<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) July 2, 1998
------------------------------
Just For Feet, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 000-23570 63-0734234
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(State or other (Commission File Number) (IRS Employer
jurisdiction Identification No.)
of incorporation)
7400 Cahaba Valley Road, Birmingham, Alabama 35242
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (205) 408-3000
--------------------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
- ------ ------------------------------------
On July 2, 1998, Just For Feet, Inc., a Delaware corporation (the
"Company"), consummated the acquisition of Sneaker Stadium, Inc., a Delaware
corporation ("Sneaker Stadium"). Pursuant to an Agreement and Plan of Merger
dated as of July 2, 1998 (the "Merger Agreement") among the Company, JFF Merger
Corp., a Delaware corporation and wholly-owned subsidiary of the Company
("Merger Sub"), and Sneaker Stadium, Merger Sub was merged with and into Sneaker
Stadium, and the separate existence of Merger Sub ceased (the "Merger").
Pursuant to the terms of the Merger Agreement, the Company assumed
approximately $43 million of existing debt of Sneaker Stadium, and Sneaker
Stadium's stockholders were released from their guarantees of Sneaker Stadium
under the terms of such existing debt. Pursuant to the terms of a Contingent
Payment Agreement entered into by the Company as of July 2, 1998, the Company is
obligated to pay certain contingent payments to specified lenders of Sneaker
Stadium on April 30, 2002 (for earnings on or before January 31, 2002), as soon
as practicable after April 30, 2002 (for earnings for the quarterly period
ending April 30, 2002), and January 31, 2003 (relating to taxes payable during
the period beginning after July 2, 1998 and ending on January 31, 2003) if
Sneaker Stadium's earnings exceed specified targeted amounts during such
periods, provided that the aggregate contingent payments payable under the
Contingent Payment Agreement may not exceed $33 million. In addition, the
holders of Sneaker Stadium's issued and outstanding Common Stock and Series A
Preferred Stock became entitled to receive $.0001 per share, or an aggregate of
approximately $1,750, in exchange for their shares of Common Stock and Series A
Preferred Stock.
Concurrently with the closing of the Merger, the Company and Sneaker
Guarantee LLC, a Delaware limited liability corporation ("Sneaker Guarantee")
affiliated with Thomas H. Lee Company ("THL"), entered into a Common Stock and
Warrant Purchase Agreement whereby the Company agreed to sell to Sneaker
Guarantee, for an aggregate purchase price of $20 million, securities of the
Company consisting of 926,355 units, with each unit comprised of 1 share of the
Company's Common Stock and one warrant to purchase .99701626 of a share of the
Company's Common Stock, upon the terms and subject to the conditions set forth
in the Common Stock and Warrant Purchase Agreement. Under the terms of the
Common Stock and Warrant Purchase Agreement, THL is entitled to designate a
member of the Company's Board of Directors.
Sneaker Stadium, based in Edison, New Jersey, was formerly a privately-held
athletic retailer with 39 large-format superstores located primarily in the
Northeastern and Mid-Atlantic states.
The Company operates both large format superstores and smaller specialty
stores which specialize in brand-name athletic and outdoor footwear. Prior to
the acquisition, the Company operated 86 company-owned and 11 franchised Just
For Feet superstores in 22 states and Puerto Rico. The Company also operates
103 Company-owned and 48 franchised specialty stores in 22 states and Puerto
Rico.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
- ------ ---------------------------------
(a) Financial Statements of Business Acquired:
At the present time, it is impractical to provide the required financial
statements for Sneaker Stadium as required by this Item 7 of Form 8-K. The
Company will file such required financial statements under cover of Form 8-K/A
as soon as practicable, but not later than September 15, 1998 (60 days after
this Report is required to be filed).
(b) Pro Forma Financial Information:
At the present time, it is impractical to provide the pro forma financial
information relative to the acquisition of Sneaker Stadium as required by Item
310 of Regulation S-K and this Item 7 of Form 8-K. The Company will file such
pro forma financial information under cover of Form 8-K/A as soon as
practicable, but not later than September 15, 1998 (60 days after this Report is
required to be filed).
(c) Exhibits:
2.4 Agreement and Plan of Merger dated as of July 2, 1998 among Just For
Feet, Inc., a Delaware corporation, as Purchaser, JFF Merger Corp.,
a Delaware corporation and wholly-owned subsidiary of Purchaser, and
Sneaker Stadium, Inc., a Delaware corporation
10.17 Contingent Payment Agreement dated as of July 2, 1998 among Just For
Feet, Inc., a Delaware corporation, for the benefit of Banque
Nationale de Paris, for itself and as agent for itself and for
Merrill Lynch Senior Floating Rate Fund, Inc., Merrill Lynch Prime
Rate Portfolio and Merrill Lynch Debt Strategies Portfolio, and
subject to the limitations provided therein, for the benefit of the
persons or entities listed on Schedule I thereto
10.18 Common Stock and Warrant Purchase Agreement dated as of July 2, 1998
between Just For Feet, Inc. and Sneaker Guarantee LLC
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
JUST FOR FEET, INC.
By: /s/ Eric L. Tyra
-------------------------------------------
Name: Eric L. Tyra
-----------------------------------------
Title: Executive Vice President & CFO
----------------------------------------
Dated: July 14, 1998
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EXHIBIT INDEX
Exhibit Sequential
Number Description of Exhibit Page No.
- ------- ---------------------- ----------
2.4 Agreement and Plan of Merger dated as of July 2, 1998
among Just For Feet, Inc., a Delaware corporation, as
Purchaser, JFF Merger Corp., a Delaware corporation
and wholly-owned subsidiary of Purchaser, and Sneaker
Stadium, Inc., a Delaware corporation
10.17 Contingent Payment Agreement dated as of July 2, 1998
among Just For Feet, Inc., a Delaware corporation, for
the benefit of Banque Nationale de Paris, for itself
and as agent for itself and for Merrill Lynch Senior
Floating Rate Fund, Inc., Merrill Lynch Prime Rate
Portfolio and Merrill Lynch Debt Strategies Portfolio,
and subject to the limitations provided therein, for
the benefit of the persons or entities listed on
Schedule I thereto
10.18 Common Stock and Warrant Purchase Agreement dated as
of July 2, 1998 between Just For Feet, Inc. and Sneaker
Guarantee LLC
<PAGE>
EXHIBIT 2.4
================================================================================
AGREEMENT AND PLAN OF MERGER
among
JUST FOR FEET, INC.,
JFF MERGER CORP.
and
SNEAKER STADIUM, INC.
Dated as of July 2, 1998
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TABLE OF CONTENTS
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ARTICLE 1 The Merger........................................................................ 1
1.1. The Merger........................................................................ 1
1.2. The Closing....................................................................... 1
1.3. Effective Time.................................................................... 2
ARTICLE 2 Certificate of Incorporation and By-laws of the Surviving
Corporation....................................................................... 2
2.1. Certificate of Incorporation...................................................... 2
2.2. By-laws........................................................................... 2
ARTICLE 3 Directors and Officers of the Surviving Corporation............................... 2
3.1. Directors......................................................................... 2
3.2. Officers.......................................................................... 2
ARTICLE 4 Effect of the Merger on Securities of Merger Sub and the
Company........................................................................... 3
4.1. Merger Sub Stock.................................................................. 3
4.2. Company Securities................................................................ 3
4.3. Payment of Merger Consideration................................................... 4
4.4. [RESERVED]........................................................................ 4
4.5. Dissenting Company Shareholders................................................... 4
ARTICLE 5 Representations and Warranties of the Company..................................... 5
5.1. Existence; Good Standing; Corporate Authority..................................... 5
5.2. Authorization, Validity and Effect of Agreements.................................. 6
5.3. Compliance with Laws.............................................................. 6
5.4. Capitalization.................................................................... 6
5.5. [RESERVED]........................................................................ 9
5.6. No Violation...................................................................... 9
5.7. Financial Statements; Undisclosed Liabilities..................................... 9
5.8. Litigation........................................................................ 10
5.9. Absence of Certain Changes........................................................ 10
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Page
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5.10. Taxes............................................................................. 10
5.11. Employee Benefit Plans............................................................ 12
5.12. Labor and Employment Matters...................................................... 14
5.13. Brokers and Finders............................................................... 16
5.14. Properties and Assets............................................................. 16
5.15. State Antitakeover Laws........................................................... 18
5.16. Inventories; Accounts Payable..................................................... 18
5.17. Material Contracts................................................................ 18
5.18. Intellectual Property; Technology................................................. 20
5.19. Calendar Function................................................................. 21
5.20. [RESERVED]........................................................................ 21
5.21. [RESERVED]........................................................................ 21
5.22. Insurance......................................................................... 21
5.23. Environmental Matters............................................................. 22
5.24. [RESERVED]........................................................................ 23
5.25. Affiliate Transactions............................................................ 23
5.26. Products; Product and Service Warranties.......................................... 24
5.27. [RESERVED]........................................................................ 24
5.28. [RESERVED]........................................................................ 24
5.29. Suppliers......................................................................... 24
5.30. [RESERVED]........................................................................ 24
5.31. [RESERVED]........................................................................ 24
5.32. Disclosure........................................................................ 24
ARTICLE 6 Representations and Warranties of the Purchaser
and Merger Sub.................................................................... 25
6.1. Existence; Good Standing.......................................................... 25
6.2. Authorization, Validity and Effect of Agreements.................................. 25
6.4. Litigation........................................................................ 26
6.5. No Violation...................................................................... 26
ARTICLE 7 Covenants......................................................................... 26
7.1. [RESERVED]........................................................................ 26
7.2. [RESERVED]........................................................................ 26
7.3. [RESERVED]........................................................................ 26
7.4. [RESERVED]........................................................................ 26
</TABLE>
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Page
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7.5. [RESERVED].................................................................... 26
7.6. [RESERVED].................................................................... 27
7.7. [RESERVED].................................................................... 27
7.8. Insurance; Indemnity.......................................................... 27
7.9. Employees and Employee Benefit Plans.......................................... 27
7.10. [RESERVED].................................................................... 28
7.11. [RESERVED].................................................................... 28
7.12. [RESERVED].................................................................... 28
7.13. [RESERVED].................................................................... 28
ARTICLE 8 Conditions.................................................................... 28
8.1. Conditions to Each Party's Obligation to Effect the Merger.................... 28
8.2. Conditions to Obligations of the Purchaser.................................... 29
8.3. Conditions to Obligations of the Company...................................... 30
ARTICLE 9 Amendment; Waiver............................................................. 31
9.1. Amendment..................................................................... 31
ARTICLE 10 General Provisions............................................................ 31
10.1. Survival of Representations and Warranties.................................... 31
10.2. Notices....................................................................... 31
10.3. Assignment; Binding Effect; Third Party Beneficiaries......................... 32
10.4. Entire Agreement.............................................................. 33
10.5. Fees and Expenses............................................................. 33
10.6. Governing Law................................................................. 33
10.7. Headings...................................................................... 33
10.8. Interpretation; Certain Definitions........................................... 33
10.9. Investigations................................................................ 36
10.10. Severability.................................................................. 36
10.11. Waiver of Jury Trial.......................................................... 37
10.12. [RESERVED].................................................................... 37
10.13. Counterparts.................................................................. 37
DEFINITIONS................................................................................. 38
</TABLE>
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<PAGE>
Schedule I Contingent Payment Agreement
Schedule II Holders of Common Stock
Schedule III Holders of Series A Preferred Stock
Schedule IV Holders of Warrants & Options
Schedule V Brokers & Finders Fees
Schedule VI Releases
Schedule VII Articles of Incorporation of Merger Sub
Schedule VIII Opinion of Counsel (Testa, Hurwitz &
Thibeault, LLP)
Schedule IX Opinion of Counsel (Smith, Gambrell &
Russell)
Schedule X Form of Letter of Transmittal
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 2, 1998 (this "Agreement"),
---------
among JUST FOR FEET, INC., a Delaware corporation (the "Purchaser"), JFF MERGER
---------
CORP., a Delaware corporation and a wholly owned subsidiary of the Purchaser
("Merger Sub") and SNEAKER STADIUM, INC., a Delaware corporation (the
----------
"Company").
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RECITALS
WHEREAS, the Boards of Directors of the Purchaser, Merger Sub and the
Company each have determined that it is in the best interests of their
respective companies and stockholders for Merger Sub to be merged with and into
the Company pursuant to the Delaware General Corporation Law (the "DGCL") and
----
upon the terms and subject to the conditions set forth herein.
WHEREAS, the stockholders of the Company and the Purchaser, as the sole
stockholder of Merger Sub, have adopted and approved this Agreement pursuant to
Sections 251 and 228 of the DGCL.
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection herewith.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1. The Merger. Subject to the terms and conditions of this Agreement,
----------
at the Effective Time, Merger Sub shall be merged with and into the Company in
accordance with the DGCL and this Agreement, and the separate corporate
existence of Merger Sub shall thereupon cease (the "Merger"). The Company shall
------
be the surviving corporation in the Merger (sometimes hereinafter referred to as
the "Surviving Corporation"). The Merger shall have the effects specified in
---------------------
the DGCL.
1.2. The Closing. The closing of the Merger (the "Closing") is taking
----------- -------
place at the offices of Debevoise & Plimpton, 875 Third Avenue, New York, New
<PAGE>
York, concurrently with the execution and delivery of this Agreement. The date
on which the Closing occurs is hereinafter referred to as the "Closing Date."
------------
1.3. Effective Time. The parties hereto shall cause a Certificate of
--------------
Merger meeting the requirements of Section 251(c) of the DGCL to be properly
executed and filed on the Closing Date in accordance with such Section and
Section 103 of the DGCL. The Merger shall become effective at the time of
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with the DGCL or at such later time which the parties
hereto shall have agreed upon and designated in such filing as the effective
time of the Merger (the "Effective Time").
--------------
ARTICLE 2
CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
2.1. Certificate of Incorporation. The Certificate of Incorporation of
----------------------------
Merger Sub in effect immediately prior to the Effective Time in the form
attached hereto as Schedule VII shall be adopted as the Certificate of
Incorporation of the Surviving Corporation, until duly amended in accordance
with applicable law, except that the name of Merger Sub as set forth in the
Certificate of Incorporation shall be changed to Sneaker Stadium, Inc.
2.2. By-laws. The By-laws of Merger Sub in effect immediately prior to
-------
the Effective Time shall be adopted as the By-laws of the Surviving Corporation,
until duly amended in accordance with applicable law, except that the name of
Merger Sub as set forth in the Certificate of Incorporation shall be changed to
Sneaker Stadium, Inc..
ARTICLE 3
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
3.1. Directors. The directors of Merger Sub immediately prior to the
---------
Effective Time shall be the directors of the Surviving Corporation as of the
Effective Time and shall hold office until their successors are duly appointed
or elected in accordance with applicable law and the By-Laws of the Surviving
Corporation.
3.2. Officers. The officers of Merger Sub immediately prior to the
--------
Effective Time shall be the officers of the Surviving Corporation as of the
Effective
2
<PAGE>
Time and shall hold office until their successors are duly appointed or elected
in accordance with applicable law and the By-Laws of the Surviving Corporation.
ARTICLE 4
EFFECT OF THE MERGER ON SECURITIES
OF MERGER SUB AND THE COMPANY
4.1. Merger Sub Stock. At the Effective Time, each share of common
----------------
stock, $0.01 par value per share, of Merger Sub outstanding immediately prior to
the Effective Time shall be converted into and exchanged for one validly issued,
fully paid and non-assessable share of common stock, $0.01 par value per share,
of the Surviving Corporation.
4.2. Company Securities.
------------------
(a) At the Effective Time, each share of Common Stock, par value $0.01
per share, of the Company (the "Common Stock") and each share of Series A
------------
Preferred Stock issued and outstanding immediately prior to the Effective Time
(other than shares of Common Stock or Series A Preferred Stock owned by the
Purchaser or Merger Sub or held by the Company, all of which shall be canceled
as provided in Section 4.2(c), and other than shares of Dissenting Stock) shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive cash in the amount of $0.0001
per share, without interest thereon (the "Merger Consideration").
--------------------
(b) As a result of the Merger and without any action on the part of the
holders thereof, at the Effective Time, all shares of Common Stock and Series A
Preferred Stock (collectively, "Stock") shall cease to be outstanding and shall
-----
be automatically canceled and retired and shall cease to exist, and each holder
of shares of Stock (other than Merger Sub, the Purchaser and the Company) shall
thereafter cease to have any rights with respect to such shares of Stock, except
the right to receive, without interest, the Merger Consideration in accordance
with Section 4.3 upon the surrender of a certificate or certificates (a
"Certificate") representing such shares of Stock or, with respect to shares of
-----------
Dissenting Stock, such rights as may be available under the DGCL.
(c) Each share of Stock issued and owned or held by the Purchaser, Merger
Sub or the Company immediately prior to the Effective Time shall, by virtue of
3
<PAGE>
the Merger, cease to be outstanding and shall be automatically canceled and
retired without payment of any consideration therefor.
(d) Each option to purchase shares of Common Stock under the Company's
Amended and Restated 1994 Stock Plan (the "Stock Option Plan") that, immediately
-----------------
prior to the Effective Time, is outstanding, whether or not then vested or
exercisable (each, an "Option" and, collectively, the "Options"), shall, in
------ -------
accordance with the terms of the Stock Option Plan, have been terminated.
4.3. Payment of Merger Consideration. The Surviving Corporation shall
-------------------------------
pay the Merger Consideration, net of any applicable transfer taxes, to each
holder of Stock (or his designee) who properly delivers a certificate
representing shares of Common Stock or Series A Preferred Stock along with a
properly filled out Letter of Transmittal. Such payment shall be made promptly
upon receipt of such certificate and Letter of Transmittal.
4.4. [RESERVED]
4.5. Dissenting Company Shareholders. Notwithstanding any provision of
-------------------------------
this Agreement to the contrary, if required by the DGCL but only to the extent
required thereby, shares of Common Stock or Series A Preferred Stock which are
issued and outstanding immediately prior to the Effective Time and which are
held of record by holders of such shares who have properly exercised dissenters'
rights with respect thereto (the "Dissenting Stock") in accordance with the DGCL
----------------
will not be converted into the right to receive the Merger Consideration, and
holders of such shares of Dissenting Stock will be entitled to receive payment
of the "fair" value of such shares of Dissenting Stock determined in accordance
with the provisions of Section 262 of the DGCL unless and until such holders
fail to perfect or effectively withdraw or lose their rights to appraisal and
payment under the DGCL. If, after the Effective Time, any such holder fails to
perfect or effectively withdraws or loses such right, such shares of Dissenting
Stock will thereupon be treated as if they had been converted into, at the
Effective Time, the right to receive the Merger Consideration. Notwithstanding
anything to the contrary contained in this Section 4.5, if (a) the Merger is
rescinded or abandoned or (b) either the stockholders of the Company or the
Purchaser, as sole stockholder of Merger Sub, revokes the authority to effect
the Merger, then the right of any stockholder of the Company to be paid the fair
value of such stockholder's Dissenting Stock pursuant to the DGCL shall cease.
The Company will give the Purchaser prompt notice of any demands and withdrawals
of such demands received by the Company for appraisals of shares of Dissenting
Stock. The Company shall not, except with the prior written consent of the
Purchaser, make any
4
<PAGE>
payment with respect to any demands for appraisal or offer to make payment or
otherwise offer to settle or settle any such demands.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As of the date hereof and as of the Effective Time, the Company hereby
represents and warrants to the Purchaser and Merger Sub as follows:
5.1. Existence; Good Standing; Corporate Authority. (a) The Company is
---------------------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, has all requisite corporate power to own, lease
and operate its properties and to carry on its business as now being conducted
and as proposed to be conducted, and is duly qualified or licensed to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified or licensed would, in the aggregate,
have or result in a material adverse effect on the prospects, business, assets
(including intangible assets), properties, liabilities, results of operations or
condition (financial or otherwise) of the Company and its Subsidiaries, taken as
a whole (a "Material Adverse Effect"). Section 5.1(a) of the Disclosure Letter
-----------------------
sets forth a complete and correct list of all jurisdictions in which the Company
is qualified or licensed to do business. The copies of the Company's
Certificate of Incorporation, as amended through the date hereof, and By-laws,
as amended through the date hereof, heretofore delivered to the Purchaser are
complete and correct copies of such instruments as currently in effect.
(b) Subsidiaries and Affiliates. Except for SNKR Holding Corp., a
---------------------------
Delaware corporation and wholly owned subsidiary of the Company ("SNKR Holding
------------
Corp."), 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.
SNKR Holding Corp. is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, has all requisite
corporate power to own, lease and operate its properties and to carry on its
business as now being conducted and as proposed to be conducted, and is duly
qualified or licensed to do business and is in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified or
licensed would, in the aggregate, have or result in a Material Adverse Effect.
The copies of SNKR Holding Corp.'s Certificate of
5
<PAGE>
Incorporation, as amended through the date hereof, heretofore delivered to the
Purchaser are complete and correct copies of such instruments as currently in
effect.
5.2. Authorization, Validity and Effect of Agreements. The Company has
------------------------------------------------
all requisite corporate power and authority to enter into this Agreement and the
Contingent Payment Agreement and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance of this Agreement
and the Contingent Payment Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all requisite
corporate action on the part of the Company, including without limitation, the
votes or consents of the requisite number of stockholders necessary to authorize
this Agreement or the Contingent Payment Agreement and to consummate the
transactions contemplated hereby or thereby. This Agreement and the Contingent
Payment Agreement have been duly and validly executed and delivered by the
Company and constitute valid and binding obligations of the Company, enforceable
in accordance with their respective terms.
5.3. Compliance with Laws. Except as set forth in Section 5.3 of the
--------------------
Disclosure Letter, the Company has complied with, is not in violation of, any
federal, state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for failures to comply or violations which would not in the aggregate have or
result in a Material Adverse Effect. Except as set forth in Section 5.3 of the
Disclosure Letter, no action, demand, requirement or investigation by any
Governmental Entity with respect to the Company or its Subsidiaries is pending
or, to the Knowledge of the Company, threatened, with respect to any of the
foregoing.
5.4. Capitalization. (a) Immediately prior to the Effective Time, the
--------------
authorized capital stock of the Company consists of (i) 55,000,000 shares of
Common Stock, (ii) 5,162,750 shares of Non-Voting Common Stock, $.01 par value
(the "Non-Voting Common Stock") and (iii) 3,450,000 shares of Preferred Stock,
-----------------------
$.01 par value, of which (A) 750,000 shares are designated Series A Perpetual
Preferred Stock (the "Series A Preferred Stock"), (B) 1,500,000 shares are
------------------------
designated Series B Perpetual Preferred Stock (the "Series B Preferred Stock")
------------------------
and (C) 700,000 shares are designated Series C Perpetual Preferred Stock (the
"Series C Preferred Stock" and together with the Series A Preferred Stock and
------------------------
the Series B Preferred Stock, the "Preferred Stock"). As of the date of this
---------------
Agreement, (i) 17,101,752 shares of Common Stock are issued and outstanding, all
of which are validly issued, fully paid and non-assessable, with no personal
liability attaching to the ownership thereof; (ii) 5,162,750 shares of Common
Stock are reserved for future issuances upon conversion of the Non-Voting Common
6
<PAGE>
Stock; (iii) 5,000,000 shares of Common Stock are reserved for future issuance
upon exercise of Options granted or to be granted under the Stock Option Plan;
(iv) 1,472,641 shares of Common Stock are reserved for future issuance upon
exercise of certain Warrants to Purchase Common Stock of the Company (the
"Common Stock Purchase Warrants"); (v) no shares of Non-Voting Common Stock are
------------------------------
issued and outstanding; (vi) 5,162,750 shares of Non-Voting Common Stock are
reserved for future issuance upon exercise of certain Warrants to Purchase Non-
Voting Common Stock of the Company (the "Non-Voting Common Stock Purchase
--------------------------------
Warrants"); (vii) 402,948 shares of Series A Preferred Stock are issued and
- --------
outstanding, all of which are validly issued, fully paid and non-assessable,
with no personal liability attaching to the ownership thereof; (viii) 12,371
shares of Series A Preferred Stock are reserved for future issuance upon
exercise of certain Warrants to Purchase Series A Preferred Stock of the Company
(the "Series A Preferred Stock Purchase Warrants" and along with the Common
------------------------------------------
Stock Purchase Warrants and the Non-Voting Common Stock Purchase Warrants, the
"Warrants"); (ix) no shares of Series B Preferred Stock are issued and
--------
outstanding; (x) 1,500,000 shares of Series B Preferred Stock are reserved for
future issuance upon conversion of certain Subordinated Convertible Promissory
Notes of the Company dated as of September 10, 1997; (xi) no shares of Series C
Preferred Stock are issued and outstanding; and (xii) 700,000 shares of Series C
Preferred Stock are reserved for future issuance upon conversion of certain
Subordinated Secured Convertible Notes of the Company. Schedule II sets forth
the record owners (immediately prior to the Effective Time) of all outstanding
shares of Common Stock. Schedule III sets forth the record owners (immediately
prior to the Effective Time) of all outstanding shares of Series A Preferred
Stock. Schedule IV sets forth the holders of the Options and Warrants
(indicating the number of shares and type of capital stock of the Company
subject to such Options or Warrants).
(b) Except as set forth in Schedules II, III and IV hereto, there are no
equity securities of any class of the Company or any security exchangeable into
or exercisable for such equity securities, issued, reserved for issuance or
outstanding. After giving effect to the transactions contemplated hereby, there
will be no options, warrants, calls, rights, commitments or arrangements of any
character to which the Company or any of its Subsidiaries is a party, or by
which the Company or any of its Subsidiaries is bound, obligating the Company or
any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of the Company or any of
its Subsidiaries or obligating the Company or any of its Subsidiaries to grant,
extend or accelerate the vesting of or enter into any such option, warrant,
call, right, commitment or agreement. Except as set forth in Section 5.4(b)(ii)
of the Disclosure Letter, (i) neither the Company nor any of its Subsidiaries
is, and, to the Knowledge of the Company, no other person is, a party to any
voting trusts,
7
<PAGE>
proxies or other agreements or understandings with respect to shares of capital
stock of the Company or any of its Subsidiaries, and (ii) there are no
obligations, contingent or otherwise, of the Company or any of its Subsidiaries
to repurchase, redeem or other wise acquire any shares of capital stock of the
Company or any of its Subsidiaries or to provide funds to or make any investment
(in the form of a loan, capital contribution or otherwise) in any corporation or
other business entity.
(c) As of the Effective Time, the holders of Options, Warrants or
Subordinated Debt, as the case may be, will have no further rights or claims
against the Company or the Surviving Corporation pursuant to any agreements
relating to the grant, issuance or sale of such Options, Warrants or
Subordinated Debt except, in the case of holders of the Subordinated Debt,
pursuant to (i) the Contingent Payment Agreement, (ii) the Termination of Note
Purchase and Guaranty Agreement and Security Agreement, dated as of June 29,
1998, among the Company, the individuals listed on Exhibit A thereto, and Sanwa
Business Credit Corporation ("Sanwa"), (iii) the Amendment, Waiver and Consent
-----
Agreement dated as of June 29, 1998 by and among the Company and the individuals
and entities listed on Exhibits A and B thereto, Banque Nationale de Paris
("BNP"), as Agent, and Sanwa as Agent, and (iv) the Amendment and Termination
---
Agreement, dated as of June 29, 1998, among the Company, the individuals listed
on Exhibit A thereto, and Sanwa.
(d) The authorized capital stock of SNKR Holding Corp. consists of 3,000
shares of Common Stock, par value $.01 per share, of which 100 shares are issued
and outstanding (the "Subsidiary Shares"). The Company is the record owner of
-----------------
all outstanding Subsidiary Shares. All Subsidiary Shares are validly issued,
fully paid and nonassessable, with no personal liability attaching to the
ownership thereof. The issuance of all outstanding Subsidiary Shares did not
give rise to any preemptive rights on the part of any person or entity. Except
as described in this Section 5.4(d), there are no equity securities of any class
of SNKR Holding Corp. or any security exchangeable into or exercisable for such
equity securities, issued, reserved for issuance or outstanding. After giving
effect to the transactions contemplated hereby, there will be no options,
warrants, calls, rights, commitments or arrangements of any character to which
SNKR Holding Corp. is a party, or by which it is bound, obligating it to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of SNKR Holding Corp. or obligating SNKR Holding Corp. to grant,
extend or accelerate the vesting of or enter into any such option, warrant,
call, right, commitment or agreement. Except as set forth in Section 5.4(d) of
the Disclosure Letter, (i) SNKR Holding Corp. is not, and no other person is, a
party to any voting trusts, proxies or other agreements or understandings with
respect to shares of its capital stock, and (ii) there are no obligations,
contingent or otherwise, of SNKR Holding Corp. to
8
<PAGE>
repurchase, redeem or otherwise acquire any shares of its capital stock or to
provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any corporation or other business entity.
5.5. [RESERVED]
5.6. No Violation. The execution and delivery by the Company of this
------------
Agreement and the Contingent Payment Agreement do not, and the consummation of
the transactions contemplated hereby and thereby will not, (i) conflict with, or
result in any violation or breach of any provision of the Certificate of
Incorporation or the By-laws of the Company or its Subsidiaries, (ii) except as
set forth in Section 5.6 the Disclosure Letter, result in any violation or
breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which it or its properties or assets may be bound,
or (iii) conflict with or violate any permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company or any of its Subsidiaries or its properties or assets, except in
the case of clauses (ii) and (iii) for any such violations, breaches, defaults,
terminations, cancellations, accelerations or conflicts which would not,
individually or in the aggregate, have a Material Adverse Effect.
5.7. Financial Statements; Undisclosed Liabilities. (a) The Company has
---------------------------------------------
delivered or made available to the Purchaser: (i) balance sheets of the Company
as at February 1, 1998 and February 2, 1997 and related statements of
operations, redeemable convertible preferred stock and shareholder's equity and
cash flows for each of the years ended February 1, 1998 and February 2, 1997,
audited (with respect to the 1997 financial statements only) by Arthur Andersen
LLP, independent public accountants whose audit reports thereon are included
therein (collectively, the "Audited Financial Statements"); and (ii) an
----------------------------
unaudited balance sheet as at May 31, 1998 (the "Balance Sheet") and unaudited
-------------
statements of operations for the period from February 2, 1998 through May 31,
1998 (collectively, the "Interim Financial Statements" and together with the
----------------------------
Audited Financial Statements, the "Financial Statements").
--------------------
(b) The Financial Statements (including, in the case of the Audited
Financial Statements, any related notes) were prepared in accordance with United
States generally accepted accounting principles applied on a consistent basis
throughout the periods involved and fairly present the financial position of the
Company as at the
9
<PAGE>
respective dates and the results of its operations and cash flows for the
periods indicated, except that the Interim Financial Statements do not contain
any footnotes and were or are subject to normal and recurring year-end
adjustments which will not be material in amount.
(c) Except as set forth in Section 5.7(c) of the Disclosure Letter, the
Company does not have any liabilities or obligations (whether accrued,
contingent, due or to become due or whether or not required to be reflected in
financial statements in accordance with generally accepted accounting principles
applied on a consistent basis) other than (i) liabilities reflected or reserved
against in the Financial Statements or (ii) normal or recurring liabilities
incurred since the date of the Balance Sheet in the ordinary course of business
consistent with past practices which have not had and would not reasonably be
expected to have a Material Adverse Effect.
5.8. Litigation. Except as set forth in Section 5.8 of the Disclosure
----------
Letter, there is no action, suit or proceeding, claim, inquiry, arbitration or
investigation pending or, to the Knowledge of the Company, threatened against
the Company which, if adversely determined, would have or result in a Material
Adverse Effect, nor has the Company received notice of any judgment, decree,
injunction, rule or order of any Governmental Entity outstanding against the
Company having, or which is reasonably likely to have, a Material Adverse
Effect. The Company is not in violation of any term of any judgment, decree,
injunction or order outstanding against it of which it has received notice.
5.9. Absence of Certain Changes. (a) Except as set forth in Section 5.9
--------------------------
of the Disclosure Letter, since the date of the Balance Sheet, the Company has
conducted its business only in the ordinary course and in a manner consistent
with past practices and, since such date, there has not been (a) any Material
Adverse Effect or (b) any declaration, setting aside or payment of any dividend
or other distribution with respect to the capital stock of the Company or its
Subsidiaries (other than wholly-owned Subsidiaries) or, except as required by
the Company's benefit plans, any repurchase, redemption or any other acquisition
by the Company or its Subsidiaries of any outstanding shares of capital stock or
other securities of, or other ownership interests in, the Company or its
Subsidiaries.
5.10. Taxes. (a) Except as set forth in Section 5.10(a) of the
-----
Disclosure Letter, (i) the Company and its Subsidiaries have filed all Tax
Returns required to be filed under U.S. federal, state, local or any foreign
laws with respect to Taxes on or before the due date for such Tax Returns
(giving effect to applicable extensions), and such Tax Returns are true, correct
and complete in all material respects; (ii) the
10
<PAGE>
Company and its Subsidiaries have, within the time and in the manner prescribed
by law, paid all Taxes that are shown as due and payable on such Tax Returns;
(iii) the Company and its Subsidiaries have paid all other Taxes that are due
and payable or are claimed to be due and payable or the Company has made
adequate provision in accordance with generally accepted accounting principles
in its Financial Statements for any such Taxes that have not been paid; (iv) no
deficiency, claim or adjustment relating to Taxes has been proposed, asserted or
assessed in writing by any Governmental Entity against the Company or any of its
Subsidiaries; (v) neither the Company nor any of its Subsidiaries (A) has agreed
or is required to make any adjustment under Section 481(a) of the Internal
Revenue Code of 1986, as amended (hereinafter, "IRC") (or analogous provision of
---
state or local Income Tax law) by reason of a change in accounting method or (B)
has received a ruling from any taxing authority or entered into an agreement
with any taxing authority that will be binding on the Company or any of its
Subsidiaries after the Closing; (vi) other than with respect to the transactions
set forth in this Agreement, each of the Company and each of its Subsidiaries
has complied with all applicable laws, rules and regulations relating to the
payment, filing, reporting and withholding of Taxes and has, within the time and
in the manner prescribed by law, remitted to the proper Governmental Entity all
amounts required to be so withheld and remitted; (vii) no audits, other
administrative proceedings or court proceedings have been initiated or are
currently pending with respect to any Taxes or Tax Returns, and neither the
Company nor any of its Subsidiaries has received notice of any such audits or
proceedings; (viii) there are no outstanding written requests, agreements or
consents to extend, or waivers of, the statutory period of limitations
applicable to the assessment of any Taxes or deficiencies against the Company or
any of its Subsidiaries, and no power of attorney granted by the Company or any
of its Subsidiaries with respect to any matter relating to Taxes is currently in
force; (ix) neither the Company nor any of its Subsidiaries is party to any
agreement or arrangement providing for the allocation or sharing of Taxes or for
any indemnity in respect of Taxes; (x) neither the Company nor any of its
Subsidiaries has filed a consent pursuant to Section 341(f) of the IRC or agreed
to have Section 341(f)(2) of the IRC apply to any disposition of a subsection
341(f) asset (as such term is defined in Section 341(f)(4) of the IRC) owned by
the Company or its Subsidiaries; (xi) to the best of the Company's estimation,
the net operating loss and other carryovers available to the Company and its
Subsidiaries immediately prior to the Closing Date (without giving effect to any
of the transactions contemplated or referred to herein or in the Contingent
Payment Agreement) will be as set forth on Section 5.10(a) of the Disclosure
Letter; and (xii) neither the Company nor any of its Subsidiaries is or has ever
been a United States real property holding corporation within the meaning of
Section 897 of the IRC.
11
<PAGE>
(b) No claim (other than a claim that has been finally settled) has ever
been made in writing by a taxing authority in a jurisdiction where the Company
or any of its Subsidiaries does not file Tax Returns or pay or collect Taxes in
respect of a particular type of Tax imposed by that jurisdiction that the
Company or its Subsidiaries is subject to an obligation to file Tax Returns or
pay or collect Taxes in respect of such Tax in that jurisdiction.
(c) The Company has (or by the Closing Date will have) delivered to the
Purchaser complete and accurate copies of all Tax Returns with respect to all
periods that have been filed or will be required to be filed on or before the
Closing Date.
(d) Except as set forth in Section 5.10(d) of the Disclosure Letter,
neither the Company nor any of its Subsidiaries is currently the beneficiary of
any extension of time within which to file any Tax Return.
(e) Except as set forth in Section 5.10(e) of the Disclosure Letter,
neither the Company nor any of its Subsidiaries (i) is or has been a member of
-
any group of companies filing a consolidated, combined or unitary Tax Return or
(ii) has any liability for the Taxes of any person (other than the Company or
--
its Subsidiaries) under section 1.1502-6 of the Treasury Regulations, or any
similar provision of state, local or foreign law, as a transferee, successor,
indemnitor or guarantor, by contract or otherwise.
(f) Except as set forth in Section 5.10(f) of the Disclosure Letter,
neither the Company nor any of its Subsidiaries has acquired (i) any trade or
-
business (whether through a taxable or nontaxable asset or stock acquisition),
or (ii) any asset by way of merger or liquidation. The Purchaser and the
--
Company agree that the consummation of the transactions provided for in this
Agreement shall not constitute a breach of this representation.
5.11. Employee Benefit Plans. (a) Section 5.11(a) of the Disclosure
----------------------
Letter contains a true and complete list of each bonus, deferred compensation,
incentive compensation, stock purchase, stock option or other equity-based
compensation, severance or termination pay, change in control, fringe benefit,
hospitalization or other medical, life or other insurance, supplemental
unemployment benefits, profit-sharing, pension, or retirement plan, program,
agreement or arrangement, and each other employee benefit plan, program,
agreement or arrangement, sponsored, maintained or contributed to or required to
be contributed to by the Company or by any trade or business ness, whether or
not incorporated (an "ERISA Affiliate"), that together with the Company is
---------------
treated as or would have been, at any time within the preceding six years,
12
<PAGE>
deemed a "single employer" under Section 414 of the IRC, for the benefit of any
employee or terminated employee of the Company or any ERISA Affiliate (the
"Plans").
-----
(b) With respect to each Plan, the Company has heretofore delivered to
the Purchaser true and complete copies of each of the following documents:
(i) a copy thereof;
(ii) a copy of the most recent annual report and actuarial report,
if required under the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the most recent report prepared with respect thereto in
-----
accordance with Statement of Financial Accounting Standards No. 87, Employer's
Accounting for Pensions;
(iii) a copy of the most recent Summary Plan Description required
under ERISA with respect thereto;
(iv) if the Plan is funded through a trust or any third party
funding vehicle, a copy of the trust or other funding agreement and the latest
financial statements thereof;
(v) the most recent determination letter received from the IRS
with respect to each Plan intended to qualify under section 401 of the IRC; and
(vi) all material communications received by the Company or any
ERISA Affiliate from or sent by the Company or any ERISA Affiliate to the IRS,
the Pension Benefit Guaranty Corporation or the Department of Labor (including a
written description of any material oral communication).
(c) No Plan is or was subject to Title IV of ERISA or section 412 of the
IRC.
(d) To the Knowledge of the Company, neither the Company nor any ERISA
Affiliate, nor any Plan, nor any trust created thereunder, nor any trustee or
administrator thereof has engaged in a transaction in connection with which the
Company or any ERISA Affiliate, any Plan, any such trust, or any trustee or
administrator thereof, or any party dealing with any Plan or any such trust
could be subject to either a material civil penalty assessed pursuant to section
409 or 502(i) of ERISA or a material tax imposed pursuant to section 4975 or
4976 of the IRC.
13
<PAGE>
(e) No Plan is a "multiemployer pension plan," as defined in section
3(37) of ERISA, nor is any Plan a plan described in section 4063(a) of ERISA.
(f) Each Plan has been operated and administered in all material respects
in accordance with its terms and applicable law, including but not limited to
ERISA and the IRC.
(g) Each Plan intended to be "qualified" within the meaning of section
401(a) of the IRC has received a favorable determination letter from the IRS
and, to the Knowledge of the Company, no condition exists that would cause any
such Plan to be disqualified.
(h) No Plan provides benefits, including without limitation, death or
medical benefits (whether or not insured), with respect to current or former
employees of the Company or any ERISA Affiliate beyond their retirement or other
termination of service (other than (i) coverage mandated by applicable law or
(ii) death benefits or retirement benefits under any "employee pension plan," as
that term is defined in section 3(2) of ERISA).
(i) Except as set forth in Section 5.11(i) of the Disclosure Letter, the
consummation of the transactions contemplated by this Agreement will not (either
alone or upon the occurrence of any additional or subsequent events) (i) entitle
any current or former employee or officer of the Company or any ERISA Affiliate
to severance pay, unemployment compensation or any other payment (including
payments under any phantom interest agreements), except as expressly provided in
this Agreement or (ii) accelerate the time of payment or vesting, or increase
the amount of compensation due any such employee or officer. No payment or
benefit which has been, or, as a result of the consummation of the transactions
contemplated by this Agreement (either alone or upon the occurrence of any
additional or subsequent events), will be required to be, made by the Company,
its Subsidiaries or to the Knowledge of the Company by the Purchaser or Merger
Sub in respect of any current or former employee of the Company or its
Subsidiaries has failed or will fail to be deductible by such entity pursuant to
section 280G of the IRC or has resulted or will result in the imposition of any
excise tax pursuant to section 280G or 4999 of the IRC.
(j) There are no pending, or, to the Knowledge of the Company, threatened
or anticipated claims by or on behalf of any Plan, by any employee or
beneficiary covered under any such Plan, or otherwise involving any such Plan
(other than routine claims for benefits).
14
<PAGE>
5.12. Labor and Employment Matters. (a) Except to the extent set forth
----------------------------
in Section 5.12(a) of the Disclosure Letter, (i) there is no labor strike, lock-
out, dispute, slowdown, stoppage or lockout actually pending, threatened against
or affecting the business of the Company and there has not been any such action;
(ii) to the Knowledge of the Company, no labor organization claims to represent
the employees of the Company; (iii) the Company is not a party to or bound by
any collective bargaining or similar agreement with any labor organization, or
work rules or practices agreed to with any labor organization or employee
association applicable to the Company's employees; (iv) the Company does not
have any knowledge of any current union organizing activities among its
employees nor does any question concerning representation exist concerning such
employees; (v) there are no written personnel policies, rules or procedures
applicable to the Company's employees; (vi) the Company is, and has at all times
been, in material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages, hours of work
and occupational safety and health, and is not engaged in any unfair labor
practices as defined in the National Labor Relations Act or other applicable
law, ordinance or regulation; (vii) the Company has not received notice of any
pending or threatened unfair labor practice charge or complaint against the
Company before the National Labor Relations Board or any similar state or
foreign agency; (viii) there is no grievance arising out of any collective
bargaining agreement or other grievance procedure; (ix) to the knowledge of the
Company, no charges are pending against the Company before the Equal Employment
Opportunity Commission or any other agency responsible for the prevention of
unlawful employment practices; (x) the Company has not received notice of the
intent of any federal, state, local or foreign agency responsible for the
enforcement of labor or employment laws to conduct an investigation nor that any
investigation is in progress; and (xi) the Company has not received notice of
any pending or threatened complaints, lawsuits or other proceedings in any forum
by or on behalf of any present or former employee, any applicant for employment
or classes of the foregoing alleging breach of any express or implied contract
or employment, any law or regulation governing employment or the termination
thereof or other discriminatory, wrongful or tortious conduct in connection with
the employment relationship. Except as set forth in Section 5.12(a) of the
Disclosure Letter, there are no employment contracts or severance agreements
with any employees of the Company.
(b) Since the enactment of the Worker Adjustment and Retraining
Notification Act ("WARN Act"), the Company has not effectuated (i) a "plant
--------
closing" (as defined in the WARN Act) affecting any site of employment or one or
more facilities or operating units within any site of employment or facility of
the Company; or (ii) a "mass layoff" (as defined in the WARN Act) affecting any
site of employment or facility of the Company; nor has the Company been affected
by any transaction or en-
15
<PAGE>
gaged in layoffs or employment terminations sufficient in number to trigger
application of any similar state or local law. Except as set forth in Section
5.12(b) of the Disclosure Letter, none of the Company's employees has suffered
an "employment loss" (as defined in the WARN Act) since six months prior to the
date of this Agreement.
5.13. Brokers and Finders. Except for Thomas H. Lee Company, no broker,
-------------------
dealer or financial advisor is entitled to receive from the Company or its
Subsidiaries any broker's, finder's or investment banking fee in connection with
this Agreement or the transactions contemplated hereby. The amounts payable to
Thomas H. Lee Company in connection with this Agreement and the transactions
contemplated hereby shall not exceed an amount equal to the sum of (x) the
-
greater of (i) the aggregate fees payable by the Purchaser to Nationsbanc
Montgomery Securities LLC and Merrill Lynch & Co. (as set forth on Schedule V)
in connection with this Agreement and the transactions contemplated hereby and
(ii) $750,000, and (y) the related out-of-pocket expenses for which the Company
-
has agreed to reimburse Thomas H. Lee Company; provided, that any such fee
--------
payable to Thomas H. Lee Company shall be reduced by the amount by which (a)
such reimbursable expenses of Thomas H. Lee Company paid at Closing, and all
other fees and expenses of the Company incurred in connection with this
Agreement and the transactions contemplated hereby (other than any severance
amounts payable to Company employees and restructuring or commitment fees paid
or payable to any banks or other creditors of the Purchaser) paid at Closing
exceeds (b) $500,000. On the Closing Date, the reimbursable expenses of Thomas
H. Lee Company and all other fees and expenses of the Company incurred in
connection with this Agreement and the transactions contemplated hereby (other
than any severance amounts payable to Company employees and restructuring or
commitment fees paid or payable to any banks or other creditors of the
Purchaser) paid at Closing shall not exceed $1.25 million.
5.14. Properties and Assets. (a) The Company and its Subsidiaries own
---------------------
no real property. Section 5.14(a)(i) of the Disclosure Letter sets forth a
complete and correct list of all leases, subleases and assignments pursuant to
which SNKR Holding Corp. or the Company leases real property and all amendments,
guarantees and other documents related thereto (collectively, the "Real Property
-------------
Leases"; as used herein, the term "lease" shall be deemed to include, without
- ------
limitation, all Real Property Leases). True and correct copies of all Real
Property Leases have previously been delivered to the Purchaser. There is no
real or tangible personal property used in, necessary for or material to the
business of the Company or its Subsidiaries as currently conducted consistent
with prior practice, other than the Real Property and the personal property
listed in Section 5.14(a) of the Disclosure Letter. The Company or its
Subsidiaries has
16
<PAGE>
good and marketable title to, or a valid leasehold interest in, all the
properties and assets which it purports to own or lease (real, personal and
mixed, tangible and intangible), including, without limitation, all the
properties and assets reflected in Section 5.14(a)(i) of the Disclosure Letter
or on the Balance Sheet (except for personal property sold since the date of the
Balance Sheet in the ordinary course of business and consistent with past
practices). Except as set forth in Section 5.14(a)(ii) of the Disclosure Letter,
to the Knowledge of the Company, all properties and assets reflected in Section
5.14(a)(i) of the Disclosure Letter or on the Balance Sheet (including the
leasehold interests of the Company or its Subsidiaries, as applicable, under the
Real Property Leases) are free and clear of all Liens, except for Permitted
Liens. Except as set forth in Section 5.14(a)(iii) of the Disclosure Letter, the
leasehold interests of the Company or its Subsidiaries, as applicable, are not
subordinate to any superior leases or mortgages except to the extent that Non-
Disturbance Agreements in favor of the Company or its Subsidiaries as
applicable, have been executed and delivered by the holders of each such
superior lease and mortgage. As used herein, "Non-Disturbance Agreement" shall
-------------------------
mean an agreement providing for the continued occupancy of the applicable
leasehold premises notwithstanding the termination of a superior lease, the
foreclosure of a mortgage or a similar occurrence, as applicable.
(b) Except as set forth in Section 5.14(b) of the Disclosure Letter, the
consummation of the transactions contemplated by this Agreement, do not and will
not constitute a breach or violation of, or default under, or require the
consent or waiver of any party to, any Real Property Lease, except for any such
required consent or waiver (a "Required Lease Consent") which has been
----------------------
previously delivered to the Company or to its Subsidiaries and which Required
Lease Consent does not require any adverse modification in the rights or
obligations of the Company or its Subsidiaries under any Real Property Lease.
Executed counterpart copies of all Required Lease Consents have previously been
delivered to the Purchaser.
(c) To the Knowledge of the Company, except as set forth in Section
5.14(c) of the Disclosure Letter, the premises demised to the Company or its
Subsidiaries by the Real Property Leases are (i) in good condition and repair
for their continued use by the Company in the conduct of the Company's business,
subject to ordinary wear and tear, are suitable for the purposes for which they
are used and are performing the functions for which they were intended, (ii) all
items of personal property having a book value of $10,000 or more or which are
otherwise material to the Company's business have performed at commercially
reasonable standards since the later of six months prior to the date hereof and
the time of their acquisition and to the extent required therefor are being used
by the Company or its Subsidiaries as of the date hereof in connection with its
business and operations, (iii) no repairs or other
17
<PAGE>
expenditures are presently contemplated to be made on any structure,
improvement, machinery or equipment which would in the aggregate for all items
under this clause (iii) involve the expenditure of more than $100,000, and (iv)
to the Knowledge of the Company, no extraordinary or unusual capital
expenditures in excess of $100,000 in the aggregate will be required in
connection with the business and operations of the Company and its Subsidiaries
in the twelve months following the Closing Date to permit such business to be
conducted in substantially the same manner, at substantially the same levels and
offering for sale and selling substantially the same products and services as in
the past.
(d) To the Knowledge of the Company except as set forth in Section
5.14(d) of the Disclosure Letter, neither the Company nor its Subsidiaries is in
violation of any law, rule, regulation or ordinance with respect to the
condition, use or operation of any personal property owned by the Company or its
Subsidiaries or any premises leased pursuant to the Real Property Leases.
5.15. State Antitakeover Laws. To the Knowledge of the Company, no
-----------------------
"business combination," "moratorium," "control share" or other antitakeover
statute or regulation (a) prohibits or restricts the Company's ability to
perform its obligations under this Agreement or the Contingent Payment Agreement
or its ability to consummate the transactions contemplated hereby or thereby, or
(b) would have the effect of invalidating or voiding this Agreement, the
Contingent Payment Agreement or any material provision thereof.
5.16. Inventories; Accounts Payable. (a) All of the inventories of the
-----------------------------
Company are of a quality usable and salable in the ordinary course of business
and have been valued in accordance with generally accepted accounting principles
consistent with past practice. All inventories have been valued at the lower of
cost or market using a weighted average method that approximates first in, first
out, determined in the ordinary course of business consistent with past
practices, and include costs associated with certain purchases and merchandise
handling activities, but inventories do not include reserves for shrinkage and
obsolescence.
(b) Section 5.16(b) of the Disclosure Letter sets forth (i) all accounts
payable as of the date that is one day prior to the date hereof, and (ii) an
aging schedule (to the nearest month) of accounts payable outstanding as of the
date hereof. All accounts payable of the Company, whether reflected in the
Balance Sheet or otherwise, represent payments incurred in the ordinary course
of business.
18
<PAGE>
5.17. Material Contracts. (a) Section 5.17(a) of the Disclosure
------------------
Schedule sets forth a complete and correct list of all credit agreements, notes,
mortgages, indentures, security agreements, pledges, guarantees of or agreements
to acquire any such debt obligation of others or similar documents relating to
indebtedness for borrowed money (including without limitation interest rate or
currency swaps, hedges or straddles or similar transactions) to which the
Company or any of its Subsidiaries is a party or by which any of its assets are
bound, restricted or encumbered (copies of each of which have been delivered to
or have been made available to the Purchaser prior to the date of this
Agreement).
(b) Section 5.17(b) of the Disclosure Letter contains a complete and
correct list of all agreements, contracts, leases or other commitments in effect
to which the Company or any of its Subsidiaries is a party (copies of each of
which have been delivered to or have been made available to the Purchaser prior
to the date of this Agreement) and which involve an amount in excess of $25,000.
(c) Except as set forth in Section 5.17(c) of the Disclosure Letter:
(i) all such agreements, contracts, leases and commitments are in full
force and effect, and are valid, binding and enforceable in accordance with
their respective terms;
(ii) no purchase contracts or commitments of the Company or any of its
Subsidiaries continue for a period of more than 12 months or are in excess of
the normal, ordinary and usual requirements of the Company's business;
(iii) the Company and its Subsidiaries have no outstanding contracts with
officers, employees, agents, consultants, advisors, salespeople, sales
representatives, distributors or dealers that are not cancelable by it on notice
of not longer than 30 days and without liability, penalty or premium or that
provide for the payment of any bonus or commission based on sales or earnings;
(iv) the Company and its Subsidiaries have no employment, consulting,
severance or termination agreement, or any other agreement that contains any
severance or termination pay liabilities or obligations;
(v) the Company and its Subsidiaries are not and, to the Knowledge of
the Company, no other party is, in default under or in violation of, nor is
there any basis for any valid claim of default under or violation of, any
material agreement, Real
19
<PAGE>
Property Lease, contract, lease or commitment to which the Company or any of its
Subsidiaries is a party or by which any of them is bound;
(vi) neither the Company nor any of its Subsidiaries has an officer,
director or employee to whom it is paying compensation at an annual rate,
excluding commissions, of more than $150,000;
(vii) none of the Company, any of its Subsidiaries or any officer thereof
is restricted by any agreement, contract or commitment from carrying on or
participating in (as an employee, owner or otherwise) any business anywhere in
the world;
(viii) neither the Company nor any of its Subsidiaries has any debt
obligation for borrowed money, including guarantees of or agreements to acquire
any such debt obligation of others;
(ix) neither the Company nor any of its Subsidiaries has any outstanding
loan to any person, other than travel advances to employees in the ordinary
course of business consistent with past practices;
(x) neither the Company nor any of its Subsidiaries has any power of
attorney outstanding or any obligations or liabilities (whether absolute,
accrued, contingent or otherwise), as guarantor, surety, co-signer, endorser,
co-maker, indemnitor or otherwise in respect of the obligation of any person,
corporation, partnership, joint venture, association, organization or other
entity; and
(xi) neither the Company nor any of its Subsidiaries has any agreement
by or among the existing stockholders of the Company relating to or affecting
the acquisition, disposition or voting of the Common Stock, Preferred Stock or
other capital stock of the Company or the capital stock of any of its
Subsidiaries.
5.18. Intellectual Property; Technology. (a) The Company and its
---------------------------------
Subsidiaries neither own nor license (as licensee or licensor) any patents,
patent applications or rights with respect thereto. Section 5.18(a)(i) of the
Disclosure Letter sets forth all federally registered, and pending federal
registrations of, trademarks, trade names and service marks (including the name
Sneaker Stadium) owned by the Company or its Subsidiaries, all of which, except
as set forth in Section 5.18(a)(ii) of the Disclosure Letter, are owned solely
and exclusively by the Company or its Subsidiaries, free and clear of any Liens.
Except as set forth on Section 5.18(a)(iii) of the Disclosure Letter, the
Company or its Subsidiaries (i) owns or has the right to use all trademarks,
trade names and copyrights used in or necessary to the business of the
20
<PAGE>
Company and its Subsidiaries as currently conducted and as currently proposed to
be conducted and (ii) owns or has the full right to use all technology, know-
how, processes, other intellectual property rights and computer programs and
software used in or necessary to the business of the Company or its Subsidiaries
as currently conducted and as currently proposed to be conducted. The
intellectual property rights described in the foregoing sentences of this
Section 5.18(a) are collectively referred to as the "Intellectual Property."
---------------------
Section 5.18(a)(iv) of the Disclosure Letter contains a list of all
Intellectual Property and all applications made by the Company and its
Subsidiaries therefor, if any, excluding trademarks and service marks of third-
party vendors and copyrights of the Company or its Subsidiaries with respect to
advertising materials. The Company has delivered to the Purchaser complete and
correct copies of all licenses and other agreements relating to all Intellectual
Property.
(b) The consummation of the transactions contemplated hereby will not
alter or impair any of the Intellectual Property or the Company's or any of its
Subsidiaries' rights or interests therein. Except as set forth in Section
5.18(b)(i) of the Disclosure Letter, no claims have been asserted by any person
challenging the use by the Company or any of its Subsidiaries of any
Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement referred to in Section 5.18(a) above,
and the Company does not know of any valid basis for any such claim. Except as
set forth in Section 5.18(b)(ii) of the Disclosure Letter, the use of the
Intellectual Property by the Company or its Subsidiaries does not infringe on
the rights of any person.
(c) Except as set forth on Section 5.18(c) of the Disclosure Letter, (i)
there are no judgments, consents or orders of which the Company or any of its
Subsidiaries has received notice which restrict the Company's or any of its
Subsidiaries' rights to use any Intellectual Property, and (ii) no concurrent
use or other agreements to which the Company or any of its Subsidiaries is a
party of which it has received notice which restrict the Company's or any of its
Subsidiaries' rights to use any Intellectual Property.
5.19. Calendar Function. Except as disclosed in Section 5.19 of the
-----------------
Disclosure Letter, all software used in the Company's business that contains or
calls on a calendar function, including but not limited to any function that is
indexed to a computer processing unit clock, provides specific dates or
calculates spans of dates, is and will be able to record, store, process and
provide true and accurate dates and calculations for dates and spans of dates
including and following January 1, 2000, except for any inaccuracies that,
individually and in the aggregate, would not be Material Adverse Effect.
21
<PAGE>
5.20. [RESERVED]
5.21. [RESERVED]
5.22. Insurance. Section 5.22 of the Disclosure Letter contains an
---------
accurate and complete list of all policies of fire, liability, workers'
compensation and other forms of insurance, including, but not limited to, all
group insurance programs in effect for employees of the Company and its
Subsidiaries, owned or held by the Company. All such policies are in full force
and effect, all premiums with respect thereto covering all periods up to and
including the Closing Date have been paid and no notice of cancellation or
termination has been received with respect to any such policy. Such policies
(i) are sufficient for compliance with all requirements of law; (ii) are
sufficient for compliance with all agreements to which the Company or any of its
Subsidiaries is a party; (iii) are valid, outstanding and enforceable policies;
(iv) provide insurance coverage for the assets and operations of the Company or
any of its Subsidiaries in scope and amount customary and reasonable for the
business in which it is engaged; (v) will remain in full force and effect
through the respective dates set forth in Section 5.22 of the Disclosure Letter
without the payment of additional premiums; and (vi) will not in any way be
affected by or terminate or lapse by reason of the transactions contemplated by
this Agreement. The Company and its Subsidiaries have complied in all material
respects with the terms and provisions of such policies. Neither the Company or
any of its Subsidiaries has been refused any insurance with respect to its
assets or operations, nor has its coverage been limited, by any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance.
5.23. Environmental Matters. Except as set forth in Section 5.23 of the
---------------------
Disclosure Letter, (a) except as would not be reasonably likely to result in a
Material Adverse Effect, the Company and its Subsidiaries are in compliance and
at all times have complied with all applicable Environmental Laws (as defined
below); the Company and its Subsidiaries have not received any communication,
whether from any Governmental Entity, citizens group, employee or otherwise,
that alleges that the Company or any of its Subsidiaries is not in such
compliance; and, to the Knowledge of the Company, there are no circumstances
that may prevent or interfere with such compliance in the future.
(b) There is no Environmental Claim (as defined below), pending or, to
the Knowledge of the Company, threatened against the Company or any of its
Subsidiaries.
(c) There are no past or present actions, activities, circumstances,
conditions, events or incidents involving the release or alleged release,
emission, discharge or
22
<PAGE>
disposal by the Company or any of its Subsidiaries of any Hazardous Materials,
that could form the basis of any Environmental Claim against the Company or any
of its Subsidiaries, except for such Environmental Claims as would not be
reasonably likely to have a Material Adverse Effect.
(d) Except as would not be reasonably likely to result in a Material
Adverse Effect, neither the Company nor its Subsidiaries, nor to the Knowledge
of the Company, any other Person (including any tenant or subtenant) has caused
or taken any action that will result in, and neither the Company nor its
Subsidiaries is subject to, any Environmental Claim relating to (x) the
-
environmental conditions on, under, or about the real property which is the
subject of the Real Property Leases or other properties or assets currently or
formerly owned, leased or operated by the Company or its Subsidiaries or any
predecessor thereto, including without limitation, the air, soil and groundwater
conditions at such locations.
"Environmental Claim" means any notice by any person or entity alleging
-------------------
potential liability arising out of, based on or resulting from (i) the
presence, or release into the environment, of any Hazardous Materials at any
location, whether or not owned by the Company or any of its Subsidiaries or
(ii) any violation, or alleged violation, by the Company or any of its
Subsidiaries of any Environmental Law.
"Environmental Laws" means all federal, state, local and foreign laws and
------------------
regulations relating to pollution or protection of human health or the
environment including laws and regulations relating to emissions, discharges,
releases or threatened releases of Hazardous Materials, or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.
"Hazardous Materials" means any substance or material that is classified
-------------------
or regulated as "hazardous" or "toxic" pursuant to any Environmental Law,
including, without limitation, asbestos, polychlorinated biphenyls, petroleum
products or by-products, and urea-formaldehyde insulation.
5.24. [RESERVED]
5.25. Affiliate Transactions. Section 5.25 of the Disclosure Letter
----------------------
contains a complete and correct list of all agreements, contracts, commitments
or arrangements (whether or not written) between the Company or its Subsidiaries
and any current or former stockholder, officer, director or employee (or former
directors or executive-
23
<PAGE>
level employees) of the Company or its Subsidiaries (or any family member of any
of the foregoing) or any other Affiliate of the Company, currently in effect or
to be performed in the future (collectively, the "Affiliate Agreements") and the
--------------------
amounts owed by the Company and its Subsidiaries, or by the other party or
parties under each of the Affiliate Agreements as of the date hereof. Except as
set forth in Section 5.25(a) of the Disclosure Letter, to the Knowledge of the
Company, no stockholder of the Company, or any Company officer, director,
employee (or any family member of any of the foregoing) or any other Affiliate
of the Company owns, directly or indirectly, on an individual or joint basis,
greater than a 5% financial interest in, or serves as an officer, director or
employee of, any customer, competitor or supplier of the Company or its
Subsidiaries or any Person or entity which has a contract, agreement or other
arrangement (whether or not written) with the Company or its Subsidiaries.
5.26. Products; Product and Service Warranties. Section 5.26 of the
----------------------------------------
Disclosure Letter describes the rights of the Company and its Subsidiaries with
respect to defective merchandise received from vendors. The general customer
returns policy of the Company and its Subsidiaries is as set forth in Section
5.26 of the Disclosure Letter.
5.27. [RESERVED]
5.28. [RESERVED]
5.29. Suppliers. Section 5.29 of the Disclosure Letter sets forth for
---------
each of the fiscal years ended February 1, 1998 and February 2, 1997, and for
the period ended May 17, 1998 showing (a) the names and addresses of the 5
largest suppliers (and any other supplier of the Company and its Subsidiaries
which accounts for more than 10% of the Company's and its Subsidiaries'
purchases during each such period) of the Company and its Subsidiaries based on
the aggregate value of supplies, merchandise and other goods and services
ordered by the Company and its Subsidiaries from such suppliers during each such
period and (b) the approximate total purchases by the Company and its
Subsidiaries from each such vendor during each such period. Except as set forth
in Section 5.29 of the Disclosure Letter, since May 31, 1998, there has not been
any material adverse change in the business relationship of the Company and its
Subsidiaries with any vendor named in Section 5.29 of the Disclosure Letter.
5.30. [RESERVED]
5.31. [RESERVED]
24
<PAGE>
5.32. Disclosure. Neither this Agreement (including the Disclosure
----------
Letter) nor any other agreement, document, certificate or written statement
furnished to the Purchaser or their counsel by or on behalf of the Company in
connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading.
Projections supplied to the Purchaser (the "Projections"), if any, are not
-----------
considered to be facts for the purpose of this Section. There is no fact within
the Knowledge of the Company which has not been disclosed by it herein
(including in the Disclosure Letter) or otherwise to the Purchaser in writing
which has had or in the future in its opinion may have, insofar as it can now
foresee, a Material Adverse Effect. Any Projections which have been delivered
by or on behalf of the Company to the Purchaser were based on the Company's
experience in the industry and on assumptions of fact and opinion as to future
events which the Company, at the date of delivery of the Projections, believed
to be reasonable, but which the Company cannot and does not guarantee the
attainment of in any manner.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND MERGER SUB
As of the date hereof and as of the Effective Time, the Purchaser and
Merger Sub hereby jointly and severally represent and warrant to the Company as
follows:
6.1. Existence; Good Standing. Each of the Purchaser and Merger Sub is a
------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation.
6.2. Authorization, Validity and Effect of Agreements. Each of the
------------------------------------------------
Purchaser and Merger Sub has the requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The Purchaser has the requisite corporate power and
authority to execute and deliver the Contingent Payment Agreement and to
consummate the transactions contemplated thereby. The execution and delivery of
this Agreement and the Contingent Payment Agreement and the consummation by the
Purchaser and Merger Sub of the transactions contemplated hereby and thereby
have been duly and validly authorized by the respective Boards of Directors of
the Purchaser and Merger Sub, as applicable, and by the stockholder of Merger
Sub, and no other corporate proceedings on the part of the Purchaser or Merger
Sub are necessary to authorize this Agreement and the Contingent Payment
Agreement or to consummate the transactions contemplated hereby and thereby.
This Agreement has been duly and validly executed and delivered by the
25
<PAGE>
Purchaser and Merger Sub, and constitutes the valid and binding obligation of
the Purchaser and Merger Sub. The Contingent Payment Agreement has been duly
and validly executed and delivered by the Purchaser, and constitutes the valid
and binding obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms.
6.3. Brokers and Finders. Except for Nationsbanc Montgomery Securities
-------------------
LLC and Merrill Lynch & Co., no broker, dealer or financial advisor is entitled
to receive from the Purchaser, Merger Sub or any of their Affiliates any
broker's, finder's or investment banking fee in connection with this Agreement
or the transactions contemplated hereby. The amounts payable to Nationsbanc
Montgomery Securities LLC and Merrill Lynch & Co. are set forth in Schedule V
hereto.
6.4. Litigation. There is no judgment, decree or order pending or, to
----------
the knowledge of the Purchaser, Merger Sub or any of their directors or
officers, threatened against the Purchaser or Merger Sub that would impair the
ability of the Purchaser or Merger Sub to perform its respective obligations
hereunder.
6.5. No Violation. Neither the execution and delivery of this Agreement
------------
or the Contingent Payment Agreement by the Purchaser and Merger Sub nor the
consummation by them of the transactions contemplated hereby and thereby do or
will (a) violate, conflict with or result in any breach of any provision of the
Articles of Incorporation or By-laws of Merger Sub or the Purchaser, (b) other
than the Requisite Approvals require any consent, approval or authorization of,
or declaration, filing or registration with, any Governmental Entity, the lack
of which individually or in the aggregate would materially adversely affect the
ability of the Purchaser or Merger Sub to consummate the transactions
contemplated hereby or (c) violate any Laws applicable to the Purchaser or
Merger Sub or any of their respective assets, except for violations which
individually or in the aggregate would not materially adversely affect the
ability of the Purchaser or Merger Sub to consummate the transactions
contemplated hereby or thereby.
ARTICLE 7
COVENANTS
7.1. [RESERVED]
7.2. [RESERVED]
26
<PAGE>
7.3. [RESERVED]
7.4. [RESERVED]
7.5. [RESERVED]
7.6. [RESERVED]
7.7. [RESERVED]
7.8. Insurance; Indemnity.
--------------------
(a) For not less than three years after the Effective Time, the
Purchaser shall maintain in effect directors' and officers' liability insurance
covering the individuals who are currently covered by the Company's existing
directors' and officers' liability insurance, on terms and conditions no less
favorable to such directors and officers than those in effect on the date
hereof. The Company represents that the annual premium is currently
approximately $30,000.
(b) From and after the Effective Time, the Purchaser shall indemnify
and hold harmless, to the fullest extent permitted under applicable law, each
person who is, or has been at any time prior to the date hereof or who becomes
prior to the Effective Time, an officer or director of the Company or any of its
Subsidiaries against all losses, claims, damages, liabilities, costs or expenses
(including attorneys' fees), judgments, fines, penalties and amounts paid in
settlement (collectively, "Losses") in connection with any Litigation arising
------
out of or pertaining to acts or omissions, or alleged acts or omissions, by them
in their capacities as such, which acts or omissions occurred prior to the
Effective Time. Without limiting the foregoing, the Company and after the
Effective Time the Purchaser shall periodically advance expenses as incurred
with respect to the foregoing to the fullest extent permitted under applicable
law provided that the person to whom the expenses are advanced provides an
undertaking to repay such advance if it is ultimately determined that such
person is not entitled to indemnification.
7.9. Employees and Employee Benefit Plans. For at least one year
------------------------------------
following the Effective Date, the Purchaser shall, or shall cause the Surviving
Corporation and its Subsidiaries to, make available to each person who is an
employee of the Company and its Subsidiaries at the Effective Time (the "Company
-------
Employees") employee benefit plans and programs (other than stock-based or
- ---------
equity plans and vacation benefits) which are either (a) the same as are made
-
available to the employees
27
<PAGE>
of the Purchaser, on terms and conditions which are no less favorable to the
Company Employees than the terms and conditions generally applicable to the
employees of the Purchaser or (b) no less favorable to the Company Employees
-
than the employee benefit plans and programs of the Company and its Subsidiaries
as of the date hereof; provided that, the Purchaser retains the right to
terminate such employees and to change terms of the coverage provided by the
applicable plans in accordance with any change in an employee's status or as
required by applicable Law. From and after the Effective Time, for purposes of
determining eligibility, vesting and entitlement to vacation, severance and
other benefits for employees under any compensation, severance, welfare,
pension, benefit, savings or other plan of the Purchaser, the Surviving
Corporation or any of its Subsidiaries in which employees of the Company or any
of its Subsidiaries become eligible to participate, service with the Company or
any of its Subsidiaries shall be credited as if such service had been rendered
to the Purchaser, the Surviving Corporation or such Subsidiary. In no event
shall the severance benefits payable to any Company Employee whose employment
terminates prior to the first anniversary of the Effective Time be less than the
amount that would have been payable to such employee under the terms of the
severance policy or plan applicable to such Company Employee as of the date
hereof.
7.10. [RESERVED]
7.11. [RESERVED]
7.12. [RESERVED]
7.13. [RESERVED]
ARTICLE 8
CONDITIONS
8.1. Conditions to Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligations of each party to effect the Merger and the other
transactions contemplated hereby shall be subject to the satisfaction or waiver
at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. Stockholders holding a majority of the
--------------------
shares of Common Stock and Series A Preferred Stock outstanding as of the date
hereof voting separately as a class shall have approved and adopted this
Agreement. The Company
28
<PAGE>
shall not have received notice from any holder of shares of Common Stock or
Series A Preferred Stock of its intention to exercise Appraisal Rights.
(b) Other Approvals. Other than the filing provided for by Section 1.3,
---------------
all Consents, including required Lease Consents, and filings with, or approvals
of, any Governmental Entity which are necessary for the consummation of the
Merger, other than consents and regulatory filings the failure to obtain or make
which would, individually and in the aggregate, be immaterial to the Surviving
Corporation and which would not materially impair the ability of the parties
hereto to perform their obligations hereunder, shall have been filed, occurred
or been obtained (all such consents, regulatory filings and the lapse of all
such waiting periods being referred to as the "Requisite Approvals"), and all
-------------------
such Requisite Approvals shall be in full force and effect.
(c) No Injunctions or Restraints; Illegality. No temporary restraining
----------------------------------------
order, preliminary or permanent injunction or other order or decree issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect; provided, however,
-------- -------
that each of the parties shall have used its reasonable efforts to appeal as
promptly as possible any injunction or other order or restraint that may be
entered. 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.
8.2. Conditions to Obligations of the Purchaser. The obligations of the
------------------------------------------
Purchaser and Merger Sub to effect the Merger are subject to the satisfaction of
the following conditions unless waived by the Purchaser and Merger Sub:
(a) FIRPTA Certificate. The Purchaser shall have received such
------------------
affidavits or certifications in form and substance reasonably satisfactory to
the Purchaser as are necessary to exempt the Merger from the provisions of
Section 1445 of the IRC.
(b) Opinion of Counsel. The Purchaser shall have received an opinion,
------------------
addressed to it and dated the Closing Date, from Testa, Hurwitz & Thibeault,
LLP, special counsel for the Company, substantially in the form of Schedule VIII
hereto (or otherwise in a form reasonably satisfactory to the parties hereto).
(c) Certain Indebtedness. The Company's existing Revolving Credit
--------------------
Agreement, dated January 17, 1997, among the Company, Sanwa, First National Bank
of Boston and BNP and existing Credit Agreement, dated January 17, 1997, between
29
<PAGE>
the Company and BNP shall have been refinanced or replaced with new credit
facilities with a combined aggregate outstanding principal amount not to exceed
$43 million and such other terms and conditions satisfactory to the Purchaser in
its sole discretion.
(d) Subordinated Indebtedness. The holders of the Subordinated
-------------------------
Indemnification Note, dated January 17, 1997, and the Subordinated Convertible
Promissory Notes, dated September 10, 1997 (the "Subordinated Debt"), shall have
-----------------
contributed all principal, interest and other amounts due or to become due
thereunder to the capital of the Company and executed and delivered documents
satisfactory in form and substance to the Purchaser and its counsel releasing
any rights or claims against the Company pursuant to the Subordinated Debt and
that certain Note Purchase and Guaranty Agreement dated May 20, 1998, or any
agreements relating thereto, except those arising under such release and
termination documents and the Contingent Payment Agreement.
(e) Certain Stockholder Approvals. The Company shall have provided
-----------------------------
evidence reasonably satisfactory to the Purchaser, including without limitation
an officer's certificate on behalf of the Company to the effect, that the
Company has obtained, where necessary to avoid the imposition of an excise tax
under section 280G or 4999 of the IRC or the denial of a deduction under section
280G of the IRC, proper written consent in accordance with the shareholder
approval requirements of section 280G of the IRC with respect to all Plans,
Contracts and any other contract, plan, policy, arrangement or agreement, which
alone or in conjunction with any other arrangement or payment, provides or may
provide payment which without such consent would or could constitute "parachute
payments" (within the meaning of section 280G of the IRC).
8.3. Conditions to Obligations of the Company. The obligations of the
----------------------------------------
Company to effect the Merger are subject to the satisfaction of the following
conditions unless waived by the Company:
(a) Contingent Payment Agreement. The Purchaser and each other party
----------------------------
(other than the Company) to the Contingent Payment Agreement shall have executed
and delivered the Contingent Payment Agreement.
(b) Certain Releases. Releases with respect to the guarantees listed on
----------------
Schedule VI, reasonably satisfactory in form and substance to the Company and
its counsel, shall have been executed and delivered by each beneficiary of each
such guaranty.
30
<PAGE>
(c) Opinion of Counsel. The Company shall have received an opinion,
------------------
addressed to them and dated the Closing Date, of Smith, Gambrell & Russell,
special counsel to the Purchaser, substantially in the form of Schedule IX (or
otherwise in a form reasonably satisfactory to the parties hereto).
ARTICLE 9
AMENDMENT; WAIVER
9.1. Amendment. To the extent permitted by applicable law, this
---------
Agreement may be amended by action taken by or on behalf of the Board of
Directors of the Company, Merger Sub and the Purchaser at any time, provided
--------
that (i) no amendment shall be made which decreases the Merger Consideration or
-
which adversely affects the rights of the Company's stockholders hereunder
without the approval of such stockholders and (ii) no amendment shall be made
--
which adversely affects the rights of an individual referred to in Section 7.8
or Section 7.9 without the prior written consent of such individual. This
Agreement may not be amended except by an instrument in writing signed on behalf
of all of the parties, subject to the immediately preceding proviso.
ARTICLE 10
GENERAL PROVISIONS
10.1. Survival of Representations and Warranties. The representations
------------------------------------------
and warranties of the Company shall not survive the Effective Time and no Person
shall have any liability whatsoever relating thereto (except to the extent
provided in Section 2.4 of the Contingent Payment Agreement), except that the
representations and warranties contained in Section 5.7(c) shall, solely for
purposes of the Contingent Payment Agreement, survive until the date that is
eighteen months following the date hereof and shall automatically terminate on
such date, except that if a claim with respect to an Indemnifiable Loss (as
defined in the Contingent Payment Agreement) is made prior to such date in
accordance with such Section 2.4 of the Contingent Payment Agreement, then
(notwithstanding that such date has occurred) such representations and
warranties contained in such Section 5.7(c) shall survive until, but only for
purposes of, the resolution of such claim in accordance with such Section 2.4 of
the Contingent Payment Agreement. The sole and exclusive remedy of any party
with respect to any breach or alleged breach of the representations and
warranties contained in Section 5.7(c) shall be as set forth in Section 2.4 of
the Contingent Payment Agreement.
31
<PAGE>
10.2. Notices. Any notice required to be given hereunder shall be
-------
sufficient if in writing, and sent by facsimile transmission (with a
confirmatory copy sent by overnight courier), by courier service (with proof of
service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
If to the Purchaser or Merger Sub: If to the Company:
Just for Feet, Inc. Sneaker Stadium, Inc.
7400 Cahaba Valley Road 55 Carter Drive
Birmingham, AL 35242 Edison, NJ 08817
Telephone: (205) 408-3000 Telephone: (732) 777-9777
Facsimile: (205) 408-3200 Facsimile: (732) 777-7999
Attention: Eric L. Tyra Attention: Joseph C. Miller
With a copy to: With a copy to:
Debevoise & Plimpton Skadden, Arps, Slate, Meagher & Flom
875 Third Avenue LLP
New York, NY 10022 One Beacon Street
Telephone: (212) 909-6000 31st Floor
Facsimile: (212) 909-6836 Boston, MA 02108
Attention: Lawrence K. Cagney, Esq. Telephone: (617) 573-4800
Facsimile: (617) 573-4800
Attention: Kent A. Coit, Esq.
and
Smith, Gambrell & Russell
1230 Peachtree Street, N.E.
Suite 3100
Atlanta, GA 30309
Telephone: (404) 815-3500
Facsimile: (404) 685-6932
Attention: Jay Schwartz, Esq.
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date received.
32
<PAGE>
10.3. Assignment; Binding Effect; Third Party Beneficiaries. Neither
-----------------------------------------------------
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties, provided,
--------
that either the Purchaser or Merger Sub (or either of them) may assign its
rights hereunder to an Affiliate, but nothing shall relieve the assignor from
its obligations hereunder. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns. Notwithstanding anything contained in
this Agreement to the contrary, except for the provisions of Section 7.8 and
Section 7.9, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
10.4. Entire Agreement. This Agreement, the Disclosure Letter, the
----------------
Schedules, the Exhibits, the Contingent Payment Agreement, the Confidentiality
Agreement and any other documents delivered by the parties in connection
herewith constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings
among the parties with respect thereto (except that the Confidentiality
Agreement shall not be so superseded).
10.5. Fees and Expenses. Except as contemplated by Section 5.13, all
-----------------
costs and expenses incurred in connection with the transactions contemplated by
this Agreement shall be paid by the party incurring such expenses.
10.6. Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL
-------------
RESPECTS, INCLUDING AS TO VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF
THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW RULES OF SUCH STATE.
The Purchaser, Merger Sub and the Company hereby irrevocably submit to the
jurisdiction of the courts of the State of Delaware and the federal courts of
the United States of America located in the State of Delaware solely in respect
of the interpretation and enforcement of the provisions of this Agreement, and,
subject to Section 10.11, hereby waive and agree not to assert as a defense in
any action, suit or proceeding for the in terpretation or enforcement hereof or
of any such document, that it is not subject thereto or that such action, suit
or proceeding may not be brought or is not maintainable in said courts or that
the venue thereof may not be appropriate or that this Agreement or any of such
document may not be enforced in or by said courts.
33
<PAGE>
10.7. Headings. Headings of the Articles and Sections of this Agreement
--------
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
10.8. Interpretation; Certain Definitions. In this Agreement, unless
-----------------------------------
the context otherwise requires, words describing the singular number shall
include the plural and vice versa, and words denoting any gender shall include
all genders and words denoting natural persons shall include corporations and
partnerships and vice versa. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." As used in this Agreement, the words
"Subsidiary," "Affiliate" and "Associate" shall have the meanings ascribed
---------- --------- ---------
thereto in Rule 12b-2 under the Exchange Act. For purposes of this Agreement,
one party shall be considered "wholly owned" by another party if all of the
shares of its outstanding capital stock or issued share capital, other than
directors' qualifying shares, are beneficially owned by such other party. As
used in this Agreement, the words "to the Knowledge of the Company" shall mean
the knowledge of the directors and officers of the Company, after due inquiry.
The following terms shall have the following meanings ascribed to them:
"Confidentiality Agreement" means the Confidentiality Agreement
-------------------------
dated November 7, 1997 between the Purchaser and the Company.
"Consent" means any consent, approval, authorization, waiver,
-------
permit, grant, franchise, concession, agreement, license, certificate,
exemption, order, registration, declaration, filing, report or notice of,
with or to any Person.
"Contingent Payment Agreement" means the Contingent Payment
----------------------------
Agreement substantially in the form attached hereto as Schedule I.
"Disclosure Letter" means that certain writing delivered to the
-----------------
Purchaser by the Company and dated as of the date hereof.
"Government Entity" means any nation or political subdivision
-----------------
thereof, including any state, county or municipality; and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to any of the foregoing, including, without
limitation, any legislature, elected official, authority, agency,
department, board, commission, court, tribunal or instrumentality.
34
<PAGE>
"Income Tax" means any U.S. federal, state, provincial, local,
----------
foreign or other income, alternative, minimum, accumulated earnings,
personal holding company, franchise, capital stock, net worth, capital,
profits or windfall profits Tax and any other similar Tax, estimated Tax,
duty or other governmental charge or assessment or deficiencies thereof
(including all interest and penalties thereon and additions thereto
whether disputed or not).
"IRS" means the Internal Revenue Service.
---
"Laws" means all applicable provisions of all constitutions,
----
treaties, statutes, laws (including, but not limited to, the common law),
rules, regulations, ordinances, codes or orders of any Governmental Entity
and of all orders, decisions, injunctions, judgments, awards and decrees
or consents of or agreements with any Governmental Entity.
"Letter of Transmittal" means a letter of transmittal substantially
---------------------
in the form attached hereto as Schedule X.
"Lien" means any lien, charge, claim, pledge, security interest,
----
conditional sale agreement or other title retention agreement, lease,
mortgage, security agreement, right of first refusal, option, restriction,
tenancy, license, covenant, right of way, easement or other encumbrance
(including the filing of, or agreement to give, any financing statement
under the Uniform Commercial Code or statute or law of any jurisdiction).
"Litigation" means any action, cause of action, claim, demand, suit,
----------
proceeding, citation, summons, subpoena, inquiry or investigation of any
nature, civil, criminal, regulatory or otherwise, in law or in equity,
pending or threatened, by or before any court, tribunal, arbitrator or
other Governmental Entity.
"Permits" means all franchises, approvals, permits authorizations,
-------
licenses, orders, registrations, certificates, variances, and other
similar permits or rights obtained from any Governmental Entity and all
pending applications therefor.
"Permitted Lien" means (a) Liens securing Taxes, assessments,
-------------- -
governmental charges or levies, all of which are not yet due and payable
or as to which adequate reserves have been established that are included
in the most recent consolidated financial statements included in the
Financial Statements
35
<PAGE>
and that may thereafter be paid without penalty, (b) mechanics',
-
carriers', workmen's, repairmen's and other similar Liens incurred in the
ordinary course of business consistent with past practice, or (c) such
-
other liens which, individually and in the aggregate, do not and would not
materially detract from the value of any of the property or assets of the
Company or its Subsidiaries or materially interfere with the use thereof.
"Person" means an individual, a corporation, a partnership, a
------
limited liability company, an association, a firm, a Governmental Entity,
a trust or other entity or organization.
"Taxes" means any U.S. federal, state, provincial, local,
-----
foreign or other income, alternative, minimum, accumulated earnings,
personal holding company, franchise, capital stock, net worth, capital,
profits, windfall profits, gross receipts, value added, sales (including,
without limitation, bulk sales), use, goods and services, excise, customs
duties, transfer, conveyance, mortgage, registration, stamp, documentary,
recording, premium, severance, environmental (including, without
limitation, taxes under section 59A of the IRC), real property, personal
property, ad valorem, intangibles, rent, occupancy, license, occupational,
employment, unemployment insurance, social security, disability, workers'
compensation, payroll, health care, withholding, estimated or other
similar tax, levy, impost, fee, duty or other governmental charge or
assessment or deficiencies thereof (including, but not limited to, all
interest and penalties thereon and additions thereto, whether disputed or
not) imposed by any taxing authority or other Governmental Entity.
"Tax Return" means any return, report, declaration, form, claim
----------
for refund or information return or statement relating to Taxes, including
any schedule or attachment thereto, and including any amendment thereof.
10.9. Investigations. No action taken pursuant to this Agreement,
--------------
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained in this Agreement.
10.10. Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the
36
<PAGE>
validity or enforceability of any of the terms or provisions of this Agreement
in any other jurisdiction. If any provision of this Agreement is so broad as to
be unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
10.11. Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT
--------------------
ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR ANY AGREEMENT HEREBY IS
LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT, ANY AGREEMENT HEREBY OR THE BREACH, TERMINATION OR VALIDITY
HEREOF OR THEREOF, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH
PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY
-
OF ANY OTHER PARTY HAS REPRESENTED TO SUCH PARTY, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, (B) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS
-
WAIVER, (C) IT MAKES THIS WAIVER VOLUNTARILY, AND (D) IT HAS BEEN INDUCED TO
- -
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 10.11.
-------------
10.12. [RESERVED]
10.13. Counterparts. This Agreement may be executed by the parties
------------
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all, of the parties
hereto.
37
<PAGE>
DEFINITIONS
<TABLE>
<CAPTION>
Defined Term Section Reference
------------ -----------------
<S> <C>
"Affiliate" Section 10.8
---------
"Affiliate Agreement" Section 5.25
-------------------
"Agreement" First Paragraph
---------
"Associate" Section 10.8
---------
"Audited Financial Statements" Section 5.7(a)
----------------------------
"Balance Sheet" Section 5.7(a)
-------------
"BNP" Section 5.4(c)
---
"Board of Directors" Section 9.11
------------------
"Certificate" Section 4.2(b)
-----------
"Closing" Section 1.2
-------
"Closing Date" Section 1.2
------------
"Common Stock" Section 4.2(a)
------------
"Common Stock Purchase Warrants" Section 5.4(a)
------------------------------
"Company" First Paragraph
-------
"Company Employees" Section 7.9
-----------------
"Confidentiality Agreement" Section 10.8
-------------------------
"Consent" Section 10.8
-------
"Contingent Payment Agreement" Section 10.8
----------------------------
"DGCL" Section 1.1
----
"Directors" Section 3.1
---------
"Disclosure Letter" Section 10.8
-----------------
"Dissenting Stock" Section 4.5
----------------
"Effective Time" Section 1.3
--------------
"Environmental Claim" Section 5.23(e)
-------------------
"Environmental Laws" Section 5.23(e)
------------------
"ERISA" Section 5.11(a)
-----
"ERISA Affiliate" Section 5.11(a)
---------------
"Financial Statements" Section 5.7(a)
--------------------
"Governmental Entity" Section 10.8
-------------------
"Hazardous Materials" Section 5.23(e)
-------------------
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
"Income Tax" Section 10.8
----------
"Intellectual Property" Section 5.18(a)
---------------------
"Interim Financial Statements" Section 5.7(a)
----------------------------
"IRC" Section 5.10(a)
---
"IRS" Section 10.8
---
"Knowledge of the Company" Section 10.8
------------------------
"Laws" Section 10.8
----
"Lease" Section 5.14(a)
-----
"Letter of Transmittal" Section 10.8
---------------------
"Lien" Section 10.8
----
"Litigation" Section 10.8
----------
"Losses" Section 7.8(b)
------
"Material Adverse Effect" Section 5.1(a)
-----------------------
"Material Contracts" Section 5.17
------------------
"Merger" Section 1.1
------
"Merger Consideration" Section 4.2(a)
--------------------
"Merger Sub" First Paragraph
----------
"Non-Disturbance Agreement" Section 5.14(a)
-------------------------
"Non-Voting Common Stock" Section 5.4(a)
-----------------------
"Non-Voting Common Stock Purchase Section 5.4(b)
--------------------------------
Warrants"
--------
"Officers" Section 3.2
--------
"Option" or "Options" Section 4.2(d)
-------------------
"Permits" Section 10.8
-------
"Permitted Lien" Section 10.8
--------------
"Person" Section 10.8
------
"Plans" Section 5.11(a)
-----
"Preferred Stock" Section 5.4
---------------
"Products" Section 5.26(a)
--------
"Projections" Section 5.32
-----------
"Real Property Leases" Section 5.14(a)
--------------------
"Real Property" Section 5.14(a)
-------------
"Required Lease Consent" Section 5.14(b)
----------------------
"Requisite Approvals" Section 8.1(b)
-------------------
"Restraints" Section 8.1(c)
----------
</TABLE>
39
<PAGE>
<TABLE>
<S> <C>
"Purchaser" First Paragraph
---------
"Sanwa" Section 5.4(c)
-----
"Series A Preferred Stock" Section 5.4(a)
------------------------
"Series A Preferred Stock Purchase Warrants" Section 5.4(a)
------------------------------------------
"Series B Preferred Stock" Section 5.4(a)
------------------------
"Series C Preferred Stock" Section 5.4(a)
------------------------
"SNKR Holding Corp." Section 5.1(b)
------------------
"Stock Option Plans" Section 4.2(d)
------------------
"Stock" Section 4.2(b)
-----
"Stockholder" Section 4.3
-----------
"Subordinated Debt" Section 8.2(d)
-----------------
"Subsidiary Shares" Section 5.4(d)
-----------------
"Subsidiary" Section 10.8
----------
"Surviving Corporation" Section 1.1
---------------------
"Tax Return" Section 10.8
----------
"Tax" or "Taxes" Section 10.8
--------------
"WARN Act" Section 5.12(b)
--------
"Warrants" Section 5.4(a)
--------
"Working Capital Facility" Section 8.2(c)
------------------------
</TABLE>
40
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
JUST FOR FEET, INC.
By: /s/ Eric L. Tyra
---------------------------------
Name: Eric L. Tyra
Title: Executive Vice President
JFF MERGER CORP.
By: /s/ Eric L. Tyra
---------------------------------
Name: Eric L. Tyra
Title: Executive Vice President
SNEAKER STADIUM, INC.
By: /s/ Joseph C. Miller
---------------------------------
Name: Joseph C. Miller
Title: Vice President
<PAGE>
EXHIBIT 10.17
CONTINGENT PAYMENT AGREEMENT
CONTINGENT PAYMENT AGREEMENT, dated as of July 2, 1998 (this
"Agreement"), made by JUST FOR FEET, INC., a Delaware corporation ("JFF"), for
--------- ---
the benefit of Banque Nationale de Paris ("BNP"), for itself and as agent for
---
itself and for Merrill Lynch Senior Floating Rate Fund, Inc., Merrill Lynch
Prime Rate Portfolio and Merrill Lynch Debt Strategies Portfolio (collectively,
the "Senior Lenders"), and, subject to the limitations provided herein, for the
--------------
benefit of the PERSONS OR ENTITIES LISTED ON SCHEDULE I HERETO (the
"Subordinated Lenders" and, together with the Senior Lenders, the "Contingent
-------------------- ----------
Payment Beneficiaries").
- ---------------------
RECITALS
WHEREAS, JFF and Sneaker Stadium, Inc., a Delaware corporation (the
"Company"), have entered into an Agreement and Plan of Merger, dated as of July
-------
2, 1998 (the "Merger Agreement"), pursuant to which, concurrently with the
----------------
execution and delivery of this Agreement, a wholly-owned subsidiary of JFF is
being merged with and into the Company, with the Company being the surviving
entity (the "Merger");
------
WHEREAS, effective concurrently with the effectiveness of the Merger,
the Company has restructured the credit facility provided for pursuant to its
Credit Agreement, dated as of January 17, 1997, between the Company and BNP, as
Initial Lender, Agent and Collateral Agent (the "BNP Credit Facility"), and all
-------------------
amounts outstanding under the secured credit facility provided for pursuant to
the Credit Agreement, dated as of January 17, 1997, among the Company, Sanwa
Business Credit Corporation, as Initial Lender, Co-Agent and Administrative
Agent, and BNP as Managing Agent and Documentation Agent (together with the BNP
Credit Facility, the "Old Facilities"), have been paid by JFF, and the
--------------
stockholders of the Company have been released from their guarantees of the
Company's obligations under the Old Facilities;
WHEREAS, effective concurrently with the effectiveness of the Merger,
the Subordinated Lenders who or which hold an interest in the Subordinated
Indemnification Note, dated January 17, 1997 (the "Indemnification Note"), have
--------------------
amended the terms thereof such that the entire principal amount thereof, plus
all accrued interest thereon, has been contributed to the capital of the
Company, and the holders of the Subordinated Convertible Promissory Notes, dated
September 10, 1997 (the "September 10th Subordinated Debt", and together with
--------------------------------
the Indemnification Note, the "Subordinated Debt") have also contributed to the
-----------------
capital of the Company the aggregate principal amount of indebtedness, plus
accrued interest thereon, outstanding under the September 10th Subordinated
Debt;
<PAGE>
WHEREAS, the Senior Lenders have agreed to the satisfaction and/or
restructuring of the indebtedness under the Old Facilities in such manner as to
facilitate the consummation of the Merger, including pursuant to the Debt
Restructuring Agreement of even date among the Company, BNP, the other Senior
Lenders and Sneaker Guarantee LLC (the "Debt Restructuring Agreement"), and the
----------------------------
Subordinated Lenders have agreed to contribute the Subordinated Debt to the
capital of the Company in part on condition that JFF agree to make the
contingent payments set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing, and the
representations, warranties, covenants and agreements contained herein, JFF
hereby agrees, for the benefit of the Contingent Payment Beneficiaries, as
follows:
ARTICLE I
CONTINGENT PAYMENTS
1.1. Payment of Contingent Amount; Other Payments. (a) JFF shall pay
---------------------------------------------
the Contingent Amount to BNP (i) on April 30, 2002, to the extent the EBITDA
Earn-Out Amount has been earned on or before January 31, 2002, (ii) as soon as
--
practicable after April 30, 2002, to the extent the EBITDA Earn-Out Amount is
in respect of the quarterly period ending April 30, 2002 and to the extent of
the amount described in Section 3.2(a), and (iii) on January 31, 2003, to the
---
extent of the Tax Sharing Amount, reduced by any previous payment of the amount
described in Section 3.2(a). JFF shall make such payment by wire transfer in
immediately available funds according to wire instructions provided to JFF by
BNP no later than the date that is five days prior to the Payment Date.
Notwithstanding the foregoing, in the event that, on or after April 30, 2002 or
such later date described in clause (ii), there is a Dispute, a Tax Dispute, a
Breach Dispute or a Net Inventory Dispute, the portion (or, if applicable, all)
of the Contingent Amount subject to such Dispute, Tax Dispute, Breach Dispute or
Net Inventory Dispute shall be paid within 5 days after the resolution of such
Dispute, Tax Dispute, Breach Dispute or Inventory Dispute in accordance with
Sections 2.2(b), 3.2(c), 2.4(b) or 4.3(b), as appropriate. For purposes of this
Agreement, the term "Payment Date" shall mean April 30, 2002, or such later date
------------
as payment is to be made in accordance herewith.
(b) On the Payment Date, the Thomas H. Lee Company (the
"Representative") shall pay to JFF an amount equal to the sum of (i) the Cash
- --------------- -
Indemnity Amount (if the Representative has elected to make any such payment
pursuant to Section 2.4(e)) and (ii) the Accountants and Arbitration Fee
--
Reimbursement Amount. Such payment shall be made by wire transfer in immediately
available funds according to
2
<PAGE>
wire instructions provided to the Representative by JFF no later than the date
that is five days prior to the Payment Date.
(c) If, on any Payment Date (other than January 31, 2003), JFF
determines in good faith (taking into account any income tax benefits expected
to be actually realized by JFF, the Company and their subsidiaries as a result
of any anticipated Contingent Amount payment) that there is a reasonable
possibility that the Tax Sharing Amount will be negative, and if the third
component of the EBITDA Earn-Out Amount under Section 2.1 has been earned, JFF
and the Representative shall agree to place in escrow such portion of the
Contingent Amount payable on any such Payment Date as is reasonably determined
by JFF in good faith to be equal to the absolute value of the Tax Sharing
Amount. On January 31, 2003, any such escrowed amount (including any interest
earned thereon) will be released to JFF to the extent that the Tax Sharing
Amount (as finally computed) is negative, and the remainder (including any
interest earned thereon) shall be released to the Representative.
1.2. Definition of Contingent Amount. For purposes of this Agreement,
--------------------------------
the "Contingent Amount" shall mean the Initial Contingent Amount as adjusted
-----------------
pursuant to Article IV. For purposes of this Agreement, the "Initial Contingent
------------------
Amount" shall mean the sum of (a) the EBITDA Earn-Out Amount and (b) the amount
- ------
described in Section 3.2(a) and (c) the Tax Sharing Amount (reduced by any
previous payments of the amount described in Section 3.2(a)), provided that if
--------
the EBITDA Earn-Out Amount is less than $25 million (i.e., the third component
- -
of the EBITDA Earn-Out Amount under Section 2.1(c) has not been earned), the
"Initial Contingent Amount" shall mean the EBITDA Earn-Out Amount. For the
- --------------------------
avoidance of doubt, in the event that the Tax Sharing Amount is a negative
number, the Initial Contingent Amount shall be reduced by the absolute value of
such negative Tax Sharing Amount, provided, that if the EBITDA Earn-Out Amount
--------
is less than $25 million (i.e., the third component of the EBITDA Earn-Out
- -
Amount under Section 2.1(c) has not been earned), no such reduction shall be
made.
ARTICLE II
EBITDA EARN-OUT
2.1. Definition of EBITDA Earn-Out Amount. For purposes of this
-------------------------------------
Agreement, the term "EBITDA Earn-Out Amount" shall mean the sum of the following
----------------------
five components:
3
<PAGE>
(a) $5 million, if the sum of the quarterly EBITDA for any four
consecutive quarters between the quarter commencing May 1, 1999 and
the quarter ending April 30, 2002 (the "Measurement Period") equals or
------------------
exceeds $12.5 million;
(b) an additional $10 million (so that after the achievement of this
second component, the aggregate amount payable would be $15 million),
if the sum of the quarterly EBITDA for any four consecutive quarters
during the Measurement Period equals or exceeds $15 million;
(c) an additional $10 million (so that after the achievement of the
second component and this third component, the aggregate amount
payable would be $25 million), if the sum of the quarterly EBITDA for
any four consecutive quarters during the Measurement Period equals or
exceeds $20 million;
(d) an additional $6 million (so that after the achievement of the
second and third components and this fourth component, the aggregate
amount payable would be $31 million), if the sum of the quarterly
EBITDA for any four consecutive quarters during the Measurement Period
equals or exceeds $25 million; and
(e) an additional $2 million (so that after the achievement of the
second, third and fourth components and this fifth component, the
aggregate amount payable would be $33 million), if the sum of the
quarterly EBITDA for any consecutive quarters during the Measurement
Period equals or exceeds $30 million.
The quarterly EBITDA for any quarter may be counted towards more than one of the
components of the EBITDA Earn-Out Amount set forth in clauses (a)-(e). In no
event may the aggregate EBITDA Earn-Out Amount exceed $33 million. The examples
contained in Schedule II hereto shall be deemed part of this definition.
2.2. Determination of Quarterly EBITDA. (a) As promptly as
---------------------------------
practicable, but no later than the 45th day following the end of any quarterly
period in the Measurement Period (or, in the event of a quarterly period ending
at the end of any fiscal year of the Company, the 60th day), JFF will cause the
Company to prepare and deliver to the Representative and BNP a certificate of
the Company, signed by the Chief Financial Officers of JFF and the Company,
setting forth EBITDA for such quarterly period, together with supporting
calculations (including Store income statements) in reasonable detail (the
"EBITDA Certificate"). The Representative (or its designated
-------------------
4
<PAGE>
agents), at reasonable times during business hours, upon advance notice to the
Company, shall have the right to inspect and make extracts from all of the
records, files and books of account of the Company relating to the EBITDA for
such quarterly period for purposes of verifying the amount of EBITDA set forth
in the EBITDA Certificate.
(b) The Representative shall have thirty (30) days from the receipt of
the EBITDA Certificate to notify JFF of any disagreements with respect to the
amount of EBITDA set forth in the EBITDA Certificate (a "Dispute"). If JFF has
-------
not received notice of any such Dispute within such thirty (30) day period, the
EBITDA reflected in the EBITDA Certificate will be subject only to adjustment
pursuant to Section 2.4. If, however, the Representative has delivered a notice
of such a Dispute to JFF within such period, then JFF and the Representative
shall seek to resolve any such Dispute between themselves. If JFF and the
Representative have not resolved such Dispute within forty-five (45) days of the
receipt of the EBITDA Certificate, JFF and the Representative shall retain an
independent accounting firm chosen according to the provisions of Section 6.8
(the "Accounting Firm"), and the Accounting Firm shall review the amount of the
---------------
EBITDA of the Company for such quarterly period, the books of the Company and
the EBITDA Certificate (and related information) to determine the amount, if
any, of the EBITDA of the Company for such quarterly period. The Accounting
Firm shall make its determination of the EBITDA for such quarterly period within
thirty (30) days of its retention. The determination of the Accounting Firm
shall be final and binding on the parties hereto. Subject to Sections 4.4 and
6.5(b), the costs of the Accounting Firm shall be borne by JFF.
(c) The EBITDA determined in accordance with the procedures set forth
in Section 2.2(a) and (b) shall not be affected by any subsequent audits or
financial statements prepared in connection with the quarterly and annual
reports of JFF except as described in Section 2.4 and Section 6.9.
2.3. Definition of EBITDA. (a) For purposes of this Agreement, the
---------------------
term "EBITDA" with respect to any quarterly period shall mean (i) the aggregate
------
net income of the stores identified in Schedule III hereto (the "Stores") for
------
such period, plus (ii) the consolidated interest expense, federal and state
income taxes, and depreciation and amortization of the Company and its
subsidiaries for such period, minus (iii) $650,000 per quarterly period. EBITDA
shall be adjusted for closed Stores as set forth in Section 2.3(b). EBITDA will
be calculated applying generally accepted accounting principles on a consistent
basis as previously applied by JFF.
(b) (i) JFF and the Company may close any of the Stores at any time,
including during the Measurement Period, and such closed Store will no longer be
included in the definition of "Stores" for all purposes hereunder; provided,
--------
that if any
5
<PAGE>
closed Store is Profitable, EBITDA shall be adjusted as set forth in Section
2.3(b)(ii). For purposes of this Agreement, the term "Profitable" with respect
----------
to any closed Store shall mean that the Store EBITDA of such closed Store is
greater than zero. The term "Store EBITDA" with respect to any closed Store
------------
shall mean the net income of such Store for the four-quarter period ending at
the end of the last full quarter prior to the closing of such Store, plus the
federal and state income taxes and depreciation and amortization attributable to
such Store during such period, calculated applying generally accepted accounting
principles on a consistent basis as previously applied by JFF.
(ii) In the event that the provisions of clause (i) above become
applicable with respect to a Store, the EBITDA of the Company for each quarterly
period following the closing of such Store shall be increased by twenty-five
percent (25%) of the Store EBITDA of such Store.
(c) For the avoidance of doubt, (i) any Store that is converted to a
store that utilizes any format of JFF, will, regardless of its trade name,
continue to be deemed a "Store" for all purposes of this Agreement, and (ii) any
charges taken by the Company that are related to store openings, whether during
the Measurement Period or otherwise, or that relate to closings of Stores prior
to the commencement of the Measurement Period and related reopening of any store
that utilizes any format of JFF stores, shall be excluded from the calculation
of any quarterly EBITDA. In addition, if at any time during the Measurement
Period, a Store is closed and within a year of such closing (but prior to the
end of the Measurement Period) a store that utilizes any format of JFF is opened
within 200 yards of such closed Store, any charges taken by the Company that are
related to such closing and any "going out of business" expenses and items of
revenue and income that are related to such Store, shall not constitute
reductions to any quarterly EBITDA. Charges and "going out of business"
expenses and items of revenue and income associated with Store closings shall,
except as otherwise set forth in this Section 2.3(c), be included in the
calculation of EBITDA for the quarterly period in which such Store was closed.
(d) EBITDA for any quarterly period within the Measurement Period
shall be further adjusted as described in Section 2.4.
2.4. Adjustment to EBITDA. (a) EBITDA for any quarterly period
--------------------
within the Measurement Period shall be reduced dollar for dollar by the amount
by which the aggregate amount of all Indemnifiable Losses discovered in such
quarterly period exceeds the Quarterly Basket Amount, provided, that EBITDA for
--------
the quarterly period ending July 31, 1999 shall be reduced dollar for dollar by
the amount by which the aggregate amount of all Indemnifiable Losses discovered
in such quarterly period or any prior quarterly period commencing after the date
hereof exceeds the Quarterly Basket
6
<PAGE>
Amount. For the avoidance of doubt, if the amount of the excess of the
applicable Indemnifiable Losses over the Quarterly Basket Amount exceeds the
corresponding EBITDA in any quarterly period, the EBITDA for such quarterly
period will be a negative number. The "Quarterly Basket Amount" shall mean
-----------------------
$50,000.
(b) For purposes of this Agreement, "Indemnifiable Loss" shall mean
------------------
any and all liabilities, obligations, losses, costs, deficiencies or damages
(whether absolute, accrued, conditional or otherwise and whether or not
resulting from third-party claims), including any penalties, relating to,
resulting from or arising out of any inaccuracy of the representations and
warranties made by the Company in Section 5.7(c) of the Merger Agreement. JFF
shall as promptly as practicable (but in any event within 30 days) notify the
Representative and BNP upon the discovery by JFF or the Company of any such
breach. The Representative (or its designated agents) shall have the right to
inspect and make extracts from all of the records, files and books of account of
the Company relating to the alleged breach for purposes of verifying whether
there was such a breach, at reasonable times during business hours, upon advance
notice to the Company. The Representative shall have thirty (30) days from the
receipt of the notice described above to notify JFF of any disagreement with
respect to whether there was a breach (a "Breach Dispute"). If JFF has not
--------------
received notice of any such Breach Dispute within such thirty (30) day period,
it will be deemed final that such a breach did occur. If, however, the
Representative has delivered a notice of such a Breach Dispute to JFF within
such period, then JFF and the Representative shall seek to resolve any such
Breach Dispute between themselves. If JFF and the Representative have not
resolved such Breach Dispute within forty-five (45) days of the receipt of the
notice described above, JFF and the Representative shall enter into arbitration
pursuant to Section 6.7 solely with respect to whether there was a breach that
would constitute an Indemnifiable Loss (and not with respect to the amount of
such Indemnifiable Loss, which will be determined solely in accordance with
Section 2.4(c)).
(c) The "amount" of any such Indemnifiable Loss for purposes of
------
Section 2.4(a) shall equal the amount of any reserve taken therefor in the
consolidated financial statements of JFF (regardless of when such reserve is
taken), or, if no reserve is taken, the aggregate amount of any charge against
earnings taken by JFF in its consolidated financial statements (regardless of
when such charge is taken), in each case as determined by JFF's regular
accountants applying generally accepted accounting principles on a consistent
basis as previously applied by JFF. Notwithstanding the foregoing, in the event
that any such reserve or charge is adjusted by JFF's regular accountants at any
time prior to the end of the Measurement Period, the "amount" of the
corresponding Indemnifiable Loss shall be retroactively adjusted accordingly.
7
<PAGE>
(d) In the event that no reserve is taken against an Indemnifiable
Loss, and such Indemnifiable Loss results or would result from a claim asserted
by a third party for which the Company, JFF or its respective subsidiaries would
be liable, promptly after the receipt by the Company, JFF or its respective
subsidiaries of notice of any claim, action, suit or proceeding by any person
who is not a party to this Agreement (collectively, an "Action") which
------
constitutes or could constitute an Indemnifiable Loss, JFF shall give reasonable
written notice to the Representative and BNP. JFF shall be entitled to exercise
full control of the defense, compromise or settlement of any such Action,
provided that neither the Company nor JFF shall settle or compromise any such
Action without the prior written consent of the Representative, which consent
shall not be unreasonably withheld.
(e) Notwithstanding anything to the contrary in this Section 2.4, the
Representative may notify JFF at least five days prior to the Payment Date of
its intention to pay in cash all or any portion of the aggregate amount of
Indemnifiable Losses determined pursuant to this Section 2.4 (such portion, the
"Cash Indemnity Amount"). The Cash Indemnity Amount shall be paid in cash to JFF
---------------------
in accordance with Section 1.1(b), and no adjustments to EBITDA shall be made
with respect to the portion of Indemnifiable Losses reflected in the Cash
Indemnity Amount.
2.5. JFF Covenant. JFF covenants and agrees that it shall not, and
-------------
it shall cause the Company not to, operate any of the Stores in a manner
intended to reduce or eliminate the Contingent Amount.
ARTICLE III
TAX SHARING
3.1. Definition of Tax Sharing Amount, etc. (a) For purposes of
--------------------------------------
this Agreement, the term "Tax Sharing Amount" shall mean the product of (a) 80%
------------------
and (b) the difference between (x) the difference between (i) the Notional Tax
Amount and (ii) the Actual Tax Amount and (y) $5 million.
(b) For purposes of this Agreement, (i) the term "Notional Tax Amount"
-------------------
shall mean the aggregate amount (discounted at an annual rate of 7.5% to its
present value as of the Closing Date (within the meaning of the Merger
Agreement)) of U.S. federal, state
8
<PAGE>
and local income tax that would have been payable by JFF, the Company and their
subsidiaries in respect of the Tax Measurement Period (A) if the Company did not
have a net operating loss carryover generated in taxable periods (or portions
thereof) ending on or prior to the Closing Date and (B) no payments are required
to be made by JFF pursuant to this Agreement (based on the relevant tax returns
as filed, giving effect to any amendments thereof, or if no tax returns were
filed with respect to any tax items, based on JFF's or the Company's good faith
estimate as to the amount, timing and other attributes of such tax items).
(ii) the term "Actual Tax Amount" shall mean the aggregate amount
-----------------
(discounted at an annual rate of 7.5% to its present value as of the Closing
Date) of U.S. federal, state and local income tax actually payable by JFF, the
Company and their subsidiaries in respect of the Tax Measurement Period (based
on the relevant tax returns as filed, giving effect to any amendments thereof,
or if no tax returns were filed with respect to any tax items, based on JFF's or
the Company's good faith estimate as to the amount, timing and other attributes
of such tax items) provided, that in the event that accrual or payment of the
--------
Contingent Amount gives rise to a net operating loss, the Actual Tax Amount
shall be computed as if such net operating loss had been carried back throughout
the Tax Measurement Period; and
(iii) the term "Tax Measurement Period" shall mean the period
----------------------
beginning after the Closing Date and ending on January 31, 2003.
(c) For purposes of this Agreement, any U.S. federal, state or local
income taxes attributable to a taxable period that begins before and ends after
the Closing Date shall be apportioned on the basis of the actual activities of
JFF, the Company and their subsidiaries, as determined from the books and
records of JFF, the Company and their subsidiaries for such partial period.
(d) JFF will not, without the consent of the Representative (which
consent may not be unreasonably withheld), make the election described in
Section 338(g) of the Code (or any comparable provision of state or local income
tax law) with respect to the Company or its subsidiaries.
3.2. Determination of Tax Amounts. (a) As soon as practicable after
----------------------------
April 30, 2002, provided that the third component of the EBITDA Earn-Out Amount
under Section 2.1(c) has been earned, JFF shall pay pursuant to Section
1.1(a)(ii) an amount equal to the sum of (i) the amount that would equal the Tax
Sharing Amount if the last day of the Tax Measurement Period were January 31,
2002 and (ii) to the extent not reflected in (i), 80% of the difference between
(A) the amount estimated by JFF to equal the aggregate U.S. federal, state and
local income tax savings that, as of the date of
9
<PAGE>
payment of such portion of the Tax Sharing Amount, will have been actually
realized by JFF, the Company and their subsidiaries as a result of paying or
being required to pay the Contingent Amount pursuant to this Agreement and (B)
$5 million. As soon as practicable after April 30, 2002, JFF will cause the
Company to prepare and deliver to the Representative a certificate of the
Company, signed by the Chief Financial Officers of JFF and the Company, setting
forth estimates of such amounts described in (i) and (ii), above, together with
supporting calculations in reasonable detail (the "Initial Tax Certificate").
-----------------------
The Representative (or its designated agents) shall have the right to inspect
the records, files and books of account of the Company relating to taxes of the
Company for purposes of verifying such estimates, at reasonable times during
business hours, upon advance notice to the Company. Any dispute arising with
respect to this Section 3.2(a) shall be governed by the Tax Dispute provisions
of Section 3.2(c).
(b) On or before the forty-fifth (45th) day prior to January 31,
2003, JFF shall cause the Company to prepare and deliver to the Representative a
certificate of the Company, signed by the Chief Financial Officers of JFF and
the Company, setting forth estimates of the Actual Tax Amount and the Notional
Tax Amount, together with supporting calculations in reasonable detail (the
"Estimated Tax Amount Certificate"). The Representative (or its designated
--------------------------------
agents) shall have the right to inspect the records, files and books of account
of the Company relating to taxes of the Company for purposes of verifying the
estimates of the Actual Tax Amount and the Notional Tax Amount, at reasonable
times during business hours, upon advance notice to the Company.
(c) The Representative shall have fifteen (15) days from the receipt
of the Estimated Tax Amount Certificate or the Initial Tax Certificate to notify
the Company of any disagreements with respect to the estimates set forth in the
Estimated Tax Amount Certificate or the Initial Tax Certificate (a "Tax
---
Dispute"). If JFF has not received notice of any such Tax Dispute within such
- -------
fifteen (15) day period, the Tax Sharing Amount (or amount described in Section
3.2(a), as the case may be) shall be computed by utilizing the estimates set
forth in the Estimated Tax Amount Certificate or the Initial Tax Certificate, as
the case may be. If, however, the Representative has delivered a notice of such
a Tax Dispute to JFF within such period, then JFF and the Representative shall
seek to resolve any such Tax Dispute between themselves. If JFF and the
Representative have not resolved such Tax Dispute within five (5) days of the
receipt of the notice of such Tax Dispute, JFF and the Representative shall
retain an independent accounting firm chosen according to the provisions of
Section 6.8 (the "Tax Accounting Firm"), and the Tax Accounting Firm shall
-------------------
review the books of the Company and other necessary and relevant information to
determine the Tax Sharing Amount (or amount described in Section 3.2(a), as the
case may be). The Tax Accounting Firm shall make such determination within
twenty (20) days of its retention. The determination of the Tax
10
<PAGE>
Accounting Firm shall be final and binding on the parties hereto. Subject to
Sections 4.4 and 6.5(b), the costs of the Tax Accounting Firm shall be borne by
JFF.
ARTICLE IV
ADJUSTMENT TO INITIAL CONTINGENT AMOUNT
4.1. Net Inventory Adjustment. In the event Net Inventory of the
------------------------
Company as of the opening of business in New York City on the date hereof
exceeds an amount equal to $37,500,100, the Initial Contingent Amount shall be
increased by such excess. In the event Net Inventory of the Company as of the
opening of business in New York City on the date hereof is less than an amount
equal to $36,500,100, the Initial Contingent Amount shall be decreased by such
deficiency.
4.2. Definition of Net Inventory. For purposes of this Agreement,
---------------------------
the term "Net Inventory" of the Company as of any date shall mean the sum of (a)
------------- -
inventories, net of reserves relating to inventories of the Company as of such
date and (b) cash (including cash equivalent and credit card receivables) of the
-
Company as of such date, less trade accounts payable of the Company as of such
date. Net Inventory shall be calculated using generally accepted accounting
principles applied consistently with the application thereof in connection with
the preparation of the Company's balance sheet as of April 30, 1998.
4.3. Determination of Net Inventory. (a) As promptly as practicable,
------------------------------
but no later than the 90th day following the date hereof, JFF shall cause the
Company to prepare and deliver to the Representative and BNP a certificate of
the Company, signed by the Chief Financial Officers of JFF and the Company,
setting forth Net Inventory of the Company as of the opening of business in New
York City on the date hereof, together with supporting calculations in
reasonable detail (the "Net Inventory Certificate"). The Representative (or its
-------------------------
designated agents) shall have the right to inspect and make extracts from all of
the records, files and books of account of the Company relating to the Net
Inventory as of such date for purposes of verifying the amount of Net Inventory
set forth in the Net Inventory Certificate, at reasonable times during business
hours, upon advance notice to the Company.
(b) The Representative shall have thirty (30) days from the receipt
of the Net Inventory Certificate to notify JFF of any disagreements with respect
to the amount of Net Inventory set forth in the Net Inventory Certificate (a
"Net Inventory Dispute"). If JFF has not received notice of any such Net
----------------------
Inventory Dispute within such thirty (30)
11
<PAGE>
day period, the Net Inventory reflected in the Net Inventory Certificate will be
final. If, however, the Representative has delivered a notice of such a Net
Inventory Dispute to JFF within such period, then JFF and the Representative
shall seek to resolve any such Net Inventory Dispute between themselves. If JFF
and the Representative have not resolved such Net Inventory Dispute within
forty-five (45) days of the receipt of the Net Inventory Certificate, JFF and
the Representative shall retain the Accounting Firm, and the Accounting Firm
shall review the amount of the Net Inventory of the Company as of such date, the
books of the Company and the Net Inventory Certificate (and related information)
to determine the amount of the Net Inventory of the Company as of such date. The
Accounting Firm shall make its determination of the Net Inventory as of such
date within thirty (30) days of its retention. The determination of the
Accounting Firm shall be final and binding on the parties hereto. Subject to
Sections 4.4 and 6.5(b), the costs of the Accounting Firm shall be borne by JFF.
(c) The Net Inventory determined in accordance with the procedures
set forth in Section 4.3(a) and (b) shall not be affected by any subsequent
audits or financial statements prepared in connection with the quarterly and
annual reports of JFF, provided that any physical inventory taken prior or
subsequent to the date hereof by JFF in connection with the determination of Net
Inventory may be used for purposes of such determination, and except as set
forth in Section 6.9.
4.4. Accountant's and Arbitration Fees Adjustments. The Initial
---------------------------------------------
Contingent Amount shall be reduced by an amount equal to the aggregate amount of
costs paid by JFF or the Company to any Accounting Firm, Tax Accounting Firm or
with respect to any arbitration called for under Section 2.4(b) or otherwise, in
connection with the resolution of a Dispute, a Tax Dispute, a Net Inventory
Dispute or a Breach Dispute or other dispute hereunder, respectively, if, with
respect to any such Dispute, Tax Dispute, Net Inventory Dispute, or other
dispute hereunder, (a) the Accounting Firm's determination of EBITDA under
Section 2.2(b) exceeded the EBITDA reflected in the EBITDA Certificate by less
than $250,000 (or the EBITDA reflected in the EBITDA Certificate exceeded the
Accounting Firm's determination thereof), (b) the Tax Accounting Firm's
determination of the Tax Sharing Amount (or the amount described in Section
3.2(a)) under Section 3.2(c) exceeded the Tax Sharing Amount (or the amount
described in Section 3.2(a)) reflected in the Estimated Tax Amount Certificate
or the Initial Tax Certificate, as the case may be, by less than $250,000 (or
the Tax Sharing Amount or the amount described in Section 3.2(a) reflected in
the Estimated Tax Amount Certificate or the Initial Tax Certificate, as the case
may be, exceeded the Tax Accounting Firm's determination thereof), (c) the
Accounting Firm's determination of Net Inventory under Section 4.3(b) exceeded
the Net Inventory reflected in the Net Inventory Certificate by less than
$250,000 (or the Net Inventory reflected in the Net Inventory Certificate
exceeded the Accounting Firm's determination thereof) or (d) the
12
<PAGE>
arbitrator decides in favor of JFF (or the Company) in connection with such
Breach Dispute or other dispute hereunder.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
JFF represents and warrants for the benefit of the Contingent Payment
Beneficiaries as follows:
5.1. Existence; Good Standing; Corporate Authority. It (a) is a
--------------------------------------------- -
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation and (b) is duly licensed or qualified
-
to do business as a foreign corporation and is in good standing under the laws
of any other jurisdiction in which the character of the properties owned or
leased by it or in which the transaction of its business makes such licensure,
qualification or good standing necessary, except where the failure to be so in
good standing or to be so licensed or qualified, individually or in the
aggregate, would not have a material adverse effect on the prospects, business,
assets (including intangible assets), properties, liabilities, results of
operations or condition (financial or otherwise) of JFF and its subsidiaries
taken as a whole (a "Material Adverse Effect") and would not impair the ability
-----------------------
of JFF to perform its obligations hereunder. It has the requisite corporate
power and authority to own, operate and lease its properties and carry on its
business as now conducted.
5.2. Authorization, Validity and Effect of Agreement. It has the
-----------------------------------------------
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. The execution and delivery of this
Agreement by it and the performance by it of its obligations hereunder have been
duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on its part are necessary for it to authorize this
Agreement or to perform its obligations hereunder. This Agreement has been duly
and validly executed and delivered by it, and constitutes its valid and binding
obligation, enforceable against it in accordance with its terms.
5.3. No Violation. Neither the execution and delivery by it of this
------------
Agreement nor the performance by it of its obligations hereunder will: (a)
-
violate, conflict with or result in a breach of any provisions of its
Certificate of Incorporation or Bylaws (or comparable constituent documents);
(b) violate or conflict in any material respect with, result in a breach of any
-
material provision of, constitute a
13
<PAGE>
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, result in the termination or in a right of
termination of, accelerate the performance required by or benefit obtainable
under, result in the vesting, triggering or acceleration of any material payment
or other material obligations pursuant to, result in the creation of any
material encumbrance upon any of its properties under, or result in there being
declared void, voidable, subject to withdrawal, or without further binding
effect, any of the material terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust or any material license, franchise, permit,
lease, contract, agreement or other material instrument, commitment or
obligation to which it is a party, by which it or any of its properties is
bound, or under which it or any of its properties is entitled to a benefit; (c)
-
other than any filings under the Securities Exchange Act of 1934 or filings in
connection with the maintenance of qualification to do business in other
jurisdictions, require any consent, approval or authorization of, or
declaration, filing or registration with, any federal, state, local or foreign
judicial, legislative, executive, administrative or regulatory body or authority
or any court, arbitration board or tribunal, except for those consents,
approvals, authorizations, declarations, filings or registrations the failure of
which to obtain or make individually or in the aggregate would not have a
Material Adverse Effect or impair the ability of JFF to perform its obligations
hereunder; or (d) violate in any material respect any laws applicable to it or
-
any of its assets.
ARTICLE VI
MISCELLANEOUS
6.1. [RESERVED]
6.2. Notices. Any notice required to be given hereunder shall be
-------
sufficient if in writing, and sent by facsimile transmission (with a
confirmatory copy sent by overnight courier), by courier service (with proof of
service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed to the addresses set forth
in Schedule IV hereto or to such other address as any party shall specify by
written notice so given, and such notice shall be deemed to have been delivered
as of the date received.
6.3. Assignment; Binding Effect; Third Party Beneficiaries. Neither
-----------------------------------------------------
this Agreement nor any of the rights, interests or obligations hereunder shall
be
14
<PAGE>
assigned by JFF (except by operation of law). Subject to the preceding sentence,
this Agreement shall be binding upon JFF and its successors and assigns, and
shall inure to the benefit of the Contingent Payment Beneficiaries, the
Representative and their respective successors and assigns who shall be entitled
to enforce this Agreement against JFF. Notwithstanding anything contained in
this Agreement to the contrary, (i) nothing in this Agreement, expressed or
-
implied, is intended to confer on any person other than JFF, the Representative
and the Contingent Payment Beneficiaries and their respective heirs, successors,
executors, administrators and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, (ii) neither the
--
Representative nor any Contingent Payment Beneficiary other than BNP shall have
any right hereunder to receive any amounts from JFF, (iii) without limitation of
---
the rights of the Representative under this Agreement, the Subordinated Lenders
under this Agreement shall have no right or claim whatsoever against BNP
hereunder and (iv) the right of (A) the Representative to receive any portion of
-- -
the Contingent Amount which is paid to BNP hereunder shall be solely as and to
the extent provided in the Debt Restructuring Agreement and (B) the Subordinated
-
Lenders to receive any portion of the Contingent Amount which is paid to the
Representative pursuant to the Debt Restructuring Agreement shall be solely as
and to the extent provided in the Amendment, Waiver and Consent Agreement dated
as of June 29, 1998 by and among the Company, certain Subordinated Lenders, BNP
and Sanwa Business Credit Corporation ("Sanwa"), as agent as described therein,
-----
and in the Amendment and Termination Agreement dated as of June 29, 1998 by and
among the Company, the persons listed on Exhibit A thereto and Sanwa, for its
own benefit and the benefit of certain lenders for which it serves as
Administrative Agent as described therein.
6.4. Entire Agreement. This Agreement, as accepted and acknowledged
----------------
by the Representative, and the Merger Agreement constitute the entire agreement
of JFF with respect to the subject matter hereof and supersede all prior
agreements and understandings of JFF with respect to such subject matter.
6.5. Fees and Expenses. (a) Except as set forth in Sections 2.2,
-----------------
3.2, 4.3 and 4.4, and as contemplated by Section 5.13 of the Merger Agreement,
all costs and expenses incurred in connection with the transactions contemplated
by this Agreement shall be paid by the party incurring such expenses.
(b) In the event that the costs described in Section 4.4 and paid by
JFF or the Company exceed the Initial Contingent Amount (such excess, the
"Accountants and Arbitration Fee Reimbursement Amount"), the Representative
-----------------------------------------------------
shall pay to JFF an amount equal to the Accountants and Arbitration Fee
Reimbursement Amount on the Payment Date in accordance with the terms of Section
1.1(b).
15
<PAGE>
6.6. Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL
-------------
RESPECTS, INCLUDING AS TO VALIDITY, INTER PRETATION AND EFFECT, BY THE LAWS OF
THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW RULES OF SUCH STATE.
For purposes of Section 6.7(e), the parties hereto hereby irrevocably submit to
the jurisdiction of the courts of the State of New York and the Federal courts
of the United States of America located in the State of New York solely in
respect of the interpretation and enforcement of the provisions of Section 6.7,
and hereby waive and agree not to assert as a defense in any action, suit or
proceeding for the interpretation or enforcement of the provisions of Section
6.7, that it is not subject thereto or that such action, suit or proceeding may
not be brought or is not maintainable in said courts or that the venue thereof
may not be appropriate or that the provisions of Section 6.7 may not be enforced
in or by said courts.
6.7. Dispute Resolution. (a) Any controversy or claim arising out
------------------
of or relating to this Agreement, or the breach, termination, validity or
enforceability hereof, or the transactions contemplated by this Agreement, shall
be finally and exclusively settled by arbitration in accordance with this
Section 6.7, provided that the provisions of this Section 6.7 shall not apply
--------
with respect to any Dispute, Tax Dispute or Net Inventory Dispute, which shall
be governed by Sections 2.2(b), 3.2(c) and 4.3(b), respectively.
(b) Notwithstanding Section 6.7(a), any party may seek injunctive
or similar extraordinary judicial relief if in its judgment such action is
necessary to avoid irreparable damage.
(c) The arbitration shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the "AAA")
---
in effect as at the time of the arbitration, except as they may be modified in
this Agreement or by mutual agreement of the parties. The arbitration shall be
held in New York City. The arbitration proceedings, all documents and all
testimony, written or oral, produced in connection therewith shall be
confidential except as required by law. The arbitrators shall have no power to
act as amiable compositors. The arbitrators shall have authority to award
relief under legal or equitable principles, including interim and preliminary
relief. This Section 6.7 sets forth the exclusive remedy between the parties
with respect to any breach hereof or dispute hereunder (except with respect to a
Dispute, a Tax Dispute or a Net Inventory Dispute). The arbitral award shall be
final and binding on the parties to the arbitration, except as otherwise
provided by applicable law.
(d) The party or parties seeking arbitration (the "Claimant") shall
--------
appoint its or their arbitrator in a demand for arbitration. Within 30 days of
receipt of such demand, the other party or parties to the arbitration named in
such demand (the
16
<PAGE>
"Respondent") shall appoint its or their arbitrator and shall notify the
----------
Claimant of such appointment in writing. If the Respondent fails to appoint an
arbitrator within such 30-day period, the arbitrator named in the demand shall
decide the controversy or claim as a sole arbitrator. Otherwise, the two
arbitrators appointed by the parties shall appoint a third arbitrator within 30
days after the Claimant has received notice from the Respondent. When the
arbitrators appointed by the Claimant and Respondent have appointed a third
arbitrator and the third arbitrator has accepted the appointment, the two
arbitrators shall promptly notify the parties of the appointment of the third
arbitrator. If any party fails to timely appoint an arbitrator or if the two
arbitrators appointed by the parties fail or are unable to appoint a third
arbitrator within such 30-day period, either the Claimant or the Respondent may
request the AAA to appoint such arbitrator, which shall promptly notify the
parties of the appointment. The third arbitrator shall act as chairman of the
arbitration panel.
(e) Any action to enforce this Section 6.7, prior to the selection of
the arbitration panel, or to enforce an award or determination made by the
arbitrator, shall be brought in the federal or state courts located in the State
of New York as contemplated by Section 6.6. Notwithstanding the foregoing and
Section 6.6, judgment upon any award rendered by the arbitration panel may be
entered, and such award or the judgment on such award may be enforced, in any
court having jurisdiction over the parties or their assets.
(f) Subject to Sections 4.4 and 6.5(b), all costs of the arbitration
(including the arbitrator's and attorneys' fees and costs) relating to an
arbitration called for under Section 2.4(b) or otherwise shall be borne by JFF.
(g) The arbitration process set forth herein is a compromise
negotiation and dispute resolution process. The parties will maintain in
confidence all offers, promises, conduct and statements, whether oral or
written, made in the course of the process by any of the parties, their agents,
employees, experts and attorneys. Such offers, promises, conduct and statements
shall be treated as if subject to Rule 408 of the Federal Rules of Evidence and
the corresponding state evidentiary rules, and therefore, are inadmissable and
not discoverable for any purpose, including impeachment, in litigation among the
parties. However, evidence which is otherwise admissible or discoverable shall
not be rendered inadmissible as a result of its use or presentation in this
process.
(h) All statutes of limitations applicable to claims subject to an
arbitration shall be tolled during the pendency of the arbitration, and the
parties agree to execute and deliver such documents as may be necessary to
effectuate the tolling.
17
<PAGE>
(i) The parties shall make available to the arbitration panel all
information requested by the arbitration panel in accordance with the Commercial
Arbitration Rules of the AAA, including, but not limited to, production of all
relevant records and documents. All notices and other communications required
to be delivered pursuant to the Commercial Arbitration Rules of the AAA shall be
delivered to the addresses specified in Section 6.2.
6.8. Selection of Accounting Firm and Tax Accounting Firm. At any
-----------------------------------------------------
time that it becomes necessary to select an independent accounting firm pursuant
to Section 2.2(b), 3.2(c) or 4.3(b), the Representative shall promptly submit to
JFF the names of two nationally recognized independent public accounting firms,
and within 5 days of such submission, JFF will select one of the two firms, and
such firm shall become the Accounting Firm or the Tax Accounting Firm, as the
case may be. The two firms to be submitted by the Representative shall not have
performed any material accounting services directly for the Representative or
for BNP for the three fiscal years preceding the date of such selection. For
the avoidance of doubt, the procedure described in this Section 6.8 shall be
followed each time that a Dispute, a Tax Dispute or a Net Inventory Dispute
arises requiring the use of an Accounting Firm or a Tax Accounting Firm.
6.9. Certain Retroactive Adjustments. In the event that prior to
-------------------------------
the end of the Measurement Period, JFF determines that an error was made in the
calculation of EBITDA for any quarterly period or in the calculation of Net
Inventory, such EBITDA or Net Inventory shall be adjusted retroactively, and
such adjustment shall be subject to the applicable dispute resolution mechanisms
and provisions regarding accountant's fees as the original determinations of
EBITDA and Net Inventory. The Representative may notify JFF that an error has
been made in such calculation, and JFF shall consider in good faith whether to
make a retroactive adjustment, provided that if JFF does not make such
--------
adjustment within thirty (30) days of such notice, the Representative may invoke
the dispute resolution mechanics of Sections 2.2(b) or 4.3(b), as applicable,
and the Accounting Firm's fees shall be treated in the same way they are treated
in the original determination of EBITDA and Net Inventory.
6.10. Severability. Any term or provision of this Agreement which
------------
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
18
<PAGE>
6.11. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
DEFINITIONS
<TABLE>
<CAPTION>
Defined Term Section Reference
------------ -----------------
<S> <C>
"AAA" Section 6.7(c)
---
"Accountants and Arbitration Fee Reimbursement Amount" Section 6.5(b)
----------------------------------------------------
"Accounting Firm" Section 2.2(b)
---------------
"Action" Section 2.4(d)
------
"Actual Tax Amount" Section 3.1(a)
-----------------
"Agreement" First Paragraph
---------
"BNP" First Paragraph
---
"Breach Dispute" Section 2.4(b)
--------------
"Cash Indemnity Amount" Section 2.4(e)
---------------------
"Claimant" Section 6.7(d)
--------
"Company" Recitals
-------
"Contingent Amount" Section 1.2
-----------------
"Contingent Payment Beneficiaries" First Paragraph
--------------------------------
"Debt Restructuring Agreement" Recitals
----------------------------
"Dispute" Section 2.2(b)
-------
"EBITDA" Section 2.3
------
"EBITDA Certificate" Section 2.2(a)
------------------
"EBITDA Earn-Out Amount" Section 2.1
----------------------
"Estimated Tax Amount Certificate" Section 3.2(a)
--------------------------------
"Indemnifiable Loss" Section 2.4(b)
------------------
"Initial Contingent Amount" Section 1.2
-------------------------
"JFF" First Paragraph
---
"Material Adverse Effect" Section 5.1
-----------------------
"Measurement Period" Section 2.1(a)
------------------
"Initial Tax Certificate" Section 3.2(a)
-----------------------
"Merger" Recitals
------
"Merger Agreement" Recitals
----------------
"Net Inventory" Section 4.2
-------------
"Net Inventory Certificate" Section 4.3(a)
-------------------------
"Net Inventory Dispute" Section 4.3(b)
---------------------
"Notional Tax Amount" Section 3.1(b)
-------------------
"Old Facilities" Recitals
--------------
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
"Payment Date" Section 1.1(a)
------------
"Profitable" Section 2.3(b)
----------
"Quarterly Basket Amount" Section 2.4(a)
-----------------------
"Representative" Section 1.1(a)
--------------
"Respondent" Section 6.7(d)
----------
"Senior Leaders" First Paragraph
--------------
"Stores" Section 2.3(a)
------
"Store EBITDA" Section 2.3(b)
------------
"Subordinated Debt" Recitals
-----------------
"Subordinated Lenders" First Paragraph
--------------------
"Tax Accounting Firm" Section 3.2(c)
-------------------
"Tax Dispute" Section 3.2(c)
-----------
"Tax Measurement Period" Section 3.1(b)
----------------------
"Tax Sharing Amount" Section 3.1(a)
------------------
</TABLE>
20
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
JUST FOR FEET, INC.
By: /s/ Eric L. Tyra
---------------------------------------
Name: Eric L. Tyra
Title: Executive Vice President
Accepted and Acknowledged
BANQUE NATIONALE DE PARIS
By: /s/ Richard Cushing
-----------------------------------------
Name: Richard Cushing
Title: Vice President
By: /s/ Paul Barnes
-----------------------------------------
Name: Paul Barnes
Title: AVP
THOMAS H. LEE COMPANY,
solely in its capacity as Representative
By: /s/ Warren C. Smith, Jr.
-----------------------------------------
Name: Warren C. Smith, Jr.
Title: Managing Director
21
<PAGE>
EXHIBIT 10.18
________________________________________________________________________________
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
between
JUST FOR FEET, INC.
and
SNEAKER GUARANTEE LLC
July 2, 1998
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I GENERAL DEFINITIONS.............................................. 1
Section 1.1 Defined Terms.................................................... 1
Section 1.2 Other Definitional Provisions.................................... 6
ARTICLE II SALE AND PURCHASE OF UNITS; PAYMENT
AND DELIVERIES; CLOSING.......................................... 6
Section 2.1 Sale and Purchase of Units....................................... 6
Section 2.2 Payment and Deliveries........................................... 6
Section 2.3 Closing.......................................................... 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
THE COMPANY...................................................... 7
Section 3.1 Corporate Organization........................................... 7
Section 3.2 Authorization; Validity.......................................... 8
Section 3.3 No Violation..................................................... 8
Section 3.4 Consents......................................................... 9
Section 3.5 Sec Documents.................................................... 9
Section 3.6 Liabilities..................................................... 10
Section 3.7 No Material Adverse Change...................................... 10
Section 3.8 Capitalization.................................................. 10
Section 3.9 Registration Rights............................................. 11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE INVESTORS................................................... 11
Section 4.1 Organization.................................................... 11
Section 4.2 Authorization; Validity......................................... 11
Section 4.3 No Violation.................................................... 11
Section 4.4 Consents........................................................ 12
Section 4.5 Investment Representations, Etc................................. 12
ARTICLE V BOARD REPRESENTATION AND OTHER COVENANTS........................ 14
Section 5.1 Board Designee.................................................. 14
Section 5.2 Observer and Monitoring Rights.................................. 15
Section 5.3 Lock-Up......................................................... 16
ARTICLE VI MISCELLANEOUS................................................... 17
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 6.1 Amendments; Assignment.......................................... 17
Section 6.2 Expenses........................................................ 18
Section 6.3 Waiver.......................................................... 18
Section 6.4 Severability.................................................... 18
Section 6.5 Parties......................................................... 18
Section 6.6 Entire Agreement................................................ 18
Section 6.7 Equitable Relief................................................ 18
Section 6.8 Governing Law................................................... 19
Section 6.9 Notices......................................................... 19
Section 6.10 Section Titles.................................................. 20
Section 6.11 Number and Person............................................... 20
Section 6.12 Non-Compete..................................................... 20
Section 6.13 Counterparts.................................................... 21
</TABLE>
Exhibits
Exhibit A - Form of Registration Rights Agreement
Exhibit B - Form of Warrant
ii
<PAGE>
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
-------------------------------------------
THIS COMMON STOCK AND WARRANT PURCHASE AGREEMENT (this "Agreement") is
made as of the 2nd day of July, 1998, between Just For Feet, Inc., a Delaware
corporation (the "Company"), and Sneaker Guarantee LLC, a Delaware limited
liability company (the "Investor"), and for purposes of Section 5.2 and Article
VI only, Thomas H. Lee Company ("THL"), and, for purposes of Sections 5.1, 5.4,
6.1 through 6.11 and 6.13 only, Harold Ruttenberg.
The Company desires to sell to the Investor, and the Investor desires
to purchase from the Company, securities of the Company consisting of 926,355
units (the "Units"), each comprised of one share of Common Stock and one Warrant
to purchase .99701626 of a share of Common Stock, upon the terms and subject to
the conditions set forth herein.
In consideration of the foregoing and the respective representations,
warranties, covenants and agreements hereinafter set forth, and for other good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the parties hereto, intending to be legally
bound hereby, agree as follows:
ARTICLE I
GENERAL DEFINITIONS
-------------------
Section 1.1 Defined Terms. Capitalized terms, when used herein, shall
-------------
have the following meanings (unless defined elsewhere in this Agreement):
"Affiliate" means, with respect to any Person, any other Person that
---------
directly or indirectly through one or more intermediaries controls, or is
under
<PAGE>
common control with, or is controlled by, such Person. As used in this
definition and in Section 5.1, "control" means the power, directly or
indirectly, to direct or cause the direction of management or policies of a
Person (through ownership of voting securities or other equity interests,
by contract or otherwise).
"Agreement" means this Common Stock and Warrant Purchase Agreement, as
---------
the same may be from time to time amended, modified or supplemented.
"Board" means the Company's Board of Directors.
-----
"Business Day" means any day other than a Saturday or Sunday on which
------------
banks are not authorized or required to close in New York, New York.
"Certificate of Formation" means the Certificate of Formation of the
------------------------
Investor filed by the Investor with the Secretary of State of the State of
Delaware, as it may be amended from time to time.
"Closing" means the consummation of the transaction contemplated in
-------
this Agreement.
"Closing Date" means the date of this Agreement.
------------
"Common Shares" means, collectively, the Purchased Shares and the
-------------
Warrant Shares.
"Common Stock" means the Common Stock, par value $.0001 per share, of
------------
the Company.
"Company" means Just For Feet, Inc., a Delaware corporation, and its
-------
successors.
2
<PAGE>
"Consents" has the meaning specified in Section 3.4 of this Agreement.
--------
"Contingent Payment Agreement" means the Contingent Payment Agreement
----------------------------
to be dated as of the Closing Date, in substantially the form attached as
Schedule I to the Sneaker Merger Agreement.
"Employee Options" means those stock options that have been or may be
----------------
issued, as determined by the Company's Board of Directors, to employees of
the Company pursuant to the Company's stock option plans adopted by the
Company's Board of Directors.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"GAAP" means generally accepted accounting principles set forth in the
----
Opinions of the Account ing Principles Board of the American Institute of
Certified Public Accountants and in statements by the Financial Accounting
Standards Board that are applicable to the circumstances as of the date of
determination; and the requisite that such principles be applied on a
consistent basis shall mean that the accounting principles observed in a
current period are comparable in all material respects to those applied in
a preceding period.
"HSR" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
---
as amended.
"Investor" has the meaning specified in the first paragraph of this
--------
Agreement.
"Investor LLC Agreement" means the Limited Liability Company Agreement
----------------------
of the Investor dated the date hereof, as it may be amended from time to
time.
3
<PAGE>
"JFF Merger Corp." means JFF Merger Corp., a Delaware corporation and,
----------------
immediately prior to consummation of the merger provided for in the Sneaker
Merger Agreement, a wholly owned subsidiary of the Company.
"Lien" means any interest in any property or asset in favor of a
----
Person other than the owner of the property or asset and securing an
obligation owed to such Person, whether such interest is based on the
common law, statute or contract, including, but not limited to, the
security interest lien arising from a mortgage, encumbrance, pledge,
conditional sale, security agreement or trust receipt, or a lease,
consignment or bailment for security purposes.
"Majority Holders" has the meaning specified in Section 5.3 of this
----------------
Agreement.
"Material Adverse Effect" means a material adverse effect on the
-----------------------
business, properties, assets, results of operations or financial condition
of the Company and its Subsidiaries taken as a whole.
"Member" means any Person who is a member of the Investor, including
------
any Person who is admitted as such a member after the date hereof in
accordance with the Investor LLC Agreement.
"Merger" means the merger of Merger Sub with and into Sneaker pursuant
------
to the Sneaker Merger Agreement.
"Merger Sub" means JFF Merger Corp., a Delaware corporation and a
----------
wholly owned subsidiary of the Company.
"Other Agreements" means the Warrants, the Registration Rights
----------------
Agreement and all certificates
4
<PAGE>
and other instruments executed by or on behalf of the Company prior to or
at the Closing and delivered to the Investors pursuant to this Agreement.
"Permitted Holder" has the meaning specified in Section 5.3 of this
----------------
Agreement.
"Permitted Transaction" has the meaning specified in Section 5.3 of
---------------------
this Agreement.
"Permitted Transaction Purchasers" has the meaning specified in
--------------------------------
Section 5.3 of this Agreement.
"Permitted Transaction Seller" has the meaning specified in Section
----------------------------
5.3 of this Agreement.
"Permitted Transferees" has the meaning speci fied in Section 5.1 of
---------------------
this Agreement.
"Person" means an individual, partnership, corporation, limited
------
liability company, association, trust, unincorporated organization or any
other entity or organization, including a government or any agency or
political subdivision thereof.
"Preferred Stock" means the Preferred Stock, par value $.0001 per
---------------
share, of the Company.
"Purchase Price" has the meaning specified in Section 2.1 of this
--------------
Agreement.
"Purchased Shares" means the 926,355 shares of Common Stock included
----------------
in the Units to be purchased by the Investors hereunder.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement by and among the Company and the Investor, substantially in the
form of Exhibit A hereto, to be entered into at the Closing.
---------
5
<PAGE>
"Ruttenberg" means Harold Ruttenberg.
----------
"SEC" means the Securities and Exchange Commission.
---
"SEC Documents" has the meaning specified in Section 3.5 of this
-------------
Agreement.
"Securities" means, collectively, the Warrants and the Common Shares,
----------
and any securities into which or for which such securities shall be
changed, converted or exchanged.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Sneaker" means Sneaker Stadium, Inc., a Delaware corporation.
-------
"Sneaker Merger Agreement" means the Agreement and Plan of Merger
------------------------
dated as of July 2, 1998 among the Company, Merger Sub and Sneaker.
"Subsidiary" has the meaning specified in Rule 12b-2 under the
----------
Exchange Act.
"THL" has the meaning specified in the first paragraph of this
---
Agreement.
"Units" has the meaning specified in the preambles of this Agreement.
-----
"Warrants" means the warrants included in the Units to be purchased by
--------
the Investor hereunder, to purchase an aggregate of 923,591 shares of
Common Stock, substantially in the form of Exhibit B hereto, and any
---------
warrant or warrants issued in ex change or substitution therefor.
6
<PAGE>
"Warrant Shares" means the shares of Common Stock issuable upon
--------------
exercise of the Warrants.
Section 1.2 Other Definitional Provisions. All definitions contained
-----------------------------
in this Agreement are equally applicable to the singular and plural form of the
term defined. The words "hereof," "herein," and "hereunder" and words of like or
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement. Unless otherwise
specified, all Article and Section references pertain to this Agreement and all
Exhibit references pertain to Exhibits to this Agreement, which are hereby
incorporated herein for all purposes. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP.
ARTICLE II
SALE AND PURCHASE OF UNITS;
---------------------------
PAYMENT AND DELIVERIES; CLOSING
-------------------------------
Section 2.1 Sale and Purchase of Units. Upon the terms set forth in
--------------------------
this Agreement, and in reliance upon the representations and warranties
contained herein, at the Closing, the Company will issue and sell to the
Investor, and the Investor will purchase and accept from the Company, the Units
for an aggregate consideration of twenty million dollars ($20,000,000) (the
"Purchase Price"). The parties agree that (i) no services were rendered by the
Investor (or by any Member or any Affiliate of the Investor or of any Member)
to the Company, Sneaker or any of their Subsidiaries in connection with the
purchase of the Units,(ii) the Purchase Price shall be allocated $15 million to
the Purchased Shares and $5 million to the Warrants and (iii) they shall prepare
and file all tax returns on a basis consistent with the foregoing and shall take
no position
7
<PAGE>
inconsistent with the foregoing in any proceeding before any taxing authority
or for any other tax purpose.
Section 2.2 Payment and Deliveries. At the Closing (a) the Company
----------------------
is delivering to the Investor (i) a duly executed stock certificate, registered
in the name of the Investor, representing the Purchased Shares, (ii) a duly
executed Warrant, registered in the name of the Investor, representing the right
to purchase 923,591 Warrant Shares, and (iii) the Other Agreements duly executed
by the Company, and an opinion or opinions of counsel for the Company, and other
documents, in the respective forms previously agreed between the Company and the
Investor, against (b) the delivery by the Investor, to the Company of (i) the
Purchase Price, by wire transfer(s) of immediately available funds in accordance
with the Company's instructions, which instructions shall have been given in
writing to the Investor no later than three (3) Business Days prior to the
Closing and (ii) an opinion of counsel for the Investor, and a certificate
executed by the Investor, in the respective forms previously agreed between the
Company and the Investor.
Section 2.3 Closing. The Closing is taking place on the date hereof
-------
concurrently with the execution and delivery of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company hereby represents and warrants to the Investor as follows:
Section 3.1 Corporate Organization. (a) The Company and each of its
----------------------
Subsidiaries is a duly incorpo rated and validly existing corporation (or other
Person) in good standing under the laws of the
8
<PAGE>
jurisdiction of its organization; (b) the Company and each of its Subsidiaries
has all necessary corporate power (or comparable power, in the case of a
Subsidiary that is not a corporation) to own the property and assets it uses in
its business and otherwise to carry on its business; and (c) the Company and
each of its Subsidiaries is duly licensed or qualified and in good standing in
each jurisdiction in which the nature of the business transacted by it or the
nature of the property owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not reason ably be expected to have a Material Adverse Effect. The Company
is not in violation of any term of its Certifi cate of Incorporation or of its
Bylaws, each as currently in effect. The Company has previously delivered to the
Investors true and correct copies of its Certificate of Incorporation and Bylaws
as currently in effect and true and correct copies of forms of such documents as
will be in effect at and as of the Closing (after consummation of the
Reincorporation Merger).
Section 3.2 Authorization; Validity.
-----------------------
(a) The Company has the corporate power and authority to
execute, deliver and perform its obligations under, and to consummate the
transactions contemplated by, this Agreement and the Other Agreements, and has
taken all necessary corporate action to authorize the execution, delivery and
performance by the Company of, and consummation by the Company of the
transactions contemplated by, this Agreement and the Other Agreements. This
Agreement has been, and upon the execution and delivery by the Company of the
Other Agreements such Other Agreements will be, duly and validly executed and
delivered by the Company and constitutes or, in the case of the Other
Agreements, will constitute, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms.
9
<PAGE>
(b) The issuance, sale and delivery of the Securities in
accordance with this Agreement or the Warrants, as applicable, have been duly
authorized by all requisite corporate action on the part of the Company, and,
when issued, sold and delivered in accordance with this Agreement or the
Warrants, as applicable, will be duly and validly issued and, in the case of the
Common Shares, fully paid and nonassessable, and such issuance, sale and
delivery will not give rise to any preemptive rights on the part of any Person.
When so issued, sold and delivered, the Securities will be free and clear of any
and all Liens, claims or encumbrances imposed by action of the Company, except
as provided in this Agreement.
Section 3.3 No Violation. Neither the execution, delivery nor
------------
performance by the Company of this Agreement and the Other Agreements, nor
compliance by the Company with the terms and provisions hereof and thereof, nor
the consummation by it of the transactions contem plated herein or therein,
will (a) contravene any applicable provision of any law, statute, rule or
regulation, or any applicable order, writ, injunction or decree of any court or
governmental instrumentality, (b) conflict with or result in any breach of any
term, covenant, condition or other provision of, or constitute a default under
(except where such conflict, breach or default would not reasonably be expected
to have a Material Adverse Effect), or result in the creation or imposition of
(or the obligation to create or impose) any Lien other than pursuant to this
Agreement upon any of the property or assets of the Company under the terms of
any contractual obligation to which the Company is a party or by which it or
any of its properties or assets are bound or to which it may be subject, or (c)
violate or conflict with any provision of the Certificate of Incorporation or
the Bylaws of the Company.
Section 3.4 Consents. All consents, approvals, orders or
--------
authorizations of, or registrations,
10
<PAGE>
declarations or filings with, all governmental agencies, authorities or
instrumentalities or any other Person ("Consents") required to be obtained or
made by the Company in connection with the execution, delivery and performance
by the Company of this Agreement and the Other Agreements, and the consummation
by the Company of the transactions contemplated hereby and thereby, have been
obtained or made and are in full force and effect, except for (i) governmental
Consents contemplated by the Registration Rights Agreement in connection with
any registration pursuant thereto of Securities under the Securities Act and
(ii) such Consents the failure of which to be obtained or made would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Section 3.5 SEC Documents. The Company has timely filed each report,
-------------
schedule, registration statement and definitive proxy statement required to be
filed by the Company with the SEC since January 1, 1996 (such documents are
referred to herein as the "SEC Documents"). As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the applicable rules
and regulations of the SEC thereunder, and none of the SEC Documents, as of
their respective dates, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
SEC Documents complied, as of their respective dates, in all material respects
with all applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
GAAP consistently applied (except as may be indicated in the notes thereto or,
in the case of unaudited statements, as permitted by Form 10-Q of the SEC) and
fairly present in all material respects the
11
<PAGE>
consolidated financial position of the Company as at the dates thereof and the
consolidated results of its operations, cash flows and changes in financial
position for the periods indicated therein.
Section 3.6 Liabilities. All liabilities or obligations of the
-----------
Company of any nature (whether accrued, absolute, contingent or otherwise)
which were incurred after January 31, 1998 were incurred in the ordinary course
of business, and individually or in the aggregate, have not had, and would not
reasonably be expected to have, a Material Adverse Effect.
Section 3.7 No Material Adverse Change. Except as disclosed in the
--------------------------
SEC Documents filed prior to the date of this Agreement and furnished to the
Investors, since January 31, 1998 the Company has not suffered or, to the
Company's knowledge, been threatened with, any change having, or that would
reasonably be expected to have, a Material Adverse Effect.
Section 3.8 Capitalization. The authorized capital stock of the
--------------
Company consists of 70,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock. As of June 29, 1998, there were outstanding (a) 30,171,921
shares of Common Stock, (b) Employee Options to purchase an aggregate of
3,790,711 shares of Common Stock, (c) non-employee director options to purchase
252,500 shares of Common Stock and (d) no shares of Preferred Stock. There are
currently 6,181,250 shares of Common Stock reserved for issuance pursuant to the
Company's Stock Option Plans. Except as described above in this Section 3.8 or
as contemplated by this Agreement or the Other Agreements, and except for
changes occurring after June 29, 1998 resulting from (x) the exercise of
Employee Options outstanding on such date or (y) the grant of Employee Options
in the ordinary course of business and the exercise of such Employee Options, as
of the date hereof there are no outstanding (i) shares of capital stock or other
securities of the Company, (ii)
12
<PAGE>
securities of the Company convertible into or exchange able for shares of
capital stock or other securities of the Company or (iii) options, rights,
subscriptions, warrants, calls, unsatisfied preemptive rights, or other
agreements to acquire or otherwise receive from the Company, and no obligation,
commitment or arrangement of the Company to issue, transfer or sell, any capital
stock or other securities of, or securities convertible into or exchangeable for
capital stock or other securities of the Company.
Section 3.9 Registration Rights. Except for the Registration Rights
-------------------
Agreement, neither the Company nor any of its Subsidiaries is under any
contractual obligation to register any of its presently outstanding securities
or any of its securities that may hereafter be issued.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
----------------------------------------------
The Investor represents and warrants to the Company as follows:
Section 4.1 Organization. The Investor has been duly organized as a
------------
limited liability company, and is validly existing and in good standing, under
the laws of the State of Delaware.
Section 4.2 Authorization; Validity.
-----------------------
(a) The Investor has the requisite limited liability company
power and authority to execute, deliver and perform its obligations under, and
to consummate the transactions contemplated by, this Agreement and the Other
Agreements to which the Investor is a party. The execution, delivery and
performance by the Investor of this Agreement and the Other Agreements
13
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to which the Investor is a party, and the consummation by the Investor of the
transactions contemplated hereby and thereby have been duly authorized by the
Investor. This Agreement and the Other Agreements to which the Investor is a
party have been duly and validly executed and delivered by the Investor and
constitute valid and binding obligations of the Investor, enforceable against it
in accordance with their respective terms.
Section 4.3 No Violation. Neither the execution, delivery nor
------------
performance by the Investor of this Agreement and the Other Agreements to which
the Investor is a party, nor compliance by the Investor with the terms and
provisions hereof and thereof, nor the consummation by the Investor of the
transactions contemplated herein or therein, will (a) contravene any applicable
provision of any law, statute, rule or regulation, or any applica ble order,
writ, injunction or decree of any court or governmental instrumentality, (b)
conflict with or result in any breach of any term, covenant, condition or other
provision of, or constitute a default under (except where such conflict, breach
or default would not reasonably be expected to materially impair the Investor's
ability to consummate the transactions contemplated by this Agreement), the
terms of any contractual obligation to which the Investor is a party or by which
the Investor or any of the Investor's properties or assets are bound or to which
the Investor may be subject, or (c) violate or conflict with any provision of
the Certificate of Forma tion or the Investor LLC Agreement.
Section 4.4 Consents. All Consents required to be obtained or made
--------
by the Investor in connection with the execution, delivery and performance by
the Investor of, and the consummation by the Investor of the transactions
contemplated by, this Agreement or the Other Agreements to which the Investor
is a party have been obtained or made and are in full force and effect, except
for (i) governmental Consents contemplated by the
14
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Registration Rights Agreement in connection with any registration pursuant
thereto of Securities under the Securities Act and (ii) such Consents the
failure of which to be ob tained or made, would not, individually or in the
aggregate, reasonably be expected to materially impair the Investor's ability
to consummate the transactions contem plated by this Agreement.
Section 4.5 Investment Representations, Etc.
--------------------------------
(a) Purchase for Investment. The Securities to be purchased by
-----------------------
the Investor pursuant to this Agreement or upon exercise of the Warrants will be
ac quired for investment only and not with a view to any public distribution
thereof in violation of any of the requirements of the Securities Act or the
rules and regulations thereunder.
(b) Securities Not Registered. The Investor understands that
-------------------------
the Securities have not been registered under the Securities Act in reliance
upon exemptions contained in the Securities Act and applicable regulations
promulgated thereunder or interpretations thereof, and cannot be offered for
sale, sold or other wise transferred unless such sale or transfer is so
registered or qualifies for exemption from registration under the Securities
Act.
(c) Sophistication. The Investor has such knowledge and
--------------
experience in financial and business matters that the Investor is capable of
evaluating the merits and risks of its investment in the Securities; and the
Investor understands and is able to bear any economic risks associated with such
investment (including the necessity of holding the Securities for an indefinite
period of time, inasmuch as the Securities have not been, and may not in the
foreseeable future be, registered under the Securities Act, and including the
risk of the loss of the Investor's entire investment in the Securities).
15
<PAGE>
(d) Accredited Investor. The Investor is an "accredited
-------------------
investor" within the meaning of such term as defined in Rule 501(a)(8) of
Regulation D of the SEC, 17 CFR (S) 230.501(a)(8).
(e) Legends. The Investor understands and agrees that
-------
certificates representing the Securities will bear conspicuous legends in
substantially the respective forms set forth below (in addition to any other
legend required by law):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER EITHER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR
APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS"), AND SHALL NOT BE SOLD,
PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR
CONSIDER ATION) BY THE HOLDER EXCEPT BY REGISTRATION OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UPON THE ISSUANCE TO THE COMPANY OF A FAVORABLE
OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY
TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE VIOLATION OF THE 1933 ACT
AND THE STATE ACTS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER CON TAINED IN A COMMON STOCK AND WARRANT PURCHASE
AGREE MENT DATED AS OF JULY 2, 1998 (THE "PURCHASE AGREE MENT"), AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE PURCHASE
AGREEMENT, A COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL
EXECUTIVE OFFICES OF JUST FOR FEET, INC.
Notwithstanding the foregoing, the certificate(s) representing any Securities
need not continue to bear the first of the foregoing legends (and the Company
agrees to cause such legend to be removed from such certificate(s)
16
<PAGE>
at the request of the holder thereof) if (i) the sale or other transfer of such
Securities referred to in such legend is in accordance with the provisions of
Rule 144 promulgated under the Securities Act (or any other rule permitting
public sale without registration under the Securities Act) or (ii) the opinion
of counsel referred to above is to the effect that such Investor and any
subsequent transferee (other than an Affiliate of the Company) would be entitled
to transfer such Securities in a public sale without registration under the
Securities Act. Notwithstanding the foregoing, from and after February 1, 2000
the certificate(s) representing any Securities need not continue to bear the
second of the foregoing legends (and the Company agrees, from and after such
date, to cause such legend to be removed from such certificate(s) at the request
of the holder thereof) if Section 5.3 hereof, by its terms, is no longer
applicable to such Securities.
ARTICLE V
BOARD REPRESENTATION AND OTHER COVENANTS
----------------------------------------
Section 5.1 Board Designee. By action of the Board, the Company
--------------
shall elect to the Board, effective as of the Closing, a person designated by
the Investor (an "Investor Designee"). The Investor Designee to be elected as of
the Closing shall be Warren C. Smith, Jr. Until such time as (x) the Investor
has disposed (directly, including through a disposition of the Warrants) of, in
the aggregate, seventy-five percent (75%) or more of the Common Shares to
Persons other than its Members or Affiliates, or any Person who or which was a
stockholder or subordinated creditor of Sneaker immediately prior to the
effectiveness of the Merger ("Permitted Transferees") or (y) THL, together with
its Affiliates, ceases to own a majority of the member interests in the Investor
and to control, directly or indirectly, the Investor, (a) the Company shall
nominate
17
<PAGE>
and recommend to the Company's stockholders for election, and Ruttenberg shall
vote or cause to be voted (or execute or cause to be executed written consents
with respect to) all shares of capital stock of the Company held at the time by
Ruttenberg or over which Ruttenberg possesses voting discretion in favor of the
election, to the Board of an Investor Designee and (b) the Investor may require
that an Inves tor Designee be removed and/or replaced by another Inves tor
Designee, in which event (i) if stockholder action is necessary to effect such
removal and/or replacement, the Company and Ruttenberg, respectively, shall take
the actions referred to in clause (a) above in favor of such removal or
replacement, as applicable, and (ii) in the case of such a replacement Investor
Designee in connection with the death, resignation or removal of an exist ing
Investor Designee, the Company, by action of its Board of Directors, shall cause
such replacement Investor Designee to be elected to the Board to fill the
vacancy caused by such death, resignation or removal. The Com pany's obligations
set forth in the last sentence of this Section 5.1 with respect to the
nomination, recommendation or election of a particular Investor Designee shall
be subject to any fiduciary duty principles which may be applicable to the
members of the Board in connection therewith.
Section 5.2 Observer and Monitoring Rights. From and after the
------------------------------
Closing and so long as the Investor or any Permitted Transferee holds any
Securities or so long as any Member is a creditor of the Company or Sneaker or
potentially entitled to payments pursuant to the Contingent Payment Agreement,
if the Investor no longer has the right to designate a member of the Board
pursuant to Section 5.1 hereof, the Company will (a) permit a representative
designated by the Investor to attend all meetings of the Board to observe such
meetings, (b) provide such representative with copies of all materials provided
to members of the Board, at the same time as such notices or materials are
provided to such members and (c) if requested by the Investor, cause
knowledgeable
18
<PAGE>
officers of the Company to meet, not more frequently than quarterly, upon
reasonable advance notice, with representatives of the Investor or THL to
discuss the business, affairs, finances, accounts and prospects of the Company.
The Company may require that any such representative designated pursuant to this
Section 5.2 execute a confidentiality agreement in customary form and reasonably
acceptable to such representative with respect to confidential information of
the Company made available to such representative pursuant to this Section 5.2,
which agreement shall include an acknowledgment of such representative that in
such capacity such representative may obtain material non-public information
concerning the Company, and, accordingly, will be subject to any applicable
restrictions pursuant to Rule 10b-5 under the Exchange Act in connection with
such representative's possession of such information. The Investor and THL each
acknowledges that the provisions of this Section 5.2 shall not be construed to
provide the Investor, any Member or any Affiliate thereof or THL with any right
to participate in meetings of the Board or to exercise any control over the
affairs of the Company or its Subsidiaries.
Section 5.3 Lock-Up. Without the prior writ ten consent of the
-------
Company, the Investor may not transfer or otherwise dispose of any Securities
prior to January 31, 2000. After such date, the Investor may only transfer or
otherwise dispose of Securities (including pursuant to the Registration Rights
Agreement) in a transaction in which Securities are being transferred by Persons
(which may include the Investor) holding a majority in interest of the then
outstanding Securities (with respect to the Warrants, based on the number of
Warrant Shares for which the Warrants are then exercisable) (the "Majority
Holders"). Any such transaction is referred to herein as a "Permitted
Transaction". Subject to any applicable restrictions set forth in the
Registration Rights Agreement, upon notice from the Majority Holders of a
proposed Permitted
19
<PAGE>
Transaction, each other Person which then holds Securities (a "Permitted
Holder") shall be entitled to, and upon request by the Majority Holders will
(and the Company may, by notice to the Majority Holders, require that the
Majority Holders so request), transfer in such Permitted Transaction, on the
same terms as those on which the Majority Holders are transferring Securities,
the same portion of such Permitted Holder's Securities as the portion of the
Securities then held by the Majority Holders being transferred in such Permitted
Transaction ; provided, that if the purchaser(s) in such Permitted Transaction
(the "Permitted Transaction Purchasers") desire to purchase less than all of the
Securities to be sold in such Permitted Transaction in accordance with this
Section 5.3, the number of Securities to be so sold shall be reduced to the
number of such Securities to be purchased by the Permitted Transaction
Purchasers, on a pro rata basis with respect to each Person selling Securities
in such Permitted Transaction (each such Person, a "Permitted Transaction
Seller"), based on the number of Securities then held by such Permitted
Transaction Seller (with respect to any Warrants held by a Permitted Transaction
Seller, based on the number of Warrant Shares for such Warrants are then
exercisable) relative to the number of Securities then held by all Permitted
Transaction Sellers. Notwithstanding the foregoing, the restrictions on transfer
set forth in this Section 5.3 shall not apply to any (i) transfer or other
disposition of Securities by the Investor to any Permitted Transferee (provided
any such Permitted Transferee agrees in writing to be bound by the first
sentence of this Section 5.3 to the extent applicable to the Investor and to the
provisions of this Section 5.3 applicable to a Permitted Holder), (ii) any bona-
fide pledge of, or grant of a security interest in, any Securities to any senior
creditor of Sneaker as of immediately prior to the Closing, or any foreclosure
upon, or sale or other disposition of, such Securities by such creditor or any
assignee or transferee of the claim or interest of such creditor pursuant to any
debt
20
<PAGE>
restructuring agreement, or any agent acting for any of the foregoing, or (iii)
any sale of Securities after January 31, 2000 pursuant to a public offering or
otherwise on a public trading market.
ARTICLE VI
MISCELLANEOUS
-------------
Section 6.1 Amendments; Assignment.
----------------------
(a) This Agreement may not be amended except by an instrument in
writing signed by (i) the Company and the Investor, (ii) Ruttenberg, if such
amendment affects Ruttenberg's obligations hereunder, and (iii) THL, if such
amendment affects THL's obligations hereunder. The Company may not assign or
transfer this Agreement or any rights hereunder. The Investor may, subject to
the provisions of Section 5.3 hereof, assign, transfer or otherwise dispose of,
at any time or times, any or all of the Securities and in connection therewith,
transfer or assign, in whole or in part, the Investor's rights, title,
interests, remedies, powers, and/or duties thereunder and under this Agreement
and the Registration Rights Agreement. This Agreement shall be binding upon and
inure to the benefit of the successors and permitted assigns of the Investor.
Section 6.2 Expenses. Each party will bear its own legal and other
--------
expenses with respect to this Agreement and the transaction contemplated hereby.
Section 6.3 Waiver. The failure of a party, at any time or times
------
hereafter, to require strict performance of any provision of this Agreement
shall not waive, affect or diminish any right of such party thereafter to demand
strict compliance and performance therewith. None of the undertakings,
agreements, warranties, covenants and representations contained in
21
<PAGE>
this Agreement shall be deemed to have been waived, unless such waiver is set
forth in an instrument in writing duly executed by the waiving party.
Section 6.4 Severability. Wherever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
Section 6.5 Parties. Subject to the provisions of Section 6.1 hereof,
-------
this Agreement shall be binding upon and inure to the benefit of the successors
and permitted assigns of the Company, the Investor, Ruttenberg and THL.
Section 6.6 Entire Agreement. This Agreement and the Other Agreements
----------------
constitute the entire agreement of the parties with respect to the subject
matter hereof and thereof and may not be modified or supplemented by any prior
or contemporaneous oral understanding.
Section 6.7 Equitable Relief. Each of the parties (including
----------------
Ruttenberg and THL) recognizes that, in the event a party fails to perform,
observe or discharge any of its obligations under this Agreement, any remedy of
law may prove to be inadequate relief to the other party or parties, and,
therefore, each of the parties agrees that such other party or parties shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.
Section 6.8 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the
22
<PAGE>
laws of the State of New York, without giving effect to the conflicts of law
principles thereof.
Section 6.9 Notices. Any notice required to be given hereunder shall
-------
be sufficient if in writing, and sent by facsimile transmission (with a
confirmatory copy sent by overnight courier), by courier service (with proof of
service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
If to the Investor, at: Sneaker Guarantee LLC
c/o Thomas H. Lee Company
75 State Street
26th Floor
Boston, MA 02109
Attn: Warren C. Smith, Jr.
Telecopy: (617) 227-3514
with a copy to: Skadden, Arps, Slate
Meagher & Flom LLP
One Beacon Street, 31/st/ Floor
Boston, MA 02108
Attn: Louis A. Goodman, Esq.
Kent A. Coit, Esq.
Telecopy: (617) 573-4822
If to the Company, at: Just For Feet, Inc.
7400 Cahaba Valley Road
Birmingham, AL 35242
Attn: Eric L. Tyra
Telecopy: (205) 408-3170
with a copy to: Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Attn: Lawrence A. Cagney, Esq.
Telecopy: (212) 909-6836
23
<PAGE>
and
Smith, Gambrell & Russell
1230 Peachtree Street, N.E.
Suite 3100
Atlanta, GA 30309
Attn: Jay Schwartz
Telecopy: (404) 685-6932
if to Ruttenberg, at: Just For Feet, Inc.
7400 Cahaba Valley Road
Birmingham, AL 35242
Attn: Harold Ruttenberg
Telecopy: (205) 408-3163
with a copy to: Smith, Gambrell & Russell
1230 Peachtree Street, N.E.
Suite 3100
Atlanta, GA 30309
Attn: Jay Schwartz
Telecopy: (404) 685-6932
or to such other address as any party shall specify by written notice so given,
and any such notice hereunder shall be deemed to have been delivered as of the
date received.
Section 6.10 Section Titles. The section titles contained in this
--------------
Agreement are and shall be without substantive meaning or content of any kind
what soever and are not a part of the agreement between the parties hereto.
Section 6.11 Number and Person. Wherever the word, or words, the
-----------------
Company, Subsidiary, Investor, it, itself, or any other such descriptive words
referring to the parties hereto are used, they shall be construed to apply to
the singular or plural, as the case may be.
24
<PAGE>
Section 6.12 Non-Compete. THL agrees that from and after the Closing
-----------
Date until the later of the time the Board no longer includes an Investor
Designee or the expiration of the Investor's right to designate a representative
pursuant to Section 5.2 hereof, THL will not, and will not allow any of its
controlled Affiliates to, invest in any Person the principal business of which
is branded athletic footwear retailing, except for in vestments resulting in
ownership by THL and such Affiliates of less than 5% of the equity of any such
Person and which involve no designee or representative of THL or any such
Affiliate being an officer or director, or otherwise involved in the management,
of such Person.
Section 6.13 Counterparts. This Agreement may be executed in a
------------
number of identical counterparts, each of which, for all purposes, is to be
deemed an original, and all of which collectively constitute one agreement. A
facsimile or photocopy of an executed counterpart of this Agreement shall be
sufficient to bind the party or parties whose signature(s) appear thereon.
Signature Page Follows
25
<PAGE>
IN WITNESS WHEREOF, this Common Stock and Warrant Purchase Agreement
has been duly executed and delivered as of the day and year first written above.
JUST FOR FEET, INC.
By: /s/ Eric Tyra
---------------------------------
Name: Eric Tyra
Title: Executive Vice President
SNEAKER GUARANTEE LLC
By: THOMAS H. LEE COMPANY as Manager
By: /s/ Warren C. Smith, Jr.
----------------------------
Name: Warren C. Smith, Jr.
Title: Managing Director
For purposes of Section 5.2 and
Article VI only:
THOMAS H. LEE COMPANY
By: /s/ Warren C. Smith, Jr.
---------------------------------
Name: Warren C. Smith, Jr.
Title: Managing Director
For purposes of Sections 5.1, 5.4,
6.1 through 6.11 and 6.13 only:
<PAGE>
/s/ Harold Ruttenberg
------------------------------------
Harold Ruttenberg
