit 10.40)
11 Computation of Net Income per share
18 Letter from Deloitte & Touche LLP regarding Change in
Accounting Principle
-37-
<PAGE>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
*21 Subsidiaries (1994 S-1)
23.1 Consent of Deloitte & Touche LLP
24.1 Power of Attorney of Randall L. Haines
24.2 Power of Attorney of Michael P. Lazarus
24.3 Power of Attorney of Bart Starr
24.4 Power of Attorney of Edward S. Croft, III
24.5 Power of Attorney of David F. Bellet
(b) Reports on Form 8-K.
-------------------
No Reports on Form 8-K were filed during the quarter ended January
31, 1997.
-38-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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.
JUST FOR FEET, INC.
Date: April 22, 1997 By: /s/ Harold Ruttenberg
----------------------------------------
Harold Ruttenberg
Chairman of the Board,
President and Chief Executive Officer
Date: April 22, 1997 By: /s/ Robert C. Wabler
----------------------------------------
Robert C. Wabler
Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Harold Ruttenberg Chairman of the Board, April 22, 1997
- ---------------------- President and Chief
Harold Ruttenberg Executive Officer
/s/ Robert C. Wabler Executive Vice President, April 22, 1997
- ---------------------- Chief Financial Officer
Robert C. Wabler and Director
* Director April 24, 1997
- ----------------------
Michael P. Lazarus
* Director April 25, 1997
- ----------------------
Bart Starr, Sr.
* Director April 23, 1997
- ----------------------
Randall L. Haines
* Director April 23, 1997
- ----------------------
David F. Bellet
* Director April 24, 1997
- ----------------------
Edward S. Croft, III
*By: /s/ Robert C. Wabler
-------------------------------------
Robert C. Wabler, as Attorney-
in-Fact pursuant to Powers of
Attorney filed as exhibits to
this Report
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit Number Description Page Number
- -------------- ----------------------------- -----------
2.1 Asset Purchase Agreement dated March 17, 1997
by and between Owensboro Investment Company,
Inc. and Just For Feet, Inc.
2.2 Stock Purchase Agreement dated March 17, 1997
by and among Just For Feet, Premium Sports,
Inc. and John Gasser
2.3 Agreement and Plan of Merger dated March 17,
1997, by and among Just For Feet, Inc., an
Alabama corporation, IAC Acquisition
Corporation, a Michigan corporation and
wholly owned subsidiary of Just For feet,
Imperial Acquisition Corporation, a Michigan
corporation, and certain of the shareholders
of Imperial acquisition Corporation.
10.2 Employment Agreement dated November 6, 1996
between the Company and Alex Bond
10.6.2 Amendment No. 3 to the Just For Feet, Inc.
Employee Incentive Stock Option Plan.
11 Computation of Net Income Per Share
18 Letter from Deloitte & Touche LLP regarding
Change in Accounting Principle
23.1 Consent of Deloitte & Touche LLP
24.1 Power of Attorney of Randall L. Haines
24.2 Power of Attorney of Michael P. Lazarus
24.3 Power of Attorney of Bart Starr
24.4 Power of Attorney of Edward S. Croft, III
24.5 Power of Attorney of David F. Bellet
<PAGE>
Exhibit 2.1
ASSET PURCHASE AGREEMENT
By and Between
OWENSBORO INVESTMENT COMPANY, INC., as Seller
and
JUST FOR FEET, INC., as Purchaser
Dated as of March 17, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I - Purchase and Sale of Assets............................................................... 1
1.1 Assets to be Transferred................................................................... 1
1.2 Excluded Assets............................................................................ 1
ARTICLE II - Purchase Price, Payment and Allocation................................................... 2
2.1 Purchase Price............................................................................. 2
2.2 Payment.................................................................................... 3
2.3 Allocation of Purchase Price............................................................... 6
2.4 Transfer Taxes............................................................................. 7
ARTICLE III - Assumption of Liabilities............................................................... 7
ARTICLE IV - Closing of Purchase and Sale............................................................. 7
ARTICLE V - Representations and Warranties of the Seller.............................................. 7
5.1 Corporate.................................................................................. 7
5.2 Authorization: Validity.................................................................... 8
5.3 No Violation............................................................................... 8
5.4 Financial Statements....................................................................... 9
5.5 Absence of Undisclosed Liabilities......................................................... 9
5.6 Title to Properties; Encumbrances.......................................................... 9
5.7 Inventory.................................................................................. 10
5.8 Compliance with Laws....................................................................... 10
5.9 Litigation................................................................................. 10
5.10 Contracts and Other Agreements............................................................. 10
5.11 Real Estate................................................................................ 11
5.12 Accounts and Notes Receivable.............................................................. 11
5.13 Intellectual Property...................................................................... 11
5.14 Broker's or Finder's Fees.................................................................. 11
5.15 Employee Benefit Plans..................................................................... 11
5.16 Labor Matters.............................................................................. 12
5.17 Tax Matters................................................................................ 12
5.18 Disclosure................................................................................. 12
5.19 Investment Representation.................................................................. 12
ARTICLE VI - Representations and Warranties of the Purchaser.......................................... 13
6.1 Due Incorporation and Qualification........................................................ 13
6.2 Authorization.............................................................................. 13
6.3 Non-Contravention.......................................................................... 13
-i-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.4 Authority of the Purchaser................................................................. 14
6.5 Litigation................................................................................. 14
6.6 Broker's or Finder's Fees.................................................................. 14
ARTICLE VII - Covenants............................................................................... 14
7.1 Conduct of Business........................................................................ 14
7.2 Preservation of Business................................................................... 15
7.3 Notice of Events........................................................................... 15
7.4 Examinations and Inspections............................................................... 16
7.5 Third Party Consents....................................................................... 16
7.6 Properties................................................................................. 17
7.7 Books and Records.......................................................................... 17
7.8 Material Contracts......................................................................... 17
7.9 Vacation Pay and Bonus Accruals............................................................ 17
ARTICLE VIII - Conditions Precedent to Obligation of Purchaser to Close............................... 17
8.1 Representations and Covenants.............................................................. 17
8.2 Litigation................................................................................. 17
8.3 No Material Adverse Change................................................................. 17
8.4 Good Standing Certificates, Etc............................................................ 18
8.5 Consents................................................................................... 18
8.6 Resolutions................................................................................ 18
8.7 Governmental Permits and Approvals......................................................... 18
8.8 Officer's Certificate...................................................................... 18
8.9 Instruments of Transfer.................................................................... 18
8.10 Opinion of Counsel to the Seller........................................................... 18
8.11 Athletic Attic and Premium Sports Transactions............................................. 18
8.12 Other Documents............................................................................ 19
8.13 Employees.................................................................................. 19
ARTICLE IX - Conditions Precedent to Obligation of Seller to Close.................................... 19
9.1 Representations and Warranties............................................................. 19
9.2 Litigation................................................................................. 19
9.3 Governmental Permits and Approvals......................................................... 19
9.4 Resolutions................................................................................ 19
9.5 Good Standing Certificates, Etc............................................................ 20
9.6 Consents................................................................................... 20
9.7 Officer's Certificate...................................................................... 20
9.8 Assumption Agreement....................................................................... 20
9.9 Opinion of Counsel to the Purchaser........................................................ 20
9.10 Other Documents............................................................................ 20
9.11 Athletic Attic and Premium Sports Transactions............................................. 20
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE X - Survival of Representations and Warranties; Indemnification............................... 21
10.1 By the Seller.............................................................................. 21
10.2 By Purchaser............................................................................... 21
10.3 Survival Period of Representations and Warranties and Other Matters........................ 21
10.4 Indemnification of Third-Party Claims...................................................... 22
10.5 Payment.................................................................................... 23
10.6 No Waiver.................................................................................. 23
10.7 Adjustment of Liability.................................................................... 24
ARTICLE XI Termination of Agreement.................................................................. 24
11.1 Termination................................................................................ 24
11.2 Post-Termination Obligations............................................................... 25
ARTICLE XII - Miscellaneous........................................................................... 25
12.1 Closing of the Athletic Attic and Premium Transactions..................................... 25
12.2 Compliance with Bulk Transfer Laws......................................................... 25
12.3 Further Assurances......................................................................... 26
12.4 Announcements.............................................................................. 26
12.5 Assignment; Parties in Interest............................................................ 26
12.6 Law Governing Agreement.................................................................... 26
12.7 Amendment and Modification................................................................. 26
12.8 Notice..................................................................................... 26
12.9 Expenses................................................................................... 28
12.10 Entire Agreement........................................................................... 28
12.11 Counterparts............................................................................... 28
12.12 Headings................................................................................... 28
-iii-
</TABLE>
<PAGE>
Exhibits
- --------
Exhibit A Form of Lockup Agreement
Exhibit B Opinion of Counsel to Seller
Exhibit C Opinion of Counsel to Purchaser
Schedules
- ---------
Schedule 1.1 Purchased Assets
Schedule 1.2 Excluded Assets
Schedule 5.3 No Violation
Schedule 5.4 Financial Statements
Schedule 5.10 Material Contracts of Seller
Schedule 5.11 Real Property and Leases
Schedule 5.13 Intellectual Property
-iv-
<PAGE>
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made as of this 17th day of March, 1997, by and between
JUST FOR FEET, INC., an Alabama corporation (the "Purchaser"), and OWENSBORO
INVESTMENT COMPANY, INC., a Kentucky corporation (the "Seller").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Purchaser desires to purchase from Seller and Seller desires to
sell, transfer, assign, convey and deliver to Purchaser substantially all of the
assets used in Seller's business of operating a retail athletic footwear and
clothing business with locations in Louisville and Elizabethtown, Kentucky (the
"Subject Business") and assume substantially all of the liabilities in
connection with the Subject Business, all upon the terms and conditions as
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual benefits to be derived, and
the mutual covenants contained herein and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Purchaser and
Seller agree as follows:
ARTICLE I
Purchase and Sale of Assets
---------------------------
1.1 Assets to be Transferred. Subject to the terms and conditions of this
------------------------
Agreement, at the Closing (as defined in Article IV) Seller will sell, transfer,
assign, convey and deliver to Purchaser, and Purchaser will purchase from Seller
the assets, rights and properties described on Schedule 1.1 attached hereto, but
in each case excluding those assets described in Section 1.2 (hereinafter
collectively referred to as the "Purchased Assets").
1.2 Excluded Assets. The parties to this Agreement expressly acknowledge
---------------
and agree that there shall be excluded from the assets, rights and properties to
be transferred to the Purchaser hereunder the assets, rights and properties
described below and those assets, rights and properties described on Schedule
1.2 attached hereto (hereinafter collectively referred to as the "Excluded
Assets"):
(a) All cash, cash equivalents and overdrafts of the Subject
Business;
(b) Any books, records or files that do not relate to the Purchased
Assets or the Subject Business;
(c) Seller's corporate minute books and tax records, and working
papers relating thereto;
-1-
<PAGE>
(d) Any claim, right or interest of Seller in or to any refund for
federal, state or local income or other taxes of any nature whatsoever relating
to periods prior to the close of business on the Closing Date; and
(e) All other assets of Seller, whether real or personal, tangible or
intangible, not identified in Section 1.1.
ARTICLE II
Purchase Price, Payment and Allocation
--------------------------------------
2.1 Purchase Price.
--------------
2.1(a) The purchase price to be paid by Purchaser for the Purchased
Assets shall be FOUR MILLION FIVE HUNDRED THOUSAND AND NO/100THS DOLLARS
($4,500,000.00) plus the value of the inventory of Seller as of the Closing Date
----
(based on Seller's inventory records and valued at the lower of cost or fair
market value and adjusted to the extent necessary in accordance with Section
2.1(b) below) (collectively, the "Purchase Price").
2.1(b) Notwithstanding the actual value (based on the lower of cost
or fair market value) of the inventory of the Seller as of the Closing Date, if
the total value of the inventory does not exceed the total value of accounts
payable assumed under Article III hereof by at least $250,000 (the "Inventory
Excess Amount"), Purchaser shall be entitled to reduce the amount payable for
inventory hereunder on a dollar for dollar basis by the amount that such
Inventory Excess Amount is less than $250,000.
2.1(c) At Closing, Seller shall estimate the value of Seller's
inventory as of the Closing Date (the "Estimated Inventory Value") and Purchaser
shall issue and deliver to Seller shares of JFF Stock, determined in accordance
with Section 2.2 hereof, equal in number to the amount determined by dividing
(i) $4,500,000 plus ninety percent (90%) of the Estimated Inventory Value by
(ii) the Average Closing Bid Price (as defined below). Either on or before the
Closing Date (and if not on or before the Closing Date, no later than five (5)
days after the Closing Date), an actual physical count shall be taken of
Seller's inventory which physical count shall be reconciled to the actual value
of Seller's inventory as of the Closing Date. If the value of Seller's
inventory resulting from such physical count reveals an inventory amount greater
than the Estimated Inventory Value, then Purchaser shall promptly cause to be
issued to Seller additional shares of JFF Stock equal in number to the value of
such difference divided by the Average Closing Bid Price. If such physical
count shows an inventory value less than the Estimated Inventory Value, Seller
shall be obligated to return to Purchaser shares of JFF Stock equal in number to
the value of such difference divided by the Average Closing Bid Price. Any
shares of JFF Stock required to be paid to Seller or returned to Purchaser
pursuant to this Section 2.1(c) shall be Registrable Securities.
-2-
<PAGE>
2.1(d) Any disagreements concerning the calculation of the inventory
valuation provided for in Section 2.1(c) above shall be settled by the final
determination of a "Big Six" accounting firm (or such other accounting firm as
the parties hereto may mutually agree upon), as agreed to between the parties
hereto, that is not then performing any services for either party, provided that
if no agreement is reached by Purchaser and Seller on such a firm, Price
Waterhouse shall be designated as such accounting firm for purposes hereof. The
costs and expenses incurred in engaging such accounting firm shall be borne
equally by the Purchaser and Seller.
2.2 Payment. Upon the terms and subject to the conditions set forth in
-------
this Agreement, the Purchaser, at the Closing, shall pay to Seller the Purchase
Price as follows:
(i) Purchaser shall pay the Purchase Price to Seller in an amount of
common stock of the Purchaser ("JFF Stock") equal in value, as determined
hereunder, to the amount of the Purchase Price. The number of shares (with any
resulting fractional amount to be paid in cash to the Seller) of JFF Stock shall
be determined by dividing the Purchase Price by the average Closing Bid Price
(as defined below) of the JFF Stock for the ten (10) Trading Days (as defined
below) immediately preceding the Closing Date (hereinafter the "Average Closing
Bid Price"). A "Trading Day" shall mean a day in which JFF Stock was traded on
the Nasdaq National Market System and the "Closing Bid Price" of JFF Stock shall
be the Closing Bid Price for JFF Stock as reported in the principal consolidated
transaction reporting system with respect to securities listed on the Nasdaq
National Market Reporting System for that day. The JFF Stock will be issued
hereunder consistent with the provisions of Section 2.1 and will be subject to
the restrictions and provisions set forth in Section 2.2(ii) and (iii) below;
(ii) $1,500,000 in value of the JFF Stock delivered as Purchase Price
consideration shall not be subject to the registration requirement set forth in
Section 2.2(iii) below and at Closing, the Seller shall execute and deliver to
Purchaser a Lock Up Agreement in the form attached as Exhibit A, pursuant to
which such shares shall be restricted from transfer for a period of three (3)
years following the Closing Date; provided that transfers following any
distribution by Seller of JFF Stock to the shareholders of Seller, John Gasser
("J. Gasser") and Steven Gasser ("S. Gasser," and collectively with J. Gasser,
the "Gassers"), to members of their immediate family or trusts for their benefit
shall be permitted, subject to such transfer restriction; and
(iii) (a) Certain Definitions. As used in this Agreement,
-------------------
the following terms shall have the following respective meanings:
1. The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act (as defined below), and the
declaration or ordering of effectiveness of such registration statement.
-3-
<PAGE>
2. "Registrable Securities" means (i) the shares of JFF
Stock issued hereunder which are not covered by Section 2.2(ii) above (the
"Registrable Shares"), and (ii) any other shares of Purchaser's Common
Stock issued as (or issuable upon conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other
distribution with respect to or exchange for or replacement of the
Registrable Shares.
3. "Non-Registrable Securities" means (i) the shares of
JFF Stock issued hereunder which are covered by Section 2.2(ii) above (the
"Non-Registrable Shares"), and (ii) any other shares of Purchaser's Common
Stock issued as (or issuable upon conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other
distribution with respect to or exchange for or replacement of the Non-
Registrable Shares.
4. "Securities Act" shall mean the Securities Act of 1933,
as amended, and the rules or regulations of the SEC promulgated thereunder,
all as the same shall be in effect at the time.
5. "SEC" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
(b) Registration on Form S-3. Not later than forty-five (45) days
------------------------
following the Closing Date, Purchaser agrees to prepare and file with the SEC a
Registration Statement on Form S-3 under the Securities Act (the "Registration
Statement") and proceed to use reasonable efforts to obtain all such
qualifications and compliances as may reasonably be requested by the Seller and
as would permit or facilitate the resale by the Seller of all of the Registrable
Securities; provided, however, that if Purchaser shall furnish to Seller a
certificate signed by the President of Purchaser stating that in the good faith
judgment of the Board of Directors of Purchaser, it would be seriously
detrimental to Purchaser and its stockholders for such registration to be
effected at such time, Purchaser shall have the right to defer the filing of the
Registration Statement for a period of not more than thirty (30) days.
(c) Obligations of Purchaser. In connection with the registration,
------------------------
Purchaser shall (i) prepare and file the Registration Statement with the SEC,
and use its good faith efforts to cause the Registration Statement to become
effective and to remain effective until the earlier of the resale of all the
Registrable Securities so registered or one hundred eighty (180) days subsequent
to the effective date of such Registration Statement; (ii) prepare and file with
the SEC such amendments and supplements to the Registration Statement and the
prospectus used in connection therewith as may be necessary to make and to keep
the Registration Statement effective and to comply with the provisions of the
Securities Act with respect to the resale of the Registrable Securities until
the earlier of the resale of all the Registrable Securities so registered or one
hundred eighty (180) days subsequent to the effective date of the Registration
Statement; (iii) furnish to Seller such number of copies of any prospectus
(including any preliminary prospectus and any amended or supplemented
prospectus), in conformity with the requirements of the Securities Act, as
-4-
<PAGE>
Seller may reasonably request in order to effect the resale of the Registrable
Securities; (iv) use its good faith efforts to register or qualify the
Registrable Securities covered by the Registration Statement under the
securities or blue sky laws of such states as Seller shall reasonably request,
maintain any such registration or qualification current until the earlier of the
resale of all the Registrable Securities so registered or one hundred eighty
(180) days subsequent to the effective date of the Registration Statement, and
take any and all other actions either necessary or advisable to enable Seller to
consummate the public resale of the Registrable Securities in jurisdictions
where the Seller desires to effect such resales; and (v) take other actions
reasonably necessary or desirable to permit the Registrable Securities to be
registered and sold in accordance herewith.
(d) Expenses of Registration. Purchaser shall pay all of the
------------------------
reasonable out-of-pocket expenses incurred in connection with the Registration
Statement prepared and filed pursuant to this Section 2.2(iii), including,
without limitation, all SEC and blue sky registration and filing fees, printing
expenses, transfer agent and registrar fees, the fees and disbursements of
Purchaser's outside counsel and independent accountants including expenses
incurred in connection with any special audits incidental to or required by such
registration. Any underwriting discounts, fees and disbursements of counsel to
the Seller, selling commissions and stock transfer taxes applicable to the
Registrable Securities registered on behalf of Seller shall be borne by Seller.
(e) Indemnification.
---------------
1. Purchaser will indemnify Seller and each person controlling
Seller within the meaning of Section 15 of the Securities Act and each
underwriter, if any, of the Registrable Securities covered by the Registration
Statement, with respect to any registration, qualification or compliance which
has been effected pursuant to this Agreement, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by Purchaser of any rule
or regulation promulgated under the Securities Act applicable to Purchaser in
connection with any such registration, qualification or compliance, and
Purchaser will reimburse Seller and each person controlling Seller for any legal
and any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
provided that Purchaser will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission, made
in reliance upon and in
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conformity with written information furnished to Purchaser by Seller or
controlling person of Seller seeking indemnification.
2. Seller will indemnify Purchaser, each of its directors
and officers and each underwriter, if any, of the Registrable Securities covered
by the Registration Statement and each person who controls Purchaser or such
underwriters within the meaning of Section 15 of the Securities Act, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in the Registration Statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse Purchaser, such directors,
officers or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in the Registration Statement, prospectus, offering circular
or other document solely in reliance upon and in conformity with written
information furnished to Purchaser by Seller, provided that in no event shall
any indemnity under this subsection exceed the gross proceeds received by Seller
from the sale of any of the Registrable Securities.
(f) Covenants with Respect to the Non-Registrable Securities. With a
--------------------------------------------------------
view to making available the benefits of certain rules and regulations of the
SEC which may at any time permit the sale of the Non-Registrable Securities to
the public without registration, at all times from and after the third
anniversary of the Closing Date Purchaser agrees to:
1. Make and keep public information available concerning the
Purchaser, as those terms are understood and defined in Rule 144 under the
Securities Act;
2. File with the SEC in a timely manner all reports and other
documents required of Purchaser under the Securities Act and the Exchange Act;
and
3. So long as Seller owns any Non-Registrable Securities, furnish to
Seller forthwith upon request a written statement by Purchaser as to its
compliance with the reporting requirements of said Rule 144, and of the
Securities Act and the Exchange Act, (i) an opinion of counsel addressed to the
Purchaser's transfer agent necessary to the effect the transfer of any and all
Non-Registrable Securities sold by the Seller; and (ii) a copy of the most
recent annual or quarterly report of Purchaser, and such other reports and
documents of Purchaser, and such other reports and documents so filed as Seller
may reasonably request in availing itself of any rule or regulation of the SEC
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allowing Seller to sell any such Non-Registerable Securities without
registration.
2.3 Allocation of Purchase Price. The parties hereto acknowledge and
----------------------------
agree that the transactions contemplated hereunder must be reported in
accordance with Section 1060 of the Internal Revenue Code of 1986, as amended
(the "Code"). The parties hereto agree to report the transactions contemplated
hereunder for all purposes in accordance with the Purchase Price allocation
reasonably determined by Purchaser in accordance with the reporting requirements
of applicable law. The parties hereto agree to share information and to
cooperate to the extent necessary to permit the transactions to be properly,
timely, and consistently reported in accordance with Section 1060 of the Code
and the regulations promulgated thereunder.
2.4 Transfer Taxes. In addition to the payment of the Purchase Price,
--------------
Purchaser shall pay all sales and transfer taxes, if any, imposed upon the sale
and transfer of the Purchased Assets provided herein. Purchaser shall obtain
and furnish to Seller all required resale or other exemption certificates with
respect to the Purchased Assets hereunder.
ARTICLE III
Assumption of Liabilities
-------------------------
In addition to the payment of the Purchase Price, on and effective as of
the Closing Date, the Purchaser shall by written instrument assume and
thereafter shall fully and timely pay, perform and discharge (collectively, the
"Assumed Liabilities"): (i) all accounts payable liabilities incurred by Seller
in the ordinary course of business when due in accordance with their terms,
provided, that Purchaser shall not assume more than $350,000 in value of such
accounts payable, and (ii) the existing real property leases for Seller's retail
store locations in Louisville and Elizabethtown, Kentucky. The Assumed
Liabilities shall not include any other liabilities of Seller.
ARTICLE IV
Closing of Purchase and Sale
----------------------------
Closing of the purchase and sale provided for herein (the "Closing") shall
take place at the offices of Smith, Gambrell & Russell, 3343 Peachtree Road,
N.E., Suite 1800, Atlanta, Georgia on March 17, 1997 or at such other time and
place as the parties shall mutually agree upon (the actual date such Closing
takes place referred to herein as the "Closing Date").
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ARTICLE V
Representations and Warranties of the Seller
--------------------------------------------
The Seller represents and warrants to the Purchaser the following (both as
of the Closing Date and as of the date hereof):
5.1 Corporate.
---------
5.1(a) Organization. Seller is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Kentucky. Seller
was incorporated on June 14, 1983. No entity has ever merged with or been
consolidated into Seller.
5.1(b) Corporate Power. Seller has all requisite corporate power and
---------------
authority to own, operate and lease its properties and to carry on its business
as and where such is now being conducted.
5.1(c) Qualification. Seller is duly licensed or qualified to do
-------------
business as a foreign corporation, and is in good standing, in all jurisdictions
in which the nature of its business or the character of the properties owned or
leased by it makes such licensing or qualification necessary.
5.1(d) Subsidiaries. Seller does not own, directly or indirectly, any
------------
capital stock, or other equity securities of any corporation or have any direct
or indirect equity or other ownership interest in any entity or business.
5.1(e) Corporate Documents, Etc. Copies of the certificate or
------------------------
articles of incorporation and bylaws of Seller, including any amendments
thereto, which have been delivered by the Seller to Purchaser are true, correct
and complete copies of such instruments as presently in effect. The corporate
minute book and stock records of Seller which have been furnished to Purchaser
for inspection are true, correct and complete in all material respects and
accurately reflect all material corporate action taken by Seller, including all
transactions and actions with respect to the capital stock of Seller.
5.2 Authorization: Validity. The execution and delivery of this Agreement
-----------------------
and the other agreements, instruments and documents contemplated hereby (such
other agreements, instruments and documents sometimes referred to herein as the
"Ancillary Instruments") to be executed and delivered by Seller and full
performance thereunder, have been duly authorized by the Board of Directors of
Seller and no other or further corporate act on the part of such corporation is
necessary therefor. The sole shareholders of Seller are the Gassers. This
Agreement has been duly and validly executed and delivered by Seller and is, and
when executed and delivered the Ancillary Instruments to be executed and
delivered by Seller pursuant hereto will be, the legal, valid and binding
obligation of such corporation, enforceable in accordance with its terms, except
as such may be limited by bankruptcy, insolvency, reorganization or other laws
affecting creditors' rights generally, and by general equitable principles.
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5.3 No Violation. Except as set forth on Schedule 5.3, no consent,
------------
authorization or approval of, or declaration, filing or registration with, any
governmental, administrative or regulatory body, or any consent, authorization
or approval of any other third party, is necessary in order to enable the Seller
to enter into and perform its obligations under this Agreement and to consummate
the transactions contemplated hereby, and neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby
will:
(a) be in violation of the articles of incorporation or bylaws of the
Seller or constitute a breach of any evidence of indebtedness or agreement
relating to the Subject Business to which the Seller is a party;
(b) cause a default under any mortgage or deed of trust or other
lien, charge or encumbrance to which any Purchased Asset is subject or under any
contract relating to the Subject Business to which the Seller is a party, or
permit the termination of any such contract by another person;
(c) result in the creation or imposition of any security interest,
lien, charge or other encumbrance upon any Purchased Assets under any agreement
or commitment to which the Seller is bound;
(d) accelerate, or constitute an event entitling, or which would, on
notice or lapse of time or both, entitle, the holder of any indebtedness of the
Seller to accelerate the maturity of any such indebtedness;
(e) conflict with or result in the breach of any writ, injunction or
decree of any court or governmental instrumentality; or
(f) violate any statute, law or regulation of any jurisdiction as
such statute, law or regulation relates to the properties of the Subject
Business.
5.4 Financial Statements. Attached as Schedule 5.4 is an unaudited
--------------------
consolidated balance sheet of Seller dated December 31, 1996 (the "Balance Sheet
Date"), together with the unaudited statement of earnings for the fiscal year
ending December 31, 1996 (collectively, the "Financial Statements"). The
Financial Statements were prepared from the books and records of the Subject
Business in a manner consistent with the preparation of financial statements
included within Seller's federal income tax return for calendar year 1995, and
fairly present the financial condition of Seller as of the respective dates
thereof on a basis consistent with that of prior periods.
5.5 Absence of Undisclosed Liabilities. All liabilities of the Seller
----------------------------------
with respect to the Subject Business and the Purchased Assets (whether accrued,
absolute, contingent or otherwise and whether due or to become due) are set
forth or adequately reserved against in the Financial Statements, except for
liabilities incurred since the Balance Sheet Date in the ordinary course of
business as theretofore conducted. The total of all liabilities in respect of
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accounts payable incurred in the ordinary course of business of Seller do not
exceed, and as of the Closing Date will not exceed, $350,000 in value.
5.6 Title to Properties; Encumbrances. Except for assets and properties
---------------------------------
which have been sold or otherwise disposed of in the ordinary course of
business, the Seller has good, valid and marketable title (except for leasehold
interests, rights pursuant to easements, licenses and other interests of third
parties specifically set forth on any schedule annexed hereto) to all its
material properties and assets, including all properties and assets reflected in
the Financial Statements and all other properties and assets purchased by the
Seller since the Balance Sheet Date, in each case subject to no encumbrance,
lien, charge or other restriction of any kind or character, except for (i) liens
reflected in the Financial Statements, (ii) liens consisting of zoning or
planning restrictions, easements, permits and other restrictions or limitations
on the use of real property or irregularities in title thereto which do not
materially detract from the value of such property or materially impair the use
of such property by the Seller in the operation of the Subject Business, and
(iii) liens for current taxes, assessments or governmental charges or levies on
property not yet due and delinquent (liens of the type described in clause (i),
(ii) and (iii) above are hereinafter sometimes referred to as "Permitted
Liens").
5.7 Inventory. The inventory shown on the Financial Statements or
---------
thereafter acquired (the "Inventory") consists of products saleable in the
ordinary course of business as presently conducted by the Seller. The amounts
at which the Inventory is carried on the Financial Statements fairly represent
the cost (or market value if lower) thereof.
5.8 Compliance with Laws. With respect to the Subject Business, (i)
--------------------
Seller has received no notice from any governmental authority that it is in
violation of applicable laws and regulations, and (ii) Seller has not received
any notification of past violations of such laws or regulations that could
reasonably be expected to result in future material claims against it. Seller
holds all licenses, permits, orders and approvals of any federal, state or local
governmental or regulatory bodies that are material to or necessary for the
conduct of the Subject Business (collectively "Permits"). All Permits are in
full force and effect and no proceeding is pending or threatened to revoke or
limit any Permit.
5.9 Litigation. There are no actions, suits or claims, or legal,
----------
administrative or arbitral proceedings or investigations pending or, to the best
knowledge and belief of the Seller, threatened against or involving the Seller
or any of its properties or assets with respect to the Subject Business.
5.10 Contracts and Other Agreements. Schedule 5.10 annexed hereto contains
------------------------------
a complete and accurate list of all of the following contracts and other
agreements with respect to the Subject Business to which the Seller is a party
or by or to which it or its assets or properties are bound or subject:
(i) contracts and other agreements with any current or former
officer, director, or employee not cancelable without penalty on notice of
thirty (30) days or less;
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(ii) contracts and other agreements with material suppliers of
products sold or leased by Seller in the normal course of the Subject Business;
(iii) contracts and other agreements relating to the borrowing of
money; and
(iv) any other contract or other agreement which the Seller
reasonably believes is material to the Subject Business (other than those
reflected on any of the other schedules to this Agreement). There have been
delivered or made available to the Purchaser true and complete copies of all of
the contracts and other agreements set forth on Schedule 5.10 or on any other
schedule annexed hereto. All of such contracts and other agreements are valid
and binding upon the Seller in accordance with their terms, and the Seller is
not in material default under any such contracts.
5.11 Real Estate.
-----------
(a) Seller does not own any real property.
(b) Schedule 5.11 annexed hereto sets forth a list and summary
description of all leases or other agreements under which the Seller is the
lessee of, or uses or occupies any real property (the "Leases"). All of the
Leases, true and complete copies of which have been delivered or made available
to the Purchaser, are in effect and the Seller is not in default under or with
respect to any of the Leases nor has the Seller received or sent any notice of
any default under or with respect to any of the same. No other party to any of
the Leases is in material default under or with respect to any of the same.
5.12 Accounts and Notes Receivable. All accounts receivable reflected on
-----------------------------
the Financial Statements, and all accounts receivable arising subsequent to the
Balance Sheet Date and prior to the Closing Date, have arisen, or will have
arisen at the Closing Date, in the ordinary course of business of the Seller and
represent, or will represent, valid obligations due to the Seller.
5.13 Intellectual Property. Schedule 5.13 annexed hereto sets forth a list
---------------------
of all trademarks, service marks and trade names (collectively, "Intellectual
Property") that are used to identify the Subject Business or owned by the
Seller. Except as set forth on Schedules 5.6 or 5.13, all Intellectual Property
is owned outright by Seller, free and clear of any lien or encumbrance and
except as so set forth there exist no obligations with respect to any
Intellectual Property requiring the Seller to make any payment in respect of its
use or otherwise. Except as set forth on Schedule 5.13, the Seller has no notice
of any patent, trademark, service mark or trade name of any other person that
infringes upon, or is infringed upon by, any of the property set forth on
Schedule 5.13 or notice of any claim of any other person relating to any of the
Intellectual Property set forth on Schedule 5.13 or any process or confidential
information of the Seller.
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5.14 Broker's or Finder's Fees. Other than Interstate/Johnson Lane as
-------------------------
provided under the Premium Purchase Agreement (as defined in Section 8.11 of
this Agreement), no agent, broker, person or firm acting on behalf of the Seller
is, or will be, entitled to any commission or broker's or finder's fees from any
of the parties hereto, or from any person controlling, controlled by or under
common control with any of the parties hereto, in connection with any of the
transactions contemplated herein.
5.15 Employee Benefit Plans. The Seller does not maintain any employee
----------------------
benefit plans, as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or any bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other similar fringe or employee benefit plans, programs or arrangements,
and any employment or compensation agreements, written or otherwise.
5.16 Labor Matters. With respect to the Subject Business, the Seller is
-------------
currently in compliance in all material respects with all applicable laws, rules
and regulations relating to the employment of labor, including those related to
wages, hours, collective registrations, and authorizations. Seller has paid or
caused to be paid all compensation, including any bonuses and accrued vacation
pay, if any, due and payable to its employees through the date hereof and will
cause such amounts to be paid through the Closing Date.
5.17 Tax Matters. All federal, state, foreign, county, local and other tax
-----------
returns required to be filed by or on behalf of Seller have been timely filed
(or if filed late all applicable penalties and interest have been paid) and when
filed were true and correct in all material respects, and the taxes shown as due
thereon were paid or adequately accrued. True and complete copies of all tax
returns or reports filed by or on behalf of Seller for each of its 1994 and 1995
fiscal years have been delivered to Purchaser. Not later than the Closing Date,
Seller will deliver to the Purchaser a true and complete copy of the federal
income tax return of the Seller to be prepared and filed for its 1996 fiscal
year. Seller has duly withheld and paid all taxes which it is required to
withhold and pay relating to salaries and other compensation heretofore paid to
its respective employees.
5.18 Disclosure. No representation or warranty by the Seller in this
----------
Agreement, nor any statement, certificate, schedule or exhibit hereto furnished
or to be furnished by or on behalf of the Seller pursuant to this Agreement,
nor any document or certificate delivered to Purchaser pursuant to this
Agreement or in connection with transactions contemplated hereby, contains or
shall contain any untrue statement of material fact or omits or shall omit a
material fact necessary to make the statements contained therein not misleading.
All statements and information contained in any certificate, instrument,
schedule or document delivered by or on behalf of the Seller shall be deemed
representations and warranties by the Seller.
5.19 Investment Representation. Seller represents and warrants to
-------------------------
Purchaser that Seller is acquiring the Registrable Securities and Non-
Registrable Securities to be issued pursuant to this Agreement for investment
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for Seller's own account, not on behalf of others and not with a view to resell
or otherwise distribute such Registrable Securities or Non-Registrable
Securities except pursuant to either a valid registration under the Securities
Act and applicable state securities laws or a valid exemption from such
registration requirements. Seller acknowledges that the Registrable Securities
and Non-Registrable Securities have not been registered under the Securities
Act, or under any state securities laws and, therefore, cannot be resold unless
registered under the Securities Act and applicable state securities laws or
unless an exemption from registration is available and, as a result, Seller must
bear the risk of an investment in such JFF Stock for an indefinite period of
time. The financial condition of Seller is currently adequate to bear the
substantial economic risk of an investment in Registrable Securities and Non-
Registrable Securities. Seller has sufficient knowledge and experience in
investment and business matters to understand the economic risk of such an
investment and the risk involved in a commercial enterprise such as Purchaser.
Seller is a corporation organized under the laws of the State of Kentucky and
all communications and information, written or oral, concerning the Registrable
Securities and Non-Registrable Securities and this Agreement have been directed
to Seller and have been received only in Kentucky, Georgia or Alabama. Seller
has had ample opportunity to obtain and carefully read all of SEC reports and
filing concerning Purchaser. Seller has had an opportunity to ask questions of,
and receive answers from, officers of Purchaser concerning Purchaser and the
Registrable Securities and Non-Registrable Securities and to obtain any
additional information which such Shareholder reasonably requested. Seller is an
"accredited investor" within the meaning of Regulation D under the Securities
Act, and Seller shall deliver to Purchaser such information as Purchaser shall
reasonably request to establish Seller's status as an "accredited investor." If
Seller declares a dividend to its Shareholders of any of the Registrable
Securities and Non-Registrable Securities received by it, Seller shall prior to
the delivery of such capital stock of Purchaser to Seller's Shareholders obtain
from each such Shareholder and deliver to Purchaser such documentation as
Purchaser may reasonably request at such time. Nothing stated herein shall be
deemed or construed to modify or reduce the obligations of Purchaser to register
the Registrable Shares in accordance with the terms of Section 2.2(iii) hereof.
ARTICLE VI
Representations and Warranties of the Purchaser
-----------------------------------------------
The Purchaser represents and warrants to the Seller the following (both as
of the Closing Date and as of the date hereof):
6.1 Due Incorporation and Qualification. The Purchaser is a corporation
-----------------------------------
duly organized, validly existing and in good standing under the laws of its
state of incorporation, and has the corporate power to carry on its business as
now being conducted and to own or lease its properties and assets as now owned,
leased or operated by it. The Purchaser is duly qualified or otherwise
authorized as a foreign corporation to transact business and is in good standing
in each jurisdiction in which a failure to be so qualified would have a material
adverse effect on the business of the Purchaser.
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6.2 Authorization. The Purchaser has full corporate power and authority
-------------
under its articles of incorporation and bylaws and, the Board of Directors of
Purchaser has taken all necessary corporate action to authorize the Purchaser to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby and assuming due authorization, execution and delivery of
this Agreement by the Seller, this Agreement constitutes the valid and binding
obligation of the Purchaser enforceable in accordance with its terms except that
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and the remedy of specific performance and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
6.3 Non-Contravention. Neither the execution and delivery of this
-----------------
Agreement or the other agreements contemplated hereby nor the consummation of
the transactions contemplated hereby does or will violate, conflict with, result
in a breach of any provision of, constitute a default under, result in the
termination of or permit any third party to terminate (with or without notice,
lapse of time or pursuant to any legal or equitable principle) or accelerate the
performance required on the part of the Purchaser by the terms of, or accelerate
the maturity of or require the prepayment of any indebtedness of the Purchaser
under, any judgment, order, decree or agreement or instrument to or by which the
Purchaser or any of its assets is subject or bound.
6.4 Authority of the Purchaser. No consent, authorization or approval of,
--------------------------
or declaration, filing or registration with, any governmental, administrative or
regulatory body, or any consent, authorization or approval of any other third
party, is necessary in connection with the Purchaser's purchase of the Purchased
Assets contemplated hereby or the consummation of the other transactions
contemplated hereby.
6.5 Litigation. There are no claims, actions, suits, proceedings or
----------
investigations pending or, to the best knowledge of the Purchaser, threatened by
or against the Purchaser with respect to the transactions contemplated hereby,
at law or in equity or before or by any federal, state, municipal, foreign or
other governmental department, commission, board, agency, instrumentality or
authority.
6.6 Broker's or Finder's Fees. Except for Croft & Bender, LLC, no agent,
-------------------------
broker, person or firm acting on behalf of Purchaser is, or will be, entitled to
any commission or broker's or finder's fees from any of the parties hereto, or
from any person controlling, controlled by or under common control with any of
the parties hereto, in connection with any of the transactions contemplated
herein. The liability of Croft & Bender, LLC, is the liability of, and shall be
paid in full by, the Purchaser.
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ARTICLE VII
Covenants
---------
7.1 Conduct of Business. Between the date hereof and the Closing Date,
-------------------
Seller shall conduct the Subject Business in the ordinary course and in such a
manner so that the representations and warranties contained in Article V shall
continue to be true and correct in all material respects on and as of the
Closing Date as if made on and as of the Closing Date. Without limiting the
generality of the foregoing, with respect to the Subject Business and the assets
used therein Seller shall refrain from:
(i) incurring any liability or obligation of any nature (whether
accrued, absolute, contingent or otherwise), except in the ordinary course of
business;
(ii) permitting any of its assets to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge of any kind,
except in the ordinary course of business;
(iii) selling, transferring or otherwise disposing of any assets
except in the ordinary course of business;
(iv) making any capital expenditure or commitment therefor, except in
the ordinary course of business;
(v) increasing its indebtedness for borrowed money, except current
borrowings in the ordinary course of business, or making any loan to any person;
(vi) writing off as uncollectible any accounts receivable, except
write-offs in the ordinary course of business charged to applicable reserves,
none of which individually or in the aggregate shall be material to the Seller;
(vii) granting any increase in the rate of wages, salaries, bonuses
or other remuneration of any executive employee or other employees, except in
the ordinary course of business;
(viii) canceling or waiving any claims or rights of substantial
value;
(ix) making any change in any method of accounting or auditing
practice;
(x) otherwise conducting the Subject Business or entering into any
transaction with respect thereto, except in the usual and ordinary manner and in
the ordinary course of its business; or
(xi) agreeing, whether or not in writing, to do any of the foregoing.
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The Seller represents and warrants to Purchaser that it has not taken any
action prohibited in clauses (i) through (xi) above between the Balance Sheet
Date and the date hereof.
7.2 Preservation of Business. The Seller shall (consistent with the
------------------------
Seller's normal business practices) preserve the Subject Business, and maintain
the present suppliers and customers of the Subject Business.
7.3 Notice of Events. The Seller shall promptly notify the Purchaser of
----------------
(i) any event, condition or circumstance occurring from the date hereof through
the Closing Date and known to the Seller that would constitute a violation or
breach of this Agreement, or (ii) any event, occurrence, transaction or other
item known to the Seller which would have been required to have been disclosed
on any schedule or statement delivered hereunder, had such event, occurrence,
transaction or item existed on the date hereof, other than items arising in the
ordinary course of business which would not render any representation or
warranty of the Seller materially misleading.
7.4 Examinations and Inspections.
----------------------------
(a) Prior to the Closing Date, the Purchaser shall be entitled,
through its employees and representatives, including, without limitation, the
Purchaser's accountants and legal counsel, to make such inspection of the
assets, properties, business and operations of the Subject Business, and such
examination of the books, records and financial condition of the Subject
Business as the Purchaser reasonably desires. Any such inspection and
examination shall be conducted at reasonable times and under reasonable
circumstances which do not disrupt the business, properties or assets of the
Subject Business and with respect to inspections and examinations relating to
the Subject Business and involving the property and assets of third parties,
subject to the consent of such third parties and consistent with their policies.
In order that the Purchaser may have full opportunity to make such business,
accounting and legal review, examination or inspection as it may reasonably
desire of the Subject Business, the Seller shall furnish the representatives of
the Purchaser during such period with all such information and copies of such
documents concerning the affairs of the Seller with respect to the Subject
Business as such representatives may reasonably request and cause its officers,
employees, agents, accountants and attorneys to cooperate with such
representatives in connection with such review and examination.
(b) Purchaser agrees with respect to any information or documents
obtained from the Seller concerning its assets, properties, customers, policies,
finances, costs, sales, revenues, rights, obligations, liabilities, strategies,
business and operations ("Confidential Information"), that, unless and until the
transactions contemplated by this Agreement shall have been consummated, (a)
such information is confidential and/or proprietary to Seller and is entitled to
and shall receive treatment as such by Purchaser (except to the extent that any
such information is readily ascertainable from public or published information,
or trade sources), and (b) Purchaser will, and will cause all of its employees,
representatives, agents and advisors who have access to any Confidential
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Information to, hold in confidence and not disclose or use (except in respect of
the transactions contemplated by this Agreement) any such Confidential
Information. The Purchaser and the Seller shall also each comply with the
restrictions on publicity set forth in Section 12.4 of this Agreement. If the
transactions contemplated by this Agreement are not closed all documents and
other materials obtained by the Purchaser from the Seller shall be returned.
7.5 Third Party Consents. The Seller agrees to obtain, prior to the
--------------------
Closing Date, such consents and approvals as may be required from parties to
material contracts or other agreements with the Seller in order to prevent the
Seller or the Purchaser from suffering a material adverse effect as a result of
the execution and delivery of this Agreement by the Seller or the consummation
of the transactions contemplated by this Agreement. The Purchaser agrees to
provide to the Seller such assistance and information as may be required to
obtain the consents and approvals referred to above. Notwithstanding anything in
this Agreement to the contrary, this Agreement shall not constitute an agreement
by the Seller to assign, or the Purchaser to assume and agree to pay, perform or
otherwise discharge, any material contracts or other agreements included in the
Purchased Assets if an attempted assignment or assumption thereof without the
consent of a third person thereto would constitute a breach thereof unless and
until such consent is obtained.
7.6 Properties. The Seller shall maintain all of its properties used in
----------
the operation of the Subject Business in customary repair, order and condition,
reasonable wear and tear excepted, and will maintain insurance upon all such
properties, in such amounts and of such kinds as are comparable to that in
effect on the date hereof.
7.7 Books and Records. Until the Closing, the Seller shall maintain its
-----------------
books, accounts and records in connection with the Subject Business in the usual
manner on a basis consistent with the prior years.
7.8 Material Contracts. The Seller shall refrain from amending,
------------------
modifying or consenting to the termination of any material contract or other
material agreements to be transferred to the Purchaser or waive any of the
Seller's material rights with respect thereto.
7.9 Vacation Pay and Bonus Accruals. No vacation pay or bonus accruals
-------------------------------
will be payable to employees of the Subject Business as of the Closing Date.
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ARTICLE VIII
Conditions Precedent to
Obligation of Purchaser to Close
--------------------------------
The obligation of the Purchaser to enter into and complete the Closing is
subject to the fulfillment on or prior to the Closing Date of the following
conditions, any one or more of which may be waived by Purchaser only in writing:
8.1 Representations and Covenants. The representations and warranties of
-----------------------------
the Seller contained in this Agreement shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date. The Seller shall have performed and
complied with all covenants and agreements (including, without limitation, those
contained in Article VII) required by this Agreement to be performed or complied
with by the Seller on or prior to the Closing Date.
8.2 Litigation. No action, suit or proceeding shall have been instituted
----------
before any court or governmental or regulatory body, or instituted or threatened
by any governmental or regulatory body, to restrain or prevent the carrying out
of the transactions contemplated by this Agreement or to seek damages in
connection with such transactions, that has or could reasonably be expected to
have, in the opinion of the attorneys of the Purchaser, a materially adverse
effect on the assets, properties, business, operations or financial condition of
the Seller.
8.3 No Material Adverse Change. Purchaser shall be satisfied in its
--------------------------
reasonable discretion that since December 31, 1995 there has been no material
adverse change in the assets or liabilities, the business or financial condition
of the Subject Business.
8.4 Good Standing Certificates, Etc. Seller shall have delivered all
-------------------------------
such certificates, documents or instruments with respect to Seller's corporate
existence and authority as Purchaser's counsel may have reasonably requested
prior to the Closing Date.
8.5 Consents. The Seller shall have obtained and delivered to the
--------
Purchaser such consents as the Purchaser may have reasonably requested that the
Seller obtain in accordance with Section 7.5 hereof, except where the failure to
so obtain could not reasonably be expected to have a material adverse effect on
the Subject Business.
8.6 Resolutions. There shall have been delivered to the Purchaser a copy
-----------
of the resolutions duly adopted by the board of directors of the Seller, and
certified accurate by an executive officer of the Seller as of the Closing Date,
authorizing and approving the execution and delivery by the Seller of this
Agreement and the consummation by the Seller of the transactions contemplated
hereby.
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8.7 Governmental Permits and Approvals. All permits and approvals from
----------------------------------
any governmental or regulatory body required for the lawful consummation of the
Closing shall have been obtained.
8.8 Officer's Certificate. There shall have been delivered to the
---------------------
Purchaser a certificate of an executive officer of the Seller dated the Closing
Date certifying that the representations and warranties of the Seller contained
herein are true and correct on and as of the Closing Date.
8.9 Instruments of Transfer. The Seller shall have executed and
-----------------------
delivered to the Purchaser lease assignments, bills of sale and consents and/or
waivers dated the Closing Date, transferring to the Purchaser all of the
Seller's right, title, and interest in and to the Purchased Assets without
representation or warranty by or recourse against the Seller.
8.10 Opinion of Counsel to the Seller. The Purchaser shall have received
--------------------------------
an opinion of counsel to the Seller reasonably satisfactory to the Purchaser,
dated the Closing Date, in form and substance reasonably satisfactory to the
Purchaser, substantially to the effect set forth in Exhibit B hereto.
8.11 Athletic Attic and Premium Sports Transactions. The transactions
----------------------------------------------
contemplated by each of (i) that certain Stock Purchase Agreement (the "Athletic
Attic Purchase Agreement"), dated as of December 12, 1996, among Premium Sports,
Inc. ("Premium"), Athletic Attic Properties, Inc. ("Athletic Attic") and the
shareholders of Athletic Attic, as amended pursuant to that certain Amendment to
Stock Purchase Agreement dated as of February 17, 1997 and that certain Second
Amendment to Stock Purchase Agreement, dated as of March 17, 1997, and (ii) that
certain Stock Purchase Agreement (the "Premium Purchase Agreement"), dated as of
the date hereof, among J. Gasser, Premium and Purchaser, shall have been
consummated in accordance with the terms of such agreements. The parties agree
to cooperate in good faith to close the transactions contemplated by this
Agreement, the Athletic Attic Purchase Agreement and the Premium Purchase
Agreement, in accordance with the terms of this Agreement and such other
agreements.
8.12 Other Documents. Seller shall have delivered all other documents,
----------------
instruments or writings required to be delivered to Purchaser at or prior to the
Closing pursuant to this Agreement and such other certificates of authority
(including good standing certificates), documents, instruments or writings as
Purchaser may reasonably request.
8.13 Employees. Seller shall have provided evidence to Purchaser of its
---------
termination of all employees of the Subject Business effective as of the Closing
Date and payment of vacation pay and bonus accruals, if any, required to be paid
by Seller pursuant to Section 7.9 of this Agreement.
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ARTICLE IX
Conditions Precedent to
Obligation of Seller to Close
-----------------------------
The obligation of the Seller to enter into and complete the Closing is
subject to the fulfillment on or prior to the Closing Date of the following
conditions, any one or more of which may be waived by the Seller only in
writing:
9.1 Representations and Warranties. The representations and warranties
------------------------------
of the Purchaser contained in this Agreement shall be true and correct in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date. The Purchaser shall have performed
and complied with all covenants and agreements (including, without limitation,
those contained in Article VII) required by this Agreement to be performed or
complied with by the Purchaser on or prior to the Closing Date.
9.2 Litigation. No action, suit or proceeding shall have been instituted
----------
before any court or governmental or regulatory body, or instituted or threatened
by any governmental or regulatory body, to restrain or prevent the carrying out
of the transactions contemplated hereby, or to seek damages in connection with
such transactions, that has or could reasonably be expected to have, in the
opinion of the attorneys of the Seller, a materially adverse effect on the
assets, properties, business, operations or financial condition of the
Purchaser.
9.3 Governmental Permits and Approvals. All permits and approvals from
----------------------------------
any governmental or regulatory body required for the lawful consummation of the
Closing shall have been obtained.
9.4 Resolutions. There shall have been delivered to the Seller a copy of
-----------
the resolutions duly adopted by the board of directors of the Purchaser, and
certified accurate by an executive officer of the Purchaser as of the Closing
Date, authorizing and approving the execution and delivery by the Purchaser of
this Agreement and the consummation by the Purchaser of the transactions
contemplated hereby.
9.5 Good Standing Certificates, Etc. Purchaser shall have delivered all
-------------------------------
such certified resolutions, certificates, documents or instruments with respect
to Purchaser's corporate existence and authority as Seller's counsel may have
reasonably requested prior to the Closing Date.
9.6 Consents. The Seller shall have obtained such consents of third
--------
parties as Seller may deem necessary to consummate the transaction contemplated
herein, such consents to include releases of any and all obligations of Seller
or its affiliates to third parties under any contracts or agreements between
Seller and such third parties.
9.7 Officer's Certificate. There shall have been delivered to the Seller
---------------------
a certificate of an executive officer of the Purchaser dated the Closing Date
certifying that the representations and warranties of the Purchaser contained
herein are true and correct on and as of the Closing Date.
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9.8 Assumption Agreement. The Purchaser shall have executed and
--------------------
delivered to the Seller an assumption agreement pursuant to which the Purchaser
assumes those obligations relating to the Subject Business contemplated in
Article III.
9.9 Opinion of Counsel to the Purchaser. The Seller shall have received
-----------------------------------
an opinion of counsel to the Purchaser reasonably satisfactory to the Seller,
dated the Closing Date, in form and substance reasonably satisfactory to counsel
for the Seller substantially to the effect set forth in Exhibit C hereto.
9.10 Other Documents. Purchaser shall have delivered all other documents,
----------------
instruments or writings required to be delivered to Seller at or prior to the
Closing pursuant to this Agreement and such other certificates of authority
(including good standing certificates), documents, instruments or writings as
Seller may reasonably request.
9.11 Athletic Attic and Premium Sports Transactions. The transactions
----------------------------------------------
contemplated by each of (i) the Athletic Attic Purchase Agreement, and (ii) the
Premium Purchase Agreement, shall have been or will be consummated in accordance
with the terms of such agreements contemporaneously with this Agreement.
ARTICLE X
Survival of Representations and
Warranties; Indemnification
-------------------------------
10.1 By the Seller. Subject to the terms and conditions of this
-------------
Article 10, the Seller shall indemnify, defend and hold harmless Purchaser, and
its successors and assigns, and directors, officers, employees, and agents
(hereinafter "Purchaser's Affiliates") from and against all Claims (as defined
below) asserted against, resulting to, imposed upon, or incurred by Purchaser or
Purchaser's Affiliates, directly or indirectly, by reason of, arising out of or
resulting from:
(a) the inaccuracy or breach of any representation or warranty of the
Seller contained in or made pursuant to this Agreement or any of the
Ancillary Instruments (regardless of whether such breach is deemed
"material" for purposes of Section 8.1);
(b) the breach of any covenant of the Seller contained in this
Agreement or any of the Ancillary Instruments; or
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(c) any Claim by any person or entity, whether or not identified in
this Agreement, that such person has or had any rights with respect
to the Purchased Assets.
As used in this Article 10, the term "Claim" shall include (i) all debts,
liabilities and obligations; (ii) all losses, damages (including, without
limitation, consequential damages), judgments, awards, settlements, costs and
expenses (including, without limitation, interest (including prejudgment
interest in any litigated matter), penalties, court costs and attorneys fees and
expenses (including those incurred to enforce rights under this Article X); and
(iii) all demands, claims, suits, actions, costs of investigation, causes of
action, proceedings and assessments, whether or not ultimately determined to be
valid.
10.2 By Purchaser. Subject to the terms and conditions of this
------------
Article X, Purchaser hereby agrees to indemnify, defend and hold harmless the
Seller from and against all Claims asserted against, resulting to, imposed upon
or incurred by Seller, directly or indirectly, by reason of, arising out of or
resulting from (a) the inaccuracy or breach of any representation or warranty of
Purchaser contained in or made pursuant to this Agreement or any of the
Ancillary Instruments (regardless of whether such breach is deemed "material"
for purposes of Section 9.1), (b) the breach of any covenant or agreement of
Purchaser contained in this Agreement or any of the Ancillary Instruments, or
(c) any and all claims for brokerage commissions or finders fees incurred by
Purchaser in connection with the execution of this Agreement or the consummation
of the transactions contemplated hereby.
10.3 Survival Period of Representations and Warranties and Other Matters.
-------------------------------------------------------------------
10.3(a) For indemnification purposes only, the representations and
warranties covered in this Agreement will survive for a period of eighteen (18)
months immediately following the Closing Date; provided, however that the
representations and warranties as to tax matters, including those in Section
5.17, shall survive for the period of time equal to the applicable statute of
limitations in respect of Claims related thereto. Any Claim for indemnification
for breach of a representation or warranty must be instituted prior to the
expiration of the representation and warranty survival period as specified in
this Section 10.3.
10.3(b) The maximum liability of Seller for any and all Claims under
this Article X shall be in an amount equal to $3,000,000 plus the value of the
inventory of the Seller as of the Closing Date. Seller shall have no liability
under this Article X unless the aggregate amount of the damages and losses to
the Purchaser exceeds ten thousand dollars ($10,000) (the "Threshold"), and
thereafter Seller shall be required to pay all Claims hereunder, including those
Claims aggregating the initial ten thousand dollars ($10,000) in claims. It is
agreed that as to liability for any Claims under this Agreement, Seller may
satisfy any such Claims by means of a return to Purchaser of such number of
shares of Registrable Securities of Purchaser received by the Gassers or Seller
under this Agreement as is equal in value to
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the amount of the applicable Claim(s), based on the value at which such capital
stock was issued to Seller under this Agreement.
10.4 Indemnification of Third-Party Claims. The obligations and
-------------------------------------
liabilities of any party to indemnify any other under this Article X with
respect to a Claim relating to or arising from a Claim relating to third parties
(a "Third Party Claim") shall be subject to the following terms and conditions:
10.4(a) Notice and Defense. The party or parties to be indemnified
------------------
(whether one or more, the "Indemnified Party") will give the party from whom
indemnification is sought (the "Indemnifying Party") prompt written notice of
any such Claim, and the Indemnifying Party may undertake the defense thereof by
representatives chosen by it. Failure to give notice shall not affect the
Indemnifying Party's duty or obligations under this Article X, except to the
extent the Indemnifying Party is prejudiced thereby. If the Indemnifying Party
undertakes the defense of a Third Party Claim, then the Indemnifying Party shall
be deemed to accept that it has an indemnification obligation under this Article
X with respect to such Third Party Claim, unless it shall in writing reserve the
right to contest its obligation to provide indemnity with respect to such Third
Party Claim. So long as the Indemnifying Party is defending any such Third
Party Claim actively and in good faith, the Indemnified Party shall not settle
such Claim. The Indemnified Party shall make available to the Indemnifying
Party or its representatives all records and other materials required by them
and in the possession or under the control of the Indemnified Party, for the use
of the Indemnifying Party and its representatives in defending any such Claim,
and shall in other respects give reasonable cooperation in such defense.
10.4(b) Failure to Defend. If the Indemnifying Party, within
-----------------
thirty (30) days after notice of any such Claim, fails to dispute the obligation
of the Indemnifying Party with respect to such Claim and fails to defend such
Claim actively and in good faith, then the Indemnified Party will (upon written
notice to the Indemnifying Party) have the right to undertake the defense,
compromise or settlement of such Claim or consent to the entry of a judgment
with respect to such Claim, on behalf of and for the account and risk of the
Indemnifying Party, and the Indemnifying Party shall thereafter have no right to
challenge the Indemnified Party's defense, compromise, settlement or consent to
judgment therein.
10.4(c) Indemnified Party's Rights. Anything in this Section 10.4
--------------------------
to the contrary notwithstanding, (i) if there is a reasonable probability that a
Claim may materially and adversely affect the Indemnified Party other than as a
result of money damages or other money payments, the Indemnified Party shall
have the right to defend, compromise or settle such Claim, and (ii) the
Indemnifying Party shall not, without the written consent of the Indemnified
Party, settle or compromise any Claim or consent to the entry of any judgment
which does not include as an unconditional term thereof the giving by the
claimant or the plaintiff to the Indemnified Party of a release from all
liability in respect of such Claim.
10.5 Payment. The Indemnifying Party shall promptly pay the
-------
Indemnified Party any amount due under this Article X, which payment may be
accomplished in whole or in part, at the option of the Indemnified Party, by the
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Indemnified Party setting off any amount owed (whether arising hereunder or
otherwise) to the Indemnifying Party by the Indemnified Party. To the extent
set off is made by an Indemnified Party in satisfaction or partial satisfaction
of an indemnity obligation under this Article X that is disputed by the
Indemnifying Party, upon a subsequent determination by final judgment not
subject to appeal that all or a portion of such indemnity obligation was not
owed to the Indemnified Party, the Indemnified Party shall pay the Indemnifying
Party the amount which was set off and not owed together with interest from the
date of set off until the date of such payment at an annual rate equal to the
average annual rate in effect as of the date of the set off, on those three
maturities of United States Treasury obligations having a remaining life, as of
such date, closest to the period from the date of the set off to the date of
such judgment. Upon judgment, determination, settlement or compromise of any
Third Party Claim, the Indemnifying Party shall pay promptly on behalf of the
Indemnified Party, and/or to the Indemnified Party in reimbursement of any
amount theretofore required to be paid by it, the amount so determined by
judgment, determination, settlement or compromise and all other Claims of the
Indemnified Party with respect thereto, unless in the case of a judgment an
appeal is made from the judgment. If the Indemnifying Party desires to appeal
from an adverse judgment, then the Indemnifying Party shall post and pay the
cost of the security or bond to stay execution of the judgment pending appeal.
Upon the payment in full by the Indemnifying Party of such amounts, the
Indemnifying Party shall succeed to the rights of such Indemnified Party, to the
extent not waived in settlement, against the third party who made such Third
Party Claim.
10.6 No Waiver. The closing of the transactions contemplated by this
---------
Agreement shall not constitute a waiver by any party of its rights to
Indemnification hereunder, regardless of whether the party seeking
Indemnification has knowledge of the breach, violation or failure of condition
constituting the basis of the Claim at or before the Closing.
10.7 Adjustment of Liability. In the event an Indemnifying Party is
-----------------------
required to make any payment under this Article X in respect of any damages,
liability, obligation, loss, claim, or other amount indemnified hereunder, such
Indemnifying Party shall pay the Indemnified Party an amount (the "Adjusted
Amount") which is equal to the sum of (i) the amount of such damages, liability,
obligation, loss, claim or other amount, minus (ii) the amount of any insurance
proceeds the Indemnified Party actually receives with respect thereto, minus
(iii) any third party payments actually received by the Indemnified Party with
respect to such damages, liability, obligation, loss, claim or other amount
after demand or notice to such third party from the Indemnifying Party (with the
consent of the Indemnified Party which will not be unreasonably withheld), plus
(iv) the amount of the Net Tax Liability. "Net Tax Liability" shall be equal to
the amount, if any, by which, the sum of all federal, state, and local taxes, if
any, required to be paid by such Indemnified Party in respect of the receipt or
accrual of the Adjusted Amount exceeds the sum of (a) the value of any reduction
in taxes of such Indemnified Party by reason of deductions, credits or
allowances in respect of the payment or accrual of the damages, liability,
obligation, loss, claim or other amount included in clause (i) above recognized
by such Indemnified Party in the same year in which the taxes in respect of the
receipt or accrual by such Indemnified Party of the Adjusted Amount would be
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payable and (b) the net present value of any reduction in taxes of such
Indemnified Party by reason of deductions, credits or allowances in respect of
the payment or accrual of the damages, liability, obligation, loss, claim or
other amount included in clause (i) above recognized by such Indemnified Party
in years thereafter. The net present value of any such reduction in taxes shall
be determined by discounting the amount of such reduction in taxes semi-annually
from the date such tax saving is recognized or reasonably expected to be
recognized (which shall be deemed to be the date the applicable tax return on
which such tax saving would be properly reflected is due, without extensions) to
the date of payment of the applicable indemnity by such Indemnifying Party,
applying a discount factor equal to the interest rate on federal income tax
deficiencies in effect at the time of such adjustment. For purposes of
determining the amount of any taxes required to be paid and any tax savings
recognized or reasonably expected to be recognized by such Indemnified Party
hereunder, it shall be assumed that such Indemnified Party is subject to tax in
each applicable taxing jurisdiction at the highest applicable marginal rate then
in effect in such jurisdiction.
ARTICLE XI
Termination of Agreement
------------------------
11.1 Termination. This Agreement may be terminated prior to the Closing
-----------
as follows:
(a) at the election of the Seller, if any one or more of the
conditions to the obligations of the Seller to close has not been fulfilled as
of the Closing Date, or if the Purchaser has materially breached any
representation, warranty, covenant or agreement contained in this Agreement or
in any document or other papers delivered pursuant to this Agreement;
(b) at the election of the Purchaser, if any one or more of the
conditions to its obligations to close has not been fulfilled as of the Closing
Date, or if the Seller has materially breached any representation, warranty,
covenant or agreement contained in this Agreement or in any document or other
papers delivered pursuant to this Agreement;
(c) at the election of the Seller or the Purchaser, if any legal
proceeding is commenced or threatened by any governmental regulatory body or
other person directed against the consummation of the Closing or any other
transaction contemplated under this Agreement and either the Seller or the
Purchaser, as the case may be, reasonably and in good faith deem it impractical
or inadvisable to proceed in view of such legal proceeding or threat thereof;
(d) at any time on or prior to the Closing Date, by mutual written
consent of the parties hereto; or
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(e) at any time after March 31, 1997 at the election of the Seller
on the one hand, or the Purchaser on the other hand.
11.2 Post-Termination Obligations. If this Agreement is terminated
----------------------------
pursuant to Section 11.1, this Agreement shall become void and of no further
force and effect, except for Section 12.4 (relating to publicity) and Section
12.9 (relating to expenses), and none of the parties hereto shall have any
liability in respect of such termination except that any party shall be liable
to the extent that failure to satisfy the conditions of Article II, VII, VIII or
IX results from the intentional or willful violation of the representations,
warranties, covenants or agreements of such party under this Agreement.
ARTICLE XII
Miscellaneous
-------------
12.1 Closing of the Athletic Attic and Premium Transactions. Purchaser
------------------------------------------------------
and Seller acknowledge and agree that it is the intent of the parties hereto
that the Closing of the purchase and sale of the Purchased Assets be consummated
simultaneously with the closing of the transactions contemplated by the Athletic
Attic Purchase Agreement and the Premium Purchase Agreement. Accordingly, the
parties hereto agree that unless and until the transactions contemplated by both
the Premium Purchase Agreement and the Athletic Asset Purchase Agreement are
consummated as provided thereunder, the Closing of the transactions contemplated
by this Agreement shall not be deemed finally closed and consummated until the
parties hereto are satisfied that the Athletic Attic Purchase Agreement and the
Premium Purchase Agreement transactions have been consummated.
12.2 Compliance with Bulk Transfer Laws. Purchaser and Seller agree to
----------------------------------
waive compliance with any applicable bulk transfer laws; provided, however, that
Seller hereby agrees to indemnify Purchaser for any liabilities incurred by
Purchaser as a result of such noncompliance.
12.3 Further Assurances. From time to time, at the request of Purchaser
------------------
and without further consideration, the Seller will execute and deliver to
Purchaser such documents and take such other action as Purchaser may reasonably
request in order to consummate more effectively the transactions contemplated
hereby.
12.4 Announcements. Prior to Closing, except as otherwise required by
-------------
law, none of the parties hereto shall issue any press release, place any
advertisements or tombstones, or make any other public statement, in each case
relating to or in connection with or arising out of this Agreement or the
matters contained herein, without obtaining prior approval of all parties hereto
as to the contents and manner of presentation and publication thereof, which
approval shall not be unreasonably withheld or delayed. Following Closing, the
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parties hereto shall not be bound by the foregoing restrictions of this Section
12.8, provided that any obligations of confidentiality shall survive for the
period otherwise applicable thereto.
12.5 Assignment; Parties in Interest. Except as expressly provided
-------------------------------
herein, the rights and obligations of a party hereunder may not be assigned,
transferred or encumbered without the prior written consent of the other
parties. The Purchaser may assign its rights and obligations hereunder to any
direct or indirect wholly-owned subsidiary for purposes of consummating the
transactions contemplated herein. This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by the respective successors and permitted
assigns of the parties hereto. Nothing contained herein shall be deemed to
confer upon any other person or entity any right or remedy under or by reason of
this Agreement.
12.6 Law Governing Agreement. This Agreement may not be modified or
-----------------------
terminated orally, and shall be construed and interpreted according to the
internal laws of the State of Georgia excluding any choice of law rules that may
direct the application of the laws of another jurisdiction.
12.7 Amendment and Modification. Purchaser and the Seller may amend,
--------------------------
modify and supplement this Agreement in such manner as may be agreed upon in
writing between Purchaser and the Seller.
12.8 Notice. All notices, requests, demands and other communications
------
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents; or (c) sent to the parties at their respective
addresses indicated herein by registered or certified U.S. mail, return receipt
requested and postage prepaid, or by private overnight mail courier service.
The respective addresses to be used for all such notices, demands or requests
are as follows:
(a) If to the Purchaser, to:
Just for Feet, Inc.
153 Cahaba Valley Parkway North
Pelham, Alabama 35124
Attention: Chairman
Facsimile: (205) 403-8163
with a copy to:
Smith, Gambrell & Russell, LLP
3343 Peachtree Road
Suite 1800
Atlanta, Georgia 30326
Attention: Arthur Jay Schwartz, Esq.
Facsimile: (404) 264-2652
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(b) If to the Seller, to:
Owensboro Investment Company, Inc.
c/o 100 Emerald Lane
Madison, Alabama 35758
Attention: John Gasser
Facsimile: (205) 461-0466
with a copy to:
Morris, Manning & Martin, LLP
3343 Peachtree Road
Suite 1600
Atlanta, Georgia 30326
Attention: Oby T. Brewer, III, Esq.
Facsimile: (404) 365-9532
If personally delivered, such communication shall be deemed delivered upon
actual receipt; if electronically transmitted pursuant to this paragraph, such
communication shall be deemed delivered the next business day after transmission
(and sender shall bear the burden of proof of delivery); if sent by overnight
courier pursuant to this paragraph, such communication shall be deemed delivered
upon receipt; and if sent by U.S. mail pursuant to this paragraph, such
communication shall be deemed delivered as of the date of delivery indicated on
the receipt issued by the relevant postal service, or, if the addressee fails or
refuses to accept delivery, as of the date of such failure or refusal. Any party
to this Agreement may change its address for the purposes of this Agreement by
giving notice thereof in accordance with this Section 12.8.
12.9 Expenses. Regardless of whether or not the transactions contemplated
--------
hereby are consummated:
(a) Expenses to be Paid by the Seller. The Seller agrees to pay, and
---------------------------------
to indemnify, defend and hold Purchaser harmless from and against, each of the
following: (i) any sales, use or excise tax imposed with respect to the sale to
the Purchaser of the Purchased Assets, and any interest or penalties related
thereto; and (ii) all legal fees and expenses related to legal fees, of the
Seller attributable to or incurred in connection with or preparation for the
transactions contemplated hereby.
(b) Costs of Litigation. The parties agree that the prevailing party
-------------------
in any action brought with respect to or to enforce any right or remedy under
this Agreement shall be entitled to recover from the other party or parties all
reasonable costs and expenses of any nature whatsoever incurred by the
prevailing party in connection with such action, including without limitation
attorneys' fees and prejudgment interest.
-28-
<PAGE>
(c) Other. Each of the parties shall bear its own expenses and the
-----
expenses of its other agents in connection with the transactions contemplated
hereby.
12.10 Entire Agreement. This Agreement, including the Schedules attached
----------------
hereto which are incorporated herein by reference and made a part hereof, embody
the entire agreement between the parties hereto with respect to the transactions
contemplated herein, and there have been and are no agreements, representations
or warranties between the parties other than those set forth or provided for
herein.
12.11 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.12 Headings. The table of contents and article and section herein are
--------
for convenience of reference only, do not constitute a part of this Agreement,
and shall not be deemed to limit or affect any of the provisions hereof.
[SIGNATURES ON FOLLOWING PAGE]
-29-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Agreement under seal as of the date first above
written.
"PURCHASER"
JUST FOR FEET, INC.
By:________________________________
Name:___________________________
Title: _________________________
[CORPORATE SEAL]
"SELLER"
OWENSBORO INVESTMENT COMPANY, INC.
By:________________________________
Name:___________________________
Title: _________________________
[CORPORATE SEAL]
-30-
<PAGE>
SCHEDULE 1.1
PURCHASED ASSETS
1. All of the following assets and property rights of the Seller used or
useful in connection with the Subject Business:
a. All personal property, equipment, inventory, supplies, furniture
and fixtures, materials, and leasehold improvements owned by the
Seller, including, if applicable, typewriters, computers, computer
-------------
software programs and manuals, waste baskets, coffee machine and
supplies, flip charts, credenzas, coffee tables, rolling carts,
overhead projector equipment, telephone equipment, podiums,
printers, computer peripherals, copiers, calculators, desks
chairs, bookcases, microwave, shelving, refrigerator, kitchenette,
security alarm system, steno chair, cabinets, filing cabinets,
office supplies (pens, paper, pencils, paper clips, rubber bands,
etc.), plants, all signage, clocks, postage, artwork, stationery,
diskettes, manuals and books, used exclusively at or located at
the aforementioned office location.
b. All of the Seller's right, title and interest in, to and under the
following contracts and commitments:
(i) Any and all white and yellow page telephone references and
advertisements relating to the Subject Business.
(ii) Lease Agreements and Franchise Agreements referenced in
Schedule 5.3.
(iii) Any and all equipment leases for equipment used in the
Subject Business.
c. Any security deposit or prepaid lease deposit relating to any of
the contracts and commitments listed in item 1.b. above.
d. Books and records pertaining exclusively to the Subject Business
(excluding the Seller's corporate minute book); provided, however,
that the Seller shall have the right to retain copies of the same
for its records.
e. All customer lists, mailing lists and records, supplier/vendor
lists and purchase orders of the Seller that relate exclusively to
the Subject Business.
f. All accounts receivable of the Seller that relate exclusively to
the Subject Business.
g. All of the Seller's inventory used or useful in the Subject
Business.
-31-
<PAGE>
2. The following assets, which are located at Jefferson Mall in Louisville,
Kentucky:
Quantity
3 Nike mannequin
2 Nike shoe floor display
1 Airwalk shoe display
1 6-112 foot chair
19 Chrome round rack
3 Nike 4-way rack
26 Black grill display rack
6 4-way chrome rack
22 Folding chairs
1 Wooden block jean display
2 Pop Shot basketball machine
6 Tables
1 Impulse sign machine
2 Casio CE-4200 cash register
2 Verifone Printer 900
2 Accelarm credit card machine
3 Glass showcase
1 Glass block display assembly
2 Aluminum ladder
2 4-drawer file cabinet
1 File cabinet 2-drawer
1 Office desk and chair
1 Sharp UX-3200 phone fax
1 Clocks Inc. time clock
10 2-way radios and chargers
1 Sharp 3F-7370 copier
1 Combination safe
2 Straight rack
1 Eureka vacuum cleaner
1 2-Wheel truck
3. The following assets, which are located at Store No. A-8 at Towne Mall in
Elizabethtown, Kentucky:
-32-
<PAGE>
Quantity
6 Chrome round display rack
2 Nike 4-way display rack
15 Black grill display racks
2 4-way clothing display rack
20 Folding chairs
7 Tables
1 Glass squares display assembly
1 Lighted glass showcase
2 2-way display rack
2 Nike shoe floor display
1 Refrigerator - Hot Point
1 Aluminum ladder
1 Copy machine Mita DC 1455
2 Sanyo ECR 580
1 Verifone Printer 900
1 Access credit card machine
1 Lathem time clock
1 Impulse sign printer
4 Motorola P50 mobile radios
4 Chargers for radios
1 Office desk and chair
4 Straight rack
1 Kenmore vacuum cleaner
1 Combination safe
-33-
<PAGE>
SCHEDULE 1.2
ADDITIONAL EXCLUDED ASSETS
There are no other excluded assets.
-34-
<PAGE>
SCHEDULE 5.3
NO VIOLATION
The consummation of the transaction contemplated by this Agreement requires the
prior written approval of the following:
1. JEFFERSON MALL COMPANY -- Lessor consent is required for assignment of the
lease for Seller's store in the Jefferson Mall ("Jefferson Mall Store").
2. TOWNE MALL PARTNERS -- Lessor consent is required for assignment of the
lease for Seller's store in the Towne Mall in Elizabethtown, Kentucky
("Elizabethtown Store").
3. ATHLETIC ATTIC MARKETING, INC.--Seller's franchise agreements with Athletic
Attic Marketing, Inc. (AAMI) requires AAMI's prior written approval.
Additionally, Seller is obligated to deliver any bona fide offer from a third
party to AAMI and AAMI has 35 days from receipt of such bona fide offer to match
the bona fide offer. Purchaser has requested Seller not to obtain AAMI's consent
for the transaction contemplated by this Agreement.
-35-
<PAGE>
SCHEDULE 5.4
FINANCIAL STATEMENTS
The unaudited consolidated balance sheet of Seller dated December 31, 1996,
together with the unaudited statement of earnings for the fiscal year ending
December 31, 1996 is attached.
-36-
<PAGE>
SCHEDULE 5.10
MATERIAL CONTRACTS OF SELLER
LEASE AGREEMENTS REFERENCED IN SCHEDULE 5.3.
FRANCHISE AGREEMENTS REFERENCED IN SCHEDULE 5.3.
OUTDOOR SYSTEM ADVERTISING AGREEMENT
Seller (d/b/a Athletic Attic) entered into an Agreement commencing on November
16, 1996 and continuing until November 15, 1998. The cost of the billboard is
$840 per month.
BENEFITS
Seller pays the following monthly premiums for health insurance coverage for
Seller's employees indicated below:
- --------------------------------------------------------------------------------
EMPLOYEE MONTHLY PREMIUM
- --------------------------------------------------------------------------------
Steve and Susan Gasser $394.48
- --------------------------------------------------------------------------------
Jason and Kelly Gasser $173.89
- --------------------------------------------------------------------------------
Lyndsay Gasser $111.63
- --------------------------------------------------------------------------------
Courtney Gasser $111.63
- --------------------------------------------------------------------------------
Margaret Crutcher $139.83
- --------------------------------------------------------------------------------
-37-
<PAGE>
SCHEDULE 5.11
REAL PROPERTY AND LEASES
LEASE AGREEMENTS
Seller provided Purchaser prior to Closing the following lease agreements
entered into by Seller:
1. JEFFERSON MALL STORE - Lease Agreement dated April 20, 1995 with Jefferson
Mall Company.
2. ELIZABETHTOWN STORE - Lease Agreement dated June 17, 1994 with Towne Mall
Partners.
FRANCHISE AGREEMENTS
1. JEFFERSON MALL STORE - The Gassers have been operating an "Athletic Attic"
franchise pursuant to the attached un-executed franchise agreement and the
attached Monthly Store Owners' Monthly Franchise Fee Modification Agreement
dated January 1, 1985 as amended by amendment dated December 1, 1988 that has
been provided by Seller to Purchaser.
2. ELIZABETHTOWN STORE - Franchise Agreement entered into by John Gasser,
Steve Gasser, and James J. Carnes on July 31, 1985 as amended by an amendment
dated December 1, 1988.
-38-
<PAGE>
SCHEDULE 5.13
INTELLECTUAL PROPERTY
"Athletic Attic" is licensed by Seller for use in the Subject Business according
to the terms of the franchise agreements referenced in Schedule 5.11.
-39-
<PAGE>
Exhibit 2.2
STOCK PURCHASE AGREEMENT
BY AND AMONG
JUST FOR FEET, INC.,
PREMIUM SPORTS, INC.
AND
JOHN GASSER
DATED AS OF MARCH 17, 1997
<PAGE>
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
1. THE STOCK PURCHASE...................................................... 1
1.1 The Stock Purchase................................................. 1
1.2 Closing............................................................ 1
2. STOCK PURCHASE PRICE.................................................... 2
3. JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES OF PREMIUM
AND THE SELLER.......................................................... 2
3.1 Corporate.......................................................... 2
3.2 Seller............................................................. 3
3.3 No Violation....................................................... 3
3.4 Tax Matters........................................................ 4
3.5 Liabilities........................................................ 4
3.6 No Brokers or Finders.............................................. 4
3.7 Disclosure......................................................... 5
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER............................. 5
4.1 Due Incorporation and Qualification................................ 5
4.2 Authorization...................................................... 5
4.3 Non-Contravention.................................................. 5
4.4 Authority of the Purchaser......................................... 5
4.5 Litigation......................................................... 5
4.6 Broker's or Finder's Fees.......................................... 6
4.7 Disclosure......................................................... 6
5. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS......................... 6
5.1 Representations and Warranties True as of the
Closing Date....................................................... 6
5.2 Compliance With Agreement.......................................... 6
5.3 Absence of Suit.................................................... 6
5.4 Consents and Approvals............................................. 6
5.5 Diligence.......................................................... 6
5.6 Athletic Attic Purchase Agreement.................................. 7
5.7 Financial Information of Athletic Attic............................ 7
5.8 Absence of Changes................................................. 7
5.9 Athletic Attic Diligence........................................... 7
5.10 Examinations and Inspections....................................... 7
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PREMIUM AND THE SELLER........... 7
6.1 Representations and Warranties True on the Closing Date............ 8
6.2 Compliance With Agreement.......................................... 8
6.3 Absence of Suit.................................................... 8
7. INDEMNIFICATION......................................................... 8
7.1 By the Seller...................................................... 8
7.2 By Purchaser....................................................... 9
<PAGE>
7.3 Survival Period of Representations and Warranties and Other
Matters.......................................................... 9
7.4 Indemnification of Third-Party Claims............................ 9
7.5 Payment.......................................................... 10
7.6 No Waiver........................................................ 10
7.7 Adjustment of Liability.......................................... 11
8. CLOSING............................................................... 11
8.1 Documents to be Delivered by Premium and the Seller.............. 11
8.2 Documents to be Delivered by Purchaser........................... 12
8.3 Closing of the Athletic Attic and Owensboro Transactions......... 13
9. TERMINATION OF AGREEMENT.............................................. 13
9.1 Termination...................................................... 13
9.2 Post-Termination Obligations..................................... 13
10. MISCELLANEOUS......................................................... 14
10.1 Further Assurances.............................................. 14
10.2 Announcements................................................... 14
10.3 Assignment; Parties in Interest................................. 14
10.4 Law Governing Agreement......................................... 14
10.5 Amendment and Modification...................................... 14
10.6 Notice.......................................................... 14
10.7 Expenses........................................................ 15
10.8 Entire Agreement................................................ 16
10.9 Counterparts.................................................... 16
10.10 Headings....................................................... 16
EXHIBITS
--------
EXHIBIT A Form of Opinion of Counsel to the Seller and Premium
EXHIBIT B Form of Opinion of Counsel to Purchaser
ii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of March 17,
1997, by and among JUST FOR FEET, INC., an Alabama corporation (the
"Purchaser"), PREMIUM SPORTS, INC., a Florida corporation ("Premium"), and JOHN
GASSER, an individual resident of the State of Alabama ("Seller").
RECITALS
WHEREAS, Premium is a party to that certain Stock Purchase Agreement (the
"Athletic Attic Purchase Agreement"), dated as of December 12, 1996, among
Premium, Athletic Attic Properties, Inc. ("Athletic Attic"), and the
shareholders of Athletic Attic, as amended pursuant to that certain Amendment to
Stock Purchase Agreement effective as of February 17, 1997, and as further
amended pursuant to that certain Second Amendment to Stock Purchase Agreement,
dated as of March 17, 1997, pursuant to which Premium has agreed to acquire all
of the outstanding capital stock of Athletic Attic; and
WHEREAS, the authorized capital stock of Premium consists solely of
15,000,000 shares of which 10,000,000 shares are Common Stock, having a par
value of $.001 per share and 5,000,000 shares are Preferred Stock, having a par
value of $.001 per share, of which 100 shares of Common Stock are issued and
outstanding on the date hereof, all of which shares are owned of record and
beneficially by Seller (the outstanding shares are referred to collectively as
the "Premium Shares"); and
WHEREAS, the Purchaser desires to purchase the Premium Common Stock,
pursuant and subject to the terms of this Agreement (the "Stock Purchase"); and
WHEREAS, the Seller believes the Stock Purchase is in his best interests and
desires to enter into this Agreement; and
WHEREAS, Purchaser, Premium and the Seller desire to make certain
representations, warranties and agreements in connection with the Stock Purchase
and other transactions contemplated herein and also to prescribe various
conditions to the Stock Purchase;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements herein contained, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. THE STOCK PURCHASE
1.1 The Stock Purchase. Subject to the terms and conditions of this
------------------
Agreement, Purchaser agrees to buy, and Seller agrees to sell, the Premium
Shares.
1.2 Closing. The Closing of the Stock Purchase ("Closing") will take
-------
place immediately prior to the closing of the transactions contemplated by the
Athletic Attic Purchase Agreement at the offices of Smith, Gambrell & Russell,
LLP, 3343 Peachtree Road, N.E., Suite 1800, Atlanta, Georgia 30326, unless
another date or place is agreed to in writing by the parties hereto; provided
that such date
1
<PAGE>
shall be on or before March 31, 1997 (the date on which the Closing occurs is
referred to as the "Closing Date").
2. STOCK PURCHASE PRICE
The aggregate consideration (the "Purchase Price") to be paid in respect
of the Premium Shares pursuant to this Agreement shall be FIVE HUNDRED THOUSAND
AND 00/100 DOLLARS ($500,000). Purchaser shall pay to the Seller on the Closing
Date, by certified or cashier's check or other immediately available funds, the
Purchase Price upon surrender to Purchaser of the certificate(s) representing
the Premium Shares, together with a letter of transmittal and/or duly executed
stock powers as reasonably requested by Purchaser.
3. JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES OF PREMIUM AND THE SELLER
Premium and the Seller, jointly and severally, make the following
representations and warranties to Purchaser, each of which is true and correct
on the date hereof, shall be unaffected by any investigation heretofore or
hereafter made by Purchaser, or any knowledge of Purchaser, and shall survive
the Closing of the transactions provided for herein for the period of survival
set forth in Section 8.3 of this Agreement. Information set forth in the
Schedules attached hereto specifically refers to the article and section of this
Agreement to which such information is responsive, and such information shall
not be deemed to have been disclosed with respect to any other article or
section of this Agreement or for any other purpose. No Schedule shall vary,
change or alter the language of the representations and warranties contained in
this Agreement, and to the extent the language in a Schedule does not conform to
the language of such representations and warranties, such language in the
Schedule shall be disregarded and be of no force or effect.
3.1 Corporate.
---------
3.1(a) Organization. Premium is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Florida. Premium
was incorporated on September 3, 1996. No entity has ever merged with or been
consolidated into Premium.
3.1(b) Corporate Power. Premium has all requisite corporate power and
---------------
authority to own, operate and lease its properties and to carry on its business
as and where such is now being conducted.
3.1(c) Qualification. Premium is duly licensed or qualified to do
-------------
business as a foreign corporation, and is in good standing, in all jurisdictions
in which the nature of its business or the character of the properties owned or
leased by it makes such licensing or qualification necessary.
3.1(d) Subsidiaries. Premium does not own, directly or indirectly,
------------
any capital stock, or other equity securities of any corporation or have any
direct or indirect equity or other ownership interest in any entity or business,
other than pursuant to its rights to acquire the issued and outstanding shares
of capital stock of Athletic Attic pursuant to the Athletic Attic Purchase
Agreement.
2
<PAGE>
3.1(e) Corporate Documents, Etc. Copies of the certificate or
------------------------
articles of incorporation and bylaws of Premium, including any amendments
thereto, which have been delivered by the Seller to Purchaser are true, correct
and complete copies of such instruments as presently in effect. The corporate
minute book and stock records of Premium which have been furnished to Purchaser
for inspection are true, correct and complete in all material respects and
accurately reflect all material corporate action taken by Premium, including all
transactions and actions with respect to the capital stock of Premium.
3.1(f) Capitalization. The authorized capital stock of Premium
--------------
consists of 15,000,000 shares of which 10,000,000 shares are Common Stock,
having a par value of $.001 per share and 5,000,000 shares are Preferred Stock,
having a par value of $.001 per share. One hundred shares of Common Stock are
issued and outstanding and no shares of Preferred Stock are issued or
outstanding. All of the issued and outstanding shares of capital stock of
Premium are owned of record and beneficially by the Seller. All such shares of
capital stock are validly issued, fully paid and nonassessable. There are no (A)
securities convertible into or exchangeable for any of the capital stock or
other securities of Premium, (B) options, warrants or other rights to purchase
or subscribe to capital stock or other securities of Premium or securities which
are convertible into or exchangeable for capital stock or other securities of
Premium or (C) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance, sale or transfer of any
capital stock or other equity securities of Premium, any such convertible or
exchangeable securities or any such options, warrants or other rights.
3.1(g) Authorization: Validity. The execution and delivery of this
-----------------------
Agreement and the other agreements, instruments and documents contemplated
hereby to be executed and delivered by Premium to Purchaser (such other
agreements, instruments and documents sometimes referred to herein as the
"Ancillary Instruments") and full performance thereunder, have been duly
authorized by the Board of Directors of Premium and no other or further
corporate act on the part of such corporation is necessary therefor. This
Agreement has been duly and validly executed and delivered by Premium and is,
and when executed and delivered the Ancillary Instruments to be executed and
delivered by Premium pursuant hereto will be, the legal, valid and binding
obligation of such corporation, enforceable in accordance with its terms, except
as such may be limited by bankruptcy, insolvency, reorganization or other laws
affecting creditors' rights generally, and by general equitable principles.
3.2 Seller.
------
3.2(a) Validity. This Agreement has been duly and validly executed
--------
and delivered by the Seller and is, and when executed and delivered each
Ancillary Instrument to be executed and delivered by Seller pursuant hereto will
be, the legal, valid and binding obligation of Seller, enforceable against
Seller in accordance with its terms, except as such may be limited by
bankruptcy, insolvency, reorganization or other laws affecting creditors' rights
generally, and by general equitable principles.
3.2(b) Title. The Seller has good and marketable title to the shares
-----
of Premium Common Stock owned by Seller, and at the Closing the Seller will have
good and marketable title to the shares of Premium Common Stock, in each case
free and clear of all liens, security interests, pledges, assessments, levies,
restrictions, options, voting trusts or agreements, proxies, encumbrances,
marital or community property interests or other claims or charges of any nature
whatsoever.
3
<PAGE>
3.3 No Violation. No consent, authorization or approval of, or
------------
declaration, filing or registration with, any governmental, administrative or
regulatory body, or any consent, authorization or approval of any other third
party, is necessary in order to enable the Seller or Premium to enter into and
perform its obligations under this Agreement and to consummate the transactions
contemplated hereby, and neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will:
(a) be in violation of the articles of incorporation or bylaws of
Premium or constitute a breach of any evidence of indebtedness or agreement
relating to the business of Premium to which the Seller or Premium is a party;
(b) cause a default under any mortgage or deed of trust or other
lien, charge or encumbrance to which any assets of Premium is subject or under
any contract relating to Premium's business to which the Seller or Premium is a
party, or permit the termination of any such contract by another person;
(c) result in the creation or imposition of any security interest,
lien, charge or other encumbrance upon any assets of Premium under any agreement
or commitment to which the Seller or Premium is bound;
(d) accelerate, or constitute an event entitling, or which would, on
notice or lapse of time or both, entitle, the holder of any indebtedness of
Premium to accelerate the maturity of any such indebtedness;
(e) conflict with or result in the breach of any writ, injunction or
decree of any court or governmental instrumentality; or
(f) violate any statute, law or regulation of any jurisdiction as
such statute, law or regulation relates to the properties of Premium.
3.4 Tax Matters. All federal, state, foreign, county, local and other tax
-----------
returns required to be filed by or on behalf of Premium have been timely filed
(or if filed late all applicable penalties and interest have been paid) and when
filed were true and correct in all material respects, and the taxes shown as due
thereon were paid or adequately accrued. No tax returns or reports have been
filed by or on behalf of Premium since its inception. Premium will promptly
deliver to the Purchaser any tax return or report filed by Premium on or before
the Closing Date. Premium has not been required to withhold or pay taxes
relating to salaries and other compensation.
3.5 Liabilities. As of the date of this Agreement Premium has no
-----------
liabilities, and as of Closing Premium will have no liabilities (including,
without limitation, contractual obligations, undertakings and accounts payable),
except for the following: (i) liabilities to the parties designated as
"Shareholders" arising under the Athletic Attic Purchase Agreement; (ii)
liabilities to Morris, Manning & Martin for legal services in connection with
the transactions contemplated by this Agreement and the Athletic Attic Purchase
Agreement; (iii) liabilities to Deloitte & Touche for auditing and/or advisory
services in connection with the transactions contemplated by this Agreement and
the Athletic Attic Purchase Agreement; (iv) liabilities to Interstate/Johnson
Lane Corporation ("IJL") pursuant to that certain agreement, dated April 24,
1996, among IJL, Seller and Premium, as extended by that certain agreement dated
September 24, 1996 and amended pursuant to agreement dated December 20, 1996
(the "IJL Agreement"); and (v) liabilities to Seller for loans and advances to
Premium. The aggregate amount of the liabilities referenced in subitems (ii)
4
<PAGE>
through (v) of the immediately preceding sentence does not and shall not as of
the Closing Date exceed $500,000.
3.6 No Brokers or Finders. Except for IJL pursuant to the IJL Agreement,
---------------------
neither Premium nor Seller, or any of their respective directors, officers,
employees, or agents have retained, employed or used any broker or finder in
connection with the transaction provided for herein or in connection with the
negotiation thereof.
3.7 Disclosure. No representation or warranty by Premium and/or the
----------
Seller in this Agreement, nor any statement, certificate, schedule or exhibit
hereto furnished or to be furnished by or on behalf of Premium or the Seller
pursuant to this Agreement, nor any document or certificate delivered to
Purchaser pursuant to this Agreement or in connection with transactions
contemplated hereby, contains or shall contain any untrue statement of material
fact or omits or shall omit a material fact necessary to make the statements
contained therein not misleading. All statements and information contained in
any certificate, instrument, schedule or document delivered by or on behalf of
Premium and/or the Seller shall be deemed representations and warranties by
Premium and the Seller.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser makes the following representations and warranties to Premium
and the Seller, each of which is true and correct on the date hereof, shall be
unaffected by any investigation heretofore or hereafter made by Premium or the
Seller or any notice to Premium or the Seller, and shall survive the Closing of
the transactions provided for herein.
4.1 Due Incorporation and Qualification. The Purchaser is a corporation
-----------------------------------
duly organized, validly existing and in good standing under the laws of its
state of incorporation, and has the corporate power to carry on its business as
now being conducted and to own or lease its properties and assets as now owned,
leased or operated by it. The Purchaser is duly qualified or otherwise
authorized as a foreign corporation to transact business and is in good standing
in each jurisdiction in which, to the best knowledge and belief of the
Purchaser, a failure to be so qualified would have a material adverse effect on
the business of the Purchaser.
4.2 Authorization. The Purchaser has full corporate power and authority
-------------
under its articles of incorporation and bylaws and, the Board of Directors of
Purchaser has taken all necessary corporate action to authorize the Purchaser to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby and assuming due authorization, execution and delivery of
this Agreement by the Seller, this Agreement constitutes the valid and binding
obligation of the Purchaser enforceable in accordance with its terms except that
such enforcement may be subject to bankruptcy, insolvency, reorganization, or
other laws affecting creditors' rights generally and equitable principles.
4.3 Non-Contravention. Neither the execution and delivery of this
-----------------
Agreement or the other agreements contemplated hereby nor the consummation of
the transactions contemplated hereby does or will violate, conflict with, result
in a breach of any provision of, constitute a default under, result in the
termination of or permit any third party to terminate (with or without notice,
lapse of time or pursuant to any legal or equitable principle) or accelerate the
performance required on the part of the Purchaser by the terms of, or accelerate
the maturity of or require the prepayment of any indebtedness of the Purchaser
under, any judgment, order, decree or agreement or instrument to or by which the
Purchaser or any of its assets is subject or bound.
5
<PAGE>
4.3 Authority of the Purchaser. No consent, authorization or approval of,
--------------------------
or declaration, filing or registration with, any governmental, administrative or
regulatory body, or any consent, authorization or approval of any other third
party, is necessary in connection with the Purchaser's purchase of the Premium
Common Stock contemplated hereby or the consummation of the other transactions
contemplated hereby.
4.5 Litigation. There are no claims, actions, suits, proceedings or
----------
investigations pending or, to the best knowledge of the Purchaser, threatened by
or against the Purchaser with respect to the transactions contemplated hereby,
at law or in equity or before or by any federal, state, municipal, foreign or
other governmental department, commission, board, agency, instrumentality or
authority.
4.6 Broker's or Finder's Fees. Except for Croft & Bender, LLC, no agent,
-------------------------
broker, person or firm acting on behalf of Purchaser is, or will be, entitled to
any commission or broker's or finder's fees from any of the parties hereto, or
from any person controlling, controlled by or under common control with any of
the parties hereto, in connection with any of the transactions contemplated
herein. The liability to Croft & Bender, LLC is the liability of, and shall be
paid in full by, the Purchaser.
4.7 Disclosure. No representation or warranty by Purchaser in this
----------
Agreement, nor any statement, certificate, schedule or exhibit hereto furnished
or to be furnished by or on behalf of Purchaser pursuant to this Agreement, nor
any document or certificate delivered to Seller pursuant to this Agreement or in
connection with transactions contemplated hereby, contains or shall contain any
untrue statement of material fact or omits or shall omit a material fact
necessary to make the statements contained therein not misleading.
5. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
Each and every obligation of Purchaser to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of each of the
following conditions:
5.1 Representations and Warranties True as of the Closing Date. Each of
----------------------------------------------------------
the representations and warranties made by Premium and the Seller in this
Agreement, in the statements contained in the Schedules or in any instrument,
list, certificate or writing delivered by Premium or the Seller pursuant to this
Agreement shall be true and correct in all material respects at and as of the
Closing Date.
5.2 Compliance With Agreement. Premium and the Seller shall have in all
-------------------------
respects performed and complied with all of their agreements and obligations
under this Agreement which are to be performed or complied with by them prior to
or on the Closing Date, including the delivery of the closing documents
specified in Section 8.1.
5.3 Absence of Suit. No action, suit or proceeding before any court or
---------------
any governmental authority shall have been commenced or threatened, and no
investigation by any governmental or regulating authority shall have been
commenced, against Purchaser, Premium, or any of the Affiliates, shareholders,
officers or directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions.
6
<PAGE>
5.4 Consents and Approvals. All approvals, consents and waivers that are
----------------------
required to be obtained by Premium in order to effect the sale of the Premium
Shares contemplated hereby shall have been received, and executed counterparts
thereof shall have been delivered to Purchaser. Premium and the Seller shall
cooperate with Purchaser in obtaining, and take all actions necessary to obtain,
any such consents or approvals.
5.5 Diligence. Purchaser' inspection, investigation and testing of the
---------
business, affairs and property of Premium shall not have caused Purchaser to
conclude, in its sole discretion, that it is inadvisable for Purchaser to
consummate the transactions contemplated by this Agreement.
5.6 Athletic Attic Purchase Agreement. The Athletic Attic Purchase
---------------------------------
Agreement shall be in force and effect and shall be a legally binding and
enforceable agreement for the acquisition by Premium of all of the issued and
outstanding capital stock of Athletic Attic, and shall not be amended without
Purchaser's prior written consent.
5.7 Financial Information of Athletic Attic. At least ten (10) days prior
---------------------------------------
to the Closing Date, Purchaser shall have received financial statements of
Athletic Attic for the year ended December 31, 1996, which financial statements
shall have been prepared in accordance with generally accepted accounting
principles and shall contain an audit report thereon by the firm of Deloitte &
Touche, LLC and such audit report shall be without material exception or
qualification, as reasonably determined by Purchaser. Purchaser shall be
satisfied that each of the financial statements of Athletic Attic for the fiscal
years ended December 31, 1994, December 31, 1995 and December 31, 1996 have been
prepared in accordance with generally accepted accounting principles and present
fairly the financial position of Athletic Attic for the respective periods
noted.
5.8 Absence of Changes. Purchaser shall be satisfied in its reasonable
------------------
discretion that no material adverse change has occurred in the business or
financial condition of Athletic Attic during the period from December 31, 1996
through the Closing Date.
5.9 Athletic Attic Diligence. Purchaser's inspection, investigation and
------------------------
testing of the business, affairs and property of Athletic Attic shall not have
caused Purchaser to conclude, in its sole discretion, that it is inadvisable for
Purchaser to consummate the transactions contemplated by this Agreement.
5.10 Examinations and Inspections. In order to facilitate due diligence
----------------------------
reviews, the Purchaser shall be entitled prior to the Closing Date, through its
employees and representatives, including, without limitation, the Purchaser's
accountants and legal counsel, to make such inspection of the assets,
properties, business and operations of Premium and Athletic Attic, and such
examination of the books, records and financial condition of Premium and
Athletic Attic as the Purchaser reasonably desires. Any such inspection and
examination shall be conducted at reasonable times and under reasonable
circumstances which do not disrupt the business, properties or assets of Premium
or Athletic Attic and with respect to inspections and examinations relating to
Premium or Athletic Attic and involving the property and assets of third
parties, subject to the consent of such third parties and consistent with their
policies. In order that the Purchaser may have full opportunity to make such
business, accounting and legal review, examination or inspection as it may
reasonably desire of Premium or Athletic Attic, the Seller shall furnish the
representatives of the Purchaser during such period with all such information
and copies of such documents concerning the affairs of the Seller, Premium or
7
<PAGE>
Athletic Attic as such representatives may reasonably request and Premium shall
cause its officers, employees, agents, accountants and attorneys to cooperate
with such representatives in connection with such review and examination.
Notwithstanding the foregoing, Purchaser agrees that unless Purchaser and Seller
otherwise agree to the contrary, Purchaser will conduct such review and
investigation of Athletic Attic through representatives of the Seller.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PREMIUM AND THE SELLER
Each and every obligation of Premium and the Seller to be performed on the
Closing Date shall be subject to the satisfaction prior to or at the Closing of
the following conditions:
6.1 Representations and Warranties True on the Closing Date. Each of the
-------------------------------------------------------
representations and warranties made by Purchaser in this Agreement shall be true
and correct when made and shall be true and correct in all material respects at
and as of the Closing Date as though such representations and warranties were
made or given on and as of the Closing Date.
6.2 Compliance With Agreement. Purchaser shall have in all material
-------------------------
respects performed and complied with all of Purchaser' agreements and
obligations under this Agreement which are to be performed or complied with by
Purchaser prior to or on the Closing Date, including the delivery of the closing
documents specified in Section 8.2.
6.3 Absence of Suit. No action, suit or proceeding before any court or
---------------
any governmental authority shall have been commenced or threatened, and no
investigation by any governmental or regulating authority shall have been
commenced, against Purchaser, Premium, or any of the Affiliates, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions.
7. INDEMNIFICATION
7.1 By the Seller. Subject to the terms and conditions of this Article 7,
-------------
the Seller shall indemnify, defend and hold harmless Purchaser, and its
successors and assigns, and directors, officers, employees, and agents
(hereinafter "Purchaser's Affiliates") from and against all Claims (as defined
below) asserted against, resulting to, imposed upon, or incurred by Purchaser or
Purchaser's Affiliates, directly or indirectly, by reason of, arising out of or
resulting from:
(a) the inaccuracy or breach of any representation or warranty of
Premium or the Seller contained in or made pursuant to this
Agreement or any of the Ancillary Instruments (regardless of
whether such breach is deemed "material" for purposes of Section
6.1);
(b) the breach of any covenant of Premium or the Seller contained in
this Agreement or any of the Ancillary Instruments;
(c) any Claim by any person or entity, whether or not identified in
this Agreement, that such person has or had any rights with
respect to the capital stock of Premium or payment of any
distribution with respect thereto; or
8
<PAGE>
(d) any Claim arising out of the Seller's failure to contribute as a
capital contribution prior to the Closing any amount owed to
Premium by Seller; or
(e) any and all claims for brokerage commissions or finder's fees
incurred by Seller in the execution of this Agreement or the
consummation of the sale of the Premium Shares contemplated
hereby (provided, however, that if, and only if, the Closing
occurs Purchaser shall cause Premium to pay (subject to the
limits set forth in Section 3.5) amounts due and payable to IJL
under the IJL Agreement).
As used in this Article 7, the term "Claim" shall include (i) all debts,
liabilities and obligations; (ii) all losses, damages (including, without
limitation, consequential damages), judgments, awards, settlements, costs and
expenses (including, without limitation, interest (including prejudgment
interest in any litigated matter), penalties, court costs and attorneys fees and
expenses (including those incurred to enforce rights under this Article 7)); and
(iii) all demands, claims, suits, actions, costs of investigation, causes of
action, proceedings and assessments, whether or not ultimately determined to be
valid.
7.2 By Purchaser. Subject to the terms and conditions of this Article 7,
------------
Purchaser hereby agrees to indemnify, defend and hold harmless the Seller from
and against all Claims asserted against, resulting to, imposed upon or incurred
by Seller, directly or indirectly, by reason of, arising out of or resulting
from (a) the inaccuracy or breach of any representation or warranty of Purchaser
contained in or made pursuant to this Agreement or any of the Ancillary
Instruments (regardless of whether such breach is deemed "material" for purposes
of Section 5.1), or (b) the breach of any covenant or agreement of Purchaser
contained in this Agreement or any of the Ancillary Instruments, or (c) any and
all claims for brokerage commissions or finder's fees incurred by Purchaser in
connection with the execution of this Agreement or the consummation of the sale
of the Premium Shares contemplated hereby.
7.3 Survival Period of Representations and Warranties and Other Matters.
-------------------------------------------------------------------
7.3(a) For indemnification purposes only, the representations and
warranties covered in this Agreement will survive for a period of eighteen (18)
months immediately following the Closing Date; provided, however, that the
representations and warranties as to tax matters, including those in Section 3.4
shall survive for the period of time equal to the applicable statute of
limitations in respect of Claims related thereto. Any Claim for indemnification
for breach of a representation or warranty must be instituted prior to the
expiration of the representation and warranty as specified in this Section 7.3.
7.3(b) The maximum liability of Seller for any and all Claims under
this Article 7 shall be $2,000,000. It is agreed that Seller's liability for
any claims under this Agreement shall be satisfied as to the first $500,000 in
Claims hereunder by payment to Purchaser in cash or immediately available funds,
and as to the balance of the maximum liability of $2,000,000 under this Article
7, Seller may satisfy any such claims by means of a return to Purchaser of such
number of shares of "Non-Registrable Securities" of Purchaser received by
Owensboro Investment Co., Inc. ("Owensboro") or Seller under that certain Asset
Purchase Agreement (the "Owensboro Agreement"), dated as of the date hereof,
between Purchaser and Owensboro, as is equal in value to the amount of the
applicable Claim(s), based on the value at which such stock was issued to
9
<PAGE>
Owensboro under the Owensboro Agreement. "Non-Registrable Securities" shall
have the meaning ascribed thereto in the Owensboro Agreement.
7.4 Indemnification of Third-Party Claims. The obligations and
-------------------------------------
liabilities of any party to indemnify any other under this Article 7 with
respect to a Claim relating to or arising from a claim relating to third parties
(a "Third Party Claim") shall be subject to the following terms and conditions:
7.4(a) Notice and Defense. The party or parties to be indemnified
------------------
(whether one or more, the "Indemnified Party") will give the party from whom
indemnification is sought (the "Indemnifying Party") prompt written notice of
any such Claim, and the Indemnifying Party may undertake the defense thereof by
representatives chosen by it. Failure to give notice shall not affect the
Indemnifying Party's duty or obligations under this Article 7, except to the
extent the Indemnifying Party is prejudiced thereby. If the Indemnifying Party
undertakes the defense of a Third Party Claim, then the Indemnifying Party shall
be deemed to accept that it has an indemnification obligation under this Article
7 with respect to such Third Party Claim, unless it shall in writing reserve the
right to contest its obligation to provide indemnity with respect to such Third
Party Claim. So long as the Indemnifying Party is defending any such Third Party
Claim actively and in good faith, the Indemnified Party shall not settle such
Claim. The Indemnified Party shall make available to the Indemnifying Party or
its representatives all records and other materials required by them and in the
possession or under the control of the Indemnified Party, for the use of the
Indemnifying Party and its representatives in defending any such Claim, and
shall in other respects give reasonable cooperation in such defense.
7.4(b) Failure to Defend. If the Indemnifying Party, within thirty
-----------------
(30) days after notice of any such Claim, fails to dispute the obligation of the
Indemnifying Party with respect to such Claim and fails to defend such Claim
actively and in good faith, then the Indemnified Party will (upon written notice
to the Indemnifying Party) have the right to undertake the defense, compromise
or settlement of such Claim or consent to the entry of a judgment with respect
to such Claim, on behalf of and for the account and risk of the Indemnifying
Party, and the Indemnifying Party shall thereafter have no right to challenge
the Indemnified Party's defense, compromise, settlement or consent to judgment
therein.
7.4(c) Indemnified Party's Rights. Anything in this Section 7.4 to
--------------------------
the contrary notwithstanding, (i) if there is a reasonable probability that a
Claim may materially and adversely affect the Indemnified Party other than as a
result of money damages or other money payments, the Indemnified Party shall
have the right to defend, compromise or settle such Claim, and (ii) the
Indemnifying Party shall not, without the written consent of the Indemnified
Party, settle or compromise any Claim or consent to the entry of any judgment
which does not include as an unconditional term thereof the giving by the
claimant or the plaintiff to the Indemnified Party of a release from all
liability in respect of such Claim.
7.5 Payment. The Indemnifying Party shall promptly pay the Indemnified
-------
Party any amount due under this Article 7, which payment may be accomplished in
whole or in part, at the option of the Indemnified Party, by the Indemnified
Party setting off any amount owed (whether arising hereunder or otherwise) to
the Indemnifying Party by the Indemnified Party. To the extent set off is made
by an Indemnified Party in satisfaction or partial satisfaction of an indemnity
obligation under this Article 7 that is disputed by the Indemnifying Party, upon
a subsequent determination by final judgment not subject to appeal that all or a
portion of such indemnity obligation was not owed to the Indemnified Party, the
10
<PAGE>
Indemnified Party shall pay the Indemnifying Party the amount which was set off
and not owed together with interest from the date of set off until the date of
such payment at an annual rate equal to the average annual rate in effect as of
the date of the set off, on those three maturities of United States Treasury
obligations having a remaining life, as of such date, closest to the period from
the date of the set off to the date of such judgment. Upon judgment,
determination, settlement or compromise of any Third Party Claim, the
Indemnifying Party shall pay promptly on behalf of the Indemnified Party, and/or
to the Indemnified Party in reimbursement of any amount theretofore required to
be paid by it, the amount so determined by judgment, determination, settlement
or compromise and all other Claims of the Indemnified Party with respect
thereto, unless in the case of a judgment an appeal is made from the judgment.
If the Indemnifying Party desires to appeal from an adverse judgment, then the
Indemnifying Party shall post and pay the cost of the security or bond to stay
execution of the judgment pending appeal. Upon the payment in full by the
Indemnifying Party of such amounts, the Indemnifying Party shall succeed to the
rights of such Indemnified Party, to the extent not waived in settlement,
against the third party who made such Third Party Claim.
7.6 No Waiver. The closing of the transactions contemplated by this
---------
Agreement shall not constitute a waiver by any party of its rights to
Indemnification hereunder, regardless of whether the party seeking
Indemnification has knowledge of the breach, violation or failure of condition
constituting the basis of the Claim at or before the Closing.
7.7 Adjustment of Liability. In the event an Indemnifying Party is
-----------------------
required to make any payment under this Section 7 in respect of any damages,
liability, obligation, loss, claim, or other amount indemnified hereunder, such
Indemnifying Party shall pay the Indemnified Party an amount (the "Adjusted
Amount") which is equal to the sum of (i) the amount of such damages, liability,
obligation, loss, claim or other amount, minus (ii) the amount of any insurance
proceeds the Indemnified Party actually receives with respect thereto, minus
(iii) any third party payments actually received by the Indemnified Party with
respect to such damages, liability, obligation, loss, claim or other amount
after demand or notice to such third party from the Indemnifying Party (with the
consent of the Indemnified Party which will not be unreasonably withheld), plus
(iv) the amount of the Net Tax Liability. "Net Tax Liability" shall be equal to
the amount, if any, by which, the sum of all federal, state, and local taxes, if
any, required to be paid by such Indemnified Party in respect of the receipt or
accrual of the Adjusted Amount exceeds the sum of (a) the value of any reduction
in taxes of such Indemnified Party by reason of deductions, credits or
allowances in respect of the payment or accrual of the damages, liability,
obligation, loss, claim or other amount included in clause (i) above recognized
by such Indemnified Party in the same year in which the taxes in respect of the
receipt or accrual by such Indemnified Party of the Adjusted Amount would be
payable and (b) the net present value of any reduction in taxes of such
Indemnified Party by reason of deductions, credits or allowances in respect of
the payment or accrual of the damages, liability, obligation, loss, claim or
other amount included in clause (i) above recognized by such Indemnified Party
in years thereafter. The net present value of any such reduction in taxes shall
be determined by discounting the amount of such reduction in taxes semi-annually
from the date such tax saving is recognized or reasonably expected to be
recognized (which shall be deemed to be the date the applicable tax return on
which such tax saving would be properly reflected is due, without extensions) to
the date of payment of the applicable indemnity by such Indemnifying Party,
applying a discount factor equal to the interest rate on federal income tax
deficiencies in effect at the time of such adjustment. For purposes of
determining the amount of any taxes required to be paid and any tax savings
recognized or reasonably expected to be recognized by such Indemnified Party
hereunder, it shall be assumed that such Indemnified Party is subject to tax in
11
<PAGE>
each applicable taxing jurisdiction at the highest applicable marginal rate then
in effect in such jurisdiction.
8. CLOSING
8.1 Documents to be Delivered by Premium and the Seller. At the Closing,
---------------------------------------------------
Premium and Seller shall deliver, or caused to be delivered, to Purchaser the
following documents, in each case duly executed or otherwise in proper form:
8.1(a) Stock Certificate(s). Stock certificates representing the
--------------------
Premium Shares together with stock powers executed in blank, and such other
documents, instruments, and agreements with respect thereto as may be reasonably
requested by Purchaser.
8.1(b) Compliance Certificate. A certificate signed by the Seller
----------------------
that each of the representations and warranties made by Premium and Seller
pursuant to this Agreement is true and correct in all material respects on and
as of the Closing Date and that Premium and the Seller have performed and
complied with all of their respective obligations under or pursuant to this
Agreement which are to be performed or complied with on or prior to the Closing
Date.
8.1(c) Opinion of Counsel. A written opinion of Morris, Manning &
------------------
Martin, counsel to Premium and the Seller, dated as of the Closing Date,
addressed to Purchaser, substantially in the form of Exhibit A hereto.
8.1(d) Athletic Attic Purchase Agreement. True, correct and complete
---------------------------------
copies of the Athletic Attic Purchase Agreement and all documents executed in
connection therewith and certified as such by Seller and an officer of Premium.
8.1(e) Certified Resolutions. Certified copies of the resolutions of
---------------------
the Board of Directors of Premium and of the Seller, authorizing and approving
this Agreement and the consummation of the transactions contemplated by this
Agreement.
8.1(f) Articles; Bylaws. A copy of the bylaws certified by the
----------------
Secretary of Premium and articles of incorporation of Premium certified by the
Secretary of State of the State of Florida.
8.1(g) Incumbency Certificate. Incumbency certificates relating to
----------------------
each person executing (as a corporate officer or otherwise on behalf of another
person) any document executed and delivered to Purchaser pursuant to the terms
hereof.
8.1(h) Other Documents. All other documents, instruments or writings
---------------
required to be delivered to Purchaser at or prior to the Closing pursuant to
this Agreement and such other certificates of authority (including good standing
certificates), documents, instruments or writings as Purchaser may reasonably
request.
8.1(i) Payment of Liabilities. At Closing, Seller shall have provided
----------------------
evidence to Purchaser that Seller has paid all liabilities of Premium in effect
on the Closing Date in excess of the amounts agreed to be paid by Purchaser
pursuant to Section 8.2(e)
12
<PAGE>
8.1(j) Releases. At Closing, there shall be delivered to Purchaser
--------
and Premium releases, in form and substance satisfactory to Purchaser, from each
of the obligees of the liabilities covered by Section 3.5 and paid in accordance
with this Agreement.
8.2 Documents to be Delivered by Purchaser. At the Closing, Purchaser
--------------------------------------
shall deliver to the Seller the following documents or items, in each case duly
executed or otherwise in proper form:
8.2(a) Consideration. The Purchase Price in accordance with Section
-------------
2.1.
8.2(b) Compliance Certificate. A certificate signed by Purchaser that
----------------------
the representations and warranties made by Purchaser in this Agreement are true
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made or given on and as of the Closing
Date (except for any changes permitted by the terms of this Agreement or
consented to in writing by Premium and the Seller), and that Purchaser has
performed and complied with all of its obligations under this Agreement which
are to be performed or complied with on or prior to the Closing Date.
8.2(c) Opinion of Counsel. A written opinion of Smith, Gambrell &
------------------
Russell, LLP, counsel to Purchaser, dated as of the Closing Date, addressed to
the Seller, substantially in the form of Exhibit B hereto.
8.2(d) Other Documents. All other documents, instruments or writings
---------------
required to be delivered to Premium or the Seller at or prior to the Closing
pursuant to this Agreement and such other certificates of authority (including
good standing certificates) and documents as Premium and the Seller may
reasonably request.
8.2(e) Payment of Liabilities. At Closing, Purchaser shall cause
----------------------
Premium to pay directly to the obligee thereof the amount of the liabilities
contemplated by Section 3.5 up to an aggregate amount equal to $500,000.
8.3 Closing of the Athletic Attic and Owensboro Transactions. Purchaser,
--------------------------------------------------------
Premium and Seller acknowledge and agree that it is the intent of the parties
hereto that the Closing of the purchase and sale of the Premium Shares be
consummated simultaneously with the closing of the transactions contemplated by
the Athletic Attic Purchase Agreement and the Owensboro Agreement.
Accordingly, the parties hereto agree that unless and until the transactions
contemplated by both the Owensboro Agreement and the Athletic Asset Purchase
Agreement are consummated as provided thereunder, the Closing of the
transactions contemplated by this Agreement shall not be deemed finally closed
and consummated until all parties hereto are satisfied that the Athletic Attic
Purchase Agreement and the Owensboro Agreement transactions have been or will be
consummated contemporaneously with this Agreement. The parties agree to
cooperate in good faith to close the transactions contemplated by this
Agreement, the Athletic Attic Purchase Agreement and the Owensboro Agreement, in
accordance with the terms of this Agreement and such other agreements. For
purposes of clarification, Purchaser acknowledges that upon the consummation of
the transactions contemplated by this Agreement, Purchaser will be obligated to
cause sufficient funding to be provided to Premium in order to cause Premium's
consummation of the transactions contemplated by the Athletic Attic Purchase
Agreement in accordance with the terms of such agreement.
13
<PAGE>
9. TERMINATION OF AGREEMENT
9.1 Termination. This Agreement may be terminated prior to the Closing as
-----------
follows:
(a) at the election of the Seller, if any one or more of the
conditions to the obligations of the Seller to close has not been fulfilled as
of the Closing Date, or if the Purchaser has materially breached any
representation, warranty, covenant or agreement contained in this Agreement or
in any of the Ancillary Agreements;
(b) at the election of the Purchaser, if any one or more of the
conditions to its obligations to close has not been fulfilled as of the Closing
Date, or if the Seller has materially breached any representation, warranty,
covenant or agreement contained in this Agreement or in any of the Ancillary
Agreements;
(c) at the election of the Seller or the Purchaser, if any legal
proceeding is commenced or threatened by any governmental regulatory body or
other person directed against the consummation of the Closing or any other
transaction contemplated under this Agreement and either the Seller or the
Purchaser, as the case may be, reasonably and in good faith deem it impractical
or inadvisable to proceed in view of such legal proceeding or threat thereof;
(d) at any time on or prior to the Closing Date, by mutual written
consent of the parties hereto; or
(e) at any time after March 31, 1997, at the election of the Seller
on the one hand, or the Purchaser on the other hand.
9.2 Post-Termination Obligations. If this Agreement is terminated
----------------------------
pursuant to Section 9.1, this Agreement shall become void and of no further
force and effect, except for the provisions of Section 10.2 (relating to
publicity) and Section 10.6 (relating to expenses) and none of the parties
hereto shall have any liability in respect of such termination except that any
party shall be liable to the extent that failure to satisfy the conditions of
Sections 2, 5 or 6 results from the intentional or willful violation of the
representations, warranties, covenants or agreements of such party under this
Agreement.
10. MISCELLANEOUS
10.1 Further Assurances. From time to time, at the request of Purchaser
------------------
and without further consideration, Premium and the Seller will execute and
deliver to Purchaser such documents and take such other action as Purchaser may
reasonably request in order to consummate more effectively the transactions
contemplated hereby.
10.2 Announcements. Prior to Closing, except as otherwise required by law,
-------------
none of the parties hereto shall issue any press release, place any
advertisements or tombstones or make any other public statement, in each case
relating to or in connection with or arising out of this Agreement or the
matters contained herein, without obtaining prior approval of all parties hereto
as to the contents and manner of presentation and publication thereof, which
approval shall not be unreasonably withheld or delayed. Following Closing, the
parties hereto shall not be bound by the foregoing restrictions of this Section
10.2, provided that any obligations of confidentiality shall survive for the
period otherwise applicable thereto.
14
<PAGE>
10.3 Assignment; Parties in Interest. Except as expressly provided herein,
-------------------------------
the rights and obligations of a party hereunder may not be assigned, transferred
or encumbered without the prior written consent of the other parties. The
Purchaser may assign its rights and obligations hereunder to any direct or
indirect wholly-owned subsidiary for purposes of consummating the transactions
contemplated herein. This Agreement shall be binding upon, inure to the benefit
of, and be enforceable by the respective successors and permitted assigns of the
parties hereto. Nothing contained herein shall be deemed to confer upon any
other person or entity any right or remedy under or by reason of this Agreement.
10.4 Law Governing Agreement. This Agreement may not be modified or
-----------------------
terminated orally, and shall be construed and interpreted according to the
internal laws of the State of Georgia excluding any choice of law rules that may
direct the application of the laws of another jurisdiction.
10.5 Amendment and Modification. Purchaser, Premium and the Seller may
--------------------------
amend, modify and supplement this Agreement in such manner as may be agreed upon
in writing among Purchaser, Premium and the Seller.
10.6 Notice. All notices, requests, demands and other communications
------
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents; or (c) sent to the parties at their respective
addresses indicated herein by registered or certified U.S. mail, return receipt
requested and postage prepaid, or by private overnight mail courier service.
The respective addresses to be used for all such notices, demands or requests
are as follows:
(a) If to the Purchaser, to:
Just for Feet, Inc.
153 Cahaba Valley Parkway North
Pelham, Alabama 35124
Attention: Chairman
Facsimile: (205) 403-8163
with a copy to:
Smith, Gambrell & Russell, LLP
3343 Peachtree Road
Suite 1800
Atlanta, Georgia 30326
Attention: Arthur Jay Schwartz, Esq.
Facsimile: (404) 264-2652
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<PAGE>
(b) If to the Seller, to:
John Gasser
100 Emerald Lane
Madison, Alabama 35758
Facsimile: (205) 464-6611
with a copy to:
Morris, Manning & Martin, LLP
3343 Peachtree Road
Suite 1600
Atlanta, Georgia 30326
Attention: Oby T. Brewer, III, Esq.
Facsimile: (404) 365-9532
If personally delivered, such communication shall be deemed delivered upon
actual receipt; if electronically transmitted pursuant to this paragraph, such
communication shall be deemed delivered the next business day after transmission
(and sender shall bear the burden of proof of delivery); if sent by overnight
courier pursuant to this paragraph, such communication shall be deemed delivered
upon receipt; and if sent by U.S. mail pursuant to this paragraph, such
communication shall be deemed delivered as of the date of delivery indicated on
the receipt issued by the relevant postal service, or, if the addressee fails or
refuses to accept delivery, as of the date of such failure or refusal. Any
party to this Agreement may change its address for the purposes of this
Agreement by giving notice thereof in accordance with this Section 10.6.
10.7 Expenses. Except as provided otherwise herein, regardless of whether
--------
or not the transactions contemplated hereby are consummated:
(a) Expenses to be Paid by the Seller. The Seller agrees to pay, and
---------------------------------
to indemnify, defend and hold Purchaser and Premium harmless from and against,
each of the following: (i) any sales, use, excise, or transfer tax imposed with
respect to the sale to the Purchaser of the Premium Shares, and any interest or
penalties related thereto; and (ii) all legal fees, and expenses related to
legal fees, of the Seller and Premium attributable to or incurred in connection
with or preparation for the transactions contemplated hereby.
(b) Costs of Litigation. The parties agree that the prevailing party
-------------------
in any action brought with respect to or to enforce any right or remedy under
this Agreement shall be entitled to recover from the other party or parties all
reasonable costs and expenses of any nature whatsoever incurred by the
prevailing party in connection with such action, including without limitation
attorneys' fees and prejudgment interest.
(c) Other. Each of the parties shall bear its own expenses and the
-----
expenses of its other agents in connection with the transactions contemplated
hereby.
10.8 Entire Agreement. This Agreement, including the Schedules attached
----------------
(if any) hereto which are incorporated herein by reference and made a part
hereof, embody the entire agreement between the parties hereto with respect to
the transactions contemplated herein, and there have been and are no agreements,
16
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representations or warranties between the parties other than those set forth or
provided for herein.
10.9 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.10 Headings. The table of contents and article and section herein are
--------
for convenience of reference only, do not constitute a part of this Agreement,
and shall not be deemed to limit or affect any of the provisions hereof.
[SIGNATURES ON FOLLOWING PAGE]
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
PREMIUM SPORTS, INC.
By:______________________________
Name:____________________________
Title:_____________________________
[Corporate Seal]
JUST FOR FEET, INC.
By:______________________________
Name:____________________________
Title:_____________________________
[Corporate Seal]
_____________________________(SEAL)
JOHN GASSER
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Exhibit 2.3
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 17, 1997 (this
"AGREEMENT"), among Just For Feet, Inc., an Alabama corporation ("PARENT"), IAC
Acquisition Corporation, a Michigan corporation and a wholly owned subsidiary of
Parent ("Merger Sub"), Imperial Acquisition Corporation, a Michigan corporation
(the "COMPANY"), and each of the shareholders of the Company identified on
Exhibit "A" attached hereto (individually, a "SHAREHOLDER" and collectively, the
"SHAREHOLDERS").
WITNESSETH:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective shareholders for Parent to enter into a business combination with the
Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
Parent and Merger Sub have each approved the merger of Merger Sub with and into
the Company (the "MERGER") in accordance with the applicable provisions of the
Michigan Business Corporation Act (the "MBCA") and the Board of Directors of the
Company has approved the Merger in accordance with the applicable provisions of
the MBCA, and upon the terms and subject to the conditions set forth herein;
WHEREAS, Parent, Merger Sub and the Company intend, by approving
resolutions authorizing this Agreement, to adopt this Agreement as a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "CODE"), and the regulations promulgated thereunder;
WHEREAS, pursuant to the Merger, each outstanding share (a "SHARE") of the
Company's common stock, $.01 par value (the "COMPANY COMMON STOCK"), shall be
converted into the right to receive the Merger Consideration (as defined in
Section 1.7), upon the terms and subject to the conditions set forth herein;
WHEREAS, Shareholders believe the Merger is in their respective best
interests and desire to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub, Company and Shareholders hereby agree as follows:
<PAGE>
ARTICLE I
THE MERGER
SECTION 1.1 The Merger.
(a) Effective Time. At the Effective Time (as defined in Section 1.2), and
subject to and upon the terms and conditions of this Agreement, and the MBCA,
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation. The Company as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "SURVIVING CORPORATION."
(b) Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1 and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the consummation of the Merger (the "CLOSING" and the date thereof
being the "CLOSING DATE") will take place as promptly as practicable (and in any
event within two business days) after satisfaction or waiver of the conditions
set forth in Article VI, at the offices of Smith, Gambrell & Russell, LLP, 3343
Peachtree Road, N.E., Suite 1800, Atlanta, Georgia, unless another date, time or
place is agreed to in writing by the parties hereto.
SECTION 1.2 Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by filing a certificate of
merger as contemplated by the MBCA (the "CERTIFICATE OF MERGER"), together with
any required related certificates, with the Department of Consumer and Industry
Services of the State of Michigan, in such form as required by, and executed in
accordance with, the relevant provisions of the MBCA (the time of such filing
being the "EFFECTIVE TIME").
SECTION 1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of the MBCA. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.4 Articles of Incorporation, By-Laws.
(a) Articles of Incorporation. At the Effective Time the Articles of
Incorporation of the Company, as in effect immediately prior to the Effective
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Time, shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended in accordance with the MBCA and such Articles of
Incorporation.
(b) By-Laws. The By-Laws of the Company, as in effect immediately prior to
the Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended in accordance with the MBCA, the Articles of Incorporation of
the Surviving Corporation and such By-Laws.
SECTION 1.5 Directors and Officers. The Board of Directors of Merger Sub
immediately prior to the Effective Time shall be the initial Board of Directors
of the Surviving Corporation, each member to hold office in accordance with the
Articles of Incorporation and By-Laws of the Surviving Corporation, and the
officers of Merger Sub immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
SECTION 1.6 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the Parent, Merger Sub, the
Company or the holders of any of the following securities:
(a) Conversion of Securities. Each Share issued and outstanding immediately
prior to the Effective Time (excluding any Shares to be canceled pursuant to
Section 1.6(b)) shall be converted into the right to receive in accordance with
Exhibit "B" a pro rata portion (the "PRO RATA PORTION") of the Merger
Consideration described in Section 1.7 below.
(b) Cancellation. Each Share held in the treasury of the Company and each
Share owned by Parent, Merger Sub or any direct or indirect wholly owned
subsidiary of the Company or Parent immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding, be canceled and retired without payment of any
consideration therefor and cease to exist.
(c) Stock Options.
(i) At the Effective Time, each outstanding option to purchase Company
Common Stock (a "STOCK OPTION") granted under the Company's Employee Stock
Option Plan (the "COMPANY STOCK OPTION PLAN"), whether vested or unvested,
shall be deemed assumed by Parent and deemed to constitute an option to
acquire, on the same terms and conditions as were applicable under such
Stock Option prior to the Effective Time, the number (rounded down to the
nearest whole number) of Parent Shares (as defined in Section 1.7) as the
holder of such Stock Option would have been entitled to receive pursuant to
the Merger had such holder exercised such option in full immediately prior
to the Effective Time (not taking into account whether or not such option
was in fact exercisable), at a price per share equal to (x) the aggregate
exercise price for Company Common Stock otherwise purchasable pursuant to
such Stock Option divided by (y) the number of Parent Shares deemed
purchasable pursuant to such Stock Option.
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(ii) As soon as practicable after the Effective Time, Parent shall
deliver to each holder of an outstanding Stock Option an appropriate notice
setting forth such holder's rights pursuant thereto, and such Stock Option
shall continue in effect on the same terms and conditions.
(iii) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of Parent Shares for delivery pursuant to the
terms set forth in this Section 1.6(c).
(iv) Subject to any applicable limitations under the Securities Act
of 1933, as amended, and the rules and regulations thereunder (the
"SECURITIES ACT"), Parent shall file a Registration Statement on Form S-8
(or any successor form), effective within fifteen (15) days after the
Effective Time, with respect to the shares of Parent Common Stock (as
defined in Section 1.7) issuable upon exercise of the Stock Options and use
all reasonable efforts to maintain the effectiveness of such registration
statement (and maintain the current status of the prospectus or
prospectuses relating thereto) for so long as such options shall remain
outstanding.
(d) Capital Stock of Merger Sub. Each share of common stock, without par
value, of Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one validly issued, fully paid
and nonassessable share of common stock, without par value, of the Surviving
Corporation.
SECTION 1.7 Merger Consideration.
(a) Aggregate Consideration. The aggregate consideration to be paid by
Parent in respect of the Shares issued and outstanding as of the Effective Time
pursuant to the Merger shall be Twenty Five Million Fifty Nine Thousand Six
Hundred Dollars ($25,059,600) (the "MERGER CONSIDERATION"), through conversion
of such Shares into the right to receive that number of validly issued, fully
paid and nonassessable shares ("PARENT SHARES") of the Common Stock, $.0001 par
value, of Parent ("PARENT COMMON STOCK") which results by dividing the Merger
Consideration by the average of the Last Sale Prices for Parent Common Stock for
the period of ten (10) Trading Days that ends on and includes the Trading Day
immediately preceding the Closing Date (the "AVERAGE PRICE"); provided, however,
that each holder of such Shares may elect to receive all or any part of the
Merger Consideration in cash in lieu of Parent Shares, provided, further,
however, that the amount of cash comprising a portion of the Merger
Consideration received by all holders of the Shares may not exceed the lesser of
Five Million Dollars ($5,000,000) in the aggregate or twenty percent (20%) of
the total Merger Consideration, as the same may be adjusted pursuant to Section
1.7(b) below. Any cash consideration to be paid hereunder shall be paid by
certified or bank casher's check or wire transfer, in any case in immediately
available funds, on the Closing Date. For purposes of this Agreement a "TRADING
DAY" shall mean a day in which the Parent Common Stock is traded on the over the
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counter market and the "LAST SALE PRICE" shall be the last sale price for Parent
Common Stock as reported by the Nasdaq Stock Market for such Trading Day.
(b) Potential Adjustment to Merger Consideration. If Company's
consolidated earnings before interest, taxes, depreciation and amortization, as
determined in accordance with the conventions hereinafter described ("EBITDA")
for the Company's fiscal year ending February 28, 1997, is less than $5,000,000
then the Merger Consideration shall be adjusted downward Four and 70/100
Dollars ($4.70) for each One Dollar ($1.00) of the amount of such shortfall.
If, on the other hand, the Company's EBITDA for the Company's fiscal year ending
February 28, 1997, is more than $5,600,000 then the Merger Consideration shall
be adjusted upward Four and 70/100 Dollars ($4.70) for each One Dollar ($1.00)
of the amount of such overage (any adjustment up or down to the Merger
Consideration pursuant to this provision being hereinafter referred to as the
"EBITDA ADJUSTMENT"). For purposes of this Agreement the Company's EBITDA shall
be determined as set forth in Section 1.7(c) in accordance with generally
accepted accounting principles in the same manner as the Company has
historically determined the same; provided, however, that the following
adjustments shall be made: (i) any legal or professional fees associated with
this transaction that were incurred during the applicable fiscal year shall be
ignored; (ii) any legal or professional fees that were incurred during the
applicable fiscal year with respect to the Internal Revenue Service's audit of
the Company's 1993 and 1994 tax returns shall be ignored; (iii) rental income
relating to the applicable fiscal year shall be included after adjusting the
same to add back interest expense and depreciation incurred or taken in the
applicable fiscal year in arriving at "rental income, net," as set forth in the
Company's consolidated statement of operations for such fiscal year; and (iv)
any adjustment to the LIFO reserve shall be ignored.
(c) Determination of EBITDA. Company's EBITDA for the fiscal year ending
February 28, 1997, and any resulting EBITA Adjustment, shall be determined by
Company's independent certified public accountants at least ten (10) days prior
to the Closing Date (the "EBITDA DETERMINATION"). Immediately after receiving
the EBITDA Determination, Company shall deliver same to the Parent. The Parent
and its accountants shall be given full access upon request to all work papers
or other materials used by the Company and its accountants in the preparation of
the EBITDA Determination. If the Parent does not deliver a list of written
objections to the EBITDA Determination ("OBJECTION NOTICE") to Company and the
Shareholders within ten (10) days following delivery to the Parent, the EBITDA
Determination shall become final and binding upon the parties. If the Parent
delivers an Objection Notice within such ten (10) day period, the parties will
endeavor to reconcile any differences and agree upon a final EBITDA
Determination. If the parties are unable to agree upon a final EBITDA
Determination within five (5) days following delivery of the Objection Notice,
at the request of either party the outstanding matters shall be submitted for
resolution by a mutually acceptable accounting firm of recognized national
standing with offices in the Atlanta, Georgia area. If the parties are unable
to agree upon a mutually acceptable accounting firm, one will be selected at
random from a list of the six (6) largest Atlanta offices of such certified
public accounting firms having no prior affiliation with Parent, Company, the
Surviving Corporation or the Shareholders. Each of Parent and the Shareholders
shall bear 50% of the fees and expenses of the accounting firm so selected.
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Such accounting firm shall promptly prepare a final EBITDA Determination and the
determination of such accounting firm shall be final and binding upon the
parties. Notwithstanding anything contained in this Agreement to the contrary,
the Closing will be postponed until such time as the EBITDA Determination is
finally determined in accordance with this Section 1.7(c).
(d) No Fractional Shares. No fractional shares of Parent Common Stock
shall be issued in connection with the Merger, and no certificates for any such
fractional shares shall be issued. In lieu of such fractional shares, any
holder of Shares who would otherwise be entitled to receive a fraction of a
share of Parent Common Stock (after aggregating all fractional shares of Parent
Common Stock issuable to such shareholder) shall, upon surrender of such
shareholder's Company Common Stock certificate(s), be paid in cash the valuation
rate determined pursuant to this Section 1.7.
SECTION 1.8 Stock Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed, and there shall be no further registration
of transfers of Company Common Stock thereafter on the records of the Company.
SECTION 1.9 No Further Ownership Rights in Company Common Stock. The Merger
Consideration delivered upon the surrender for exchange of Shares in accordance
with the terms hereof shall be deemed to have been issued in full satisfaction
of all rights pertaining to such Shares, and there shall be no further
registration of transfers on the records of the Surviving Corporation of Shares
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article I.
Until surrendered and exchanged in accordance with this Section, each
certificate of Company Common Stock shall, after the Effective Time, represent
solely the right to receive the Merger Consideration in respect of the Shares of
Company Common Stock evidenced by such certificate and shall have no other
rights. No interest shall accrue or be payable on any Merger Consideration.
SECTION 1.10 Tax Consequences. It is intended by the parties hereto that
the Merger shall (i) constitute a reorganization within the meaning of Section
368 of the Code. The parties hereto hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
SECTION 1.11 Taking of Necessary Action; Further Action. Each of Parent,
Merger Sub and the Company will take all such reasonable and lawful action as
may be necessary or appropriate in order to effectuate the Merger in accordance
with this Agreement as promptly as practicable. If, at any time after the
Effective Time, any such further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub immediately prior to the Effective Time are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.
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SECTION 1.12 Material Adverse Effect. When used in connection with the
Company or any of its subsidiaries, or Parent or any of its subsidiaries, as the
case may be, the term "MATERIAL ADVERSE EFFECT" means any change, effect or
circumstance that, individually or when taken together with all other such
changes, effects or circumstances that have occurred prior to the date of
determination of the occurrence of the Material Adverse Effect, (a) is or is
reasonably likely to be materially adverse to the business, assets (including
intangible assets), financial condition or results of operations of the Company
and its subsidiaries or Parent and its subsidiaries, as the case may be, in each
case taken as a whole, or (b) is or is reasonably likely to prevent the
consummation of the transactions contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS
Subject to Section 8.9 below, the Company and Shareholders, jointly and
severally, hereby represent and warrant to Parent and Merger Sub that, except as
set forth in the written disclosure schedule delivered on or prior to the date
hereof by the Company to Parent that is arranged in paragraphs corresponding to
the numbered and lettered paragraphs contained in this Article II (the "COMPANY
DISCLOSURE SCHEDULE"):
SECTION 2.1 Organization and Qualification; Subsidiaries. Each of the
Company and each of its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority necessary to
own, lease and operate the properties it purports to own, operate or lease and
to carry on its business as it is now being conducted, except where the failure
to be so organized, existing and in good standing or to have such power,
authority and approvals could not reasonably be expected to have a Material
Adverse Effect. Each of the Company and each of its subsidiaries is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that could not reasonably be expected
to have a Material Adverse Effect. A true and complete list of all of the
Company's subsidiaries, together with the jurisdiction of incorporation of each
subsidiary, the authorized capitalization of each subsidiary, and the percentage
of each subsidiary's outstanding capital stock owned by the Company or another
subsidiary, is set forth in Section 2.1 of the Company Disclosure Schedule.
Except as set forth in Section 2.1 of the Company Disclosure Schedule, the
Company does not directly or indirectly own any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for, any equity
or similar interest in, any corporation, partnership, joint venture or other
business association or entity.
SECTION 2.2 Articles of Incorporation and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of its Articles of
Incorporation and By-Laws as amended to date, and has furnished or made
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available to Parent the Articles of Incorporation and By-Laws (or equivalent
organizational documents) of each of its subsidiaries (the "SUBSIDIARY
DOCUMENTS"). Such Articles of Incorporation, By-Laws and Subsidiary Documents
are in full force and effect.
SECTION 2.3 Capitalization. The authorized capital stock of the Company
consists of 3,000,000 shares of Company Common Stock and 5,000 shares of
preferred stock, without par value, none of which is issued and outstanding and
none of which is held in treasury. As of February 28, 1997, (i) 841,002 shares
of Company Common Stock were issued and outstanding, all of which are validly
issued, fully paid and nonassessable, and no shares were held in treasury, (ii)
no shares of Company Common Stock were held by subsidiaries of the Company, and
(iii) 30,000 shares of Company Common Stock were reserved for future issuance
pursuant to outstanding stock options granted under the Company Stock Option
Plan. All of the shares of capital stock of the Company are owned of record and
beneficially by the persons or entities set forth in Section 2.3 of the Company
Disclosure Schedule in the respective numbers set forth in Section 2.3 of the
Company Disclosure Schedule, which sets forth the address and position with
Company of each such person or entity. No change in such capitalization has
occurred between February 28, 1997 and the date hereof. Except as set forth in
Section 2.3 or Section 2.15 of the Company Disclosure Schedule, there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of the Company or
any of its subsidiaries or obligating the Company or any of its subsidiaries to
issue or sell any shares of capital stock of, or other equity interests in, the
Company or any of its subsidiaries. All shares of Company Common Stock subject
to issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable. Except as disclosed in Section
2.3 of the Company Disclosure Schedule, there are no obligations, contingent or
otherwise, of the Company or any of its subsidiaries to repurchase, redeem or
otherwise acquire any shares of Company Common Stock or the capital stock of any
subsidiary or to provide funds to or make any investment (in the form of a loan,
capital contribution, guaranty or otherwise) in any such subsidiary or any other
entity. All of the outstanding shares of capital stock of each of the Company's
subsidiaries is duly authorized, validly issued, fully paid and nonassessable,
and all such shares are owned by the Company free and clear of all security
interests, liens, claims, pledges, agreements, limitations in the voting rights
of the registered holder, marital interests, community property interests,
charges or other encumbrances of any nature whatsoever (collectively, "LIENS").
SECTION 2.4 Authority Relative to this Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
(including the requisite approval of all shareholders entitled to vote on
matters pertaining to this Agreement), and no other corporate proceedings on the
part of the Company (or its shareholders) are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement has
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been duly and validly executed and delivered by the Company and, assuming the
due authorization, execution and delivery by Parent and Merger Sub, as
applicable, constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
SECTION 2.5 Shareholders.
(a) Each Shareholder has full power, legal right and authority to enter
into, execute and deliver this Agreement and the other agreements, documents and
instruments to be executed and delivered by one or more of the Shareholders as
contemplated hereby (such other agreements, documents and instruments being
sometimes hereinafter collectively referred to as the "ANCILLARY INSTRUMENTS"),
and to carry out the transactions contemplated hereby and thereby.
(b) This Agreement has been duly and validly executed and delivered by each
Shareholder and is, and when executed and delivered each Ancillary Instrument to
be executed and delivered by the Shareholders pursuant hereto will be, the
legal, valid and binding obligation of such Shareholder, enforceable in
accordance with its terms.
(c) Except as set forth on Section 2.5(c) of the Company Disclosure
Schedule, each Shareholder has good and marketable title to the Shares of
Company Common Stock shown on Section 2.3 of the Company Disclosure Schedule as
being owned by such Shareholder, and, except as set forth on Section 2.5(c) of
the Company Disclosure Schedule, immediately prior to the Effective Time each
Shareholder will have good and marketable title to the Shares of Company Common
Stock, in each case free and clear of all Liens.
(d) Each Shareholder warrants and represents that the holders of the Shares
of the Company Common Stock held by such Shareholder or such Shareholder's
associates (specifically including any individual retirement accounts in which
such Shareholder or such Shareholder's spouse is a beneficiary) have voted to
approve the execution and delivery of this Agreement by the Company and the
consummation of the Merger.
SECTION 2.6 Books and Records. The minute books and other similar records
of the Company and its subsidiaries as made available to Parent and Merger Sub
prior to the execution of this Agreement contain a true and complete record, in
all material respects, of all action taken at all meetings and by all written
consents in lieu of meetings of the stockholders, the boards of directors and
committees of the boards of directors of the Company and its subsidiaries. The
stock transfer ledgers and other similar records of the Company and its
subsidiaries as made available to Parent and Merger Sub prior to the execution
of this Agreement accurately reflect all record transfers prior to the execution
of this Agreement in the capital stock of the Company and its subsidiaries.
Except as set forth in Section 2.6 of the Company Disclosure Schedule, neither
the Company nor any of its subsidiaries has any of its books and records
recorded, stored, maintained, operated or otherwise wholly or partly dependent
upon or held by any means (including any electronic, mechanical or photographic
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process, whether computerized or not) which (including all means of access
thereto and therefrom) are not under the exclusive ownership and direct control
of the Company or one or more of its subsidiaries.
SECTION 2.7 No Conflict; Required Filings and Consents.
(a) Section 2.7(a) of the Company Disclosure Schedule (with paragraph
references corresponding to those set forth below) contains a true and complete
list of each of the following contracts, agreements, leases, licenses, evidences
of indebtedness, mortgages, indentures, security agreements or other contracts
or arrangements (whether written or oral) (collectively "CONTRACTS") (true and
complete copies or, if none, reasonably complete and accurate written
descriptions of which, together with all amendments and supplements thereto and
all waivers of any terms thereof, have been delivered to Parent and Merger Sub
prior to the execution of this Agreement), to which the Company or any of its
subsidiaries is a party or by which any of their respective assets or properties
is bound:
(i) (A) all Contracts (excluding Company Employee Plans as defined in
Section 2.15) providing for a commitment of employment or consultation
services for a specified or unspecified term or otherwise relating to
employment or the termination of employment, the name, position and rate of
compensation of each person party to such a Contract and the expiration
date of each such Contract; and (B) any written or unwritten
representations, commitments, promises, communications or courses of
conduct (excluding Company Employee Plans and any such Contracts referred
to in clause (A)) involving an obligation of the Company or any of its
subsidiaries to make payments in any year, other than with respect to
salary or incentive compensation payments in the ordinary course of
business, to any employee exceeding $30,000;
(ii) all Contracts with any person containing any provision or
covenant prohibiting or limiting the ability of the Company or any of its
subsidiaries to engage in any business activity or compete with any person
or prohibiting or limiting the ability of any person to compete with the
Company or any of its subsidiaries;
(iii) all partnership, joint venture, shareholders' or other similar
Contracts with any person;
(iv) all loan agreements, indentures, mortgages, pledges, conditional
sale or title retention agreements, security agreements, guaranties,
standby letters of credit, equipment leases or lease purchase agreements
and other contracts relating to indebtedness to which the Company or any of
its subsidiaries is a party or by which any of them is bound, other than
office equipment and vehicle leases entered into in the ordinary course of
business in an aggregate amount not exceeding $100,000;
(v) all Contracts with distributors, dealers, manufacturer's
representatives, sales agencies or franchisees, other than routine purchase
or sales orders for purchases and sales in the ordinary course of business
consistent with past practices;
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(vi) all Contracts relating to (A) the future disposition or
acquisition of any assets or properties of the Company or any of its
subsidiaries, other than dispositions or acquisitions in the ordinary
course of business consistent with past practice, and (B) any merger or
other business combination;
(vii) all Contracts that (A) limit or contain restrictions on the
ability of the Company or any of its subsidiaries to declare or pay
dividends on, to make any other distribution in respect of or to issue or
purchase, redeem or otherwise acquire its capital stock, to incur
indebtedness, to incur or suffer to exist any Lien, to purchase or sell any
assets or properties, to change the lines of business in which it
participates or engages or to engage in any business combination or (B)
require the Company or any of its subsidiaries to maintain specified
financial ratios or levels of net worth or other indicia of financial
condition; and
(viii) all other Contracts (other than Company Employee Plans, leases
listed in Section 2.17(b) of the Company Disclosure Schedule and insurance
policies listed in Section 2.22 of the Company Disclosure Schedule) that
(A) involve the payment or potential payment, pursuant to the terms of any
such Contract, by or to the Company or any of its subsidiaries of more than
$50,000 annually, or (B) cannot be terminated within ninety (90) days after
giving notice of termination without resulting in any material cost or
penalty to the Company or any of its subsidiaries.
(b) To the best knowledge of Company and each Shareholder, except as
disclosed in the applicable Section of the Company Disclosure Schedule wherein a
Contract is disclosed, each Contract required to be disclosed in any Section of
the Company Disclosure Schedule (i) constitutes a legal, valid and binding
agreement, enforceable in accordance with its terms, of each party thereto, (ii)
neither the Company nor any of its subsidiaries has breached, is in default
under, or has received written notice of any breach of or default under, any of
such Contracts, (iii) no other party to any of such Contracts has breached or is
in default of any of its obligations thereunder, and (iv) each of such Contracts
is in full force and effect, except in any such case under clauses (i), (ii),
(iii) and (iv) of this Section 2.7(b) for breaches, defaults or failures to be
in full force and effect that has not had and could not reasonably be expected
to have a Material Adverse Effect on the Company.
(c) Except as set forth in Section 2.7(c) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby will not, (i) conflict with or violate the
Articles of Incorporation or By-Laws of the Company, (ii) conflict with or
violate any federal, foreign, state or provincial law, rule, regulation, order,
judgment or decree (collectively, "LAWS") applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected, or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default under),
or impair the Company's or any of its subsidiaries' rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the properties or assets of the Company or any of
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its subsidiaries pursuant to, any Contract to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
its or any of their respective properties is bound or affected, except in any
such case under clauses (i), (ii) or (iii) of this Section 2.7(c) for any such
conflicts, violations, breaches, defaults or other occurrences that either
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect on the Company.
(d) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any federal, foreign, state or provincial governmental or regulatory
authority except the pre-merger notification requirements of the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), any
required foreign anti-trust or similar filings and the filing and recordation of
appropriate merger or other documents as required by the MBCA.
SECTION 2.8 Compliance, Permits.
(a) Except as disclosed in Section 2.8(a) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is in conflict with,
or in default or violation of, (i) any Law applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected or (ii) any license, permit, franchise or Contract that is not the
subject of Section 2.7 to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or its or any of their
respective properties is bound or affected, except in any such case under
clauses (i) or (ii) of this Section 2.8(a) for any such conflicts, defaults or
violations which could not reasonably be expected to have a Material Adverse
Effect on the Company.
(b) Except as disclosed in Section 2.8(b) of the Company Disclosure
Schedule, the Company and its subsidiaries hold all permits, licenses,
easements, variances, exemptions, consents, certificates, orders and approvals
from governmental authorities which are material to the operation of the
business of the Company and its subsidiaries taken as a whole as it is now being
conducted (collectively, the "COMPANY PERMITS"). The Company and its
subsidiaries are in compliance with the terms of the Company Permits, except
where the failure to so comply could not reasonably be expected to have a
Material Adverse Effect on the Company.
SECTION 2.8 Financial Statements. The Company has previously furnished
to Parent (a) audited consolidated balance sheets of the Company as of February
28, 1994, 1995 and February 29, 1996, and (b) the related audited consolidated
statements of income, statements of stockholders' equity and statements of cash
flows for the fiscal years then ended together with the related notes thereto
and the reports thereon of Arthur Andersen LLP. The Company has also furnished
Parent the unaudited consolidated balance sheet and statement of income of the
Company as of and for the eleven months ended January 31, 1997 (the "RECENT
FINANCIAL STATEMENTS"). The consolidated balance sheet of the Company as of
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February 29, 1996, together with the related notes thereto and the report
thereon of Arthur Andersen LLP, is hereinafter referred to as the "1996 BALANCE
SHEET". All such financial statements referred to in this Section 2.9 present
fairly the financial position of the Company as of their respective dates, and
each of the related statements of income and (where applicable) stockholders'
equity and cash flows included therein present fairly the results of operations
and (where applicable) cash flows for the fiscal years and periods then ended,
subject, in the case of unaudited statements, to normal year-end audit
adjustments, and all such financial statements have been prepared in accordance
with Generally Accepted Accounting Principles applied on a consistent basis,
except as otherwise noted therein and except, as to unaudited financial
statements, that no statements of stockholders' equity have been prepared, and
no notes to such financial statements are included.
SECTION 2.10 Accounts Receivable. All accounts receivable of Company and
its subsidiaries reflected on the Recent Financial Statements, and those arising
since the date thereof, represent arm's length sales actually made in the
ordinary course of business; are to the knowledge of Company and the
Shareholders collectible (net of the reserve shown on the Recent Financial
Statements for doubtful accounts) in the ordinary course of business; to the
knowledge of Company and the Shareholders are subject to no counterclaim or set
off and are not in dispute. Section 2.10 of the Company Disclosure Schedule
contains an aged schedule of accounts receivable included in the Recent
Financial Statements and as of a date not more than twenty days prior to the
date hereof.
SECTION 2.11 Inventory. All inventory of Company and its subsidiaries
reflected on the Recent Financial Statements consists of a quality and quantity
useable and saleable in the ordinary course of business, in the aggregate, had a
commercial value at least equal to the value shown on such balance sheet and is
valued in accordance with generally accepted accounting principles at the lower
of cost (on a LIFO basis) or market. All inventory purchased since the date of
the Recent Financial Statements consists of a quality and quantity useable and
saleable in the ordinary course of business. Except as set forth in Section
2.11 of the Company Disclosure Schedule, all inventory of the Company and its
subsidiaries is located on premises owned or leased by the Company or its
subsidiaries as reflected in this Agreement.
SECTION 2.12 Absence of Certain Changes or Events. Except as set forth
in Section 2.12 of the Company Disclosure Schedule, since January 31, 1997, each
of the Company and its subsidiaries has conducted its business in the ordinary
course and there has not occurred: (a) any Material Adverse Effect; (b) any
amendments or changes in the Articles of Incorporation or By-laws of the
Company; (c) any damage to, destruction or loss of any asset of the Company
(whether or not covered by insurance) that could reasonably be expected to have
a Material Adverse Effect; (d) any material change by the Company in its
accounting methods, principles or practices; (e) any material revaluation by the
Company of any of its assets, including, without limitation, writing down the
value of inventory or writing off notes or accounts receivable other than in the
ordinary course of business; (f) any other action or event that would have
required the consent of Parent pursuant to Section 4.1 had such action or event
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occurred after the date of this Agreement; or (g) any sale of a material amount
of property or assets of the Company or any of its subsidiaries, except in the
ordinary course of business.
SECTION 2.13 Absence of Undisclosed Liabilities. Except as and to the
extent specifically disclosed in the Recent Financial Statements, or in Section
2.13 of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries has any liabilities, commitments or obligations (secured or
unsecured, and whether accrued, known, unknown, absolute, contingent, direct,
indirect or otherwise), other than commercial liabilities and obligations
incurred since the date of the Recent Financial Statements in the ordinary
course of business and consistent with past practice and none of which has or
will have a Material Adverse Effect. Except as and to the extent described in
the Recent Financial Statements or in Section 2.13 of the Company Disclosure
Schedule, none of Company or any of the Shareholders has knowledge of any basis
for the assertion against Company or any of its subsidiaries of any liability or
of any circumstances, conditions, happenings, events or arrangements,
contractual or otherwise, which may give rise to liabilities, except commercial
liabilities and obligations incurred in the ordinary course of business and
consistent with past practice.
SECTION 2.14 Absence of Litigation. Except as set forth in Section 2.14
of the Company Disclosure Schedule, there are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Company or any
Shareholder, threatened against the Company or any of its subsidiaries, or any
properties or rights of the Company or any of its subsidiaries, before any
federal or state court, arbitrator or administrative, governmental or regulatory
authority or body, and neither the Company nor the Shareholders have knowledge
of any facts or circumstances that are reasonably likely to give rise to any
such claims, actions, suits, proceedings or investigations.
SECTION 2.15 Employee Benefit Plan; Employment Agreements.
(a) Section 2.15(a) of the Company Disclosure Schedule lists all employee
pension plans (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), all employee welfare plans (as
defined in Section 3(1) of ERISA), and all other bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other similar fringe or employee benefit plans, programs or arrangements,
and any employment, executive compensation, consulting or severance agreements,
written or otherwise, for the benefit of, or relating to, any current or former
employee (including any beneficiary of any such employee) of, or any current or
former consultant (including any beneficiary of any such consultant) to, the
Company, any trade or business (whether or not incorporated) which is a member
of a controlled group including the Company or which is under common control
with the Company (an "ERISA AFFILIATE") within the meaning of Section 414 of the
Code, or any subsidiary of the Company under which the Company currently has a
liability, as well as each plan with respect to which the Company or an ERISA
Affiliate could incur liability under Section 4069 (if such plan has been or
were terminated) or Section 4212(c) of ERISA (all such plans, practices and
programs are referred to as the "COMPANY EMPLOYEE PLANS"). There have been made
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available to Parent copies of (i) each such written Company Employee Plan (other
than those referred to in Section 4(b)(4) of ERISA), and (ii) the most recent
annual report on Form 5500 series, with accompanying schedules and attachments,
filed with respect to each Company Employee Plan required to make such a filing.
Except as set forth in Section 2.15(a) of the Company Disclosure Schedule,
neither the Company nor any subsidiary of the Company has any commitment or
intention to create, modify, terminate or increase benefits or vesting under any
Company Employee Plan.
(b) (i) Except in each case as set forth in Section 2.15(b) of the Company
Disclosure Schedule, none of the Company Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person, and neither the
Company nor any ERISA Affiliate has ever maintained, contributed to, or been
required to contribute to, any plan that is or was a "multi-employer plan" as
such term is defined in Section 3(37) of ERISA, a pension plan subject to Title
IV of ERISA or a plan subject to Part 3 of Title I of ERISA; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Company Employee Plan;
(iii) except for any defaults or failures so to comply that, individually or
together with all other such failures, have not and will not result in a
material liability of the Company or any of its subsidiaries, all Company
Employee Plans are in compliance with the requirements prescribed by any and all
Laws (including ERISA and the Code), currently in effect with respect thereto
(including all applicable requirements for notification to participants or the
Department of Labor, Internal Revenue Service (the "IRS") or Secretary of the
Treasury), and the Company and each of its subsidiaries have performed all
material obligations required to be performed by them under, are not in any
material respect in default under or violation of, and the Company and
Shareholders have no knowledge of any default or violation by any other party
to, any of the Company Employee Plans; (iv) each Company Employee Plan intended
to qualify under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code is the subject of a favorable determination
letter from the IRS, and nothing has occurred which may reasonably be expected
to impair such determination; (v) there are no lawsuits or other claims (other
than claims for benefits in the ordinary course) pending or, to the best
knowledge of the Company and the Shareholders, threatened with respect to any
Company Employee Plan. Each Company Employee Plan which is a "group health
plan" as defined in Section 607(l) of ERISA or Section 5000(b)(1) of the Code
has been operated in compliance with the applicable requirements of Section 601
of ERISA and Section 4980B(f) of the Code, except for any failures to comply
that, individually or together with all other such failures, have not and will
not result in a material liability of the Company or any of its subsidiaries.
Except as set forth in Section 2.15(b) of the Company Disclosure Schedule, there
are no restrictions on the rights of the Company or any of its subsidiaries to
amend or terminate any Company Employee Plan. No Company Employee Plan has
provided any "disqualified benefit" (as such term is defined in Section 4976(b)
of the Code) with respect to which an excise tax could be imposed.
(c) Section 2.3 or Section 2.15(c) of the Company Disclosure Schedule sets
forth a true and complete list of each current or former employee, officer or
director of the Company or any of its subsidiaries who holds (i) any option to
purchase Company Common Stock as of the date hereof, together with the number of
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shares of Company Common Stock subject to such option, the option price of such
option (to the extent determined as of the date hereof), whether such option is
intended to qualify as an incentive stock option within the meaning of Section
422(b) of the Code (an "ISO"), and the expiration date of such option; and (ii)
any other right, directly or indirectly, to acquire Company Common Stock,
together with the number of shares of Company Common Stock subject to such
right.
(d) Section 2.15(d) of the Company Disclosure Schedule sets forth a true
and complete list of: (i) all employment agreements with officers of the Company
or any of its subsidiaries; (ii) all agreements with consultants who are
individuals obligating the Company or any of its subsidiaries to make annual
cash payments in an amount exceeding $150,000; (iii) all employees of, or
consultants to, the Company or any of its subsidiaries who have executed a non-
competition agreement with the Company or any of its subsidiaries; (iv) all
severance agreements, programs and policies of the Company or any of its
subsidiaries with or relating to its employees, in each case with outstanding
commitments exceeding $150,000, excluding programs and policies required to be
maintained by law; and (v) all plans, programs, agreements and other
arrangements of the Company or any of its subsidiaries with or relating to its
employees which contain change in control provisions. The actuarial present
values of all accrued deferred compensation entitlements (including entitlements
under any executive compensation, supplemental retirement, or employment
agreement) of employees and former employees of the Company and its
subsidiaries, other than entitlements accrued pursuant to funded retirement
plans subject to the provisions of Section 412 of the Code or Section 302 of
ERISA, have been fully reflected on the Company's financial statements to the
extent required by and in accordance with generally accepted accounting
principles.
(e) Full payment has been made of all amounts which the Company is
required, under applicable law or under any Company Employee Plan or any
agreement relating to any Company Employee Plan to which the Company is a party,
to have paid as contributions thereto as of the last day of the most recent
fiscal year of such Company Employee Plan ended prior to the date hereof. All
such contributions have been fully deducted for income tax purposes and no such
deduction has been challenged or disallowed by any governmental entity, and to
the best knowledge of the Company no event has occurred and no condition or
circumstance has existed that could give rise to any such challenge or
disallowance. The Company has made adequate provision for reserves to meet
contributions and any other liabilities that have not been paid or satisfied
because they are not yet due under the terms of any Company Employee Plan,
applicable laws or related agreements. Benefits under all Company Employee Plans
are as represented and have not been increased subsequent to the date as of
which documents have been provided. There is no unfunded liability with respect
to any Company Employee Plan that is not intended to be qualified under Section
401(a) of the Code. No Company Employee Plan has any "unfunded current
liability," as that term is defined in Section 302(d)(8)(A) of ERISA, based on
actuarial assumptions set forth in such Plan's must recent actuarial valuation.
No liability under Subtitle C or D of Title IV of ERISA has been or is expected
to be incurred by the Company or any of its subsidiaries with respect to any
ongoing, frozen or terminated single-employer plan or the single-employer plan
of any ERISA Affiliate. No notice of a "reportable event," within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not been
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waived, has been required to be filed for any Company Employee Plan subject to
Title IV of ERISA.
SECTION 2.16 Labor Matters.
(a) Except as set forth in Section 2.16(a) of the Company Disclosure
Schedule: (i) there are no controversies pending or, to the knowledge of the
Company or any of its subsidiaries or Shareholders, threatened, between the
Company or any of its subsidiaries and any of their respective employees; (ii)
neither the Company nor any of its subsidiaries is a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by the Company or its subsidiaries, nor does the Company or any of its
subsidiaries know of any activities or proceedings of any labor union to
organize any such employees; and (iii) neither the Company, any of its
subsidiaries nor any of the Shareholders has any knowledge of any strikes,
slowdowns, work stoppages, lockouts, or threats thereof, by or with respect to
any employees of the Company or any of its subsidiaries.
(b) Section 2.16(b) of the Company Disclosure Schedule contains a true and
correct list of all employees to whom the Company or any of its subsidiaries is
paying compensation, including bonuses and incentives, at an annual rate in
excess of Thirty Thousand Dollars ($30,000) for services rendered or otherwise;
and in the case of salaried employees such list identifies the current annual
rate of compensation for each employee (including a complete and accurate
description of any bonus arrangements) and in the case of hourly or commission
employees identifies certain reasonable ranges of rates and the number of
employees falling within each such range.
SECTION 2.17 Title to Property.
(a) Except as set forth in Section 2.17(a) of the Company Disclosure
Schedule, the Company and each of its subsidiaries have good and defensible
title to all of their properties and assets, free and clear of all liens,
charges and encumbrances, except liens for taxes not yet due and payable and
such liens or other imperfections of title, if any, as do not materially detract
from the value of or interfere with the present use of the property affected
thereby; and, except as set forth in Section 2.17(a) of the Company Disclosure
Schedule to the knowledge of the Company and the Shareholders, all leases
pursuant to which the Company or any of its subsidiaries lease from others any
real or personal property, are in good standing, valid and effective in
accordance with their respective terms, and there is not, to the knowledge of
the Company or Shareholders, under any of such leases, any existing default or
event of default (or event which with notice or lapse of time, or both, would
constitute a default). Except as set forth in Section 2.17(a) of the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries owes any
brokerage commissions with respect to any leased space.
(b) Section 2.17(b) of the Company Disclosure Schedule sets forth all real
property owned, used or occupied by the Company or any of its subsidiaries (the
"REAL PROPERTY"). Section 2.17(b) of the Company Disclosure Schedule also
identifies the leases (oral or written) and all amendments thereto and
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extensions thereof, under which the Company or any of its subsidiaries now uses
any such Real Property, as well as any guarantors of tenant's obligations under
such leases, true and correct copies of which written leases (or descriptions of
oral leases or arrangements) the Company has delivered to Parent and Merger Sub.
There are now in full force and effect duly issued certificates of occupancy (or
application for such certificates has been properly made) permitting the Real
Property and improvements located thereon that is in a jurisdiction that issues
such certificates to be legally used and occupied as the same are now
constituted.
(c) Section 2.17(c) of the Company Disclosure Schedule further identifies
all loans of which the Company or the Shareholders have knowledge encumbering
the fee interest of the Company or any of its subsidiaries in any Real Property
and all loans encumbering the leasehold interest of the Company or any of its
subsidiaries in any Real Property, all agreements entered into by the Company or
any of its subsidiaries with any lender affecting the Real Property, any lease
or the rights of the Company or any of its subsidiaries under any lease, with
all sub tenants, tenants, assignees, licensees, concessionaires or other
entities, other than the Company or any of its subsidiaries, having a right to
occupy all or any portion of the Real Property, true and correct copies of which
agreements the Company has delivered to Parent and Merger Sub (or if an oral
arrangement, are fully described on Section 2.17(c) of the Company Disclosure
Schedule. To the knowledge of the Company and the Shareholders, no fact or
condition exists which would prohibit or adversely affect the ordinary rights of
access to and from the Real Property from and to the existing highways and roads
and there is no pending or threatened restriction or denial, governmental or
otherwise, upon such ingress and egress. All of the Real Property is serviced
by public utilities, or utilities are available to the Real Property. To the
knowledge of Company and the Shareholders, there are no easements or
restrictions of record that would materially, adversely interfere with the use
of the Real Property in connection with the conduct of the business of the
Company and its subsidiaries as presently conducted. There is not, to the
knowledge of Company or the Shareholders, (i) any claim of adverse possession or
prescriptive rights involving any of the Real Property, (ii) any part of any
Real Property which encroaches on or over the boundaries of neighboring or
adjacent properties or (iii) any structure of any other party which encroaches
on or over the boundaries of any Real Property. To the knowledge of Company and
the Shareholders, none of the Real Property is located in a flood plain, flood
hazard area, wetland or lakeshore erosion area within the meaning of any Law,
regulation or ordinance. To the knowledge of Company and the Shareholders, no
public improvements have been commenced and none are planned which in either
case may result in special assessments against or otherwise materially adversely
affect any Real Property. None of the Company or the Shareholders has notice or
knowledge of any (i) planned or proposed increase in assessed valuations of any
Real Property, (ii) governmental agency or court order requiring repair,
alteration, or correction of any existing condition affecting any Real Property
or the systems or improvements thereat, (iii) condition or defect which could
give rise to an order of the sort referred to in "(ii)" above or (iv)
underground storage tanks located on any Real Property.
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(d) Neither the whole nor any portion of the Real Property or any other
assets of the Company or its subsidiaries is subject to any governmental decree
or order to be sold or is being condemned, expropriated or otherwise taken by
any public authority with or without payment of compensation therefor, nor to
the knowledge of Company and the Shareholders has any such condemnation,
expropriation or taking been proposed.
(e) Shareholders have delivered to Parent and Merger Sub prior to the
execution of this Agreement true and complete copies of (i) all deeds, leases,
mortgages, deeds of trust, certificates of occupancy, title insurance policies,
title reports, surveys and similar documents, and all amendments thereof, with
respect to the real property owned by the Company or any of its subsidiaries,
and (ii) all leases (including any amendments and renewal letters) with respect
to the real property leased by the Company or any of its subsidiaries.
SECTION 2.18 Condition of Property. Except as set forth in Section 2.18 of
the Company Disclosure Schedule, all material property and assets owned or
utilized by the Company or any of its subsidiaries are in good operating
condition and repair, free from any defects (except such minor defects or
repairs as do not interfere with the use thereof in the conduct of the normal
operations of the Company and its subsidiaries, as the case may be), have been
maintained consistent with the standards generally followed in the industry and
are sufficient to carry on the business of the Company and its subsidiaries, as
the case may be, as conducted during the preceding 24 months.
SECTION 2.19 Taxes.
(a) For purposes of this Agreement, "TAX" or "TAXES" shall mean taxes,
fees, levies, duties, tariffs, imposts, and governmental impositions or charges
of any kind in the nature of (or similar to) taxes, payable to any federal,
state, local or foreign taxing authority, including (without limitation) (i)
income, franchise, profits, gross receipts, ad valorem, net worth, value added,
sales, use, service, real or personal property, special assessments, capital
stock, license, payroll, withholding, employment, social security, workers'
compensation, unemployment compensation, utility, severance, production, excise,
stamp, occupation, premiums, windfall profits, transfer and gains taxes, and
(ii) interest, penalties, additional taxes and additions to tax imposed with
respect thereto; and "TAX RETURNS" shall mean returns, reports, and information
statements with respect to Taxes required to be filed with the IRS or any other
federal, foreign, state or provincial taxing authority, domestic or foreign,
including, without limitation, consolidated, combined and unitary tax returns.
(b) Other than as disclosed in Section 2.19(b) of the Company Disclosure
Schedule, (i) the Company and its subsidiaries have timely filed all Tax Returns
required to be filed by them, (ii) the Company and its subsidiaries have paid
and discharged all Taxes due and have withheld all Taxes required to be withheld
with respect to employees in connection with or with respect to the periods or
transactions covered by such Tax Returns and have paid all other Taxes as are
due, except such as are being contested in good faith by appropriate proceedings
(to the extent that any such proceedings are required) and with respect to which
the Company is maintaining adequate reserves, and (iii) there are no other Taxes
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that would be due if asserted by a taxing authority, except with respect to
which the Company is maintaining adequate reserves. Except as disclosed in
Section 2.19(b) of the Company Disclosure Schedule: (i) there are no tax liens
on any assets of the Company or any subsidiary thereof; (ii) neither the
Company nor any of its subsidiaries has granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax; (iii) neither the Company nor any of its subsidiaries has received any
written notice of any Tax deficiency outstanding, proposed or assessed against
the Company or any of its subsidiaries, or of any audit or other examination
threatened, proposed or currently in progress of any Tax Return of the Company
or any of its subsidiaries; (iv) there is no contract, agreement, plan or
arrangement, including but not limited to the provisions of the Agreement,
covering any employee or former employee of the Company or any of its
subsidiaries that, individually or collectively, could give rise to the payment
of any amount that would not be deductible pursuant to Section 280G or subject
to the excise tax pursuant to Section 4999 of the Code; (v) neither the Company
nor any of its subsidiaries is a party to or bound by any tax indemnity, tax
sharing or tax allocation agreements; (vi) neither the Company nor any of its
subsidiaries has filed any consent agreement under Section 341(f) of the Code or
agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the
Company; and (vii) except for the group of which the Company and its
subsidiaries are now presently members, since 1988, neither the Company nor any
of its subsidiaries has ever been a member of an affiliated group of
corporations within the meaning of Section 1504 of the Code. The accruals and
reserves for Taxes (including deferred taxes) reflected in the Recent Financial
Statements are adequate to cover all Taxes required to be accrued through the
date thereof (including interest and penalties, if any, thereon and Taxes being
contested) in accordance with generally accepted accounting principles.
SECTION 2.20 Environmental Matters. Except as set forth in Section 2.20
of the Company Disclosure Schedule, and except in all cases, in the aggregate,
that have not had and could not reasonably be expected to have a Material
Adverse Effect, the Company and each of its subsidiaries: (i) have obtained all
approvals which are required to be obtained under all applicable federal, state,
foreign or local laws or any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes into ambient air,
surface water, ground water, or land or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
by the Company or its subsidiaries or their respective agents ("ENVIRONMENTAL
LAWS"); (ii) are in compliance with all terms and conditions of such required
Approvals, and also are in compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in applicable Environmental Laws; (iii) as of the date
hereof, are not aware of nor have received notice of any past or present
violations of Environmental Laws or any event, condition, circumstance,
activity, practice, incident, action or plan which is reasonably likely to
interfere with or prevent continued compliance with or which would give rise to
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any common law or statutory liability, or otherwise form the basis of any claim,
action, suit or proceeding, against the Company or any of its subsidiaries based
on or resulting from the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge or release
into the environment, of any pollutant, contaminant or hazardous or toxic
material or waste; and (iv) have taken all actions necessary under applicable
Environmental Laws to register any products or materials required to be
registered by the Company or its subsidiaries (or any of their respective
agents) thereunder.
SECTION 2.21 Intellectual Property.
(a) Except as disclosed in Section 2.21(a) of the Company Disclosure
Schedule, the Company, directly or indirectly, owns, or is licensed or otherwise
possesses legally enforceable rights to use, all trademarks, trade names,
service marks, copyrights, and any applications therefor that are material to
the business of the Company and its subsidiaries as currently conducted (the
"COMPANY INTELLECTUAL PROPERTY RIGHTS").
(b) Section 2.21(b) of the Company Disclosure Schedule sets forth a
complete list of all trademarks, registered copyrights, trade names and service
marks, and any applications therefor, included in the Company Intellectual
Property Rights, and specifies, where applicable, the jurisdictions in which
each such Company Intellectual Property Right has been issued or registered or
in which an application for such issuance and registration has been filed,
including the respective registration or application numbers and the names of
all registered owners.
SECTION 2.22 Insurance. Section 2.22 of the Company Disclosure Schedule
contains a true and complete list (including the names and addresses of the
insurers, the names of the persons to whom such policies have been issued, the
expiration dates thereof, the annual premiums and payment terms thereof, whether
it is a "claims made" or an "occurrence" policy and a brief description of the
interests insured thereby) of all liability, property, workers' compensation,
direc tors' and officers' liability and other insurance policies currently in
effect that insure the business, operations or employees of the Company or any
of its subsidiaries or affect or relate to the ownership, use or operation of
any of the assets and properties of the Company or any of its subsidiaries and
that (i) have been issued to the Company or any of its subsidiaries or (ii) have
been issued to any person (other than the Company or any of its subsidiaries)
for the benefit of the Company or any of its subsidiaries. Except as disclosed
in Section 2.22 of the Company Disclosure Schedule, the insurance coverage
provided by any of the policies described in clause (i) above will not terminate
or lapse by reason of the transactions contemplated by this Agreement. Each
policy listed in Section 2.22 of the Company Disclosure Schedule is valid and
binding and in full force and effect, no premiums due thereunder have not been
paid and neither the Company, any subsidiary of the Company nor the person to
whom such policy has been issued has received any notice of cancellation or
termination in respect of any such policy or is in default thereunder. The
insurance policies listed in Section 2.22 of the Company Disclosure Schedule are
placed with financially sound and reputable insurers and, in light of the
respective business, operations and assets and properties of the Company and its
subsidiaries, are in amounts and have coverages that are reasonable and
customary for persons engaged in such businesses and operations and having such
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assets and properties. Neither the Company, any of its subsidiaries nor the
person to whom such policy has been issued has received notice that any insurer
under any policy referred to in this Section is denying liability with respect
to a claim thereunder or defending under a reservation of rights clause.
SECTION 2.23 Major Customers and Suppliers.
(a) Except as disclosed in Section 2.23(a) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries, individually or
collectively, has any customer who purchased more than $20,000 in goods or
services during either of the two (2) most recent fiscal years ended February
29, 1996 and February 28, 1997. None of the Company or any of the Shareholders
has any knowledge or information of any facts indicating that any of the
customers so listed will not continue to be customers of the applicable business
after the Effective Time at substantially the same level of purchases as
heretofore.
(b) Section 2.23(b) of the Company Disclosure Schedule contains a list of
the ten (10) largest suppliers to the Company and its subsidiaries for each of
the two (2) most recent fiscal years ended February 29, 1996 and February 28,
1997 (determined on the basis of the total dollar amount of purchases), showing
the total dollar amount of purchases from each such supplier during each such
year. None of Company or any of the Shareholders has any knowledge or
information of any facts indicating that any of the suppliers so listed will not
continue to be suppliers to the applicable business after the Closing and will
not continue to supply the applicable business at competitive prices.
SECTION 2.24 Product Warranty and Product Liability. Neither the Company
nor any of its subsidiaries offers any warranty or warranties in connection with
the sales of its Products (as defined below) and, other than manufacturers'
warranties that may be available, there are no warranties, commitments or
obligations with respect to the return, repair or replacement of Products. The
Company or its subsidiaries does occasionally accept returns of defective
Products as part of its customer service operations. To the knowledge of Company
and the Shareholders, the aggregate annual cost to the Company and its
subsidiaries of performing warranty obligations for customers, or accepting
returns of purportedly defective Products from customers, has not exceeded
$20,000 in each of the five (5) preceding fiscal years. As used in this Section
2.24, the term "Products" means any and all products currently or at any time
previously manufactured, distributed or sold by the Company or any of its
subsidiaries, or by any predecessor of the Company or any of its subsidiaries
under any brand name or mark under which products are or have been manufactured,
distributed or sold by the Company or any of its subsidiaries.
SECTION 2.25 Bank Accounts. Section 2.25 of the Company Disclosure
Schedule sets forth the names and locations of all banks, trust companies,
savings and loan associations and other financial institutions at which the
Company or any of its subsidiaries maintains a safe deposit box, lock box or
checking, savings, custodial or other account of any nature, the type and number
of each such account and the signatories therefore, a description of any
compensating balance
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arrangements, and the names of all persons authorized to draw thereon, make
withdrawals therefrom or have access thereto.
SECTION 2.26 Relationships with Affiliates and Associates.
(a) All leases, contracts, agreements or other arrangements between Company
and any of its subsidiaries, on the one hand, and any Shareholder or any
affiliate or associate of any of the Shareholders, on the other hand, are
described and identified as such on Section 2.26(a) of the Company Disclosure
Schedule.
(b) No Shareholder or affiliate or associate of any Shareholder has any
direct or indirect interest in (i) any entity which does business with the
Company or any of its subsidiaries or is competitive with the business of any of
the Company or any of its subsidiaries, or (ii) any property, asset or right
which is used by the Company or any of its subsidiaries in the conduct of its or
their business.
(c) All obligations of any Shareholder or any affiliate or associate of a
Shareholder to the Company or any of its subsidiaries, and all obligations of
the Company or any of its subsidiaries to a Shareholder or any affiliate or
associate of a Shareholder other than in their capacities as employees, officers
or directors of the Company, are listed on Section 2.26(c) of the Company
Disclosure Schedule.
SECTION 2.27 Assets Necessary to Business. Except as set forth on Section
2.27 of the Company Disclosure Schedule, the Company and its subsidiaries
presently have and at the Closing will have good, valid and marketable title to
all property and assets, tangible and intangible, and all leases, licenses and
other agreements, necessary to permit the business of the Company and its
subsidiaries to be continued after Closing in substantially the same manner as
presently conducted and as conducted during the preceding 24 months.
SECTION 2.28 Brokers. No broker, finder or investment banker (other than
Smith Barney Inc., the fees and expenses of whom will be paid by the Company
subject to the limits established in Section 9.5 below) is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company or its subsidiaries or affiliates. The Company has
heretofore furnished to Parent a complete and correct copy of all agreements
between the Company and Smith Barney Inc. pursuant to which such firm would be
entitled to any payment relating to the transactions contemplated hereunder.
SECTION 2.29 Securities Law Matters. Each of the Shareholders acquiring
Parent Common Stock pursuant to this Agreement is acquiring such stock for
investment for such Shareholder's own account, not on behalf of others and not
with a view to resell or otherwise distribute such Parent Common Stock except
pursuant to either a valid registration under the Securities Act and applicable
state securities laws or a valid exemption from such registration requirements.
Each such Shareholder acknowledges that the Parent Common Stock has not been
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registered under the Securities Act, or under any state securities laws and,
therefore, cannot be resold unless registered under the Securities Act and
applicable state securities laws or unless an exemption from registration is
available and, as a result, such Shareholder must bear the risk of an investment
in Parent Common Stock for an indefinite period of time. The financial
condition of each such Shareholder is currently adequate to bear the substantial
economic risk of an investment in Parent Common Stock. Each such Shareholder
has sufficient knowledge and experience in investment and business matters to
understand the economic risk of such an investment and the risk involved in a
commercial enterprise such as Parent. Each Shareholder is a bona fide resident
of the State of Michigan or Connecticut as set forth in Section 2.29 of the
Company Disclosure Schedule and all communications and information, written or
oral, concerning the Parent Common Stock and this Agreement have been directed
to such Shareholders and have been received in such States, as the case may be.
Each Shareholder has received and carefully read all of the Parent SEC Reports
(as that term is defined in Section 3.7(a)). Each such Shareholder has had an
opportunity to ask questions of, and receive answers from, officers of Parent
concerning Parent and the Parent Common Stock and to obtain any additional
information which such Shareholder reasonably requested. Each of the
Shareholders is an "accredited investor" within the meaning of Regulation D
under the Securities Act, and Section 2.29 of the Company Disclosure Schedule
sets forth for each such Shareholder the basis on which the Shareholder
qualifies as an "accredited investor."
SECTION 2.30 Full Disclosure. No representation or warranty by the
Company and/or the Shareholders in this Agreement, nor the Company Disclosure
Schedule or any certificate (or any statement furnished pursuant to Section 5.6
below), furnished or to be furnished by or on behalf of the Company or any
Shareholder to Parent or Merger Sub pursuant to this Agreement, contains or
shall contain any untrue statement of material fact or omits or shall omit a
material fact necessary to make the statements contained herein or therein not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company that, except as set forth in the written disclosure schedule
delivered on or prior to the date hereof by Parent to the Company that is
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article III (the "PARENT DISCLOSURE SCHEDULE"):
SECTION 3.1 Organization and Qualification; Subsidiaries. Each of Parent
and its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
the requisite corporate power and authority to own, lease and operate the
properties it purports to own, operate or lease and to carry on its business as
it is now being conducted, except where the failure to be so organized, existing
and in good standing or to have such power, authority and Approvals could not
reasonably be expected to have a Material Adverse Effect. Each of Parent and
each of its subsidiaries is duly qualified or licensed as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the
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character of its properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that could not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.2 Authority Relative to this Agreement. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Merger Sub and the consummation by Parent and
Merger Sub of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Parent and Merger
Sub, and no other corporate proceedings on the part of Parent or Merger Sub are
necessary to authorize this Agreement or to consummate the transactions
contemplated thereby. This Agreement has been duly and validly executed and
delivered by Parent and Merger Sub and, assuming the due authorization,
execution and delivery by the Company, constitutes a legal, valid and binding
obligation of Parent and Merger Sub enforceable against each of them in
accordance with its terms.
SECTION 3.3 No Conflict, Required Filings and Consents.
(a) Except as set forth in Section 3.3(a) of the Parent Disclosure
Schedule, the execution and delivery of this Agreement by Parent and Merger Sub
do not, and the performance of this Agreement by Parent and Merger Sub will not,
(i) conflict with or violate the Certificate of Incorporation or By-Laws of
Parent or Merger Sub, (ii) conflict with or violate any Law applicable to Parent
or any of its subsidiaries or by which its or their respective properties are
bound or affected, or (iii) result in any breach of or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or impair Parent's or any of its subsidiaries' rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the properties or assets of Parent or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or any of its subsidiaries is a party or by which Parent or any
of its subsidiaries or its or any of their respective properties are bound or
affected, except in any such case under clause (i), (ii) or (iii) of this
Section 3.3(a) for any such conflicts, violations, breaches, defaults or other
occurrences that could not reasonably be expected to have a Material Adverse
Effect.
(b) The execution and delivery of this Agreement by Parent and Merger Sub
does not, and the performance of this Agreement by Parent and Merger Sub will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any governmental or regulatory authority, domestic or
foreign, except for applicable requirements, if any, of the Securities Act, the
Securities Exchange Act of 1934 (the "EXCHANGE ACT"), state securities or "blue
sky" laws or regulations, the pre-merger notification requirements of the HSR
Act, or any foreign antitrust or similar filings and the filing and recordation
of appropriate merger or other documents as required by the MBCA.
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SECTION 3.4 Certificate and By-Laws. Parent has heretofore furnished to
the Company a complete and correct copy of its Certificate of Incorporation and
By-Laws, as amended to date. Such Certificate of Incorporation and By-Laws are
in full force and effect. Neither Parent nor Merger Sub is in violation of any
of the provisions of its Certificate of Incorporation or Articles of
Incorporation, respectively, or By-Laws.
SECTION 3.5 Financing. Parent and Merger Sub have sufficient funds
available (through existing credit agreements or otherwise) to complete the
transactions contemplated hereby and to pay all fees and expenses related
thereto.
SECTION 3.6 Capitalization. As of February 28, 1997, the authorized
capital stock of Parent consisted of (i)70,000,000 shares of Parent Common Stock
of which 28,569,946 shares were issued and outstanding, all of which are validly
issued, fully paid and non-assessable, none of which were held in treasury,
4,500,000 shares were reserved for future issuance under Parent's Employee Stock
Option Plan of which 2,703,404 were subject to unexercised options, and 281,250
shares were reserved for future issuance under the Parent's Non-Employee
Director Stock Option Plan of which 192,500 were subject to unexercised options,
and (ii) 5,000,000 shares of preferred stock, $ .0001 par value per share, of
which no shares were issued and outstanding and none of which were held in
treasury. No material change in such capitalization has occurred between
February 28, 1997 and the date hereof. The authorized capital stock of Merger
Sub consists of 1,000 shares of common stock without par value of which 100
shares are issued and outstanding. Except as set forth in Section 3.6 of the
Parent Disclosure Schedule, as of the date hereof there are no options, warrants
or other rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of Parent or any of its
subsidiaries or obligating Parent or any of its subsidiaries to issue or sell
any shares of capital stock of, or other equity interests in, Parent or any of
its subsidiaries. All shares of Parent Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable. Except as set forth in Section
3.6 of the Parent Disclosure Schedule as of the date hereof, there are no
obligations, contingent or otherwise, of Parent or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of Parent Common Stock or the
capital stock of any subsidiary or to provide funds to or make any investment
(in the form of a loan, capital contribution or otherwise) in any such
subsidiary or any other entity. Except as set forth in Section 3.6 of the
Parent Disclosure Schedule, all of the outstanding shares of capital stock of
each of Parent's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and all such shares are owned by Parent or another subsidiary of
Parent free and clear of all security interests, liens, claims, pledges,
agreements, limitations in Parent's voting rights, charges or other encumbrances
of any nature whatsoever.
SECTION 3.7 SEC Filings; Financial Statements.
(a) Parent has filed all forms, reports and documents required to be filed
with the Securities and Exchange Commission (such agency and any successor
federal agency having similar powers being hereinafter referred to as the "SEC")
and has heretofore delivered to the Company, in the form filed with the SEC, (i)
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its last three Annual Reports on Form 10-K, (ii) Reports on Form 10-Q for the
quarters ended since its last 10-K, (iii) all proxy statements relating to
Parent's meetings of Shareholders (whether annual or special) since January 1,
1994, (iv) all other reports or registration statements filed by Parent with the
SEC since January 1, 1994, including Parent's most recent Prospectus dated June
13, 1996, and (v) all amendments and supplements to all such reports and
registration statements filed by Parent with the SEC (collectively, the "PARENT
SEC REPORTS"). The Parent SEC Reports (i) were prepared in all material respects
in accordance with the requirements of the Securities Act or the Exchange Act,
as the case may be, and (ii) did not at the time they were filed (or if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing) contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of Parent's subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) All financial statements included or incorporated in the Parent SEC
Reports present fairly the financial position of the Parent as of their
respective dates, and each of the related statements of income and (where
applicable) stockholders' equity and cash flows included therein present fairly
the results of operations and (where applicable) cash flows for the fiscal years
and periods then ended, subject, in the case of unaudited statements, to normal
year-end audit adjustments, and all such financial statements have been prepared
in accordance with Generally Accepted Accounting Principles applied on a
consistent basis, except as otherwise noted therein and except, as to unaudited
financial statements, that no statements of stockholders' equity have been
prepared, and no notes to such financial statements are included.
SECTION 3.8 Absence of Certain Changes or Events. Except as set forth in
Section 3.8 of the Parent Disclosure Schedule or in the Parent SEC Reports,
since October 31, 1996, Parent has conducted its business in the ordinary course
and there has not occurred: (i) any Material Adverse Effect; (ii) any amendments
or changes in the Certificate of Incorporation or By-Laws of Parent; (iii) any
damage to, destruction or loss of any assets of the Parent (whether or not
covered by insurance) that could have a Material Adverse Effect; (iv) any
material change by Parent in its accounting methods, principles or practices;
(v) any material revaluation by Parent of any of its assets, including without
limitation, writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; (vi) any other action
or event that would have required the consent of the Company pursuant to Section
4.2 had such action or event occurred after the date of this Agreement; or (vii)
any sale of a material amount of assets of Parent or any of its subsidiaries
except in the ordinary course of business.
SECTION 3.9 Ownership of Merger Sub; No Prior Activities.
(a) Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement.
(b) As of the date hereof and the Effective Time, except for obligations
or liabilities incurred in connection with its incorporation or organization and
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the transactions contemplated by this Agreement and except for this Agreement
and any other agreements or arrangements contemplated by this Agreement, Merger
Sub has not and will not have incurred, directly or indirectly, through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1 Conduct of Business by the Company Pending the Merger. The
Company and Shareholders, jointly and severally, covenant and agree that, during
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, unless Parent shall
otherwise agree in writing, the Company shall conduct its business and shall
cause the businesses of its subsidiaries to be conducted only in, and the
Company and its subsidiaries shall not take any action except in, the ordinary
course of business and in a manner consistent with past practice other than
actions taken by the Company or its subsidiaries in contemplation of the Merger;
and the Company and Shareholders shall use all reasonable commercial efforts to
preserve intact the business organization of the Company and its subsidiaries,
to keep available the services of the present officers, employees and
consultants of the Company and its subsidiaries and to preserve the present
relationships of the Company and its subsidiaries with customers, suppliers and
other persons with which the Company or any of its subsidiaries has significant
business relations. By way of amplification and not limitation, except as
contemplated by this Agreement, neither the Company nor any of its subsidiaries
shall, during the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, directly
or indirectly do, or propose to do, any of the following without the prior
written consent of Parent:
(a) amend or otherwise change the Articles of Incorporation or By-Laws of
the Company or any of its subsidiaries;
(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance,
sale, pledge, disposition or encumbrance of, any shares of capital stock of any
class, or any options, warrants, convertible securities or other rights of any
kind to acquire any shares of capital stock, or any other ownership interest
(including, without limitation, any phantom interest) in the Company, any of its
subsidiaries or affiliates (except for the issuance of shares of Company Common
Stock issuable pursuant to Stock Options which were granted under the Company
Stock Option Plan and are outstanding on the date hereof);
(c) sell, pledge, dispose of or encumber any assets of the Company or any
of its subsidiaries (except for (i) sales of assets in the ordinary course of
business and in a manner consistent with past practice, (ii) dispositions of
obsolete or worthless assets, and (iii) sales of immaterial assets not in excess
of $100,000 in the aggregate);
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(d) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that a wholly owned subsidiary of the Company
may declare and pay a dividend to its parent, (ii) split, combine or reclassify
any of its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (iii) amend the terms or change the period of exercisability
of, purchase, repurchase, redeem or otherwise acquire, or permit any subsidiary
to purchase, repurchase, redeem or otherwise acquire, any of its securities or
any securities of its subsidiaries, including, without limitation, shares of
Company Common Stock or any option, warrant or right, directly or indirectly, to
acquire shares of Company Common Stock, or propose to do any of the foregoing;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof; (ii) incur any indebtedness for borrowed money, other than draws in the
ordinary course of business under the Company's bank line of credit, or issue
any debt securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any person or, except
in the ordinary course of business consistent with past practice, make any loans
or advances; (iii) enter into or amend any material contract or agreement
calling for aggregate payments in excess of $50,000; (iv) authorize any capital
expenditures or purchase of fixed assets which are, in the aggregate, in excess
of $100,000 for the Company and its subsidiaries taken as a whole; or (v) enter
into or amend any contract, agreement, commitment or arrangement to effect any
of the matters prohibited by this Section 4.1(e);
(f) increase the compensation payable or to become payable to its officers
or employees, or grant any severance or termination pay to, or enter into any
employment or severance agreement with any director, officer or other employee
of the Company or any of its subsidiaries, or establish, adopt, enter into or
amend any collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any current or former directors, officers or
employees, except, in each case, as may be required by law, provided the Company
and its subsidiaries may increase wages (by not more than ten percent (10%) for
any individual or in the aggregate) in the ordinary course of business
consistent with past practice;
(g) take any action to change accounting policies or procedures (including,
without limitation, procedures with respect to revenue recognition, payments of
accounts payable and collection of accounts receivable);
(h) make any material tax election inconsistent with past practice or
settle or compromise any material federal, state, local or foreign tax liability
or agree to an extension of a statute of limitations;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
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the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against in
the 1996 Balance Sheet or incurred in the ordinary course of business since the
date of the 1996 Balance Sheet and consistent with past practice; or
(j) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1 (a) through (i) above, or any action which would make
any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect or prevent the Company from performing or cause
the Company not to perform its covenants hereunder.
SECTION 4.2 Conduct of Business by Parent Pending the Merger. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Parent covenants and agrees
that, unless the Company shall otherwise agree in writing, Parent shall not
directly or indirectly do, or propose to do, any of the following without the
prior written consent of the Company:
(a) amend or otherwise change Parent's Certificate or By-Laws;
(b) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that a wholly owned subsidiary of Parent may
declare and pay a dividend to its parent; or
(c) take or agree in writing or otherwise to take any action which would
make any of the representations or warranties of Parent contained in this
Agreement untrue or incorrect or prevent Parent from performing or cause Parent
not to perform its covenants hereunder.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 HSR Act. As promptly as practicable after the date of the
execution of this Agreement, the Company and Parent shall file notifications
under and in accordance with the HSR Act and any applicable antitrust or similar
acts in connection with the Merger and the transactions contemplated hereby and
to respond as promptly as practicable to any inquiries received from the Federal
Trade Commission (the "FTC"), the Antitrust Division of the Department of
Justice (the "ANTITRUST DIVISION"), and any applicable foreign agencies or
authorities having jurisdiction for additional information or documentation and
to respond as promptly as practicable to all inquiries and requests received
from any State Attorney General or other governmental authority in connection
with antitrust matters.
SECTION 5.2 Registration Requirements
(a) Certain Definitions. In addition to any definitions elsewhere provided
-------------------
for in this Agreement, including this Section 5.2, the following terms shall
have the following respective meanings when used in this Section 5.2:
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(i) The terms "REGISTER", "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (as defined below), and the declaration
or ordering of effectiveness of such registration statement.
(ii) "REGISTRABLE SECURITIES" means (A) the shares of Parent Common
-
Stock issued as a part of the Merger Consideration to those certain persons
holding Shares of the Company Common Stock at the Effective Time (the
"REGISTRABLE SHARES"), and (B) any other shares of Parent Common Stock
-
issued as a dividend or other distribution with respect to the Registrable
Shares.
(b) Registration on Form S-3. Not later than fifteen (15) days following
------------------------
the Effective Date, Parent agrees to prepare and file with the SEC a
Registration Statement on Form S-3 under the Securities Act (the "REGISTRATION
STATEMENT") and proceed to use reasonable efforts to obtain all such
qualifications and compliances as may reasonably be requested by the
Shareholders and as would permit or facilitate the resale by the Shareholders
and the Requesting Holders (as such term is defined in Section 5.2(c) below) of
all of the Registrable Securities.
(c) Right to Include Registrable Securities in an Incidental Registration.
---------------------------------------------------------------------
If the Parent proposes to register any of its Parent Common Stock under the
Securities Act, whether or not for sale for its own account, on a form and in a
manner which would permit registration of Registrable Securities for sale to the
public under the Securities Act, it will each such time give prompt written
notice to all holders of Registrable Securities of its intention to do so,
describing such securities and specifying the form and manner and the other
relevant facts involved in such proposed registration, and upon the written
request of any such holder delivered to the Parent within ten (10) business days
after the giving of any such notice (which request shall specify the Registrable
Securities intended to be disposed of by such holder and the intended method or
methods of disposition thereof), the Parent will use its reasonable efforts to
effect the registration under the Securities Act of all Registrable Securities
which the Parent has been so requested to register by the holders of Registrable
Securities (hereinafter "REQUESTING HOLDER"), to the extent required to permit
the disposition of the Registrable Securities in accordance with the intended
methods thereof, provided that:
--------
(i) if, at any time after giving such written notice of its intention
to register any of its securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Parent shall determine for any reason not to register such securities, the
Parent may, at its election, give written notice of such determination to
each holder of Registrable Securities and thereupon shall be relieved of
its obligation to register any Registrable Securities in connection with
such registration (but not from its obligation to pay the registration
expenses in connection therewith as provided in Section 5.2(d));
(ii) if (A) the registration so proposed by the Parent involves an
-
underwritten offering of the securities so being registered, whether or not
for sale for the account of the Parent, to be distributed by or through one
or more
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underwriters of recognized standing under underwriting terms appropriate
for such a transaction, and (B) the managing underwriter of such
underwritten offering shall advise the Parent in writing that, in its
judgment, the distribution of all or a specified portion of such
Registrable Securities concurrently with the securities being distributed
by such underwriters will materially adversely affect the distribution of
such securities by such underwriters (such written advice to state the
reasons therefor), then the Parent will promptly furnish each such holder
of Registrable Securities with a copy of such written advice and may
require, by written notice to each such holder accompanying such written
advice, that the distribution of all or a specified portion of such
Registrable Securities be excluded from such distribution (in case of an
exclusion of a portion of such Registrable Securities, such portion to be
allocated among such holders in proportion to the respective numbers of
shares of Registrable Securities owned by such holders);
(iii) the Parent shall not be obligated to effect any registration of
Registrable Securities under this Section 5.2(c) incidental to the
registration of any of its securities in connection with mergers,
acquisitions, exchange offers, dividend reinvestment plans or stock option
or other employee benefit plans or incidental to the registration of any
non-equity securities not convertible into equity securities; and
(iv) if any registration pursuant to Section 5.2(c) shall be in
connection with an underwritten public offering, each holder of Registrable
Securities agrees by acquisition of such Registrable Securities, if so
required by the managing underwriter, not to effect any public sale or
distribution of Registrable Securities (other than as part of such
underwritten public offering) within seven days prior to the effective date
of such registration statement or for such period after the effective date
of such registration statement as is required by the underwriters with
respect to company insiders.
(d) Expenses of Registration. Parent shall pay all of the reasonable out-
------------------------
of-pocket expenses incurred in connection with any registration statement
prepared and filed pursuant to this Section 5.2, including, without limitation,
all SEC and blue sky registration and filing fees, printing expenses, transfer
agent and registrar fees, the fees and disbursements of Parent's outside counsel
and independent accountants including expenses incurred in connection with any
special audits incidental to or required by such registration. Any underwriting
discounts, fees and disbursements of counsel to the Shareholders or Requesting
Holders, selling commissions and stock transfer taxes applicable to the
Registrable Securities registered on behalf of Shareholders or Requesting
Holders shall be borne by the Shareholders and Requesting Holders.
(e) Registration Procedures. If and whenever the Parent is required to use
-----------------------
its reasonable efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Sections 5.2(b) and 5.2(c), the Parent
will promptly:
(i) cooperate with any underwriters and the holders of such
Registrable Securities, and will enter into a usual and customary
underwriting agreement with respect thereto and take all such other
reasonable actions as are necessary
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<PAGE>
or advisable to permit, expedite and facilitate the disposition of such
Registrable Securities in the manner contemplated by the related
registration statement, and the Parent will provide to the holders of such
Registrable Securities, any underwriter participating in any distribution
thereof pursuant to a registration statement, and any attorney, accountant
or other agent retained by any holder of Registrable Securities or
underwriter, reasonable access to appropriate Parent officers and employees
to answer questions and to supply information reasonably requested by any
such holders of Registrable Securities, underwriter, attorney, accountant
or agent in connection with such registration statement;
(ii) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its reasonable efforts to
cause such registration statement to become effective and in the case of a
registration pursuant to Section 5.2(b) hereof, to remain effective until
the earlier of the resale of all of the Registrable Securities so
registered or three hundred sixty five (365) days subsequent to the
effective date of the Registration Statement;
(iii) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
and to comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities and other securities covered by
such registration statement until the earlier of such time as all of such
Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set forth
in such registration statement or, subject to subdivision (ii) above, the
expiration of such registration statement; and will furnish, upon request,
to each such seller and each Requesting Holder prior to the filing thereof
a copy of any amendment or supplement to such registration statement or
prospectus and shall not file any such amendment or supplement to which any
such seller or holder shall have reasonably objected on the grounds that
such amendment or supplement does not comply in all material respects with
the requirements of the Securities Act or of the rules or regulations
thereunder;
(iv) furnish to each seller of such Registrable Securities and each
Requesting Holder and the underwriters (if any) such number of conformed
copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of
copies of the prospectus included in such registration statement (including
each preliminary prospectus and any summary prospectus), in conformity with
the requirements of the Securities Act, such documents, if any,
incorporated by reference in such registration statement or prospectus, and
such other documents, as such seller or Requesting Holder may reasonably
request;
(v) use its reasonable efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities or blue sky laws of the states of the United
States as each seller shall reasonably request, to keep such registration
or qualification in effect for so long as such registration statement
remains in effect, and do any and all other acts and things which may be
necessary or advisable to enable
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<PAGE>
such seller to consummate the disposition in such jurisdictions of its
Registrable Securities covered by such registration statement, except that
the Corporation shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this subdivision (v) be
obligated to be so qualified, or to subject itself to taxation in any such
jurisdiction, or to consent to general service of process in any such
jurisdiction;
(vi) upon request, furnish to each seller of Registrable Securities
and each Requesting Holder a signed counterpart, addressed to such seller
and such holder, of (A) an opinion of counsel for the Parent, dated the
-
effective date of such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the closing
under the underwriting agreement), and (B) a "comfort" letter, dated the
-
effective date of such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the closing
under the underwriting agreement), signed by the independent public
accountants who have certified the Parent's financial statements included
in such registration statement, covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities and, in the case of the accountants' letter, such other
financial matters, as the principal underwriter for such sellers or such
holders may reasonably request;
(vii) in the event of the issuance of any stop order suspending the
effectiveness of any registration statement or of any order suspending or
preventing the use of any prospectus or suspending the qualification of any
Registrable Securities for sale in any jurisdiction, use its reasonable
efforts to obtain its withdrawal;
(viii) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the SEC;
(ix) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement; and
(x) use its reasonable efforts to list all Stock covered by such
registration statement on each securities exchange on which any of the
Common Stock is then listed or on the Nasdaq Stock Market if the Parent's
shares trade on such market.
(f) Suspension of Effectiveness. Notwithstanding anything contained in
---------------------------
this Section 5.2 to the contrary, the Parent may delay filing a registration
statement (for up to thirty (30) days in the case of Section 5.2(b)), and may
withhold efforts to cause the registration statement to become effective, if the
Parent reasonably determines in good faith that such registration would (1)
interfere with or affect the negotiation or completion of any transaction that
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<PAGE>
is being contemplated by the Parent (whether or not a final decision has been
made to undertake such transaction) at the time the right to delay is exercised,
or (2) involve initial or continuing disclosure obligations that might not be in
the best interest of the Parent's shareholders. If, after a registration
statement becomes effective, the Parent advises the holders of registered shares
that the Parent considers it appropriate for the registration statement to be
amended, the holders of such shares shall suspend any further sales of their
registered shares until the Parent advises them that the registration statement
has been amended; and the Parent agrees to cause the registration statement to
be amended promptly after providing such advice.
(g) Information by Seller. The Parent may require each seller of
---------------------
Registrable Securities as to which any registration is being effected to furnish
the Parent such information regarding such seller and the distribution of such
securities as the Parent may from time to time reasonably request in writing and
as shall be required by law or by the SEC in connection therewith. All
information provided to Parent by such seller shall be accurate and complete in
all material respects.
(h) Indemnification.
---------------
(i) Parent will indemnify Shareholders and each person
controlling Shareholders within the meaning of Section 15 of the Securities
Act, with respect to any registration, qualification or compliance which
has been effected pursuant to this Agreement, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including
any of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in which they
were made, not misleading, or any violation by Parent of any rule or
regulation promulgated under the Securities Act applicable to Parent in
connection with any such registration, qualification or compliance, and
Parent will reimburse Shareholders and each person controlling Shareholders
for any legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage,
liability or action, provided that Parent will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged
untrue statement or omission, made in reliance upon and in conformity with
written information furnished to Parent specifically for inclusion in such
registration statement, prospectus, offering circular or other document by
Shareholders or a controlling person of either of the Shareholders seeking
indemnification.
(ii) Each Shareholder and Requesting Holder will indemnify
Parent, each of its directors and officers and each underwriter, if any, of
the Parent's securities covered by such a registration statement and each
person who controls Parent or such underwriter within the meaning of
Section 15 of the Securities
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<PAGE>
Act, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in the registration
statement, prospectus, offering circular or other document, or any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and will reimburse Parent, such directors, officers or control persons for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in the registration statement, prospectus, offering
circular or other document solely in reliance upon and in conformity with
written information furnished to Parent by such Shareholder or Requesting
Holder specifically for inclusion in such registration statement,
prospectus, offering circular or other document, provided that in no event
shall any indemnity under this subsection exceed the gross proceeds
received by Shareholders from the sale of any of the Registrable
Securities.
(i) Supplemental Covenants with Respect to Registrable Securities. With a
-------------------------------------------------------------
view to making available the benefits of certain rules and regulations of the
SEC which may at any time permit the sale of the Registrable Securities to the
public without registration, at all times from and after the lapse of the
Registration Statement, Parent agrees to:
(i) Make and keep public information available concerning the
Parent, as those terms are understood and defined in Rule 144 under the
Securities Act;
(ii) File with the SEC in a timely manner all reports and other
documents required of Parent under the Securities Act and the Exchange Act;
and
(iii) So long as Shareholders owns any Registrable Securities,
furnish to Shareholders forthwith upon request a written statement by
Parent as to its compliance with the reporting requirements of said Rule
144, and of the Securities Act and the Exchange Act, (i) an opinion of
counsel addressed to the Parent's transfer agent necessary to the effect
the transfer of any and all Registrable Securities sold by the
Shareholders; and (ii) a copy of the most recent annual or quarterly report
of Parent, and such other reports and documents of Parent, and such other
reports and documents so filed as Shareholders may reasonably request in
availing itself of any rule or regulation of the SEC allowing Shareholders
to sell any such Registerable Securities without registration.
SECTION 5.3 Access to Information; Confidentiality.
(a) Upon reasonable notice and subject to restrictions contained in
confidentiality agreements to which such party is subject (from which such party
shall use reasonable efforts to be released), the Company shall (and shall cause
each of its subsidiaries to) afford to the officers, employees, accountants,
counsel and other representatives of the Parent, reasonable access, during the
period to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, the Company each shall (and
shall cause each of its subsidiaries to) furnish promptly to the Parent all
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<PAGE>
information concerning its business, properties and personnel as such party may
reasonably request, and the Company shall make available to the Parent the
appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the Company's (or its subsidiary's) business,
properties and personnel as Parent may reasonably request. Parent shall keep
such information confidential in accordance with the terms of the
confidentiality agreement, dated November 15, 1996, between Parent and the
Company.
(b) Subject to the terms and conditions of that certain confidentiality
agreement, dated March 13, 1997, between the Shareholders and Parent, from the
date hereof through the Effective Time, the Parent shall provide to the
Shareholders certain confidential non-public information reasonably requested by
the Shareholders concerning the Parent and its business operations (such
agreement, together with the confidentiality agreement referred to in Section
5.3(a) being hereinafter collectively referred to as the "CONFIDENTIALITY
AGREEMENTS").
SECTION 5.4 Consents; Approvals. The Company, Shareholders and Parent
shall each use their reasonable efforts to obtain all consents, waivers,
approvals, authorizations or orders (including, without limitation, all United
States and foreign governmental and regulatory rulings and approvals), and the
Company and Parent shall make all filings (including, without limitation, all
filings with United States and foreign governmental or regulatory agencies)
required in connection with the authorization, execution and delivery of this
Agreement by the Company and Parent and the consummation by them of the
transactions contemplated hereby, in each case as promptly as practicable; the
parties agreeing, however, that the Company and Shareholders shall bear the
principal responsibility for obtaining any necessary landlord consents. To
faciliate the obtaining of any required landlord consents, the Parent agrees
that it will refrain, and will cause the Company and its subsidiaries to
refrain, from any act or omission that would result in the consolidated net
worth of the Company immediately after the Effective Time being less than
consolidated net worth of the Company immediately prior to the Effective Time.
SECTION 5.5 Director and Officer Indemnification.
(a) The By-laws of the Surviving Corporation shall contain the provisions
with respect to indemnification set forth in the By-laws of the Company as of
January 31, 1997, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at the Effective
Time were present or former directors, officers, employees or agents of the
Company ("INDEMNIFIED AGENTS"), unless such modification is required by law.
(b) From and after the Effective Time and to the fullest extent permitted
by law, the Surviving Corporation shall honor the indemnity obligations of the
Company referenced in Section 5.5(a); provided, however, that no Shareholder
shall be entitled to any indemnification with respect to any actual or alleged
act or omission relating to this Agreement or the Merger.
(c) This Section shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Agents, shall be binding on all successors and assigns of
the
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Surviving Corporation and the Parent and shall be enforceable by the Indemnified
Agents.
SECTION 5.6 Notification of Certain Matters. Prior to Closing, the
Company and Shareholders shall give prompt notice to Parent, and Parent shall
give prompt notice to the Company and Shareholders, of (i) the occurrence or
nonoccurrence of any event the occurrence or nonoccurrence of which would be
likely to cause any representation or warranty contained in this Agreement to
become untrue or inaccurate in any respect (but subject to any materiality
limitations expressly provided for in any such representations or warranties),
or (ii) any failure of the Company, Shareholders, Parent or Merger Sub, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by he, she or it hereunder; provided, however,
that the delivery of any notice pursuant to this Section shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice, except if and to the extent provided in Section 8.5 below.
SECTION 5.7 Further Action/Tax Treatment. Upon the terms and subject to
the conditions hereof each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all other things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement, to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and otherwise
to satisfy or cause to be satisfied all conditions precedent to its obligations
under this Agreement. Each of Parent, Merger Sub and the Company shall use its
best efforts to cause the Merger to qualify, and will not (both before and after
consummation of the Merger) take any actions which to its knowledge could
reasonably be expected to prevent the Merger from qualifying, as a
reorganization under the provisions of Section 368 of the Code.
SECTION 5.8 Public Announcements. Parent and the Company shall consult
with each other before issuing any press release with respect to the Merger or
this Agreement and shall not issue any such press release or make any such
public statement without the prior consent of the other party, which shall not
be unreasonably withheld; provided, however, that a party may, without the prior
consent of the other party, issue such press release or make such public
statement as may upon the advice of counsel be required by law.
SECTION 5.9 Conveyance Taxes. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
payable in connection with the transactions contemplated hereby that are
required or permitted to be filed at or before the Effective Time.
SECTION 5.10 Employment and Non-Competition Agreements.
(a) At the Closing, Company shall cause those persons identified on
Exhibit "C" to duly execute and deliver an Employment and Non-Compete Agreement
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substantially in the form of Exhibit "D" and to terminate in writing any
existing agreement to which Company or its subsidiaries is a party respecting
employment.
(b) At the Closing, each of the Shareholders identified on Exhibit "A"
shall execute and deliver a Non-Competition Agreement substantially in the form
of Exhibit "E".
SECTION 5.11 Benefit Plans.
(a) Parent shall cause the Surviving Corporation to ensure that all persons
employed by the Company and its subsidiaries immediately preceding the Effective
Time, including those on vacation, leave of absence or disability (the
"EFFECTIVE TIME EMPLOYEES"), will be employed by the Surviving Corporation or
the Parent on and after the Effective Time for a period of at least one year, on
substantially the same terms (including salary, employee benefits, job
responsibility and location) as those provided to Effective Time Employees
immediately prior to the Effective Time; provided, however, that the Surviving
Corporation shall not be required to employ persons who were on disability or
other leave of absence on or prior to the Effective Time and who do not return
to work with the Surviving Corporation or the Parent after the Effective Time.
(b) Parent shall not, and shall cause the Surviving Corporation not to, at
any time prior to 60 days after the Closing Date, effectuate a "plant closing"
or "mass layoff" as those terms are defined in the Worker Adjustment and
Restraining Notification Act of 1988 ("WARN") affecting in whole or in part any
facility, site of employment, operating unit or employee of the Company or any
subsidiary of the Company without complying fully with the requirements of WARN.
(c) Effective as of the Effective Time and for a period of at least one
year thereafter, Parent shall cause the Surviving Corporation to continue to
maintain, as sponsoring employer, the employee benefit plans listed in Section
5.11(c) of the Company Disclosure Schedule, and to continue health and welfare
benefits that are comparable to those currently provided by the Company or its
subsidiaries. Notwithstanding the foregoing sentence, however, the Surviving
Corporation shall not be obligated to maintain any employee benefit plan listed
in Section 5.11(c) of the Company Disclosure Schedule if maintaining such plan
would result in a loss of tax benefits or advantages due to a discrimination
problem under the Code or ERISA. All welfare benefit plans of Parent or the
Surviving Corporation in which the Company's or its subsidiaries' employees
participate after the Effective Time shall (i) recognize expenses and claims
that were incurred by the such employees in the plan year in which the Effective
Time occurs for purposes of computing deductible amounts and copayments under
the Company's plans as of the Effective Time and (ii) provide coverage for pre-
existing health conditions to the extent covered under the applicable plans or
programs of the Company as of the Effective Time. In addition, employees of the
Surviving Corporation shall receive credit for their prior service with the
Company and its subsidiaries for eligibility and vesting purposes and for
vacation accrual purposes.
(d) This Section shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
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and the Effective Time Employees, shall be binding upon all successors and
assigns of the Surviving Corporation and the Parent, and shall be enforceable by
the Effective Time Employees.
SECTION 5.12 No Solicitations.
(a) No Shareholder will take, nor permit the Company, any of its
subsidiaries or any affiliate of a Shareholder (or authorize or permit any
investment banker, financial advisor, attorney, accountant or other person
retained by or acting for or on behalf of a Shareholder, the Company, any
subsidiary or any such affiliate) to take, directly or indirectly, any action to
solicit, encourage, receive, negotiate, assist or otherwise facilitate
(including by furnishing confidential information with respect to the Company or
any subsidiary or permitting access to the assets and properties and books and
records of the Company or any subsidiary) any offer or inquiry from any person
concerning an Acquisition Proposal (as hereinafter defined). If any
Shareholder, the Company, any subsidiary or any such affiliate (or any such
person acting for or on their behalf) receives from any person any offer,
inquiry or informational request referred to above, the Shareholders will
promptly advise such person, by written notice, of the terms of this Section
5.12 and will promptly, orally and in writing, advise Parent and Merger Sub of
such offer, inquiry or request and deliver a copy of such notice to Parent and
Merger Sub.
(b) For purposes of this Agreement the term "ACQUISITION PROPOSAL" means
any proposal for a merger or other business combination to which the Company or
any of its subsidiaries is a party or the direct or indirect acquisition of any
equity interest in, or a substantial portion of the assets of, the Company or
any of its subsidiaries, other than the transactions contemplated by this
Agreement.
SECTION 5.13 General Releases. At the Closing, each Shareholder shall
deliver general releases to Parent and Merger Sub, substantially in the form of
Exhibit "F", releasing Company and its directors, officers, agents and employees
from all claims arising out of events occurring prior to the Effective Time,
except (i) as may be described in written contracts and expressly described and
excepted from such releases, (ii) in the case of Shareholders who are employees
of Company, compensation for current periods expressly described and excepted
from such releases, (iii) in the case of Shareholders who are officers or
directors claims for indemnification for acts or omissions taken in their
capacity as such, provided such acts or omissions do not relate to this
Agreement or the Merger, or (iv) claims under this Agreement or any of the
Ancillary Instruments. Such releases shall also contain waivers of any right of
contribution or other recourse against Company with respect to representations,
warranties or covenants made herein by Company.
SECTION 5.14 Escrow Agreement. At the Closing, Company shall cause each of
those Shareholders identified on Exhibit "A" to duly execute and deliver an
Escrow Agreement, substantially in the form of Exhibit "G", and to deposit with
the named escrow agent, as security for such Shareholder's indemnity
obligations under this Agreement, a pro rata portion of the shares of Parent
Common Stock issued to such Shareholder as Merger Consideration, such pro rata
share to be equal to the percent (10%) of the total number of shares issued to
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such Shareholder or to such Shareholder's associates, specifically including any
individual retirement accounts in which the Shareholder of such Shareholder's
spouse is a beneficiary, rounded to the nearest whole number.
SECTION 5.15 Shareholder's Debt. Prior to the Closing, each Shareholder
shall repay in full, and shall cause such Shareholder's affiliates and
associates to repay in full, all obligations owed to the Company or any of its
subsidiaries.
SECTION 5.16 Shareholder Agreements. Prior to Closing, Company and the
Shareholders shall agree to terminate any Contract to which one or more of such
persons is a party that in any way relates to the voting of shares of capital
stock of Company or the transfer thereof.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.1 Conditions to Obligation of Each Party to Effect the Merger.
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act and any applicable foreign antitrust or similar acts
shall have expired or been terminated;
(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding brought
by any administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending;
and there shall not be any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the Merger, which makes
the consummation of the Merger illegal; and
(c) Governmental Actions. There shall not have been instituted, pending or
threatened any action or proceeding (or any investigation or other inquiry that
might result in such an action or proceeding) by any governmental authority or
administrative agency before any governmental authority, administrative agency
or court of competent jurisdiction, nor shall there be in effect any judgment,
decree or order of any governmental authority, administrative agency or court of
competent jurisdiction, in either case, seeking to prohibit or limit Parent from
exercising all material rights and privileges pertaining to its ownership of the
Surviving Corporation or the ownership or operation by Parent or any of its
subsidiaries of all or a material portion of the business or assets of Parent or
any of its subsidiaries, or seeking to compel Parent or any of its subsidiaries
to dispose of or hold separate all or any material portion of the business or
assets of Parent or any of its subsidiaries (including the Surviving Corporation
and its subsidiaries), as a result of the Merger or the transactions
contemplated by this Agreement.
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SECTION 6.2 Additional Conditions to Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to effect the Merger are also subject
to the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company and Shareholders contained in this Agreement shall be true and
correct in all respects at and as of the Effective Time with the same force and
effect as if made at and as of such time, except for (i) changes contemplated by
this Agreement, (ii) those representations and warranties which address matters
only as of a particular date (which shall have been true and correct as of such
date), and Parent and Merger Sub shall have received a certificate to such
effect signed by each Shareholder and the President and the Chief Financial
Officer of the Company;
(b) Agreements and Covenants. The Shareholders and Company shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by he, she or it at
or prior to the Effective Time, and Parent and Merger Sub shall have received a
certificate to such effect signed by each Shareholder and the President and the
Chief Financial Officer of the Company; and
(c) Consents Obtained. All consents, waivers, approvals, authorizations or
orders required to be obtained, and all filings required to be made, by the
Company for the due authorization, execution and delivery of this Agreement and
the consummation by it of the transactions contemplated hereby shall have been
obtained and made by the Company, except where the failure to receive such
consents, etc. could not reasonably be expected to have a Material Adverse
Effect on the Company or Parent, the parties agreeing that the failure to obtain
required landlord consents for at least ninety five percent (95%) of all the
Real Property leased by the Company or its subsidiaries shall be reasonably
deemed to have a Material Adverse Effect on the Company;
(d) Opinion of Counsel. The Parent and Merger Sub shall have received a
written opinion of Dykema Gossett, PLLC, counsel to the Company and
Shareholders, substantially in the form of Exhibit "H" attached hereto.
(e) Audited Financial Statements. The Parent and Merger Sub shall have
received the audited consolidated financial statements (including a balance
sheet and statement of income) of the Company and its subsidiaries for the
fiscal year ended February 28, 1997, and an unqualified report thereon from
Arthur Anderson, which confirms, to the reasonable satisfaction of the Parent
and the Merger Sub, that the Recent Financial Statements provided to the Parent
and Merger Sub were correct in all material respects.
(f) Compliance with Securities Laws. The Parent shall have received from
each person or entity receiving Parent Common Stock in connection with the
Merger (other than the Shareholders) an investment letter in form and substance
reasonably acceptable to Parent that is comparable to the representations and
warranties of the Shareholders set forth in Section 2.29 of this Agreement, or
Parent shall have otherwise received evidence reasonably satisfactory to it that
the issuance of the Parent Common Stock in the Merger is exempt from
registration under the Securities Act.
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SECTION 6.3 Additional Conditions to Obligation of the Company. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub contained in this Agreement shall be true and correct in
all respects on and as of the Effective Time with the same force and effect as
if made at and as of such time, except for (i) changes contemplated by this
Agreement, (ii) those representations and warranties which address matters only
as of a particular date (which shall have been true and correct as of such
date), and the Company shall have received a certificate to such effect signed
by the Chairman and the Chief Financial Officer of Parent;
(b) Agreements and Covenants. Parent and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Effective Time, and the Company shall have received a certificate to such effect
signed by the Chairman and the Chief Financial Officer of Parent;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to be
made, by Parent and Merger Sub for the authorization, execution and delivery of
this Agreement and the consummation by them of the transactions contemplated
hereby shall have been obtained and made by Parent and Merger Sub, except where
the failure to receive such consents, etc. could not reasonably be expected to
have a Material Adverse Effect on the Company or Parent;
(d) Opinion of Counsel. The Shareholders shall have received a written
opinion of Smith, Gambrell & Russell, LLC, counsel to the Parent and Merger Sub,
substantially in the form of Exhibit "I" attached hereto; and
(e) Tax Opinion. The Shareholders shall have received a written opinion of
Dykema Gossett PLLC in form and substance reasonably satisfactory to them, to
the effect that the Merger will constitute a reorganization within the meaning
of Section 368 of the Code.
(f) The Provident Bank. The Parent shall have furnished the Shareholders
with written evidence reasonably satisfactory to Shareholders of the payment to
The Provident Bank ("PROVIDENT") of all amounts due to it by the Company and
Bruce E. Mommsen ("MOMMSEN") pursuant to the terms of that certain Purchase and
Sale of Stock Agreement between Company and Provident dated August 31, 1994, as
amended on December 13, 1996.
(g) Release from Personal Guaranties. The Parent shall have furnished
Mommsen with written evidence reasonably satisfactory to him that Michigan
National Bank has released Mommsen and his spouse from any personal guaranties
relating to amounts owed by the Company or its subsidiaries to Michigan National
Bank.
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ARTICLE VII
TERMINATION
SECTION 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by mutual written consent duly authorized by the Boards of Directors of
Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by May 15, 1997, (provided that the right to terminate this
Agreement under this Section 7.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date); or
(c) by either Parent or the Company if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued a nonappealable final order, decree or ruling or taken any other action
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger (provided that the right to terminate this Agreement under this
Section 7.1(c) shall not be available to any party who has not complied with its
obligations under Section 5.7 and such noncompliance materially contributed to
the issuance of any such order, decree or ruling or the taking of such action);
or
(d) by Parent or the Company, respectively (i) if any representation or
warranty of the Company or Parent, respectively, set forth in this Agreement
shall be untrue when made, or (ii) upon a breach of any covenant or agreement on
the part of the Company or Parent, respectively, set forth in this Agreement,
such that in either case of (i) or (ii) above the conditions set forth in
Section 6.2(a) or 6.2(b), or Section 6.3(a) or 6.3(b), as the case may be, would
not be satisfied (either (i) or (ii) above being a "TERMINATING BREACH"),
provided, that, if such Terminating Breach is curable prior to May 15, 1997, by
the Company or Parent, as the case may be, through the exercise of its
reasonable efforts and for so long as the Company or Parent, as the case may be,
continues to exercise such reasonable efforts, neither Parent nor the Company,
respectively, may terminate this Agreement under this Section 7.1(d); or
(e) by Parent, if any representation or warranty of the Company shall have
become untrue such that the condition set forth in Section 6.2(a) would not be
satisfied, or by the Company, if any representation or warranty of Parent shall
have become untrue such that the condition set forth in Section 6.3(a) would not
be satisfied, in either case other than by reason of a Terminating Breach.
SECTION 7.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 7.1, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto or any of
its affiliates, directors, officers or Shareholders except (i) as set forth in
Section 9.5 hereof, (ii) the Confidentiality Agreements shall survive as
provided therein, and (iii) nothing herein shall relieve any party from
liability for any breach hereof.
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ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 By Shareholders. All representations, warranties, covenants,
and agreements of the parties herein shall survive the Closing subject to and in
accordance with Section 9.1 below. Subject to the terms and conditions of this
Article VIII, each Shareholder, jointly and severally, shall indemnify and hold
harmless Parent, Merger Sub and the Surviving Corporation (hereinafter
collectively, the "PARENT INDEMNITEES") from and against all Claims asserted
against, resulting to, imposed upon, or incurred by any of Parent Indemnitees,
directly or indirectly, by reason of, arising out of or resulting from (a) the
inaccuracy (as of the date hereof, the date referred to in the applicable
representation or warranty and as of the Closing Date) or breach of any
representation or warranty of Company or of any Shareholder contained in or made
pursuant to this Agreement or any closing certificates delivered in connection
therewith; provided, however, that for purposes of this Section 8.1 any
qualification of a representation or warranty by reference to the materiality of
matters stated therein shall be disregarded, in determining any inaccuracy,
untruth, incompleteness or breach thereof, (b) the breach of any covenant or
agreement of Company or of any Shareholder contained in this Agreement or any
closing certificates delivered in connection therewith, (c) any Claims resulting
from the manner in which Company has filed Tax Returns, except for Claims
relating to the ongoing audit disclosed in Section 2.19(b) of the Company
Disclosure Schedule, (d) any pollution, threat to human health or the
environment, or exposure to, or manufacture, processing, distribution, use,
treatment, generation, transport or handling, disposal, emission, discharge,
storage or release of any pollutant, contaminant or hazardous or toxic material
or waste that (1) is related in any way to Company's or its subsidiary's or any
previous owner's or operator's ownership, operation or occupancy of the
business, properties and assets presently or formerly owned or used by Company
or any of its subsidiaries, and which (2) in whole or in part occurred, existed,
arose out of conditions or circumstances that existed, or was caused on or
before the Effective Time, whether or not disclosed pursuant to Section 2.20 or
otherwise, (e) the demand or attempted demand by any Shareholder relating to
rights, if any, for appraisal arising out of the Merger in accordance with the
MBCA, (f) any Claim by any person or entity, whether or not identified in this
Agreement, that such person has or had any rights to the capital stock, or
payment of any distribution with respect thereto (other than a portion of the
Merger Consideration as provided for in this Agreement), of Company or any
present or former subsidiary or affiliate, except for the Claim of Provident
pursuant to that certain Purchase and Sale of Stock Agreement between Provident
and Company dated August 31, 1994, as amended December 13, 1996, or (g) any
failure to collect any accounts, notes or other receivables of Company or its
subsidiaries existing on the Closing Date (net of reserves on the Recent
Financial Statements) not later than 120 days after Closing. As used in this
Article VIII, the term "CLAIM" shall include (i) all losses, damages (including,
without limitation, consequential damages with respect to third party claims but
not with respect to independent claims of Parent, Merger Sub, Company and/or the
Shareholders), judgments, awards, settlements, costs and expenses (including,
without limitation, interest (including prejudgment interest in any litigated
matter), penalties, court costs and attorneys fees and expenses (including those
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incurred to enforce rights under this Article VIII)); and (ii) all demands,
claims, suits, actions, costs of investigation, causes of action, proceedings
and assessments, whether or not ultimately determined to be valid.
SECTION 8.2 By Parent and Merger Sub. Subject to the terms and conditions
of this Article VIII, Parent and Merger Sub, jointly and severally, hereby agree
to indemnify and hold harmless each Shareholder and, prior to the Closing, the
Company (hereinafter collectively, the "COMPANY INDEMNITEES") from and against
all Claims asserted against, resulting to, imposed upon or incurred by any such
Shareholder, directly or indirectly, by reason of, arising out of, or resulting
from (a) the inaccuracy (as of the date hereof, the date referred to in the
applicable representation or warranty and as of the Closing Date) or breach of
any representation or warranty of Parent or Merger Sub contained in or made
pursuant to this Agreement or any closing certificates delivered in connection
therewith; provided, however, that for purposes of this Section 8.2 any
qualification of a representation or warranty by reference to the materiality of
matters stated therein shall be disregarded, in determining any inaccuracy,
untruth, incompleteness or breach thereof, or (b) the breach of any covenant or
agreement of Parent or Merger Sub contained in this Agreement or any closing
certificates delivered in connection therewith.
SECTION 8.3 Indemnification of Third-Party Claims. Promptly after receipt
by any person entitled to indemnification under this Article VIII (an
"INDEMNIFIED PARTY") of notice of the commencement of any action by a third
party (a "THIRD PARTY CLAIM") in respect of which the Indemnified Party will
seek indemnification under this Article VIII, the Indemnified Party shall notify
each person that is obligated to provide such indemnification (an "INDEMNIFYING
PARTY") thereof in writing, but any failure to so notify the Indemnifying Party
shall not relieve it from any obligation or liability that it may have to the
Indemnified Party other than to the extent the Indemnifying Party is actually
prejudiced thereby. The Indemnifying Party shall be entitled to participate in
the defense of such action and, provided that within fifteen (15) days after
receipt of such written notice the Indemnifying Party confirms in writing its
responsibility therefor and reasonably demonstrates that it will be able to pay
the full amount of potential liability in connection with any such claim, to
assume control of such defense with counsel reasonably satisfactory to such
Indemnified Party; provided, however, that:
-----------------------
(i) the Indemnified Party shall be entitled to participate in the
defense of such claim and to employ counsel at its own expense to assist in
the handling of such claim; provided, however, that the employment of such
-----------------------
counsel shall be at the expense of the Indemnifying Party only if the
Indemnified Party determines in good faith that such participation is
appropriate in light of defenses not available to the Indemnifying Party,
conflicts of interest or other similar circumstances;
(ii) the Indemnifying Party shall obtain the prior written approval
of the Indemnified Party before entering into any settlement of such claim
or ceasing to defend against such claim (with such approval not to be
unreasonably withheld);
(iii) the Indemnifying Party shall not consent to the entry of any
judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by each claimant or plaintiff to each
Indemnified Party of a release from all liability in respect of such claim;
and
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(iv) the Indemnifying Party shall not be entitled to control (but
shall be entitled to participate at its own expense in the defense of), and
the Indemnified Party shall be entitled to have sole control over, the
defense or settlement of (A) any claim to the extent the claim seeks an
order, injunction, non-monetary or other equitable relief against the
Indemnified Party which, if successful, could materially interfere with the
business, operations, assets, condition (financial or otherwise) or
prospects of the Indemnified Party or (B) any claim relating to Taxes.
If the Indemnifying Party does not assume control of the defense of such
claim as provided in this Section 8.3, the Indemnified Party shall defend such
claim in such manner as it may deem appropriate at the cost and expense of the
Indemnifying Party, and the Indemnifying Party will promptly reimburse the
Indemnified Party therefor in accordance with this Section 8.3. The
reimbursement of fees, costs and expenses required by this Section 8.3 shall be
made by periodic payments during the course of the investigations or defense, as
and when bills are received or expenses incurred. Nothing contain in this
Section 8.3 shall be read to limit indemnification under this Article VIII to
only Third Party Claims; the parties hereto acknowledge and agree that
indemnification rights under this Article VIII exist with respect to losses that
arise independent of any Third Party Claims.
SECTION 8.4 Payment.
(a) The Indemnifying Party shall promptly pay the Indemnified Party any
amount due under this Article VIII. Upon judgment, determination, settlement or
compromise of any Third Party Claim, the Indemnifying Party shall pay promptly
on behalf of the Indemnified Party, and/or to the Indemnified Party in
reimbursement of any amount theretofore required to be paid by it, the amount so
determined by judgment, determination, settlement or compromise and all other
Claims of the Indemnified Party with respect thereto, unless in the case of a
judgment an appeal is made from the judgment. If the Indemnifying Party desires
to appeal from an adverse judgment, then the Indemnifying Party shall post and
pay the cost of the security or bond to stay execution of the judgment pending
appeal. Upon the payment in full by the Indemnifying Party of such amounts, the
Indemnifying Party shall succeed and be subrogated to all rights of such
Indemnified Party with respect to the Claim to which such indemnification
related.
(b) To the extent that any Indemnifying Party shall be required to
indemnify any Indemnified Party pursuant to this Article VIII, such
indemnification obligation may be satisfied for all purposes hereunder by
delivering to such Indemnified Party certificates, duly endorsed for transfer,
representing that number of shares of Parent Common Stock having a value,
rounded to the nearest share, equal to the amount due such Indemnified Party
hereunder, with each such share of Parent Common Stock being deemed for purposes
hereof to have a value equal to the Average Price.
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SECTION 8.5 Waiver. The closing of the transactions contemplated by this
Agreement shall not constitute a waiver by any party of its rights to
indemnification hereunder, regardless of whether the party seeking
indemnification has knowledge of the breach, violation or failure of condition
constituting the basis of the Claim at or before the Closing, and regardless of
whether such breach, violation or failure is deemed to be "material" for
purposes of Article VI; provided, however, that if any party notifies the other
in writing pursuant to Section 5.6 of any fact or circumstance occurring
subsequent to the date hereof, that causes any representation or warranty
contained in this Agreement to become untrue or inaccurate, and if the
occurrence at issue did not result from the breach of any covenant on the part
of the disclosing party, and if the other party elects to consummate the Closing
despite the disclosure of such fact or circumstance, then such other party shall
be deemed to have waived any rights to indemnification hereunder with respect to
such subsequently disclosed fact or circumstance but only if such fact or
circumstance is accurately and fully disclosed and then only to the extent so
disclosed. Notwithstanding anything contained in this Agreement to the contrary
any party may elect to postpone the Closing for up to two (2) business days in
order to review and consider any material disclosures that are submitted to it
by the other party, pursuant to Section 5.6 above, less than two (2) business
days prior to the Closing Date.
SECTION 8.6 Adjustments. All indemnification or reimbursement payments
required pursuant to this Agreement shall be made net of all tax and insurance
benefits actually received by the Indemnified Party. In the event that any
claim for indemnification asserted hereunder is, or may be, the subject of any
insurance coverage or other right to indemnification or contribution from any
third person, the Indemnified Parties expressly agree that they shall promptly
notify the applicable insurance carrier of any such claim or loss and tender
defense thereof to such carrier, and shall also promptly notify any potential
third party indemnitor or contributor which may be liable for any portion of
such loses or claims. The Indemnified Parties agree to pursue, at the cost and
expense of the Indemnifying Party, such claims diligently and to reasonably
cooperate, at the cost and expense of the Indemnifying Party, with each
applicable insurance carrier and third party indemnitor or contributor.
SECTION 8.7 Limitations on Right to Indemnification. Notwithstanding
anything to the contrary in this Agreement:
(a) The indemnification obligations under this Article VIII of the
Shareholders, on one hand, and Parent, Merger Sub and the other indemnifying
parties under Section 8.2, on the other hand, shall only be applicable when the
aggregate amount of losses, liabilities, damages, expenses or other charges that
are the subject of a proper claim for indemnification under this Article VIII
(collectively "LOSSES") exceed, in the aggregate, the sum of $250,000 (the
"BASKET") and shall only be applicable to the extent that any such Losses exceed
the Basket; and
(b) The liability of each Shareholder pursuant to this Article VIII shall
not exceed an amount equal to twenty-four percent (24%) of the sum of all of the
Merger Consideration received by such Shareholder or such Shareholder's
associates (specifically including any individual retirement accounts in which
such Shareholder or such Shareholder's spouse is a beneficiary) e.g., assuming
no adjustment to the Merger Consideration pursuant to Section 1.7(b) above, such
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Shareholder's pro rata share of Six Million Dollars ($6,000,000.00), such pro
rata share being based on the ownership of the Company Common Stock at the
Effective Time by each Shareholder or such Shareholder's associates
(specifically including any individual retirement accounts in which the
Shareholder or such Shareholder's spouse is a beneficiary), as a percentage of
the total of all of the Company Common Stock held at the Effective Time by all
of the Shareholders including any associates of such Shareholders (specifically
including any individual retirement accounts in which any of the Shareholders or
any spouse of any of the Shareholders is a beneficiary);
PROVIDED, HOWEVER, that the provisions of this Section 8.7 shall have no
applicability to the obligations or liabilities of any party under Sections 1.7,
5.2 or 9.5 of this Agreement. As between the Shareholders, each Shareholder
shall have a claim for contribution against the other for any indemnification
claims paid by a Shareholder under this Article VIII; such right of contribution
shall be pro rata based on each Shareholder's ownership of the Company Common
Stock at the Effective Time as a percentage of the total of all of the Company
Common Stock held by both Shareholders at the Effective Time.
SECTION 8.8 Exclusive Remedy. Except as otherwise specifically provided for
in this Agreement, and except for claims based on fraud or claims requesting
injunctive or other forms of equitable relief, the sole and exclusive remedy of
the Parent Indemnitees and the Company Indemnitees shall be restricted to the
indemnification rights set forth in this Article VIII.
SECTION 8.9 Special Provision Relating to Shareholder Liability.
Notwithstanding anything contained in this Agreement to the contrary, the
parties hereto acknowledge and agree that (i) Hansel Artrip ("ARTRIP") shall
bear no liability with respect to the breach of any representation or warranty
on the part of any Shareholder other than Artrip, and (ii) with respect to any
circumstance where Artrip and the other Shareholders are jointly liable under
this Article VIII (excluding any breach of a Shareholder representation,
warranty or covenant by Artrip with respect to himself or the Shares held by him
or his associates, specifically including any individual retirement accounts in
which Artrip or his spouse is a beneficiary), Artrip's liability with respect to
any indemnification matter for which a Claim is made against him shall be
limited to his pro rata share of such liability, such pro rata share being based
on the ownership of the Company Common Stock at the Effective Time by Artrip or
his associates (specifically including any individual retirement accounts in
which Artrip or his spouse is a beneficiary), as a percentage of the total of
all of the Company Common Stock held at the Effective Time by all of the
Shareholders including any associates of such Shareholders (specifically
including any individual retirement accounts in which any of the Shareholders or
any spouse of any of the Shareholders is a beneficiary); PROVIDED, HOWEVER, that
this provision shall in no way operate to release, lessen or otherwise affect
the joint and several liability of any Shareholder other than Artrip.
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ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Survival of Representations, Warranties and Agreements;
Interpretation.
(a) The representations, warranties and agreements of each party hereto
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any other party hereto, any person
controlling any such party or any of their officers or directors, whether prior
to or after the execution of this Agreement. The representations, warranties,
covenants and agreements contained in this Agreement will survive the Closing
(a) indefinitely with respect to the representations and warranties contained in
Sections 2.3, 2.4, 2.5, 2.28, and 3.5 and the covenants and agreements contained
in Sections 1.11, 9.4 and 9.5, (b) until sixty (60) days after the expiration of
all applicable statutes of limitation (including all periods of extension,
whether automatic or permissive) with respect to matters covered by Section
2.15, 2.19 and 2.20 and Article VIII (specifically including, without
limitation, clauses (c), (d), (e), (f) and (g) of Section 8.1), (c) until June
1, 1998, in the case of all other representations and warranties and any
covenant or agreement to be performed in whole or in part on or prior to the
Closing or (d) with respect to each other covenant or agreement contained in
this Agreement, until sixty (60) days following the last date on which such
covenant or agreement is to be performed or, if no such date is specified,
indefinitely, except that any representation, warranty, covenant or agreement
that would otherwise terminate in accordance with clause (b), (c) or (d) above
will continue to survive if a notice of an indemnity claim shall have been
timely given under Article VIII on or prior to such termination date, until the
related claim for indemnification has been satisfied or otherwise resolved.
(b) Notwithstanding anything to the contrary contained in this Agreement,
any of the Exhibits, the Company Disclosure Schedule or the Parent Disclosure
Schedule, any information disclosed in one section of this Agreement, an
Exhibit, the Company Disclosure Schedule or the Parent Disclosure Schedule shall
be deemed to be disclosed with respect to this Agreement, the Exhibits and all
sections of the Company Disclosure Schedule or the Parent Disclosure Schedule,
as the case may be, into which they are specifically incorporated by reference.
SECTION 9.2 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by electronic transmission, with confirmation
received, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
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(a) If to Parent or Merger Sub:
Just For Feet, Inc.
153 Cahaba Valley Parkway North
Pelham, Alabama 35124
Telecopier No.: (205) 403-8163
Telephone No.: (205) 403-8134
Attention: Chairman and Chief Executive Officer
With a copy to:
Arthur Jay Schwartz, Esq.
Smith, Gambrell & Russell, LLP
Suite 1800
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
Telecopier No.: (404) 264-2652
Telephone No.: (404) 264-2632
(b) If to the Company or a Shareholder:
Imperial Acquisition Corporation
G-5117 S. Dort Highway
Flint, Michigan 48507-4431
Telecopier No.: (810) 744-9118
Telephone No.: (810) 744-9111
Attention: Chairman
With a copy to:
Fredrick M. Miller, Esq.
Dykema Gossett PLLC
400 Renaissance Center
Detroit, Michigan 48243-1668
Telecopier No.: (313) 568-6915
Telephone No.: (313) 568-6975
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SECTION 9.3 Certain Definitions. For purposes of this Agreement, the
term:
(a) "ASSOCIATES" means, with respect to any person, any corporation or
other business organization of which such person is an officer or partner or is
the beneficial owner, directly or indirectly, of ten percent (10%) or more of
any class of equity securities, any trust or estate in which such person has a
substantial beneficial interest or as to which such person serves as a trustee
or in a similar capacity and any relative or spouse of such person, or any
relative of such spouse, who has the same home as such person.
(b) "AFFILIATES" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person; including, without limitation, any
partnership or joint venture in which the first mentioned person (either alone,
or through or together with any other subsidiary) has, directly or indirectly,
an interest of 5% or more;
(c) "BUSINESS DAY" means any day other than a day on which banks in the
sate of Michigan are required or authorized to be closed;
(d) "CONTROL" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(e) "PERSON" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act);
(f) "SUBSIDIARY" or "SUBSIDIARIES" of the Company, Parent or any other
person means any corporation, partnership, joint venture or other legal entity
of which the Company, the Surviving Corporation, Parent or such other person, as
the case may be (either alone or through or together with any other subsidiary),
owns, directly or indirectly, more than 50% of the stock or other equity
interests the holders of which are generally entitled to vote for the election
of the board of directors or other governing body of such corporation or other
legal entity; and
(g) "TO THE KNOWLEDGE" or "KNOWN" and words of similar import shall
mean actual knowledge through conscious awareness of a person of facts, or the
absence of facts, after having made reasonable inquiry of the appropriate
employees, which in the case of the Company shall be those persons identified in
Section 9.3(f) of the Company Disclosure Schedule and in the case of the Parent
or Merger Sub shall be those persons identified in Section 9.3(f) of the Parent
Disclosure Schedule, having supervisory responsibility for such matter or having
direct access to the relevant information.
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SECTION 9.4 SHAREHOLDERS' AGENT; POWER OF ATTORNEY.
(a) Mommsen is hereby appointed and constituted as "SHAREHOLDERS' AGENT"
hereunder, to exercise the powers on behalf of Shareholders set forth in this
Agreement; and Mommsen hereby accepts such appointment. In the event of the
death, resignation or inability to act of Mommsen, and upon receipt by Parent
and Merger Sub of evidence of the same which is satisfactory to Parent and
Merger Sub, Emily Mommsen shall be successor Shareholders' Agent with all powers
of his predecessor.
(b) The Shareholders' Agent is hereby appointed and constituted the true
and lawful attorney in fact of each Shareholder, with full power in his or her
name and on his or her behalf:
(i) to act on such Shareholder's behalf according to the terms of
this Agreement, including, without limitation, to give and receive notices
on behalf of all the Shareholders; and to act on their behalf in connection
with any matter as to which the Shareholders jointly and severally are an
"Indemnified Party" or "Indemnifying Party" under Article VIII hereof; all
in the absolute discretion of the Shareholders' Agent;
(ii) in general, to do all things and to perform all acts, including,
without limitation, executing and delivering all agreements, certificates,
receipts, instructions and other instruments contemplated by or deemed
advisable in connection with this Agreement.
This power of attorney, and all authority hereby conferred, is granted subject
to the interests of the other Shareholders and Merger Sub hereunder and in
consideration of the mutual covenants and agreements made herein, and shall be
irrevocable and shall not be terminated by any act of any Shareholder or by
operation of law, whether by the death or incapacity of any Shareholder or by
the occurrence of any other event. Each Shareholder shall, jointly and
severally, hold the Shareholders' Agent free and harmless from any and all loss,
damage or liability which they, or any one of them, may sustain as a result of
any action taken in good faith hereunder.
SECTION 9.5 Expenses.
(a) If the transactions contemplated hereby are consummated, then the
Shareholders agree to pay, and to indemnify and hold Parent, Merger Sub and
Company harmless from and against, each of the following:
(i) Any sales, use, excise, transfer or other similar tax imposed
with respect to the transactions provided for in this Agreement, and any
interest or penalties related thereto.
(ii) All fees and expenses of the Company or its subsidiaries
attributable to legal counsel (e.g. Dykema Gossett, PLLC) (whether incurred
by or at the direction of the Shareholders, Company or any of its
subsidiaries) which are, in the aggregate, in excess of $100,000, in
connection with the transactions contemplated hereby.
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(iii) All fees and expenses of the Company or its subsidiaries
attributable to outside accountants (e.g. Arthur Andersen LLP) (whether
incurred by or at the direct of the Shareholders, Company or any of its
subsidiaries) which are, in the aggregate, in excess of $100,000, in
connection with the transactions contemplated hereby.
(iv) All fees and expenses of the Company or its subsidiaries
attributable to investment banking and other professional counsel (e.g.
Smith Barney Inc.) (other than legal and accounting) (whether incurred by
or at the direct of the Shareholders, Company or any of its subsidiaries)
which are, in the aggregate, in excess of $700,000, in connection with the
transactions contemplated hereby;
Provided, however, that no claim shall exist under clauses (ii), (iii) or (iv)
unless the aggregate of such fees and expenses exceeds $900,000 and then only to
the extent of such excess.
(b) The Parent agrees to pay all filing fees related to the filings by the
Company, Parent and Merger Sub under the HSR Act. Except as otherwise provided
in this Agreement, each of the parties shall bear its own expenses and the
expenses of its counsel and other agents in connection with the transactions
contemplated hereby, regardless of whether or not the transactions contemplated
hereby are consummated.
(c) Regardless of whether or not the transactions contemplated hereby are
consummated, the parties agree that the prevailing party in any action brought
with respect to or to enforce any right or remedy under this Section 9.5 (or the
balance of this Agreement in the event that Article VIII is no longer effective)
shall be entitled to recover from the other party or parties all reasonable
costs and expenses of any nature whatsoever incurred by the prevailing party in
connection with such action, including without limitation attorneys' fees and
prejudgment interest.
SECTION 9.6 Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 9.7 Waiver. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party or parties to be
bound thereby.
SECTION 9.8 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.9 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the
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economic or legal substance of the transactions contemplated hereby is not
affected in any manner adverse to any party.
SECTION 9.10 Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Agreements), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof.
SECTION 9.11 Assignment; Guarantee of Merger Sub Obligations. Prior to
Closing, this Agreement shall not be assigned by operation of law or otherwise.
After Closing, this Agreement may be freely assigned by operation of law or
otherwise. Parent guarantees the full and punctual performance by Merger Sub of
all the obligations hereunder of Merger Sub.
SECTION 9.12 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including, without limitation, by way of subrogation, other
than Sections 5.5 and 5.11 (which are intended to be for the benefit of the
Indemnified Agents and the Effective Time Employees, respectively, and may be
enforced by such Indemnified Agents and Effective Date Employees, respectively).
SECTION 9.13 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or of any other right. All rights and remedies
existing under this Agreement are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
SECTION 9.14 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Michigan
applicable to contracts executed and fully performed within the State of
Michigan.
SECTION 9.15 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
ARTICLE X
SPECIAL PROVISIONS RELATING TO POOLING OF INTERESTS ACCOUNTING
SECTION 10.1. Efforts to Obtain Pooling of Interests Accounting Treatment.
The parties hereto acknowledge and agree that it is beneficial for all parties
if the Merger can be accounted for on a "pooling of interests basis for
financial accounting and SEC purposes."
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Accordingly, each party agrees to utilize its respective best efforts to cause
the Merger to be appropriately accounted for on a pooling of interests basis;
provided that no party shall be required to take any action that would expose it
to liability in excess of the economic benefit to such party resulting from the
transaction qualifying for "pooling of interests" accounting. Each party
acknowledges and agrees that no assurances can be given that the Merger can be
properly accounted for on a pooling of interest basis.
SECTION 10.2 Alternative Provisions if Pooling of Interests Accounting is
Available. If, but only if, the Parent has determined in its sole discretion
that the Merger may be accounted for on a pooling of interests basis, then this
Agreement shall be deemed to be revised as follows:
(a) SECTION 1.7(a) shall be deleted in its entirety and the following
substituted in lieu thereof:
"The aggregate consideration to be paid by Parent in respect of the
Shares issued and outstanding as of the Effective Time pursuant to the
Merger shall be Thirty Million Dollars ($30,000,000) (the "MERGER
CONSIDERATION"), through conversion of such Shares into the right to
receive that number of validly issued, fully paid and nonassessable shares
("PARENT SHARES") of the common Stock, $.0001 par value, of Parent ("PARENT
COMMON STOCK") which results by dividing the Merger Consideration by the
average of the Last Sale Prices for Parent Common Stock for the period of
ten (10) Trading Days that ends on and includes the Trading Day immediately
preceding the Closing Date (the "AVERAGE PRICE"). For purposes of this
Agreement, a "Trading Day" shall mean a day in which the Parent Common
Stock is traded on the over the counter market and the "Last Sale Price"
shall be the last sale price for Parent Common Stock as reported by the
Nasdaq Stock Market for such Trading Day."
(b) SECTION 1.7(b) shall be revised by deleting all references to "Four and
70/100 Dollars ($4.70)" and substituting in lieu thereof a reference to "Five
and 70/100 Dollars ($5.70)."
(c) SECTION 6.1 shall be revised by adding the following provision to the
end thereof:
"(d) Availability of Pooling of Interest Account. The Parent and
Shareholders shall have each delivered to the other a written instrument
acknowledging that this Agreement has been revised pursuant to Article X
hereof."
(d) SECTION 8.4(b) shall be revised to read as follows:
"(b) To the extent that any Indemnifying Party shall be required to
indemnify any Indemnified Party pursuant to this Article VIII, such
indemnification obligation shall be satisfied for all purposes hereunder by
delivering to such Indemnified Party certificates, duly endorsed for
transfer, representing that number of shares of Parent Common Stock having
a value, rounded to the nearest share, equal to the amount due such
Indemnified Party hereunder, with each such share of Parent Common Stock
being deemed for purposes hereof to have a value equal to the Average
Price. To the extent that any
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Shareholder has insufficient shares of Parent Common Stock to satisfy any
indemnification obligation hereunder, such Shareholder shall satisfy the
remaining amount of such obligation by cash payment to the Indemnified
Party."
(e) SECTION 8.7(b) shall be revised to read as follows:
"(b) The liability of each Shareholder pursuant to this Article VIII
shall not exceed an amount equal to ten percent (10%) of the sum of all of
the Merger Consideration received by such Shareholder, e.g. such
Shareholder pro rata share of Three Million Dollars ($3,000,000), such pro
rata share being based on each Shareholder's ownership of the Company
Common Stock at the Effective Time as a percentage of the total of all of
the Company Common Stock held by both Shareholders at the Effective Time;"
(f) SECTION 9.1(a) of the Agreement shall be deleted in its entirety and
the following substituted in lieu thereof:
"SECTION 9.1(a) Survival of Representations, Warranties and
Agreements; Interpretation.
(a) The representations, warranties and agreements of each party
hereto shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any other party hereto, any
person controlling any such party or any of their officers or directors,
whether prior to or after the execution of this Agreement. The
representations, warranties, covenants and agreements contained in this
Agreement will survive the Closing (a) indefinitely with respect to the
representations and warranties contained in Sections 2.3, 2.4, 2.5, 2.28,
and 3.2 and the covenants and agreements contained in Sections 1.11, 9.4
and 9.5, (b) until the earlier of (i) the date of the audit report on the
first audited financial statements after the Closing Date containing
combined operations of Parent and the Subsidiary Corporation, or (ii) the
first anniversary of the Closing Date in the case of all other
representations and warranties and any covenant or agreement to be
performed in whole or in part on or prior to the Closing, (c) with respect
to each other covenant or agreement contained in this Agreement, until
sixty (60) days following the last date on which such covenant or agreement
is to be performed or, if no such date is specified, indefinitely, or (d)
until sixty (60) days after the expiration of all applicable statutes of
limitation (including all periods of extension, whether automatic or
permissive) with respect to matters covered by Article VIII (specifically
including, without limitation, clauses (c), (d), (e), (f) and (g) of
Section 8.1), except that any representation, warranty, covenant or
agreement that would otherwise terminate in accordance with clause (b), (c)
or (d) above will continue to survive if a notice of an indemnity claim
shall have been timely given under Article VIII on or prior to such
termination date, until the related claim for indemnification has been
satisfied or otherwise resolved."
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(g) Transfer or Disposal of Securities by Shareholders. (A) The
Shareholders hereby jointly and severally each covenants, represents and
warrants to Parent and Merger Sub that: During the two year period prior to
November 15, 1996, no Shareholder has or will transfer or otherwise dispose of
any securities of Company held by a Shareholder, except for transfers or other
dispositions by operation of law upon the death of a Shareholder or by the
estate of a Shareholder if necessary to pay estate taxes or other transfers or
dispositions that Parent determines will not prevent Parent from accounting for
the Merger as a pooling of interests, taking into account the actions of other
Affiliates, and except if and to the extent provided for in Section 10.1 above.
(B) Beginning thirty (30) days prior to the Effective Time, no Shareholder
will sell, transfer or otherwise dispose of any securities of Company or Parent,
including shares of Parent Common Stock received by a Shareholder in the Merger,
until after such time as financial results covering at least thirty (30) days of
combined operations of Company and Parent have been published by Parent, in the
form of a quarterly earnings report, an effective registration statement filed
with the SEC, a report to the SEC on Form 10-K, 10-Q or 8-K, or any other public
filing or announcement which includes the combined results of operations, except
for transfers or other dispositions that Parent determines, taking into account
the actions of other Affiliates, will not prevent Parent from accounting for the
Merger as a pooling of interests.
SECTION 10.3. Acknowledgments with respect to this Article X. If the
Parent determines that the Merger can not be accounted for on a "pooling of
interests" basis, then at the Closing, each party agrees to deliver to the other
a written acknowledgment of such determination, and such party's agreement that
the provisions of this Article X shall be of no further force or effect.
[signatures begin on next page]
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IN WITNESS WHEREOF, Parent, Merger Sub, Company and each Shareholder have
caused this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
"PARENT"
JUST FOR FEET, INC.
By:___________________________________
Name:
Title:
"MERGER SUB"
IAC ACQUISITION CORPORATION
By:___________________________________
Name:
Title:
[signatures continued on next page]
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"COMPANY"
IMPERIAL ACQUISITION CORPORATION
By:___________________________________
Name:
Title:
"SHAREHOLDERS"
______________________________________
Name: BRUCE E. MOMMSEN
______________________________________
Name: EMILY A. MOMMSEN
______________________________________
Name: HANSEL ARTRIP
The undersigned hereby executes this Agreement solely for the purpose of
certifying, representing and warranting to the Parent and Merger Sub that (i)
the undersigned is the spouse of Hansel Artrip, a named Shareholder in this
Agreement; (ii) the undersigned is the beneficiary of an IRA custodial account
with Michigan National Bank; (iii) such account is self-directed and the
undersigned maintains the authority to vote any shares of Company Common Stock
held in such IRA; (iv) the undersigned has approved the execution and delivery
of this Agreement by the Company and the consummation of the Merger Contemplated
herein; (v) the undersigned will refrain from the exercise of any dissenter's
rights, and (vi) the undersigned has executed this Agreement to induce the
Parent and Merger Sub to execute and deliver this Agreement and to consummate
the Merger and with full knowledge that the Parent and Merger Sub will rely upon
the truth and accuracy of above statements of the undersigned.
_______________________________
BARBARA ARTRIP
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EXHIBIT "A"
-----------
Bruce E. Mommsen
Emily A. Mommsen
Hansel Artrip
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<PAGE>
EXHIBIT "B"
-----------
<TABLE>
<CAPTION>
Pro Rata Portion of
Number of Merger
Name of Shareholder Shares Held Total Shares Issued Consolidation
------------------- ----------- ------------------- -------------------
<S> <C> <C> <C>
Bruce E. Mommsen 730,000 841,002 86.8012%
and Emily A. Mommsen,
jointly
Hansel Artrip 58,749 841,002 6.9856%
James Urban 2,000 841,002 0.2378%
IRA custodial account 39,753 841,002 4.7269%
with Michigan National
Bank, Hansel Artrip,
beneficiary
IRA custodial account 10,500 841,002 1.2485%
with Michigan National
Bank, Barbara Artrip,
beneficiary
</TABLE>
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<PAGE>
EXHIBIT "C"
-----------
Mike Butka
Bill Drury
Jim Hall
Bert Metzger
Bill Rau
Jim Urban
Andrew Belsky
Vince Brooks
Chuck Herman
Hansel (Art) Artrip
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into
as of the 6th day of November, 1996 by and between JUST FOR FEET,
INC., an Alabama corporation (the "Company"), and ALEX BOND (the
"Executive"), an individual.
For and in consideration of the mutual covenants described
below, the parties hereto agree as follows:
1. EMPLOYMENT. The Company agrees to employ
Executive, and Executive agrees to accept such employment, upon the
following terms and conditions.
2. DUTIES. Executive shall assume the responsibilities and
perform the duties of Executive Vice President of Strategic Development
of the Company. Such duties may be revised from time to time at the sole
discretion of the Board of Directors of the Company, and Executive shall
perform such duties at such location(s) as the Company may direct from
time to time. Executive agrees to devote his full time and energy to the
furtherance of the business of the Company and shall be loyal to the
Company and use his best efforts to further its interests, and shall not
during the term hereof, without the prior written consent of the Company,
work or perform services in any advisory or other capacity for any
individual, firm, company, or corporation other than for the Company.
3. COMPENSATION.
3.1 Base Salary. The Company shall pay Executive as
compensation for all the services to be rendered by Executive hereunder
a base salary equal to a rate of $150,000 per year for each of the years
during the Initial Term hereof (as hereinafter defined). Thereafter, if this
Agreement is extended pursuant to Section 4(a) below, Executive's base
salary shall be subject to review and increase in the discretion of the
Board of Directors. Executive's salary shall be payable beginning with
the period starting February 1, 1997 in equal monthly installments. The
Company's obligation to pay Executive any compensation shall cease
upon termination of Executive's employment with the Company.
Executive's annual base salary shall be prorated on a daily basis for the
years in which Executive commences and terminates his employment
relationship with the Company.
3.2 Living Allowance. During the Initial Term (as hereinafter
defined) Company shall pay to Executive as a living allowance the sum
of $50,000 per year beginning February 1, 1997. Said amount shall be
payable in equal monthly installments and shall be prorated on a daily
basis for the years in which Executive commences and terminates his
employment relationship with the Company.
3.3 Bonus. Executive shall be eligible to receive a
performance-based bonus during each year of his employment
hereunder beginning with the year ending January 31, 1998 equal in an
amount up to $200,000 per year. Such bonus shall be based on the
performance of the Company and shall be measured against standards
and criteria agreed to between Executive and representatives of the
Company.
3.4 Stock Options. Subject to Executive's execution of and
compliance with the terms of that certain Just For Feet, Inc. Incentive
Stock Option Agreement substantially in the form attached hereto as
Exhibit A, which executed agreement shall in all respects be in form and
substance satisfactory to the Company, Executive is hereby granted
options to acquire 200,000 shares of the common stock of the Company.
<PAGE>
3.5 Other Benefits. Executive shall be entitled to receive
health and dental insurance benefits, vacation benefits and other
benefits substantially similar to those provided to other executives of the
Company. Company shall have the right to change said benefit program
at any time or times.
3.6 Reimbursement of Expenses. In addition to the
compensation described in this Agreement, Employee shall be entitled to
reimbursement by Company for all actual, reasonable and direct
expenses incurred by him in the performance of his duties hereunder,
provided such expenses are properly characterized as being business
expenses that are properly tax deductible for Company, and further
provided that such expenses were incurred only in accordance with the
policies and procedures established by the Board of Directors from time
to time. Employee shall provide Company with written documentation of
such expenses in form complying with the records required of Company
by the Internal Revenue Service and appropriate state authorities for tax
deductibility purposes in such cases, and reimbursement for each item of
approved expense shall be made within a reasonable time after receipt
by Company of the written documentation thereof.
3.7 Vacation. The Employee shall be entitled to two (2) weeks
annual paid vacation and such holidays as the Board of Directors may
approve. In the event of any termination of employment, Executive shall
not be entitled to receive payment for any unused vacation time.
3.8 Withholdings. All amounts payable to Executive pursuant
to this Agreement shall be subject to all applicable withholdings as
required by all laws.
4. TERM AND TERMINATION.
(a) This Agreement shall be effective upon the date first set forth
above and, unless earlier terminated as provided herein, shall remain in
full force and effect for an initial period which ends on January 31, 1999
(the "Initial Term"). This Agreement may be renewed on the same terms
and conditions for additional successive periods of one (1) year upon
the execution of a written agreement by the parties hereto.
(b) Notwithstanding anything contained herein to the contrary, the
Company may terminate Executive's employment immediately for cause.
For purposes of this Agreement, "for cause" shall mean the occurrence
of the following: (i) the commission of any act of fraud, dishonesty,
misappropriation or moral turpitude on the part of the Executive, (ii) a
material breach by the Executive of, or a material failure by the Executive
to perform, his duties and obligations hereunder, (iii) continued neglect by
Executive in fulfilling his duties as an executive officer of the Company
as a result of alcoholism, addiction to illegal substances, or excessive
unauthorized absenteeism, after written notification from the Board of
Directors of such neglect, setting forth in detail the matters involved and
Employee's failure to cure the problem resulting in such neglect within a
reasonable time thereafter, (iv) the Executive becomes Completely
Disabled (as hereinafter defined), or (v) the death of Executive. For
purposes of this Agreement, "Completely Disabled" shall mean
Executive's inability, due to illness, accident or any other physical or
mental incapacity, to perform the duties provided for herein for an
aggregate of 91 days during any period of 180 consecutive days during
the term hereof. In addition, termination of Executive's employment upon
the occurrence of any act specified in (i) through (iii) above shall result,
to the extent not otherwise prohibited by law, in Executive's loss of any
benefits provided by the Company.
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<PAGE>
(c) Upon termination of employment for any reason, Executive shall
return immediately to the Company all documents, property, and other
records of the Company, and all copies thereof, within Executive's
possession, custody or control, including but not limited to any materials
containing any Trade Secrets or Confidential Information (each as
defined below) or any portion thereof.
5. RELOCATION.
5.1 Expenses. The Company agrees to reimburse Employee for the following
moving expenses incurred with respect to Employee's relocation from Portland,
Oregon to Birmingham, Alabama: (i) reasonable expenses incurred for the movement
of normal household goods and one (1) automobile, (ii) reasonable closing costs
paid with respect to the sale of Employee's existing home up to a maximum of six
(6%) percent of the sales price and (iii) actual closing costs paid with respect
to the purchase by Employee of a new home in Birmingham, Alabama up to a maximum
of $2500.00
5.2 Additional Payments. If Executive's home in Portland,
Oregon does not sell prior to Executive moving to Birmingham, Alabama,
the Company shall pay Executive the sum of One Thousand Three
Hundred Sixty-Three Dollars ($1,363.00) per month toward Executive's
mortgage payment on his Portland, Oregon home to the earlier to occur of
the time the Portland, Oregon home sells or six (6) months from the date
the original payment is made; provided, however, said payments shall not
exceed in the aggregate Eight Thousand One Hundred Seventy-Eight
Dollars ($8,178.00).
6. TRADE SECRETS AND CONFIDENTIAL INFORMATION.
(a) The Company may disclose to Executive certain Trade Secrets
and Confidential Information (each as defined below). Executive
acknowledges and agrees that the Trade Secrets and Confidential
Information are the sole and exclusive property of the Company (or a
third party providing such information to the Company) and that the
Company or such third party owns all worldwide rights therein under
patent, copyright, trade secret, confidential information, or other property
rights laws. Executive acknowledges and agrees that the disclosure of
the Trade Secrets and Confidential Information to Executive does not
confer upon Executive any license, interest or rights of any kind in or to
the Trade Secrets or Confidential Information. Executive may use the
Trade Secrets and Confidential Information solely for the benefit of the
Company while Executive is employed or retained by the Company.
Except in the performance of services for the Company, Executive will
hold in confidence and not reproduce, distribute, transmit, reverse
engineer, decompile, disassemble, or transfer, directly or indirectly, in
any form, by any means, or for any purpose, the Trade Secrets or the
Confidential Information or any portion thereof. Executive agrees to
return to the Company, upon request by the Company, the Trade Secrets
and Confidential Information and all materials relating thereto.
(b) Executive's obligations under this Agreement with regard to the
Trade Secrets shall remain in effect for as long as such information shall
remain a trade secret under applicable law. Executive acknowledges
that its obligations with regard to the Confidential Information shall remain
in effect while Executive is employed or retained by the Company and for
five (5) years thereafter. As used herein, "Trade Secrets" means
information of the Company, its licensors, suppliers, customers, or
prospective licensors or customers, including, but not limited to, technical
or nontechnical data, formulas, patterns, compilations, programs,
devices, methods, techniques, drawings, processes, financial data,
financial plans, product plans, or a list of actual or potential customers or
suppliers, which (i) derives economic value, actual or potential, from not
being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its
disclosure or use; and (ii) is the
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<PAGE>
subject of efforts that are reasonable under the circumstances to maintain its
secrecy. As used herein, "Confidential Information" means information, other
than Trade Secrets, that is of value to its owner and is treated as
confidential, including, but not limited to, future business plans, financial
information, marketing strategies and advertising campaigns, information
regarding Company's executives and employees, and the terms and conditions of
this Agreement. For purposes of this Agreement, "Confidential Information" and
"Trade Secrets" shall not include the following: (i) anything or any information
that was or becomes generally available to the public other than as a result of
a disclosure by the Executive, (ii) was available to the Executive on a
nonconfidential basis prior to its disclosure to the Executive by the Company,
(iii) becomes available to the Executive on a nonconfidential basis from a
source other than the Company, provided that such source is not prohibited from
disclosing such information by a contractual or legal obligation to the Company
of such information, or (iv) that the Executive can conclusively show by
documentary evidence was independently developed by the Executive without use of
any information disclosed to Executive by the Company. Executive and the Company
acknowledge that the intent of this Section 5 is not to restrict Executive's
employment following his tenure with the Company, but rather it is to protect
the rights that the Company has in its Trade Secrets and Confidential
Information.
7. COVENANT NOT TO COMPETE.
7.1 Executive will not, during the term of his employment with
the Company and for a period of one (1) year after termination for any
reason of his employment with the Company, directly or indirectly,
engage in or carry on within a fifty (50) mile radius of any of the
Company's retail outlets existing upon the date of termination of such
employment, any business, like or similar to that engaged in by Company,
either individually or as a stockholder, director, officer, consultant,
independent contractor, Executive, agent, member or otherwise of or
through any corporation, partnership, association, joint venture, firm,
individual or otherwise, or in any other capacity: The above one (1)
year period shall be extended by any period of time during which
Executive is in default of the covenants contained in this Agreement.
7.2 In the event of a breach or threatened breach by Executive of all or
any part of the provisions of Section 7.1, the Company shall be entitled to an
injunction restraining Executive from such breach without limiting any other
rights or remedies available to the Company for such breach or threatened
breach.
7.3 Notwithstanding any provision to the contrary herein
contained, Section 6.1 shall not apply:
(i) Upon the termination of the Executive's employment
by the Company other than for cause within one (1) year following a
Sale of the Company; and
(ii) Upon the voluntary termination of employment by
the Executive for any reason within the thirty (30) day period immediately
after the one (1) year period following a Sale of the Company.
7.4 In the event of a Sale of the Company following the
execution of this Agreement, Executive expressly agrees that the terms
and conditions set forth in this Section 6 shall be binding upon Executive
and shall be fully enforceable by the successor to the Company.
-4-
<PAGE>
7.5 For purposes of this Agreement, "Sale of the Company"
shall mean (i) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), (a "Person"), of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of more than 50% of either the then outstanding shares
of common stock of the Company (the "Outstanding Common Stock") or
the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"), or (ii) consummation by the Company of
a reorganization, merger or consolidation, or sale or other disposition of
all or substantially all of the assets of the Company; unless, following
such acquisition of beneficial ownership or transaction (A) more than
60% of the then outstanding shares of common stock of the Person
resulting from such reorganization, merger or consolidation, or (B) more
than 60% of the then outstanding shares of common stock of the Person
acquiring such beneficial ownership or assets, and the combined voting
power of the then outstanding voting securities of such Person entitled
to vote generally in the election of directors of such Person, is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of
Outstanding Common Stock and Outstanding Voting Securities
immediately prior to such acquisition or transaction, in substantially the
same proportion as their ownership of Outstanding Common Stock and
Outstanding Voting Securities prior to such event.
8. CUSTOMER NON-SOLICITATION. Executive agrees that
for a period of eighteen (18) months immediately following termination of
Executive's employment with the Company for any reason, including,
without limitation, voluntary resignation from employment by Executive
(the "Non-Solicitation Period"), Executive shall not, on Executive's own
behalf or on behalf of any person, firm, partnership, association,
corporation or business organization, entity or enterprise, solicit, contact,
call upon, communicate with or attempt to communicate with any
customer or prospect of the Company, or any representative of any
customer or prospect of the Company, with a view to selling or providing
any product or service competitive or potentially competitive with any
product or service sold or provided or under development by the
Company during the time of two (2) years immediately preceding
cessation of Executive's employment with the Company, provided that
the restrictions set forth in this paragraph shall apply only to customers
or prospects of the Company, or representatives of customers or
prospects of the Company, with which Executive had contact during
such two (2) year period. Executive acknowledges that the Company
provides products and services to customers throughout the Territory.
9. EMPLOYEE NON-SOLICITATION. Executive agrees that
Executive shall not call upon, solicit, recruit, or assist others in calling
upon, recruiting or soliciting any person who is or was an employee of
the Company within the Non-Solicitation Period, for the purpose of having
such person work in any other corporation, association, entity, or
business engaged in providing products or services of the same or
similar kind as offered by the Company.
10. EQUITABLE RELIEF. The parties to this Agreement
acknowledge that a breach by Executive of any of the terms or
conditions of this Agreement will result in irrevocable harm to the
Company and that the remedies at law for such breach may not
adequately compensate the Company for damages suffered.
Accordingly, Executive agrees that in the event of such breach, the
Company shall be entitled to injunctive relief or such other equitable
remedy as a court of competent jurisdiction may provide. Nothing
contained herein will be construed to limit the Company's right to any
remedies at law, including the recovery of damages for breach of this
Agreement.
-5-
<PAGE>
11. ARBITRATION. Any difference, claim or matter in dispute
arising between the parties out of this Agreement or connected
therewith (other than claims by the Company to enforce the provisions of
Paragraphs 6 through 9 hereof) shall be submitted by them to arbitration
by a panel of three arbitrators appointed by and in accordance with the
rules of the American Arbitration association. The determination or
decision rendered by the arbitrators shall be final and absolute. The
arbitrators shall apply Alabama law and the arbitration shall take place in
Birmingham, Alabama. The decision of the arbitrators may be entered as
a judgment in any court of the State of Alabama or elsewhere.
12. SEVERABILITY. If any provision or part of any provision
of this Agreement is held invalid or unenforceable by a court of
competent jurisdiction, such holding shall not affect the enforceability of
any other provisions or parts thereof, and all other provisions and parts
thereof shall continue in full force and effect.
13. MISCELLANEOUS. This Agreement shall not be amended
or modified except by a writing executed by both parties. This
Agreement shall be binding upon and inure to the benefit of the Company
and its successors and assigns. Due to the personal nature of this
Agreement, Executive shall not have the right to assign Executive's rights
or obligations under this Agreement without the prior written consent of
Company. This Agreement shall be governed by the laws of the State of
Alabama without regard to its rules governing conflicts of law. This
Agreement and any attached exhibits represent the entire understanding
of the parties concerning the subject matter hereof and supersede all
prior communications, agreements and understandings, whether oral or
written, relating to the subject matter hereof. All communications
required or otherwise provided under this Agreement shall be in writing
and shall be deemed given when delivered to the address provided
below such party's signature (as may be amended by notice from time to
time), by hand, by courier or express mail, or by registered or certified
United States mail, return receipt requested, postage prepaid. Exhibit A
attached hereto is incorporated herein by this reference.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement under seal effective as of the date first above written.
JUST FOR FEET, INC.
By:
--------------------------------
Title:
-----------------------------
[CORPORATE SEAL]
Address:
153 Cahaba Valley Parkway North
Birmingham, Alabama 35124
EXECUTIVE:
--------------------------------(SEAL)
ALEX BOND
Address:
-------------------------------------
-------------------------------------
-7-
<PAGE>
Exhibit 10.6.2
AMENDMENT NO. 3
EMPLOYEE INCENTIVE STOCK OPTION PLAN
JUST FOR FEET, INC.
WHEREAS, the Board of Directors of Just For Feet, Inc. (the "Corporation")
has previously adopted, and the shareholders of the Corporation have approved,
the Employee Incentive Stock Option Plan, as amended (the "Plan") pursuant
to which options to purchase stock of the Corporation may be issued to eligible
directors, officers and key employees of the Corporation; and
WHEREAS, the Board of Directors of the Corporation deems it desirable
to amend the Plan so as to increase the number of shares available for issuance
pursuant to the exercise of options granted under the Plan and to provide
for the exercise of options under the Plan upon the termination of employment,
death or disability of a Plan participant;
NOW, THEREFORE, the Plan is amended upon the terms, and subject to
the conditions, set forth herein;
ARTICLE I
AMENDMENTS TO PLAN
1.1 Section 4 of the Plan shall be amended by deleting such section
in its entirety and substituting therefor the following:
"4. SHARES RESERVED FOR PLAN. The shares of the
------------------------
Corporation's $.0001 par value common stock
(the "Common Stock") to be sold to eligible
employees under the Plan may at the election
of the Board of Directors be either treasury
shares or shares originally issued for such
purpose. The maximum number of shares which
shall be reserved and made available for sale
under the Plan shall be Three Million (3,000,000).
Any shares subject to an option granted hereunder
which for any reason expires or is terminated
unexercised may again be subject to an option
under the Plan."
ARTICLE II
EFFECTIVE DATE OF AMENDMENT
2.1 The amendment effected hereby shall be effective for options granted
under the Plan to eligible employees on or after the date this amendment
is approved by the Board of Directors of the Corporation, but subject to
approval of a majority of the shares of Common Stock of the Corporation entitled
to vote thereon represented in person and by proxy at a meeting of
shareholders.
<PAGE>
In the event shareholder approval of adoption of this amendment is not obtained
within twelve months of the date this amendment is approved by the Board of
Directors of the Corporation, then any option in the intervening period to
eligible employees shall be void.
2
<PAGE>
Exhibit 11
JUST FOR FEET, INC. AND SUBSIDIARIES
Computation of Net Income Per Share
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Years Ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Income before cumulative effect of change
in accounting principle $15,960 $9,722 $3,218
Cumulative effect of change in accounting principle,
net of income taxes 2,041
------- ------ ------
Net income $13,919 $9,722 $3,218
======= ====== ======
Weighted average number of common and common
equivalent shares outstanding (in thousands)
Common shares issued 27,627 24,246 16,845
Common equivalent shares for:
Options 1,469 1,299 932
------- ------ ------
Series A Preferred Stock (1) 171
Total 29,096 25,545 17,948
======= ====== ======
Net income per common and common equivalent share:
Before cumulative effect of change in accounting
principle $ 0.55 $ 0.38 $ 0.18
Cumulative effect of change in accounting principle 0.07
------- ------ ------
Net income $ 0.48 $ 0.38 $ 0.18
======= ====== ======
</TABLE>
(1) The preferred stock was converted to common stock in March 1994.
<PAGE>
EXHIBIT 18
April 24, 1997
Just For Feet, Inc.
153 Cahaba Valley Parkway North
Pelham, Alabama 35124
Dear Sirs:
We have audited the financial statements of Just For Feet, Inc., as of January
31, 1997 and 1996, and for each of the three years in the period ended January
31, 1997, included in your Annual Report on Form 10-K to the Securities and
Exchange Commission and have issued our report thereon dated March 17, 1997.
Note 1 to such financial statements contains a description of your adoption
during the year ended January 31, 1997 of a policy to defer store opening costs
and then expanse all such costs at the date of store opening rather than to
defer and then amortize all such costs over the twelve month period following a
store opening. In our judgment, such change is to an alternative accounting
principle that is preferable under the circumstances.
Yours truly,
DELOITTE & TOUCHE LLP
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements of
Just For Feet, Inc. and subsidiaries on Form S-8 regarding the Just For Feet,
Inc. Non-Employee Director Stock Option Plan and the Just For Feet, Inc.
Employee Incentive Stock Option Plan of our report dated March 17, 1997
appearing in this Annual Report on Form 10-K of Just For Feet, Inc. for the year
ended January 31, 1997.
Deloitte & Touche LLP
Birmingham, Alabama
April 24, 1997
<PAGE>
Exhibit 24.1
STATE OF
------------------
COUNTY OF
-----------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, Randall L. Haines, a Director of
JUST FOR FEET, INC., an Alabama corporation, do constitute and appoint Harold
Ruttenberg and Robert C. Wabler, jointly and severally, my true and lawful
attorneys-in-fact, each with full power of substitution and resubstitution, for
me in any and all capacities, to sign (1) the Annual Report on Form 10-K for
JUST FOR FEET, INC. for the fiscal year ended January 31, 1997, pursuant to the
requirements of the Securities Exchange Act of 1934, and (ii) a Registration
Statement on Form S-3 pursuant to the Securities Act of 1933, including, if
necessary in connection therewith, a Registration Statement filed under Rule
462(b) of the Securities Act of 1933, and to file the each of such documents
with the Securities and Exchange Commission, together with all exhibits thereto
and other documents in connection therewith, and to sign on my behalf and in my
stead, in any and all capacities, any amendment to said Annual Report and
Registration Statement, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 23 day of
April, 1997.
/s/ Randall L. Haines
---------------------------------
Randall L. Haines
ACKNOWLEDGMENT
--------------
BEFORE me this 23 day of April, 1997, came Randall L. Haines, personally
known to me, who in my presence did sign and seal the above and foregoing Power
of Attorney and acknowledged the same as his true act and deed.
/s/ Signature Spelling Invalid
----------------------------------------
NOTARY PUBLIC
State of Alabama
-----------------------------------
My Commission Expires:
2/28/2000
----------------------------------------
<PAGE>
Exhibit 24.2
STATE OF
------------------
COUNTY OF
-----------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, Michael P. Lazarus, a Director of
JUST FOR FEET, INC., an Alabama corporation, do constitute and appoint Harold
Ruttenberg and Robert C. Wabler, jointly and severally, my true and lawful
attorneys-in-fact, each with full power of substitution and resubstitution, for
me in any and all capacities, to sign (i) the Annual Report on Form 10-K for
JUST FOR FEET, INC. for the fiscal year ended January 31, 1997, pursuant to the
requirements of the Securities Exchange Act of 1934, and (ii) a Registration
Statement on Form S-3 pursuant to the Securities Act of 1933, including, if
necessary in connection therewith, a Registration Statement filed under Rule
462(b) of the Securities Act of 1933, and to file the each of such documents
with the Securities and Exchange Commission, together with all exhibits thereto
and other documents in connection therewith, and to sign on my behalf and in my
stead, in any and all capacities, any amendment to said Annual Report and
Registration Statement, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 24 day of
April, 1997.
/s/ Michael P. Lazarus
---------------------------------
Michael P. Lazarus
ACKNOWLEDGMENT
--------------
BEFORE me this day of April, 1997, came Michael P. Lazarus, personally
--
known to me, who in my presence did sign and seal the above and foregoing Power
of Attorney and acknowledged the same as his true act and deed.
/s/ Janice Dunkling
----------------------------------------
NOTARY PUBLIC
State of Alabama
-----------------------------------
My Commission Expires:
9/17/2000
----------------------------------------
<PAGE>
Exhibit 24.3
STATE OF ALABAMA
------------------
COUNTY OF SHELBY
-----------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, Bart Starr, a Director of
JUST FOR FEET, INC., an Alabama corporation, do constitute and appoint Harold
Ruttenberg and Robert C. Wabler, jointly and severally, my true and lawful
attorneys-in-fact, each with full power of substitution and resubstitution, for
me in any and all capacities, to sign (i) the Annual Report on Form 10-K for
JUST FOR FEET, INC. for the fiscal year ended January 31, 1997, pursuant to the
requirements of the Securities Exchange Act of 1934, and (ii) a Registration
Statement on Form S-3 pursuant to the Securities Act of 1933, including, if
necessary in connection therewith, a Registration Statement filed under Rule
462(b) of the Securities Act of 1933, and to file the each of such documents
with the Securities and Exchange Commission, together with all exhibits thereto
and other documents in connection therewith, and to sign on my behalf and in my
stead, in any and all capacities, any amendment to said Annual Report and
Registration Statement, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 25th day of
April, 1997.
/s/ Bart Starr
---------------------------------
Bart Starr
ACKNOWLEDGMENT
--------------
BEFORE me this 25th day of April, 1997, came Michael P. Lazarus,
personally known to me, who in my presence did sign and seal the above and
foregoing Power of Attorney and acknowledged the same as his true act and deed.
/s/ Davis Lee Sewell
----------------------------------------
NOTARY PUBLIC
State of Alabama
-----------------------------------
My Commission Expires:
NOTARY PUBLIC STATE OF ALABAMA AT LARGE.
MY COMMISSION EXPIRES: Aug. 30, 1999.
BONDED THRU NOTARY PUBLIC UNDERWRITERS.
<PAGE>
Exhibit 24.4
STATE OF GEORGIA
------------------
COUNTY OF PAUDLING
-----------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, Edward S. Croft, III, a Director
of JUST FOR FEET, INC., an Alabama corporation, do constitute and appoint Harold
Ruttenberg and Robert C. Wabler, jointly and severally, my true and lawful
attorneys-in-fact, each with full power of substitution and resubstitution, for
me in any and all capacities, to sign (i) the Annual Report on Form 10-K for
JUST FOR FEET, INC. for the fiscal year ended January 31, 1997, pursuant to the
requirements of the Securities Exchange Act of 1934, and (ii) a Registration
Statement on Form S-3 pursuant to the Securities Act of 1933, including, if
necessary in connection therewith, a Registration Statement filed under Rule
462(b) of the Securities Act of 1933, and to file the each of such documents
with the Securities and Exchange Commission, together with all exhibits thereto
and other documents in connection therewith, and to sign on my behalf and in my
stead, in any and all capacities, any amendment to said Annual Report and
Registration Statement, incorporating such changes as any of the said attorneys-
in-fact deems appropriate, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 24th day of
----
April, 1997.
/s/ Edward S. Croft, III
---------------------------------
Edward S. Croft, III
ACKNOWLEDGMENT
--------------
BEFORE me this 24th day of April, 1997, came Edward S. Croft, III,
personally known to me, who in my presence did sign and seal the above and
foregoing Power of Attorney and acknowledged the same as his true act and deed.
/s/ Donna J. Hitchcock
----------------------------------------
NOTARY PUBLIC
State of Georgia
-----------------------------------
My Commission Expires:
NOTARY PUBLIC, PAULDING COUNTY, GEORGIA
MY COMMISSION EXPIRES: January 19, 2000.
BONDED THRU NOTARY PUBLIC UNDERWRITERS.
<PAGE>
Exhibit 24.5
STATE OF
------------------
COUNTY OF
-----------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, David F. Bellet, a Director
of JUST FOR FEET, INC., an Alabama corporation, do constitute and appoint Harold
Ruttenberg and Robert C. Wabler, jointly and severally, my true and lawful
attorneys-in-fact, each with full power of substitution and resubstitution, for
me in any and all capacities, to sign (i) the Annual Report on Form 10-K for
JUST FOR FEET, INC. for the fiscal year ended January 31, 1997, pursuant to the
requirements of the Securities Exchange Act of 1934, and (ii) a Registration
Statement on Form S-3 pursuant to the Securities Act of 1933, including, if
necessary in connection therewith, a Registration Statement filed under Rule
462(b) of the Securities Act of 1933, and to file the each of such documents
with the Securities and Exchange Commission, together with all exhibits thereto
and other documents in connection therewith, and to sign on my behalf and in my
stead, in any and all capacities, any amendment to said Annual Report and
Registration Statement, incorporating such changes as any of the said attorneys-
in-fact deems appropriate, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 23 day of
April, 1997.
/s/ David F. Bellet
---------------------------------
David F. Bellet
ACKNOWLEDGMENT
--------------
BEFORE me this 23 day of April, 1997, came David F. Bellet,
personally known to me, who in my presence did sign and seal the above and
foregoing Power of Attorney and acknowledged the same as his true act and deed.
/s/ Mavis Davidson
----------------------------------------
NOTARY PUBLIC
State of New York
-----------------------------------
My Commission Expires:
MAVIS DAVIDSON
NOTARY PUBLIC, STATE OF NEW YORK
No. 41-4929327
Qualified in Queens County
Commission Expires July 25, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ?
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JAN-31-1997 JAN-31-1996
<PERIOD-START> FEB-01-1996 FEB-01-1995
<PERIOD-END> JAN-31-1997 JAN-31-1996
<CASH> 138,784,600 96,854,200
<SECURITIES> 36,927,500 55,281,600
<RECEIVABLES> 6,552,800 3,409,500
<ALLOWANCES> 0 0
<INVENTORY> 133,323,200 56,633,900
<CURRENT-ASSETS> 314,743,100 193,701,900
<PP&E> 61,482,000 26,182,000
<DEPRECIATION> 6,559,800 2,794,100
<TOTAL-ASSETS> 375,834,400 243,579,900
<CURRENT-LIABILITIES> 146,913,900 85,398,400
<BONDS> 0 0
0 0
0 0
<COMMON> 2,800 2,600
<OTHER-SE> 218,553,600 149,267,200
<TOTAL-LIABILITY-AND-EQUITY> 375,834,400 243,579,900
<SALES> 256,397,400 119,819,000
<TOTAL-REVENUES> 261,727,500<F1> 123,937,900<F1>
<CGS> 147,525,900 68,969,300
<TOTAL-COSTS> 228,095,700<F2> 104,945,600<F2>
<OTHER-EXPENSES> 8,057,700 3,731,400
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 831,500 703,100
<INCOME-PRETAX> 24,742,600 14,557,800
<INCOME-TAX> 8,783,000 4,835,800
<INCOME-CONTINUING> 15,959,600 9,722,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 2,041,700 0
<NET-INCOME> 13,918,900 9,722,000
<EPS-PRIMARY> .48 .38
<EPS-DILUTED> .48 .38
<FN>
<F1>INCLUDES SALES, FRANCHISE FEES & ROYALTIES AND INTEREST INCOME.
<F2>INCLUDES CGS, STORE OPERATING AND STORE OPENING COSTS.
</FN>
</TABLE>
