SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee required)
For fiscal year ended February 28, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (no fee required)
For the transition period from __________ to ____________.
Commission File Number: 0-24390
_______________Trend-Lines, Inc.______________
(Exact Name of Registrant as Specified in Its Charter)
Massachusetts 04-2722797
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
135 American Legion Highway, Revere, Massachusetts 02151
(Zip Code)
(Address of Principal Executive Offices)
(781) 853-0900
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers
pursuant to Rule 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ X ]
The aggregate market value of the registrant's Class A Common
Stock, $.01 par value, held by non-affiliates of the registrant
as of April 30, 1998 was $81,035,023 based on the closing price
of $7.625 on that date on the Nasdaq National Market. As of
April 30, 1998, 5,889,478 shares of the registrant's Class A
Common Stock, $.01 par value, were outstanding, and 4,738,066
shares of the registrant's Class B Common Stock, $.01 par value,
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement involving the
election of directors, which is expected to be filed within 120
days after the end of the registrant's fiscal year, are
incorporated by reference in Part III of this Report.
<PAGE>
PART I
ITEM 1. BUSINESS
Except for the historical information contained herein, the
discussion in this Report and any document incorporated herein by
reference contains certain forward-looking statements that
involve risks and uncertainties, such as statements of the
Company's plans, strategies, objectives, expectations and
intentions. The cautionary statements made in the Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995" should be read as being applicable
to all forward-looking statements wherever they appear. The
Company's actual results could differ materially from those
discussed or incorporated herein. Factors that could cause or
contribute to such differences include those discussed in
Management's Discussion and Analysis of Financial Condition and
Results of Operations as well as those discussed elsewhere herein
or the documents incorporated herein by reference.
The Company
Trend-Lines, Inc. (the "Company") is a specialty retailer of
power and hand tools and accessories, as well as golf equipment
and supplies. The Company was formed in 1981, and in 1983 the
Company began mailing its Trend-Lines catalog and opened a
Woodworkers Warehouse outlet store in its distribution center.
The Company opened its first Woodworkers Warehouse retail store
in 1986 and as of February 28, 1998, operated 109 Woodworkers
Warehouse stores. In January 1995, the Company further expanded
its tool retail operations by acquiring 17 Post Tool stores and a
distribution center for those stores and as of February 28, 1998,
operated 24 Post Tool stores. The Company purchased the Golf Day
name and mailing list in 1989, mailed its first Golf Day catalog
in 1990, opened a Golf Day outlet store in its distribution
center in January 1991 and, as of February 28, 1998, operated 71
Golf Day stores. All of the Company's Woodworkers Warehouse and
Golf Day retail stores are located in the Northeast and Mid-
Atlantic regions, except for 3 Golf Day stores located in
California. The Company's 24 Post Tool stores are located in
California except for one store located in Nevada.
Effective January 1, 1998, the Company acquired 13 Nevada Bob's
franchised stores located in the New England area from a private
investment partnership. Total sales of the 13 stores during 1996
were approximately $20 million. All of these stores were
immediately converted to Golf Day stores and are included in the
71 Golf Day stores operated by the Company as of February 28,
1998.
The Company was incorporated in Massachusetts in 1981. The
principal executive offices of the Company are located at 135
American Legion Highway, Revere, Massachusetts 02151, and its
telephone number is (781) 853-0900. As used herein, the term
Company refers to Trend-Lines, Inc. and its wholly owned
subsidiary, Post Tool, Inc.
The Woodworking Tool Industry
According to the "Woodworking in America"(Trademark) survey
sponsored in 1995 by the American Woodworker Magazine (the
"Woodworking Survey"), approximately 10% of the United States
adult population, or nearly 18.6 million people, are involved in
woodworking activities, spending more than $6.3 billion annually
on equipment and accessories used specifically for woodworking
projects. Major items in this category include power tools; wood
finishes; hand tools; blades, bits and cutters; glue and
adhesives; abrasives; sharpening equipment; books and other
equipment and supplies. Approximately 40% of the total amount
spent, or $2.6 billion, is spent on power tools.
Woodworkers range from home workshop enthusiasts to
professionals involved in a wide variety of activities, including
home construction and remodeling, cabinet and furniture making
and other woodworking projects. More advanced woodworkers
participate in activities that require a greater skill level,
such as cabinet making, architectural woodworking, furniture
making, millwork and veneering. According to the Woodworking
Survey, woodworkers have been involved in woodworking an average
of approximately fifteen years, and the typical woodworker spends
an average of more than six hours per week in the workshop.
Further, as interest and/or skill level increase, factors such as
a wide variety and selection of merchandise and availability of
hard-to-find items and well-known brand name products become more
important to the woodworking customer.
The Golf Industry
Over 26 million Americans played 550 million rounds of golf in
1997. This was a 7% increase in the number of golfers that
participated in the sport and a 14.6% increase in the number of
rounds played, according to the National Golf Foundation's 1997
report on golf participation in the United States. A strong
economy, hundreds of new courses and Tiger Woods are among the
factors that combined to make 1997 an excellent year for golf
participation. Major items in this category include clubs, bags,
hand carts, balls, training aids, golf shoes, apparel,
accessories and gift items.
Business Strategy
The Company's business strategy is designed to maximize the
Company's future growth by building upon the Company's position
as a leading specialty retailer. The Company utilizes the same
business strategy in two niche markets: power and hand tools and
accessories, as well as golf equipment and accessories. The key
elements of the Company's business strategy are as follows:
-- Expansion of retail store operations. The Company plans to
continue to expand its retail store operations by opening
approximately 45 to 55 stores in fiscal 1998. The Company
intends to continue to focus its retail store openings in
existing markets or markets in close proximity to those in
which it is currently operating in order to take advantage
of its distribution system. The Company may also consider
expansion of its retail store operations through strategic
acquisitions.
-- Complementary store and catalog operations. The strong name
recognition of the Company's Trend-Lines and Golf Day
catalogs, combined with the customer base and market
knowledge that have resulted from its catalog operations, is
facilitating the expansion of the Company's retail stores.
Management uses catalog information, among other things, in
identifying new store markets and determining the
appropriate product mix for its retail stores.
-- Cost-effective operations. The Company consistently strives
to lower the cost of its operations. In operating its tool
and golf businesses in the Northeast and Mid-Atlantic
regions, the Company uses a single facility with common
management and common or parallel information, telemarketing
and distribution systems, in order to achieve operational
efficiencies. The Company supports its Post Tool stores
through a distribution center located in Hayward,
California. Its Post Tool and Golf Day West operations have
been integrated into the Company's management information
systems.
-- Breadth and depth of product selection. The Company offers
breadth and depth of product selection, including many hard-
to-find items, and high quality brand name and private label
merchandise.
-- Low prices and matching product/price guarantee. The
Company's competitive pricing strategy features everyday low
prices combined with special sales and promotions, and a
matching product/price guarantee on any identical product
sold by a competitor.
-- Expert customer service. The Company provides its customers
with expert customer service through experienced, trained
personnel who have extensive knowledge about the products
sold by the Company.
-- Customer convenience. The Company strives to maximize
convenience to its customers by providing ample parking and
fast in-and-out service.
Expansion Strategy
As of February 28, 1998, the Company operated 109 Woodworkers
Warehouse stores in the Northeast and Mid-Atlantic regions; 71
Golf Day stores in the Northeast and Mid-Atlantic regions as well
as California; and 23 Post Tool stores in California and 1 in
Nevada. In fiscal 1997, the Company opened 18 Woodworkers
Warehouse and Post Tool stores and 33 Golf Day stores which
includes the acquisition of the 13 Nevada Bob's franchised stores
which were converted to Golf Day stores (see "The Company" and
Note 3 to the Consolidated Financial Statements), while closing 4
Woodworkers Warehouse stores and 2 Golf Day stores. The Company
plans to open approximately 45 to 55 retail stores in fiscal
1998.
The Company intends to continue to focus store openings in
existing markets or markets in close proximity to those in which
it is currently operating in order to take advantage of its
distribution system, as well as the strong name recognition,
customer base and market knowledge that have resulted from the
Company's catalog operations. When appropriate, the Company may
also seek to open new Woodworkers Warehouse and Golf Day stores
side-by-side or in the same strip mall. The Company may also
consider expansion of its retail store operations through
strategic acquisitions.
When deciding whether to enter a new market or open additional
stores in existing markets, the Company evaluates a number of
criteria, including size and growth pattern of the population,
local demographics, sales volume potential, competition, the
potential effect of a new store on existing stores in the same
area, real estate occupancy expense, traffic patterns and overall
level of retail activity. Stores typically are located in high-
traffic areas with adequate parking to support their sales
volume.
The cost of opening a new store (exclusive of distribution
center inventory), including fixtures, equipment and nominal
preopening expenses, averages approximately $350,000, including
$290,000 of inventory, in the case of a tool store, and
approximately $425,000, including $300,000 of inventory, in the
case of a golf store. In each case, a portion of the inventory
investment is financed with trade credit.
Products and Merchandising
The Company offers its woodworking customers breadth and depth
of product selection, including many hard-to-find items, high
quality brand name and private label merchandise, everyday low
pricing and a matching product/price guarantee, expert customer
service and convenience, all of which have enabled the Company to
compete successfully against major home centers, mass
merchandisers and hardware stores. The Company's Woodworkers
Warehouse stores have been successful even when located near home
centers such as Home Depot, Lowes and Home Quarters.
The Company's hand and power tool stores and Trend-Lines
catalog carry a broad selection of brand name products, including
products from Black & Decker, Bosch, Delta, DeVilbiss, DeWalt,
Emglo, Freud, Hitachi, Makita, Milwaukee, Porter-Cable, Ryobi,
Skil and Stanley Bostitch. In addition, the Company sells
private label products under its Reliant, Carb-Tech and Vulcan
trademarks. Most brand name and private label products are
generally sold with a one year limited manufacturer's parts and
labor warranty.
Woodworkers Warehouse stores primarily carry woodworking power
and hand tools and accessories. In addition, Post Tool stores
also carry power and hand tools and accessories for mechanical
(including automotive) work. The Company selects products based
on quality, value, durability, historic product demand, safety
and customer appeal. The Company constantly monitors its
customers' product preferences through inventory and sales data
provided by the Company's computer system, as well as its catalog
operations.
Woodworkers Warehouse stores and the Trend-Lines catalog serve
a wide range of woodworking tool customers, from home workshop
enthusiasts to professionals, involved in a wide variety of
activities, including home construction and remodeling, cabinet
and furniture making and other woodworking projects. The
Company's Woodworkers Warehouse and Trend-Lines customers are
generally experienced in woodworking and carpentry and desire
high quality brand name tools. Post Tool customers buy tools for
woodworking, carpentry, remodeling and general mechanical work,
including automotive. Woodworkers Warehouse and Post Tool stores
also attract professionals who are buying tools for use in their
trade. The Company's stores offer professional tools,
knowledgeable sales people and fast in-and-out service. The
Company's Woodworkers Warehouse stores also offer tool repair,
which is done by an outside service company.
The Company's Golf Day retail stores and mail order catalog
sell a broad selection of golf equipment and supplies, including
clubs, club components, bags, balls, golf shoes, apparel, hand
carts, training aids, accessories and gift items. The Company
carries leading brand name golf products, including products from
Aldila, Callaway, Cleveland, Cobra, Etonic, Foot-Joy, Hogan,
MacGregor, Mizuno, Nike, Spalding, Taylor Made, Titleist, Tommy
Armour and Wilson. In addition, the Company sells private label
golf merchandise under its Honors trademark. The Company selects
golf products using similar criteria as are applied in the
selection of tools and accessories.
Retail Operations
The Company designs its retail stores to be destination stores
and strives to maximize convenience to its customers by providing
ample parking and fast in-and-out service. The Company's stores
are generally located either in strip malls or in free-standing
buildings.
The Company's tool stores generally range from 4,500 to 5,500
square feet of retail space and carry approximately 5,000 stock
keeping units (SKUs). The Company's golf stores generally range
from 4,000 to 5,000 square feet of retail space and carry
approximately 3,500 SKUs. Generally, the Company's stores are
open seven days and two nights per week, except for certain
holidays.
As of February 28, 1998, the Company operated 109 Woodworkers
Warehouse stores, 24 Post Tool stores and 71 Golf Day stores. Of
the Woodworkers Warehouse stores, 30 were located in New York, 19
in Massachusetts, 15 in Pennsylvania, 11 in New Jersey, 10 in New
Hampshire, 10 in Connecticut, 7 in Maine, 3 in Rhode Island, 2 in
Delaware and 2 in Vermont. Of the Post Tool stores, 23 are
located in California and 1 in Nevada. Of the Golf Day stores,
21 are located in Massachusetts, 13 in New Jersey, 10 in New
York, 7 in Connecticut, 5 in New Hampshire, 5 in Maine, 4 in
Pennsylvania, 3 in California, 2 in Delaware, and 1 in Rhode
Island.
The Company's retail store operations are currently divided
into regional districts, with each district containing from 18 to
30 stores. The Company evaluates the performance of its stores on
a continuous basis and will close any store which is not
adequately contributing to the profitability of the Company.
During fiscal 1997, the Company closed 4 Woodworkers Warehouse
stores and 2 Golf Day stores.
The Company trains its employees to explain and demonstrate to
customers the use and operation of the Company's merchandise and
to develop good salesmanship. The Company's in-house training
program for new employees combines on-the-job training with the
use of a Company-developed manual. Sales personnel attend in-
house training sessions conducted by experienced salespeople or
manufacturer's representatives and receive sales, product and
other information in periodic meetings with managers.
Catalog Operations
The Company usually produces four versions of each of the Trend-
Lines and Golf Day catalogs annually. The Company mailed
approximately 11.8 million copies of its Trend-Lines catalog and
approximately 14.0 million copies of its Golf Day catalog during
fiscal 1997. The Trend-Lines and Golf Day catalog mailing lists
total approximately 1,140,000 and 830,000 customers (comprised of
selected previous buyers), respectively, and are supplemented
with various rented lists. The Company's catalogs are mailed to
prospective purchasers throughout the United States.
Catalogs are sent to persons on the Company's mailing list,
persons who have made inquiries, and persons on lists which the
Company rents from or exchanges with compatible companies. The
Company continually prospects for new customers by testing new
mailing lists, media and other programs in order to cost-
effectively increase the size of the Company's proprietary
customer mailing lists. The Company also strives to generate more
incremental revenue from existing customers. Through the use of
its management information systems, the Company constantly
monitors the product mix contained in its catalogs in order to
maximize profitability and satisfy its customers' needs.
A substantial majority of the Company's catalog orders and
customer inquiries are received daily by a sophisticated call
management distribution system via incoming toll-free ''800''
numbers. This system distributes calls to trained customer
service representatives and provides detailed call reporting and
analysis. The Company provides technical assistance to its
customers, on a toll-call basis. The Company usually ships orders
within 48 hours after receipt. In addition, the Company offers
express delivery.
The Company designs all of its catalogs in-house with desk top
publishing equipment. The Company's most recently mailed Trend-
Lines and Golf Day catalogs contained 68 and 36 pages,
respectively. The actual catalog printing is done by outside
printers, who also mail the catalogs.
Marketing and Advertising
The Company promotes retail store sales primarily through
special store promotions, direct mail circulars, geographically
concentrated newspaper and limited radio advertising, as well as
point-of-sale materials posted and distributed in the stores. The
Company also makes extensive use of special product promotions
and sales, combination offers, coupons, and other devices to
attract customers to its stores. The Company promotes catalog
sales principally by catalog mailings. Management tracks the
results of all advertising to determine future advertising
programs and expenditures.
Suppliers
The power and hand tool and golf equipment businesses both rely
on major vendors with well-known brand names, as well as smaller
specialty vendors. In fiscal 1997, one of the Company's vendors
accounted for approximately 9% of the Company's purchases. The
Company believes its vendor relationships are satisfactory.
In fiscal 1997, approximately 12% of the Company's tool
products and 2% of the Company's golf products were purchased
from overseas vendors. A substantial portion of the tool and golf
products sold under the Company's private labels are purchased
from overseas vendors. The majority of the Company's overseas
purchases are from Taiwan and, to a lesser extent, Korea, China,
England, Germany and Switzerland. This portion of the Company's
business is subject to the risks generally associated with
conducting business abroad, including adverse fluctuations in
currency rates, changes in import duties or quotas, the
imposition of taxes or other charges on imports, and disruptions
or delays in shipment or transportation. To date, these factors
have not had a material adverse impact on the Company's
operations.
Distribution
The Company leases a 286,000 square foot distribution center in
Revere, Massachusetts, and a 51,000 square foot warehouse in
Chelsea, Massachusetts, just outside of Boston. The Revere
facility also houses the Company's corporate offices and
telemarketing operation. The distribution center serves the
Woodworkers Warehouse and Golf Day retail stores and the
woodworking and golf catalogs. The Company also leases a 48,000
square foot distribution center in Hayward, California for its
Post Tool stores.
The geographic concentration of its stores facilitate the
Company's ability to make deliveries to stores on a frequent
basis, provide it with significant labor and freight savings, and
enable it to restock its stores' inventories promptly and
efficiently from its distribution centers.
Management Information Systems
The Company has invested significant resources in its
management information systems, which are located at its
corporate headquarters in Revere, Massachusetts and have been
integrated with its Post Tool operations in California. These
systems, which consist of a full range of retail, financial and
merchandising systems, include inventory distribution and
control, order fulfillment and inventory replenishment, staffing,
sales and marketing analyses and financial and merchandise
reporting. The Company's in-store point-of-sale computer system
provides operational data to management on a daily basis that is
used to track sales and forecast inventory requirements. The
Company's inventory control systems provide for automated
replenishment of merchandise to each of the Company's stores.
The Company has systems that support the entire catalog cycle
from purchasing merchandise and planning the catalogs, through
merchandise sales and delivery to the customers' homes. The
Company manages a catalog customer database which contains a list
of approximately 2.0 million customers. The catalog customer
database enables the Company to focus its catalog mailings on
customers most likely to purchase, analyzes merchandise trends
and buying patterns, and tracks the effectiveness of customer
promotional merchandising.
Like many other companies, the Year 2000 computer issue creates
risk for the Company. If internal systems do not correctly
recognize date information when the year changes to 2000, it
could have an adverse impact on the Company's operations. The
Company is currently updating its software to accommodate
programming logic that properly interprets Year 2000 dates.
Except for merchandising and call center applications, all
software is under maintenance agreements by software companies
that provide updated, Year 2000 compliant software. The Company
is in the process of replacing its call center and merchandising
software with new, industry-leading Year 2000 compliant
applications to be supplied by outside vendors at a cost
estimated at approximately $2.0 million.
Based on the Company's work-to-date and assuming that the
Company's call center and merchandising software replacement
projects can be implemented as planned, the Company believes that
future costs relating to the Year 2000 issue will not have a
material impact on the Company's consolidated financial position,
results of operations or cash flows.
Competition
The Company's power and hand tool and golf businesses are
highly competitive and compete with a number of other retailers,
mail order catalogs and magazine advertisers. Retail store
competitors of the Company's tool stores include home centers,
lumber yards, hardware stores, mass merchandisers, independent
tool stores, industrial dealers and other specialty stores.
Retail store competitors of the Company's golf stores include
sporting goods stores, mass merchandisers, pro shops and other
golf specialty stores.
The Company competes on the basis of price, selection and
service. Much of the Company's business is dependent upon
competitive pricing. Many of the Company's competitors are
substantially larger and have greater financial and other
resources than the Company. The entrance of new competitors or
the expansion of operations by existing competitors in the
Company's market areas could have a material adverse effect on
the Company's results of operations.
Registered Trademarks and Service Marks
Golf Day(Registered), Woodworkers Warehouse(Registered),
Trend-Lines(Registered), Carb-Tech(Registered), Post
Tool(Registered), Reliant(Trademark), Vulcan(Registered) and
Honors(Registered) are trademarks or service marks of the
Company. The Company intends to continue to register, when
deemed appropriate, trademarks and service marks. The Company
may also register trade names, when deemed appropriate.
Regulatory Matters
The Company's catalog business is subject to the Merchandise
Mail Order Rule and related regulations promulgated by the
Federal Trade Commission, which prohibit unfair methods of
competition and unfair or deceptive acts or practices in
connection with mail order sales and require sellers of mail
order merchandise to conform to certain rules of conduct with
respect to shipping dates and shipping delays. Management
believes that the Company is in compliance with such regulations.
Employees
The Company relies on many part time, flex time and seasonal
employees to meet its needs. At February 28, 1998, the Company
employed approximately 1,575 persons, of whom 1,003 were full
time and 572 were part time. None of the Company's employees are
represented by a labor union, and the Company considers its
employee relations to be satisfactory.
Executive Officers
Executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
Stanley D. Black 61 Chairman of the Board of
Directors and Chief
Executive Officer
Richard Griner 54 President, Chief Operating
Officer and Director
Karl P. Sniady 45 Executive Vice President,
Finance and Administration,
Chief Financial Officer and
Director
Walter Spokowski 41 Executive Vice President,
Merchandising
Richard A. Binder 53 Vice President, Legal and
General Counsel
Frank P. Bussone 51 Vice President, Marketing
Walter J. Eutize 54 Vice President, Real Estate
Ronald L. Franklin 52 Vice President, Finance,
Treasurer and Director
Kathleen Harris 39 Vice President, Human
Resources
Name Age Position
- ---- --- --------
Larry Key 51 Vice President, Information
Systems
John W. Leitner 48 Vice President, Retail
John A. McGregor 48 Vice President, Golf Day
Merchandising
Norman W. Zagorsky 60 Vice President, Purchasing
Stanley D. Black, founder of the Company, has served as Chief
Executive Officer and Chairman of the Board of Directors of the
Company since its organization in 1981.
Richard Griner joined Trend-Lines as President, Chief
Operating Officer and Director in October, 1996. From June, 1986
to January, 1995, Mr. Griner was senior vice president of
operations for Family Dollar Stores.
Karl P. Sniady has been Executive Vice President of the
Company since June 1995 and Chief Financial Officer of the
Company since September 1995. From 1990 to 1995, Mr. Sniady was
chief financial officer of Auto Source, Inc., an automotive
aftermarket retailer and subsidiary of Canadian Tire.
Walter Spokowski joined Trend-Lines as Executive Vice
President, Merchandising in March, 1997. From 1984 to February,
1997, Mr. Spokowski was with The Home Depot, Inc., the world's
largest home improvement retailer. Mr. Spokowski served as
Divisional Merchandising Manager for the Southeast Division from
September, 1994 to March, 1997 and as Product Merchandise Manager
from March, 1991 to September, 1994.
Richard A. Binder has been Vice President and General Counsel
of the Company since August 1997. From 1992 until August 1997,
Mr. Binder was associated with the law firm of Barsh and Cohen,
P.C. specializing in commercial law and real estate acquisitions.
From 1989 to 1992 he was General Counsel for United Truck Leasing
Corporation.
Frank P. Bussone has been Vice President, Marketing since
January 1995. Mr. Bussone has served as Director of Marketing of
the Company from January 1988 until January 1995.
Walter J. Eutize, Vice President, Real Estate since August
1997. Mr. Eutize was Executive Vice President with the Bartlett
Group, Inc. from September, 1991 until August, 1997.
Ronald L. Franklin has been a Director of the Company since
May 1994, Treasurer since April 1994, and has served as Vice
President, Finance since March 1987.
Kathleen Harris has been Vice President, Human Resources,
since January 1995. Ms. Harris served as Director of Human
Resources of the Company since March 1994. From January 1991
until February 1994, Ms. Harris served as Manager of Human
Resources of the Company.
Larry Key has been Vice President, Information systems since
December, 1996. From January, 1991 to October, 1996, Mr. Key was
Senior MIS Director of Big B Drugs.
John W. Leitner has been Vice President, Retail of the Company
since March 1994. From August 1992 to February 1994, Mr. Leitner
was an independent consultant. From November 1991 to July 1992,
Mr. Leitner was director of stores elect of Child World, Inc..
John A. McGregor has been Vice President, Golf Day
Merchandising since August 1993. From April 1987 until July
1993, Mr. McGregor served as Vice President, Development of the
Company.
Norman W. Zagorsky has been Vice President, Purchasing since
January 1997 and Vice President, Trend-Lines Merchandising from
March 1987 to January, 1997.
ITEM 2. PROPERTIES
The Company's principal executive offices and its distribution
and centralized telemarketing operation are currently located in
a common facility in Revere, Massachusetts, where the Company
leases an aggregate of approximately 286,000 square feet of
space. This lease expires in November, 2004 and has two five-
year renewal options . The Company also leases a distribution
facility in Hayward, California of approximately 48,000 square
feet of space. This lease expires on May 31, 2001 and has a
seven-year renewal option. In addition, the Company leases a
51,000 square foot warehouse facility in Chelsea, Massachusetts
from an affiliate of Stanley D. Black, the Chairman of the Board
and Chief Executive Officer of the Company. This lease expires
in 2005. The Company is using this space for additional storage.
As of February 28, 1998, the Company operated 204 stores, all
but two of which were leased. The leases typically provide for an
initial term of five to ten years, with renewal options
permitting the Company to extend the term. In all cases, the
Company pays fixed annual rents. Many of the Company's leases
provide for an increase in annual fixed rental payments during
the lease term and allow the Company to terminate the lease
before the end of the lease term without penalty so long as
proper notice is provided. Most leases also require the Company
to pay real estate taxes, maintenance and repair costs,
insurance, utilities and, in shopping center locations, to make
contributions toward the shopping center's common area operating
costs. As of February 28, 1998, the Company's store leases,
assuming the Company exercises all lease renewal options, were
scheduled to expire as follows:
Years Lease Number of Store Leases
Terms Expire Expiring
1998-2000 20
2001-2003 23
2004-2005 45
2006 and later 114
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE TO SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Price
The Class A Common Stock is included in the Nasdaq National
Market under the symbol ''TRND.'' Prior to June 23, 1994, there
was no public market for the Class A Common Stock. The following
table sets forth the high and low sales prices for the Class A
Common Stock for the periods indicated as reported by the Nasdaq
National Market, adjusted to reflect a three-for-two stock split
paid on September 1, 1995.
High Low
Fiscal Year Ended February 28, 1998
First Quarter $7.44 $5.00
Second Quarter $7.75 $6.00
Third Quarter $8.50 $6.38
Fourth Quarter $7.63 $6.13
Fiscal Year Ended March 1, 1997
First Quarter $6.00 $3.50
Second Quarter $5.25 $3.88
Third Quarter $5.38 $3.50
Fourth Quarter $6.00 $4.63
Fiscal Year Ended March 2, 1996
First Quarter $9.67 $7.67
Second Quarter $14.83 $9.00
Third Quarter $14.75 $11.50
Fourth Quarter $12.00 $3.63
On April 30, 1998 the last reported sales price of the Class A
Common Stock on the Nasdaq National Market was $7.625 per share.
As of April 30, 1998 there were approximately 3,600 stockholders
of record of the Class A Common Stock.
Dividends
The Company does not anticipate declaring any cash dividends
in the foreseeable future. It is the current policy of the
Company to retain any earnings to finance the operations and
expansion of the Company's business.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain financial data with
respect to the Company for each of the five years in the fiscal
period ended February 28, 1998.
<TABLE>
<CAPTION>
Fiscal Years Ended
(In thousands, except per share data)
February 28, March 1, March 2, February 28, February 28,
1998 1997 1996(1) 1995 1994
<S> <C> <C> <C> <C> <C>
Statements of Operations
Data(2):
Net sales $231,143 $208,582 $174,795 $128,332 $99,958
Cost of sales 157,129 139,871 117,447 79,442 62,274
Gross profit 74,014 68,711 57,348 48,890 37,684
Selling, general and 63,483 61,045 59,845 40,096 32,134
administrative expenses
Restructuring charge - - 1,397 - -
Income (loss) from 10,531 7,666 (3,894) 8,794 5,550
operations
Interest expense, net 3,239 2,355 1,654 373 742
Income (loss) before 7,292 5,311 (5,548) 8,421 4,808
provision (benefit)
for income taxes
Provision (benefit) for 2,844 2,061 (2,229) 2,990 210
income taxes
Net income (loss) $4,448 $3,250 $(3,319) $5,431 $4,598
Pro forma net income (loss)(3) $5,051 $2,888
Basic net income (loss) per $.42 $.30 $(.33) $.59 $.44
share (4)
Diluted net income (loss) $.40 $.29 $(.33) $.56 $.43
per share(4)
Basic weighted average of 10,588 10,973 10,163 8,541 6,615
shares outstanding (4)
Diluted weighted average 11,122 11,255 10,163 8,966 6,770
number of shares
outstanding(4)
Store Operating Data:
Net store sales (000's) $171,612 $140,342 $98,515 $52,578 $26,457
Percentage increase 9.8% 19.6% (0.3%) 1.4% 6.0%
(decrease) in comparable
net store sales(5)
Number of stores at end of
period:
Tool stores 133 119 111 82(6) 30
Golf stores 71(7) 40 30 10 5
Catalog Operating Data:
Net catalog sales $59,531 $68,240 $76,280 $75,754 $73,501
</TABLE>
<TABLE>
<CAPTION>
February 28, March 1, March 2, February 28, February 28,
1998 1997 1996(1) 1995 1994
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 21,774 $ 30,060 $ 31,406 $ 17,224 $ 2,457
Total assets 155,452 121,054 100,658 66,539 29,683
Total debt 45,760 27,757 21,292 12,071 7,680
Stockholders' equity 47,751 43,406 42,288 25,854 4,582
</TABLE>
(1) The Company changed its fiscal year-end to the Saturday
closest to the last day of February. As a result, the
Company's 1995 Fiscal year, which ended on March 2, 1996, is a
53-week year and includes three extra days compared to the
prior year.
(2) The Company operated as an S Corporation from March 1,
1987 through June 28, 1994 and, as a result, its taxable
income (loss) during that period was passed through to its
stockholders for federal income tax purposes. Accordingly,
the historical financial statements do not include a provision
for federal and state income taxes for operations through June
28, 1994, except for certain state income taxes imposed at the
corporate level. See Notes 2 and 3 to Notes to Consolidated
Financial Statements.
(3) Pro forma net income (loss) gives effect to a provision
for income taxes that would have been required had the Company
been taxed as a C Corporation from March 1, 1993 through June
28, 1994. See Notes 2 and 3 to Notes to Consolidated Financial
Statements.
(4) Adjusted to reflect a three-for-two split of the Class A
and Class B Common Stock paid on September 1, 1995 and July
17, 1996, respectively. See Note 5 to Notes to Consolidated
Financial Statements.
(5) Calculated using net sales of comparable stores opened
for at least a 13 month period.
(6) Reflects the purchase in January 1995 of 17 Post Tool retail
stores.
(7) Reflects the acquisition in January 1998 of 13 golf stores.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
General
Until recent years, the Company's net sales have been primarily
attributable to its mail order catalog operations, especially
sales of power and hand tools and accessories. Beginning with
fiscal 1995, the Company derived a greater portion of its net
sales from its retail store operations than its mail order
catalog operations. During fiscal 1997, the Company continued
the expansion of its retail store operations, opening 18
Woodworkers Warehouse and Post Tool, and 31 Golf Day retail
stores, which includes the acquisition of 13 Nevada Bob's
franchised stores in January, 1998 which were immediately
converted to Golf Day retail stores. The Company expects that
the expansion of its retail store operations will continue to
generate an increasing percentage of the Company's future growth.
As of February 28, 1998, the Company operated 133 Woodworkers
Warehouse and Post Tool retail stores and 71 Golf Day retail
stores.
The following table presents net sales and overall gross margin
data of the Company for the periods indicated:
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
(In thousands, except percentage data)
Net Sales:
Retail-
Tools $133,000 $115,183 $87,192
Golf 38,612 25,158 11,323
Catalog-
Trend-Lines 34,451 43,283 51,831
Golf Day 25,080 24,958 24,449
Total $231,143 $208,582 $174,795
Gross Margin 32.0% 32.9% 32.8%
On an overall basis, the Company's catalog sales yield higher
gross profit margins than retail store sales as a result of
differences in product mix and greater promotional pricing in
retail sales. Therefore, the Company anticipates that its total
gross profit as a percentage of net sales will decrease as retail
store sales become a greater percentage of the Company's total
sales. During fiscal 1997, the Company experienced a decrease in
its gross profit as a percentage of net sales as compared to
fiscal 1996, primarily due its changing sales mix. The catalog
business has both substantially higher gross margins and expenses
than does a retail store. Therefore, as the contribution from
retail stores becomes a larger proportion of total sales, gross
margins and selling, general and administrative expenses will
have a natural downward bias. With respect to both catalog and
retail store operations, sales of golf products have yielded
higher gross profit percentages than sales of tools.
In February, 1998 the Company implemented a warehouse
management system in order to more efficiently and accurately
process inventory through its distribution center. As a result
of conversion to the new system, the orderly flow of merchandise
to the Company's retail and catalog customers was interrupted.
While this problem may have an impact on the Company's first
quarter 1998 results, the Company is of the current view that
future operations will not be adversely affected by issues
related to its warehouse management system.
Results of Operations
The following table sets forth, for the periods indicated,
certain financial data as a percentage of net sales:
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
Net sales 100.0% 100.0% 100.0%
Cost of sales 68.0 67.1 67.2
Gross profit 32.0 32.9 32.8
Selling, general and
Administrative expenses 27.5 29.2 34.2
Restructuring charge -- -- .8
Income (loss) from operations 4.6 3.7 (2.2)
Interest expense, net 1.4 1.1 1.0
Income (loss) before
income taxes 3.2% 2.6% (3.2)%
Fiscal 1997 versus fiscal 1996
Net sales for fiscal 1997 increased by $22.5 million, or
10.8%, from $208.6 million in fiscal 1996 to $231.1 million in
fiscal 1997 as a result of a $31.3 million, or 22.3%, increase in
net store sales, and a $8.7 million, or 12.8%, decrease in net
catalog sales. The increase in net store sales was primarily due
to the net addition of 45 new stores as well as the impact of a
full year of operations for 26 stores opened in the previous
fiscal year. In addition, comparable store sales increased by
9.8%. The Company believes that the increase in comparable net
store sales was a result of its continued promotional pricing
strategy as well as closing 8 stores in fiscal 1996 and 6 stores
in fiscal 1997. The decrease in net catalog sales was
attributable to a 20.3% decrease in sales from the Company's
Trend-Lines catalog as compared to fiscal 1996. Sales from the
Company's Golf Day catalog increased 0.5% as compared to fiscal
1996. During fiscal 1997, Golf Day catalog sales benefited from
the promotion of close-out merchandise from major golf
manufacturers, which offset the impact of new store openings.
The opening or acquisition of retail stores in areas previously
only serviced by its catalogs has resulted in a decrease in the
Company's catalog sales in those areas.
Gross profit for fiscal 1997 increased 7.7%, from $68.7
million in fiscal 1996 to $74.0 million in fiscal 1997. As a
percentage of net sales, gross profit decreased to 32.0% in
fiscal 1997, compared to 32.9% in fiscal 1996. The decrease in
gross profit as a percentage of net sales was primarily due to
the Company's changing sales mix. The catalog business has both
substantially higher gross margins and expenses than does a
retail store. Therefore, as the contribution from retail stores
becomes a larger proportion of total sales, gross margins and
selling, general and administrative expenses will have a natural
downward bias.
Selling, general and administrative expenses for fiscal 1997
increased 4.0%, from $61.0 million in fiscal 1996 to $63.5
million in fiscal 1997. As a percentage of net sales, selling,
general and administrative expenses decreased to 27.5% in fiscal
1997 from 29.3% in fiscal 1996. The increases in selling,
general and administrative expenses were primarily related to the
Company's retail expansion. The decrease in selling, general and
administrative expenses as a percentage of net sales was
primarily attributable to increased operational efficiencies
associated with the Company's expansion and the lower cost of
operating retail stores as compared to catalog operations.
In the fourth quarter of fiscal 1995, the Company recorded a
restructuring charge of $1.4 million, representing the costs
associated with reorganizing its operations. These costs
included the rent and related expenses for the closing of 12
retail store locations (of which 6 were closed late in the fourth
quarter of fiscal 1995 and the remainder were closed in fiscal
1996), and expenses related to the consolidation of the Company's
distribution centers and the severance and related benefits for
terminated employees.
Approximately $.3 million and $1.1 million was charged
against the restructuring reserve in fiscal 1997 and 1996,
respectively, and as of February 28, 1998 the restructuring was
complete.
Interest expense, net of interest income for fiscal 1997,
increased from $2.4 million in fiscal 1996 to $3.2 million in
fiscal 1997. The increase in interest expense is attributable to
an increase in the Company's bank debt, including borrowings for
the acquisition of Golf Acquisition Limited Partnership.
Fiscal 1996 versus fiscal 1995
Net sales for fiscal 1996 increased by $33.8 million, or
19.3%, from $174.8 million in fiscal 1995 to $208.6 million in
fiscal 1996 as a result of a $41.8 million, or 42.4%, increase in
net store sales, and a $8.0 million, or 10.5%, decrease in net
catalog sales. The increase in net store sales was primarily due
to the addition of 26 new stores as well as the impact of a full
year of operations for 57 stores opened in the previous fiscal
year. In addition, comparable store sales increased by 19.6%.
The Company believes that the increase in comparable net store
sales was a result of adopting a more promotional pricing
strategy as well as closing 6 stores in the fourth quarter of
fiscal 1995 and 8 stores in fiscal 1996. The decrease in net
catalog sales was attributable to a 16.5% decrease in sales from
the Company's Trend-Lines catalog as compared to fiscal 1995.
Sales from the Company's Golf Day catalog increased 2.1% as
compared to fiscal 1995. The opening of retail stores in areas
previously only serviced by its catalogs has resulted in a
decrease in the Company's catalog sales in those areas.
Gross profit for fiscal 1996 increased 19.8%, from $57.3
million in fiscal 1995 to $68.7 million in fiscal 1996. As a
percentage of net sales, gross profit increased to 32.9% in
fiscal 1996, compared to 32.8% in fiscal 1995. The increase in
gross profit as a percentage of net sales was primarily due to
improved purchasing efficiencies, as well as a more favorable
shrink experience in 1996.
Selling, general and administrative expenses for fiscal 1996
increased 2.0%, from $59.8 million in fiscal 1995 to $61.0
million in fiscal 1996. As a percentage of net sales, selling,
general and administrative expenses decreased to 29.3% in fiscal
1996 from 34.2% in fiscal 1995. The increases in selling,
general and administrative expenses were primarily related to the
Company's retail expansion. The decrease in selling, general and
administrative expenses as a percentage of net sales was
primarily attributable to increased operational efficiencies
associated with the Company's expansion and the lower cost of
operating retail stores as compared to catalog operations.
In the fourth quarter of fiscal 1995, the Company recorded a
restructuring charge of $1.4 million, representing the costs
associated with reorganizing its operations. These costs
included the rent and related expenses for the closing of 12
retail store locations (of which 6 were closed late in the fourth
quarter of fiscal 1995 and the remainder were closed in fiscal
1996), and expenses related to the consolidation of the Company's
distribution centers and the severance and related benefits for
terminated employees.
As of March 1, 1997, approximately $0.7 million was charged
against the restructuring reserve for store closing related
activities. In addition, approximately $0.4 million associated
with the consolidation of the Company's distribution centers was
also charged against the restructuring reserve in fiscal year
1996. As of March 1, 1997 and March 2, 1996, approximately $0.3
million and $1.4 million of restructuring costs are included in
accrued expenses in the accompanying consolidated balance sheets.
There were no non-cash adjustments to the accrual during fiscal
year ended March 1, 1997.
Interest expense, net of interest income for fiscal 1996,
increased from $1.7 million in fiscal 1995 to $2.4 million in
fiscal 1996. The increase in interest expense is attributable to
an increase in the Company's bank debt.
Liquidity and Capital Resources
During fiscal 1997, the Company's working capital decreased
by $8.3 million, from $30.1 million as of March 1, 1997 to $21.8
million as of February 28, 1998. The decrease in working capital
resulted primarily from a $18.6 million increase in the Company's
bank credit facility, as well as an increase of $6.6 million in
accounts payable and accrued expenses. These increases in
liabilities were partially offset by a $14.2 million increase in
inventories, principally to support its expanding retail
operations, and a $6.4 million increase in net accounts
receivable.
During fiscal 1997, net cash used in operating activities
was approximately $7.0 million. The primary use of the cash was
the $20.6 million increase in inventories and accounts
receivable, which was offset by the $6.6 million increase in
accounts payable and accrued expenses.
During fiscal 1997, net cash used in investing activities
was approximately $11.2 million, of which $7.3 million was for
the purchase of property and equipment required for the Company's
retail expansion and $4.1 million for the acquisition of the 13
Nevada Bob's franchised stores in January, 1998.
During fiscal 1997, net cash provided by financing
activities was approximately $17.9 million, primarily
attributable to a $18.6 million increase in borrowings on the
Company's bank credit facility, which was partially offset by a
$0.6 million decrease in net payments on capital lease
obligations and a $0.3 million repurchase of the Company's Class
A common stock.
On August 15, 1996, the Company authorized the repurchase of
up to 500,000 shares of its Class A Common Stock. As of February
28, 1998, 500,000 shares have been repurchased at a cost of
approximately $2.5 million.
The Company has used its revolving, secured bank credit
facility over the last several years primarily to finance its
operations and retail expansion. The maximum amount available
under the credit facility is $80 million, as amended during
fiscal 1997 and which expires on December 31, 2000, of which
$43.8 million (including letters of credit totaling approximately
$0.6 million) was outstanding as of February 28, 1998. The
Company is permitted to borrow against its bank credit facility
based on a borrowing formula related to inventory levels. Under
the terms of the agreement, the facility contains financial
covenants and bears interest at the bank's reference rate plus
.75% (9.0% at February 28, 1998) or LIBOR plus 2.25% (7.63% at
February 28, 1998). If for any 12 month rolling period the fixed
charges ratio exceeds certain levels, as defined, the bank's
interest rate on the facility is decreased by .25% for the period
immediately following such rolling period. At February 28, 1998
the Company exceeded the fixed charges ratio and realized the
interest savings under the bank credit agreement. In addition,
the agreement provides that the Company will pay a commitment fee
of .375% per year of the average unused committed amount.
The Company anticipates that in fiscal 1998 it will continue
to invest in leasehold improvements and equipment to support its
retail store expansion plans. In addition, the Company's
expansion plans will require the use of cash to fund increased
inventories associated with the operation of additional retail
stores. The Company estimates that the cost of opening a new
store (exclusive of distribution center inventory) averages
approximately $350,000, including $290,000 of inventory, in the
case of a tool store, and approximately $425,000, including
$300,000 of inventory, in the case of a golf store. In each
case, a portion of the inventory investment is financed with
trade credit. For fiscal 1998, the Company currently plans to
open between 45 to 55 stores.
Like many other companies, the Year 2000 computer issue
creates risk for the Company. If internal systems do not
correctly recognize date information when the year changes to
2000, it could have an adverse impact on the Company's
operations. The Company is currently updating its software to
accommodate programming logic that properly interprets Year 2000
dates. Except for merchandising and call center applications,
all software is under maintenance agreements by software
companies that provide updated, Year 2000 compliant software.
The Company is in the process of replacing its call center and
merchandising software with new, industry-leading Year 2000
compliant applications to be supplied by outside vendors at a
cost estimated at approximately $2.0 million.
Based on the Company's work-to-date and assuming that the
Company's call center and merchandising software replacement
projects can be implemented as planned, the Company believes that
future costs relating to the Year 2000 issue will not have a
material impact on the Company's consolidated financial position,
results of operations or cash flows.
The Company believes that the cash generated from operating
activities, trade credit and available bank borrowings will be
sufficient to fund its operations and its retail store expansion
program for the next twelve months, however, there can be no
assurance that this will be the case. See "Safe Harbor Statement
under the Private Securities Litigation Reform Act of 1995."
Impact of Inflation
The Company does not believe that inflation has had a material
impact on its net sales or results of operations.
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995
Statements included in this report that do not relate to
present or historical conditions are "forward-looking statements"
within the meaning of the Safe Harbor provisions of the Private
Securities Litigation Reform Act of 1995. Additional oral or
written forward-looking statements may be made by the Company
from time to time, and such statements may be included in
documents other than this report that are filed with the
Securities and Exchange Commission. Such forward-looking
statements involve risks and uncertainties that could cause
results or outcomes to differ materially from those expressed in
such forward-looking statements. Forward-looking statements in
this report and elsewhere may include without limitation,
statements relating to the Company's plans, strategies,
objectives, expectations, intentions and adequacy of resources
and are intended to be made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. Words such as "believes," "forecasts," "intends,"
"possible," "expects," "estimates," "anticipates," or "plans" and
similar expressions are intended to identify forward-looking
statements. Investors are cautioned that such forward-looking
statements involve risks and uncertainties including without
limitation the following: (i) the Company's plans, strategies,
objectives, expectations and intentions are subject to change at
any time at the discretion of the Company; (ii) increased
competition, a change in the retail business in the tool and/or
golf sectors or a change in the Company's merchandise mix; (iii)
a change in the Company's advertising, pricing policies or its
net product costs after all discounts and incentives; (iv) the
Company's plans and results of operations will be affected by the
Company's ability to manage its growth and inventory as well as
year end inventory and adjustments; (v) the timing and
effectiveness of programs dealing with the Year 2000 issue and
the Company's warehouse management system; and (vi) other risks
and uncertainties indicated from time to time in the Company's
filings with the Securities and Exchange Commission.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated Financial Statements and Supplementary Data
of the Company are listed under Part IV, Item 14, in this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements on accounting principles or
practices or financial statement disclosure between the Company
and its accountants during the fiscal year ended February 28,
1998.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is hereby
incorporated by reference to the text appearing under Part I,
Item 1 - Business under the caption "Executive Officers and Other
Significant Employees" in this report, and by reference to the
Company's definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby
incorporated by reference to the Company's definitive proxy
statement to be filed by the Company within 120 days after the
close of its fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item 12 is hereby
incorporated by reference to the Company's definitive proxy
statement to be filed by the Company within 120 days after the
close of its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is hereby
incorporated by reference to the Company's definitive proxy
statement to be filed by the Company within 120 days after the
close of its fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(A) (1) CONSOLIDATED FINANCIAL STATEMENTS Page
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of February 28, 1998 and March
1, 1997 F-3
Consolidated Statements of Operations for the Fiscal Years
ended February 28, 1998, March 1, 1997 and March 2, 1996 F-4
Consolidated Statements of Stockholders' Equity for the Fiscal
Years ended February 28, 1998, March 1, 1997 and March 2, 1996 F-5
Consolidated Statements of Cash Flows for the Fiscal Years
ended February 28, 1998, March 1, 1997 and March 2, 1996 F-6
Notes to Consolidated Financial Statements F-7
(A) (2) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts S-1
Other schedules are omitted because of the absence of
conditions under which they are required or because the required
information is given in the financial statements or notes
thereto.
(A) (3) EXHIBITS
Exhibit
Number Reference
3.01 Revised Articles of Organization, as amended. A
3.02 Restated By-Laws. A
4.01 Specimen Certificate of Class A Common Stock. A
4.02 Description of Capital Stock (contained in the Form A
of the Registrant's Restated Articles of Organization
referenced above).
* 10.01 1993 Amended and Restated Stock Option Plan. A
* 10.02 1994 Non-Qualified Stock Option Plan For Non- A
Employee Directors.
* 10.03 Form of Indemnification Agreement for directors A
and officers of Registrant.
10.07 Agreement of Merger dated as of July 1, 1993 A
between Coburn Investments, Inc. and the Registrant.
10.08 Master Note dated November 20, 1993, payable to A
Coburn Investments, Inc. to the Registrant, with
related Loan and Security Agreement.
10.10 Commercial Lease dated December 3, 1987, as amended A
as of November 1, 1993, between Stanley D. Black
Trustee of Mystic Limited Realty Trust and the
Registrant.
10.11 Three Promissory Notes, dated July 1, 1989, payable A
by the Registrant to Stanley D. Black, and related
Security Agreement.
10.12 Warehouse lease dated July 11, 1994 between Syroco, B
Inc. and the Registrant.
10.13 Loan and Security Agreement dated July 3, 1996 C
10.14 Purchase and Sale Agreement dated as of December D
19, 1994 between Post Tool, Inc. and the Registrant.
10.15 Asset Purchase Agreement dated as of December, 31, Filed
1997 between Golf Acquisition Limited Partnership herewith
and the Registrant.
21.01 Subsidiaries of the Registrant. E
23.01 Consent of Arthur Andersen LLP. Filed
herewith
27.01 Financial Data Schedule Filed
herewith
____________________
A Incorporated by reference to the Company's registration
statement on Form S-1 (Registration No. 33-78772) and by
reference to Exhibit 3.0 to the Company's quarterly report on
Form 10-Q for the fiscal quarter ended August 31, 1996. The
number set forth herein is the number of the Exhibit in said
registration statement.
B Incorporated by reference to Exhibit 7.1 to the Company's
current report on Form 8-K dated July 11, 1994.
C Incorporated by reference to Exhibit 10.0 to the Company's
quarterly report on Form 10-Q
for the fiscal quarter ended August 31, 1996.
D Incorporated by reference to Exhibit 1 to the Company's
current report on Form 8-K dated January 1, 1995.
E Incorporated by reference to Exhibit 21.01 to the Company's
annual report on Form 10-K for the fiscal year ended March 2,
1996.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act
of 1934, as amended, reference is made to the documents previously
filed with the Securities and Exchange Commission, which documents
are hereby incorporated by reference.
(B) REPORTS ON FORM 8-K
A report on Form 8-K dated January 19, 1998 reporting that
the Company had issued a press release announcing that it had
entered into a definitive agreement to acquire 13 Nevada Bob's
franchised stores located in the New England area from a private
investment partnership.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TREND-LINES, INC.
Date: May 20, 1998 By: /s/ Stanley D. Black
-----------------------------------------
Stanley D. Black, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
/s/ STANLEY D. BLACK Director and Chief May 20, 1998
-------------------------- Executive Officer
Stanley D. Black
/s/ KARL P. SNIADY Director and Executive Vice May 20, 1998
-------------------------- President, Finance and
Karl P. Sniady Administration (Principal
Financial and Accounting Officer)
/s/ RONALD L. FRANKLIN Director May 20, 1998
--------------------------
Ronald L. Franklin
/s/ RICHARD GRINER President, Chief Operating Officer May 20, 1998
-------------------------- and Director
Richard Griner
/s/ RICHARD A. MANDELL Director May 20, 1998
--------------------------
Richard A. Mandell
/s/ IRWIN WINTER Director May 20, 1998
--------------------------
Irwin Winter
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Index to Consolidated Financial Statements
Page
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of February 28, 1998 and
March 1, 1997 F-3
Consolidated Statements of Operations for the Fiscal Years
Ended February 28, 1998, March 1, 1997 and March 2, 1996 F-4
Consolidated Statements of Stockholders' Equity for the
Fiscal Years Ended February 28, 1998, March 1, 1997
and March 2, 1996 F-5
Consolidated Statements of Cash Flows for the Fiscal Years
Ended February 28, 1998, March 1, 1997 and March 2, 1996 F-6
Notes to Consolidated Financial Statements F-7
<PAGE>
Report of Independent Public Accountants
To Trend-Lines, Inc.:
We have audited the accompanying consolidated balance sheets of
Trend-Lines, Inc. (a Massachusetts corporation) and subsidiary as
of February 28, 1998 and March 1, 1997, and the related
consolidated statements of operations, stockholders' equity and
cash flows for the years ended February 28, 1998, March 1, 1997 and
March 2, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Trend-
Lines, Inc. and subsidiary as of February 28, 1998 and March 1,
1997, and the results of their operations and their cash flows for
the years ended February 28, 1998, March 1, 1997 and March 2, 1996,
in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The
schedule listed in the index at item 14(a)(2) is the responsibility
of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and
is not part of the basic consolidated financial statements. The
schedule has been subjected to the auditing procedures applied in
our audits of the basic consolidated financial statements and, in
our opinion, fairly states, in all material respects, the financial
data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 16, 1998
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(In Thousands, except share amounts)
Assets
February 28, March 1,
1998 1997
Current Assets:
Cash and cash equivalents $ 669 $ 1,006
Accounts receivable, net 18,546 12,155
Inventories 102,172 85,909
Prepaid expenses and other current assets 6,906 6,462
Total current assets 128,293 105,532
Property and Equipment, net 19,387 14,753
Intangible Assets, net 6,973 -
Other Assets 799 769
$155,452 $121,054
Liabilities and Stockholders' Equity
Current Liabilities:
Bank credit facility $ 43,801 $ 25,196
Current portion of capital lease obligations 777 686
Accounts payable 53,830 43,900
Accrued expenses 8,111 5,690
Total current liabilities 106,519 75,472
Capital Lease Obligations, net of current portion 1,182 1,875
Deferred Income Tax Liabilities - 301
Commitments and Contingencies (Note 11)
Stockholders' Equity:
Common stock, $.01 par value-
Class A-
Authorized-20,000,000 shares
Issued-6,385,178 and 6,302,534 shares at
February 28, 1998 and March 1, 1997,
respectively 64 63
Class B-
Authorized-5,000,000 shares
Issued and outstanding-4,738,066 and
4,750,026 shares at February 28, 1998
and March 1, 1997, respectively 47 47
Additional paid-in capital 41,524 41,318
Retained earnings 8,576 4,128
Less-500,000 and 440,000 Class A shares
held in treasury at February 28, 1998
and March 1, 1997, respectively, at cost (2,460) (2,150)
Total stockholders' equity 47,751 43,406
$155,452 $121,054
The accompanying notes are an integral part of these consolidated
financial statements
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(In Thousands, except share and per share amounts)
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
Net Sales $ 231,143 $ 208,582 $ 174,795
Cost of Sales 157,129 139,871 117,447
Gross profit 74,014 68,711 57,348
Selling, General and Administrative
Expenses 63,483 61,045 59,845
Restructuring Charge - - 1,397
Income (loss) from operations 10,531 7,666 (3,894)
Interest Expense, net 3,239 2,355 1,654
Income (loss) before provision
(benefit) for income taxes 7,292 5,311 (5,548)
Provision (Benefit) for Income Taxes 2,844 2,061 (2,229)
Net income (loss) $ 4,448 $ 3,250 $ (3,319)
Basic Net Income (Loss) per Share $ .42 $ .30 $ (.33)
Diluted Net Income (Loss) per Share $ .40 $ .29 $ (.33)
Basic Weighted Average Shares
Outstanding (Note 2) 10,588,021 10,973,416 10,163,454
Diluted Weighted Average Shares
Outstanding (Note 2) 11,122,417 11,255,362 10,163,454
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
(In Thousands, except share amounts)
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock Additional Treasury Stock Total
Number $.01 Number $.01 Paid-in Retained Number Stockholders'
of Shares Par Value of Shares Par Value Capital Earnings of Shares Amount Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, 3,241,437 $ 32 6,270,911 $ 63 $21,562 $ 4,197 - $ - $ 25,854
February 28, 1995
Conversion of 1,480,000 15 (1,480,000) (15) - - - - -
Class B shares
to Class A
shares
Proceeds from 1,500,000 15 - - 19,581 - - - 19,596
public offering,
less offering
expenses
Proceeds from 31,528 - - - 157 - - - 157
exercise of
stock options,
including related
tax benefit
Net loss - - - - - (3,319) - - (3,319)
Balance, March 2, 6,252,965 $ 62 4,790,911 $ 48 $41,300 $ 878 - $ - $ 42,288
1996
Conversion of Class 40,885 1 (40,885) (1) - - - - -
B shares to Class
A shares
Proceeds from 8,684 - - - 18 - - - 18
exercise of stock
options
Treasury stock - - - - - - 440,000 (2,150) (2,150)
purchase
Net income - - - - - 3,250 - - 3,250
Balance, March 1, 6,302,534 $ 63 4,750,026 $ 47 $41,318 $4,128 440,000 $(2,150) $ 43,406
1997
Conversion of Class 11,960 - (11,960) - - - - - -
B shares to Class
A shares
Proceeds from 70,684 1 - - 206 - - - 207
exercise of
stock options
Treasury stock - - - - - 60,000 (310) (310)
purchase
Net income - - - - - 4,448 - - 4,448
Balance, February 6,385,178 $ 64 4,738,066 $ 47 $41,524 $8,576 500,000 $(2,460) $47,751
28, 1998
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In Thousands)
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
Cash Flows from Operating Activities:
Net income (loss) $ 4,448 $ 3,250 $(3,319)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities-
Depreciation and amortization 2,836 1,832 1,556
Deferred income taxes 216 601 (574)
Restructuring charge - - 1,397
(Gain) loss on sale of property and - (18) 549
equipment
Changes in current assets and
liabilities, net of effects of
acquisition-
Accounts receivable (6,391) (3,836) (1,573)
Refundable income taxes - 3,517 (4,401)
Inventories (14,296) (17,024) (23,733)
Prepaid expenses and other current (405) (386) (333)
assets
Accounts payable 5,695 13,424 4,822
Accrued expenses 904 (912) 2,245
Net cash provided by (used in) (6,993) 448 (23,364)
operating activities
Cash Flows from Investing Activities:
Purchases of property and equipment (7,188) (3,500) (4,861)
Proceeds from sale of property and 73 70 -
equipment
Acquisition, net of cash acquired (4,064) - -
(Increase) decrease in other assets - (459) 472
Net cash used in investing (11,179) (3,889) (4,389)
activities
Cash Flows from Financing Activities:
Proceeds from public offerings, net - - 19,596
Proceeds from exercise of stock options 207 18 157
Net borrowings under bank credit 18,605 6,713 8,110
facilities
Proceeds from sale leaseback arrangement - - 1,099
Net payments on capital lease (667) (570) (1,134)
obligations
Purchases of treasury stock (310) (2,150) -
Net cash provided by financing 17,835 4,011 27,828
activities
Net Increase (Decrease) in Cash And Cash (337) 570 75
Equivalents
Cash and Cash Equivalents, beginning of 1,006 436 361
year
Cash and Cash Equivalents, end of year $ 669 $ 1,006 $ 436
Supplemental Disclosure of Cash Flow
Information:
Cash paid for-
Interest $ 3,212 $ 2,650 $ 1,676
Income taxes $ 2,418 $ 176 $ 3,265
Supplemental Disclosure of Noncash
Investing and Financing Activities:
Equipment acquired under capital lease $ 65 $ 322 $ 1,146
obligations
Summary of entity acquired -
Fair value of assets acquired 9,273 - -
Liabilities assumed 5,209 - -
Cash paid, net of cash acquired $ 4,064 $ - $ -
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Operations
Trend-Lines, Inc. (the Company) is a specialty retailer,
primarily of woodworking tools and accessories sold through its
nationally distributed Trend-Lines mail-order catalog and
through Woodworkers Warehouse retail stores located in New
England, New York, New Jersey, Pennsylvania and Delaware, as
well as Post Tool stores located in California and Nevada. The
Company is also a specialty retailer of golf equipment and
supplies sold through its Golf Day retail stores located in New
England, New York, New Jersey, Delaware, Pennsylvania and
California and its nationally distributed mail-order catalog.
On June 30, 1994, the Company completed the issuance of
2,550,000 shares of Class A common stock in an initial public
offering (IPO). Net proceeds to the Company were approximately
$19.7 million after deducting expenses of the offering.
Subsequently, on July 29, 1994, the Company completed the
issuance of 337,500 shares of Class A common stock pursuant to
the exercise of the underwriters' IPO overallotment option,
resulting in additional net proceeds to the Company of
approximately $2.7 million.
On September 22, 1995, the Company completed the issuance of a
total of 2,500,000 shares of Class A common stock, of which
1,000,000 shares were sold by a selling stockholder. Net
proceeds to the Company were approximately $19.6 million after
deducting expenses of the offering.
(2) Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the
application of certain accounting policies described in this
note and elsewhere in the accompanying notes to consolidated
financial statements.
(a) Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of the Company and Post Tool, Inc., its wholly
owned subsidiary. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) Fiscal Year
On January 17, 1996, the Board of Directors approved a
change in the Company's fiscal year-end from the last day in
February to the Saturday closest to the last day of
February. As a result, the Company's fiscal 1995 year ended
on March 2, 1996, is a 53-week year and included three extra
days compared to the prior year. Fiscal year 1996 refers to
the year ended March 1, 1997 and fiscal year 1997 refers to
the year ended February 28, 1998.
(2) Summary of Significant Accounting Policies (Continued)
(c) Management Estimates Used in the Preparation of Financial
Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
(d) Cash and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents.
(e) Revenue Recognition
Revenue from retail operations is recognized at the time of
sale. Revenue from catalog sales is recognized upon
shipment to the customer. The Company expenses warranty
costs as incurred, as historically such costs have not been
significant.
(f) Inventories
The Company values inventories, which consist of merchandise
held for resale, at the lower of cost (first-in, first-out)
or market.
(g) Prepaid Catalog Expenses
The Company capitalizes direct costs relating to the
production and distribution of its mail-order catalogs.
These costs are charged to operations in relation to the
revenues that are derived from the mailings, which is
generally one year or less from the date of mailing.
Management's revenue estimates are used to determine the
cost recovery period of the prepaid catalog expenses.
(h) Store Preopening Costs
The Company expenses, as incurred, all preopening costs
related to each new retail store location.
<PAGE>
(2) Summary of Significant Accounting Policies (Continued)
(i) Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are computed under both the straight-line and
accelerated methods in amounts that allocate the cost of all
assets over their estimated useful lives. In fiscal 1995,
the Company revised the estimated remaining lives of certain
assets. The effect of this change in accounting estimate
was a reduction of depreciation expense by approximately
$0.4 million in fiscal 1995.
Estimated
Asset Classification Useful Lives
Equipment 5-10 Years
Equipment under capital leases Life of lease
or life of
asset,
whichever is
shorter
Furniture and fixtures 10 Years
Building 39.5 Years
Leasehold improvements Initial lease
term or life
of asset,
whichever is
shorter
(j) Customer Prepayments
Advance payments received from customers are included in
accrued expenses in the accompanying consolidated balance
sheets and are recognized as revenue upon shipment.
(k) Concentration of Credit Risk
Financial instruments that subject the Company to credit
risk consist primarily of cash and cash equivalents and
trade accounts receivable. The Company places its cash and
cash equivalents in highly rated financial institutions.
The Company maintains an allowance for potential credit
losses.
<PAGE>
(2) Summary of Significant Accounting Policies (Continued)
(l) Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash
and cash equivalents and its bank credit facility. The
carrying amounts of the Company's cash and cash equivalents
approximate fair value. The bank credit facility bears
interest at variable market rates; therefore, the carrying
amount approximates fair value.
(m) Credit Card Policy
The Company extends credit to customers through third-party
credit cards, including its private-label credit card.
Credit under these accounts is extended by third parties,
and accordingly, the Company bears minimal financial risk
under these agreements as a result of credit card fraud.
The Company's agreements with third-party credit companies
provide for the electronic processing of credit approvals
and electronic submission of transactions. Upon the
submission of these transactions to the credit card
companies, payment is transmitted directly to the Company's
bank account usually within two to four days of the sales
transaction. Amounts relating to fiscal year sales not
received by the Company before year-end are included in
accounts receivable in the accompanying consolidated balance
sheets. Fees incurred on credit card sales are included in
selling, general and administrative expenses.
(n) Income Taxes
Income taxes are provided using the liability method of
accounting in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes. A deferred tax asset or liability is recorded for
all temporary differences between financial and tax
reporting. Deferred tax expense (benefit) results from the
net change during the year of deferred tax assets and
liabilities.
<PAGE>
(2) Summary of Significant Accounting Policies (Continued)
(o) Earnings per Share
In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128 Earning Per Share, which changed the
method of calculating earnings per share. SFAS 128 requires
the presentation of "basic" earnings per share and "diluted"
earnings per share. Basic earnings per share is computed by
dividing the net income available to common shareholders by
the weighted average number of shares of common stock
outstanding. For the purposes of calculating diluted
earnings per share, the denominator includes both the number
of dilutive common stock equivalents such as stock options
and warrants. The Company adopted SFAS 128 in the fourth
quarter of fiscal 1997. All prior period per share amounts
have been restated to comply with SFAS 128.
Common stock equivalents have not been considered in the
calculation of net loss per share for the year ended
March 2, 1996, as their effect would be antidilutive.
Outstanding shares have been adjusted to reflect a three-for-
two split of the Class A common stock payable on
September 1, 1995 to stockholders of record on August 24,
1995 and a three-for-two split of the Class B common stock
effected in the form of a stock dividend on July 17, 1996
(see Note 6). The stock splits have been retroactively
reflected in the accompanying consolidated financial
statements.
Dilutive securities include outstanding options under the
Company's stock option plan. Below is a summary of the
shares used in calculating basic and dilutited earnings per
share:
February 28, March 1, March 2,
1998 1997 1996
Weighted average number of shares 10,588,021 10,973,416 10,163,454
of common stock outstanding
Dilutive stock options 534,396 281,946 -
Shares used in calculating 11,122,417 11,255,362 10,163,454
diluted earnings per share
<PAGE>
(2) Summary of Significant Accounting Policies (Continued)
(p) Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance
with SFAS No, 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of.
The Company continually reviews its long-lived assets for
events or changes in circumstances that might indicate the
carrying amount of the assets may not be recoverable. The
Company assesses the recoverability of assets by determining
whether the depreciation of such assets over their remaining
lives can be recovered through projected undiscounted future
cash flows. The amount of impairment, if any, is measured
based on projected discounted future cash flows using a
discount rate reflecting the Company's average cost of
funds. At February 28, 1998, no such impairment of assets
was indicated.
Goodwill represents the excess of the purchase price over
the fair market value of identified net assets acquired.
Goodwill is being amortized using the straight-line method
over a period of 20 years, the estimated useful life. The
Company recognized $59,000 of goodwill amortization during
fiscal year 1997. The Company continually evaluates whether
events and circumstances have occurred that indicate the
remaining estimated useful life of goodwill may not be
recoverable. When factors indicate that goodwill should be
evaluated for possible impairment, the Company estimates the
related business segment's undiscounted operating income
over the remaining life of the goodwill to measure whether
goodwill is recoverable. As of February 28, 1998, there
have been no write-downs of goodwill.
(q) Reclassifications
Certain amounts in the prior year's financial statements
have been reclassified in order to conform with the current
year's presentation.
(3) Acquisition
Effective December 31, 1997, the Company acquired substantially
all of the assets and liabilities of Golf Acquisition Limited
Partnership (GALP). The Company accounted for the acquisition
of GALP using the purchase method of accounting under
Accounting Principles Board (APB) Opinion No. 16, Accounting
for Business Combinations. The purchase price was
approximately $3,908,000 in cash. The Company also incurred
$156,000 in costs directly associated with the acquisition.
These costs have been capitalized as part of the purchase
price.
The operating results of this business are included in the
consolidated statement of operations from the date of
acquisition. The acquisition was accounted for as a purchase
and therefore the purchase price and the net liabilities
assumed have been allocated to goodwill.
<PAGE>
(3) Acquisition (Continued)
The purchase price and net liabilities assumed (goodwill) was
computed as follows:
Purchase price (including
expenses), net of cash acquired $4,064,000
Plus-fair market value
assigned to net liabilities
Inventory 1,973,000
Other assets 269,000
Accounts payable (4,235,000)
Accrued liabilities (974,000)
(2,967,000)
Goodwill $7,031,000
The following unaudited pro forma information (rounded to
thousands except share and per share amounts) shows the results
of the Company's operations for the year ended February 28,
1998, as if the acquisition had occurred on March 2, 1997.
Revenues $250,888
Income from operations 10,948
Net income 4,551
Pro forma basic net income per share $ 0.43
Pro forma diluted net income per share $ 0.41
Basic weighted average shares outstanding 10,588,021
Diluted weighted average share outstanding 11,122,417
The pro forma results have been prepared for comparative
purposes only and are not necessarily indicative of the actual
results of operations had the acquisition taken place as of
March 2, 1997 or the results that may occur in the future.
Furthermore, the pro forma results do not give effect to all
costs savings or incremental costs that may occur as a result
of the integration and consolidation of the companies.
<PAGE>
(4) Income Taxes
The components of the provision (benefit) for income taxes
shown in the consolidated statements of operations are as
follows (in thousands):
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
Current-
Federal $ 2,454 $ 1,186 $ (1,655)
State 174 274 -
2,628 1,460 (1,655)
Deferred-
Federal (123) 587 (20)
State 339 14 (554)
216 601 (574)
$ 2,844 $ 2,061 $ (2,229)
The reconciliation of the federal statutory rate to the benefit
(provision) for income taxes is as follows:
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
Income tax provision (benefit) at 34.0% 34.0% (34.0)%
federal statutory rate
State taxes, net of federal benefit 5.0 4.8 (6.2)
39.0% 38.8% (40.2) %
<PAGE>
(4) Income Taxes (Continued)
The components of the net deferred income taxes recognized in
the accompanying consolidated balance sheets with the
approximate income tax effect of each type of temporary
difference are as follows (in thousands):
February 28, March 1,
1998 1997
Inventories $842 $ 691
Prepaid catalog (565) (508)
Restructuring reserve - 115
State operating loss - 376
carryforward
Other nondeductible reserves 473 529
and accruals
Depreciation and (238) (474)
amortization
$512 $ 729
(5) Bank Credit Facility
During fiscal 1996, the Company entered into a secured line-of-
credit agreement with a bank that, as amended during fiscal
1997, expires on December 31, 2000. The facility bears interest
at the bank's reference rate plus .75% (9.0% at February 28,
1998) or LIBOR plus 2.25% (7.63% at February 28, 1998). If for
any 12 month rolling period the fixed charges ratio exceeds
certain limits, as defined, the bank's interest rate on the
facility is decreased by .25% for the period immediately
following such rolling period. Since March 1, 1997, the Company
has exceeded the fixed charges ratio. A commitment fee of
.375% per year of the average unused commitment amount, as
defined, is payable monthly. The Company's revolving credit
facility allows for borrowings up to $80 million based on a
borrowing formula related to inventory levels, as defined
(borrowings include 50% of the amounts reserved for outstanding
letters of credit).
At February 28, 1998, the Company had approximately $43.8
million of borrowings outstanding and approximately $0.6
million of letters of credit outstanding. The Company had
approximately $9.3 million in available borrowings under this
facility at February 28, 1998. The maximum and average
outstanding loan balances during fiscal 1997 under this
facility were $47.5 million and $36.9 million, respectively.
The bank has a security interest in substantially all assets of
the Company. The bank credit facility agreement contains
certain restrictive covenants, including, but not limited to,
maintenance of certain levels of tangible net worth,
maintaining stipulated interest coverage ratios and limitations
on capital expenditures. The Company was in compliance with
all bank covenants at February 28, 1998.
<PAGE>
(6) Stockholders' Equity
(a) Stock Splits
On August 8, 1995, the Company's Board of Directors approved
a three-for-two stock split of the Class A common stock,
effected in the form of a stock dividend. The record date
for the stock split was August 24, 1995, and the dividend
was paid on September 1, 1995. The stock split has been
retroactively reflected in the accompanying consolidated
statements and notes for all periods presented.
A stock split for the Company's Class B common stock was not
effected at the same time as the Class A because the number
of authorized shares would have been exceeded. As a result,
Class B common stockholders had a conversion feature of 1.5-
to-1 of Class A common stock. At its annual meeting on
July 17, 1996, the stockholders authorized a three-for-two
stock split of the Class B common stock effected in the form
of a stock dividend. No additional shares were required to
be authorized due to the fact that enough Class B common
shares had already been converted to Class A common shares;
therefore, the Class B common shares on a post-split basis
did not exceed the authorized limit. Each share of the
Class B common stock is convertible into one share of Class
A common stock. The stock split has been retroactively
reflected in the accompanying consolidated statements and
notes for all periods presented.
(b) Common Stock
The rights and privileges of the common stockholders are as
follows:
Voting Rights
Holders of Class A common stock are entitled to one vote
per share. Holders of Class B common stock are entitled
to 10 votes per share. Holders of both classes are
entitled to vote together as one class on all matters,
with certain exceptions, including the election of
directors.
Dividends
Holders of Class A common stock and Class B common stock
taken together as a single class are entitled to receive
such dividends as may be declared by the Board of
Directors.
<PAGE>
(6) Stockholders' Equity (Continued)
(c) Preferred Stock
On May 9, 1994, the Board of Directors and stockholders
voted to authorize 1,000,000 shares of preferred stock, $.01
par value. The Board of Directors has the right to
establish any right and preferences of any series of
preferred stock it so designates. At February 28, 1998 and
March 1, 1997, there were no issued or outstanding shares of
preferred stock and the Board of Directors had not
established any rights or preferences.
(d) Stock Option Plans
On September 30, 1993, the Board of Directors and
stockholders approved the 1993 Employee Stock Option Plan
(the Option Plan), which provides for the grant of options
to purchase shares of Class A common stock to employees of
the Company. An employee's right to exercise such options
is subject to vesting, generally over four to seven years or
in such percentages as defined by the Board of Directors,
and terminates 10 years from the date of grant. A total of
1,525,000 shares of Class A common stock have been reserved
for options to be granted under the Option Plan.
On May 9, 1994, the Board of Directors and stockholders
approved the 1994 Non-Qualified Stock Option Plan for Non-
Employee Directors (the Director Plan), which provides for
the grant of non-qualified options to purchase shares of
Class A common stock to non-employee directors of the
Company. A total of 90,000 shares of Class A common stock
have been reserved for options to be granted under the
Director Plan. These options begin vesting one year after
the date of grant ratably over a period of six years and
terminate 10 years from the date of grant.
<PAGE>
(6) Stockholders' Equity (Continued)
(d) Stock Option Plans (Continued)
Activity under the Option Plan and Director Plan is
summarized as follows:
<TABLE>
<CAPTION>
Option Plan Director Plan
Number Exercise Price Number Exercise Price
Of Shares per Share Of Shares per Share
<S> <C> <C> <C> <C>
Outstanding, February 28, 1995 898,403 $1.84- 8.50 27,000 $ 8.67
Granted 213,443 8.92- 9.58 13,500 10.00
Terminated (85,159) 1.84- 8.50 - -
Exercised (31,540) 1.84- 8.50 - -
Outstanding, March 2, 1996 995,147 1.84- 9.58 40,500 8.67-10.00
Granted 730,975 4.25- 4.88 40,000 4.00- 4.88
Terminated (582,980) 1.84- 9.58 (40,500) 8.67-10.00
Exercised (8,684) 1.84- 4.38 - -
Outstanding, March 1, 1997 1,134,458 1.84- 4.88 40,000 4.00- 4.88
Granted 158,530 5.75- 7.06 3,000 7.00- 7.06
Terminated (107,940) 1.84- 9.58 - -
Exercised (70,680) 1.84- 4.38 - -
Outstanding, February 28, 1998 1,114,388 $1.84-$7.06 43,000 $4.00-$4.88
Exercisable, February 28, 1998 399,380 $1.84-$4.38 - $ -
</TABLE>
Set forth below is a summary of options outstanding at February
28, 1998:
(Outstanding) (Exercisable)
Remaining
Range of Weighted Average Contract Weighted Average
Exercise Prices Options Exercise Price Life Options Exercise Price
$1.84 354,814 $1.84 5.59 202,528 $1.84
4.00 - 4.88 656,824 4.36 6.92 196,852 4.34
5.75 - 7.06 145,750 6.69 9.30 - -
The Company accounts for its stock-based compensation plans
under APB Opinion No. 25, Accounting for Stock Issued to
Employees. In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, Accounting for Stock-
Based Compensation, which is effective for fiscal years
beginning after December 15, 1995. SFAS No. 123 establishes
a fair-value-based method of accounting for stock-based
compensation plans. The Company has adopted the disclosure-
only alternative under SFAS No. 123, which requires
disclosure of the pro forma effects on earnings and earnings
per share as if SFAS No. 123 had been adopted, as well as
certain other information. The Company has computed the pro
forma disclosures required under SFAS No. 123 for all stock
options granted as of February 28, 1998 using the Black-
Scholes option pricing model prescribed by SFAS No. 123.
<PAGE>
(6) Stockholders' Equity (Continued)
(d) Stock Option Plans (Continued)
The assumptions used and the weighted average information
for the fiscal years ended February 28, 1998, March 1, 1997
and March 2, 1996 are as follows:
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
Risk-free interest rates 6.25%-6.55% 5.65%-6.70% 5.65%-6.70%
Expected dividend yield - - -
Expected lives 5 - 7.5 years 7.5 years 7.5 years
Expected volatility 85% 85% 85%
Weighted average grant-date $4.74 $2.32 $7.07
fair value of options
granted during the period
Weighted average exercise $3.88 $3.46 $5.76
price of Options outstanding
Weighted average remaining 6.81 years 7.41 years 7.92 years
contractual life of options
outstanding
Weighted average exercise $3.07 $2.98 $4.80
price of 399,380, 313,388
and 187,024 options
exercisable at February 28,
1998, March 1, 1997 and
March 2, 1996, respectively
The effect of applying SFAS No. 123 would be as follows:
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
Pro forma net income (loss) $4,011 $2,294 $(3,518)
Pro forma basic net income $ .38 $ .21 $ (.35)
(loss) per share
Pro forma diluted net income $ .36 $ .20 $ (.35)
(loss) per share
Because the method prescribed by SFAS No. 123 has not been
applied to options granted prior to February 28, 1995, the
resulting pro forma compensation cost may not be
representative of that to be expected in the future years.
<PAGE>
(e) Treasury Stock
On August 15, 1996, the Company's Board of Directors
approved a stock repurchase plan, whereby the Company may
purchase up to 500,000 shares of common stock at fair
market value to be used for future stock option programs,
investment and/or other corporate purposes. As of February
28, 1998, the Company had purchased 500,000 shares of Class
A common stock for approximately $2.5 million, of which
135,000 shares were purchased at fair market value in 1997
from a member of the Board of Directors at a cost of
approximately $0.7 million.
(f) 1997 Employee Stock Purchase Plan
In October 1997, the Company's Board of Directors approved
the 1997 Employee Stock Purchase Plan (the Purchase Plan)
whereby, the Company has reserved and may issue up to an
aggregate of 250,000 shares of its Class A common stock for
issuance in accordance with the Purchase Plan. Under the
terms of the Purchase Plan, employees who meet certain
eligibility requirements may purchase shares of the
Company's common stock at the closing price of the common
stock on the day immediately preceding the purchase date or
the nearest prior business day on which trading occurred.
There were 2,200 shares purchases under the Purchase Plan
during fiscal 1997.
(7) Accounts Receivable
Accounts receivable consist of the following (in thousands):
February 28, March 1,
1998 1997
Vendor receivables $11,806 $ 8,459
Trade receivables 1,529 1,305
Credit card receivables 2,673 1,778
Other 2,756 798
Allowance for doubtful accounts (218) (185)
$18,546 $12,155
<PAGE>
(8) Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the
following (in thousands):
February 28, March 1,
1998 1997
Prepaid catalog $2,535 $ 2,905
Other 4,371 3,557
$6,906 $ 6,462
(9) Property and Equipment
Property and equipment consist of the following (in thousands):
February 28, March 1,
1998 1997
Land $ 186 $ 186
Building 672 677
Furniture and fixtures 9,369 7,174
Equipment 7,747 5,082
Equipment under capital leases 3,569 3,470
Leasehold improvements 6,245 3,818
27,788 20,407
Less-Accumulated depreciation and 8,401 5,654
amortization
$19,387 $14,753
At February 28, 1998 and March 1, 1997, the accumulated
depreciation associated with equipment under capital leases was
approximately $0.6 million and $0.9 million, respectively.
(10) Transactions with Related Parties and Stockholders
The Company has a lease arrangement with Mystic United Realty
Trust (Mystic), for warehouse and office space at its Chelsea,
Massachusetts, facility (the Chelsea facility) under a
noncancelable lease through 2005. The chief executive
officer/principal stockholder of the Company is a trustee and
beneficiary of Mystic. Under the lease, the Company must pay
to Mystic, in the form of additional rent, all insurance, real
estate taxes, maintenance and operating costs related to the
leased premises, which approximate $0.4 million annually (see
Notes 11 and 14).
<PAGE>
(11) Commitments and Contingencies
(a) Capital Leases
The Company leases computers and other equipment under
several lease agreements that qualify for capitalized
treatment under SFAS No. 13, Accounting for Leases. These
agreements require monthly payments including interest at
rates ranging from 5.7% to 10.8%, and expire at various
dates through January 2002.
Future minimum lease payments under capital lease
obligations at February 28, 1998 are as follows (in
thousands):
Fiscal Year Amount
1998 $ 940
1999 886
2000 313
2001 78
Total minimum lease payments 2,217
Less-Amounts representing interest 258
Obligations under capital leases 1,959
Less-Current portion of capital 777
lease obligations $1,182
(b) Operating Leases
The Company leases retail stores, warehouse and office
space, and certain machinery and equipment under lease
agreements expiring through June 2005, including related
party lease agreements (Note 10). Approximate future
minimum lease payments under operating leases as of February
28, 1998 are as follows (in thousands):
Fiscal Year Total
1998 $13,773
1999 13,001
2000 10,689
2001 8,683
2002 6,555
Thereafter 14,723
$67,424
<PAGE>
(11) Commitments and Contingencies (Continued)
(b) Operating Leases (Continued)
Rent and related expenses charged to operations during each
of the years ended February 28, 1998, March 1, 1997 and
March 2, 1996 were approximately $12.5, $10.3 and $8.9
million, respectively.
(c) Litigation
In the ordinary course of business, the Company is party to
various types of litigation. The Company believes it has
meritorious defenses to all claims, and, in its opinion, all
litigation currently pending or threatened will not have a
material effect on the Company's financial position or
results of operations.
(12) Profit Sharing Plan
The Company maintains a profit sharing plan (the Plan) that
provides for tax deferred employee benefits under
Section 401(k) of the Internal Revenue Code. The Plan allows
employees to make contributions, a portion of which will be
matched by the Company, up to the lesser of 3% of an employee's
salary or the minimum amount allowed by law, as defined. The
Company may elect to make an additional discretionary
contribution in any Plan year. There were no discretionary
Company contributions made during the fiscal years ended
February 28, 1998, March 1, 1997 and March 2, 1996. The
Company contributions vest at a rate of 20% per year, beginning
after one year of employment. The Company has made matching
contributions to the Plan of approximately $0.2 million each of
the fiscal years ended February 28, 1998, March 1, 1997 and
March 2, 1996. The Company pays the administrative costs of
the Plan.
(13) Significant Vendor
Purchases from the Company's largest single supplier were 9.0%,
10.4% and 12.2% of total purchases for the years ended February
28, 1998, March 1, 1997 and March 2, 1996, respectively.
<PAGE>
(14) Restructuring Charge
In the fourth quarter of fiscal 1995, the Company recorded a
restructuring charge of approximately $1.4 million,
representing the costs associated with reorganizing its
operations. These costs include the rent and related expenses
for closing 12 retail store locations and for the consolidation
of the Company's distribution centers, as well as the severance
and related benefits for terminated retail employees. The
Company recorded the restructuring charge as follows (in
thousands):
Closing of retail stores and related cost of
severance and benefits of terminated employees $ 954
Expenses associated with consolidation of
distribution centers 443
$1,397
In fiscal 1996 and 1997, $1.1 million and $.3 million,
respectively, was charged against the reserve. As of February
28, 1998 the restructuring was complete.
(15) Selected Information by Business Segments
The Company sells its products through retail stores and its
nationally distributed mail-order catalogs. Retail store
operations consist of Woodworkers Warehouse, Post Tool and Golf
Day retail stores.
<PAGE>
(15) Selected Information by Business Segments (Continued)
Catalog operations consist of the Trend-Lines and Golf Day
catalogs. Selected information for each of the Company's major
business segments is as follows for each of the fiscal years
ended February 28, 1998, March 1, 1997 and March 2, 1996 (in
thousands):
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
Net sales-
Retail $ 171,612 $ 140,342 $ 98,515
Catalog 59,531 68,240 76,280
$231,143 $ 208,582 $ 174,795
Income (loss) from operations-
Retail $ 11,411 $ 7,591 $ 321
Catalog 8,647 8,126 8,220
General corporate expenses (9,527) (8,051) (12,435)
$ 10,531 $ 7,666 $ (3,894)
Identifiable assets-
Retail $134,791 $ 96,151 $ 76,374
Catalog 19,691 23,897 23,848
General corporate assets 970 1,006 436
$155,452 $ 121,054 $ 100,658
Depreciation and amortization-
Retail $ 1,600 $ 971 $ 419
Catalog 1,236 861 1,137
$ 2,836 $ 1,832 $ 1,556
Capital expenditures-
Retail $ 4,005 $ 2,335 $ 4,325
Catalog 3,248 1,487 1,682
$ 7,253 $ 3,822 $ 6,007
<PAGE>
(15) Selected Information by Business Segments (Continued)
The Company operates from a single distribution center in
Revere, Massachusetts, for its Woodworkers Warehouse and Golf
Day operations and utilizes common labor pools, common
management at the corporate level and a single telemarketing
sales force. With the acquisition of Post Tool, Inc., the
Company has retained its Hayward, California, facility as a
distribution center for fulfillment of Post Tool, Inc. retail
stores exclusively. As a result, many of the expenses of the
Company are shared between the business segments. The
disclosures in the above table were determined after allocating
shared resources and expenses. Such allocations were based on
the judgment of the Company's management.
(16) Quarterly Results of Operations (Unaudited)
The following summarized unaudited results of operations for
fiscal 1997 and 1996 have been accounted for using generally
accepted accounting principles for interim reporting purposes
and include adjustments (consisting of normal recurring
adjustments) that the Company considers necessary for the fair
presentation of results for the interim periods shown below.
(In thousands, except per share amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter
Fiscal 1997-
Net sales $ 57,089 $ 50,819 $ 52,357 $ 70,878
Gross profit 18,932 16,413 16,216 22,453
Net income 413 423 855 2,757
Basic net income per $ .04 $ .04 $ .08 $ .26
share
Diluted net income per $ .04 $ .04 $ .08 $ .24
share
Basic weighted average
common shares outstanding 10,586 10,568 10,589 10,609
Diluted weighted average
common shares outstanding 11,038 11,120 11,175 11,130
Fiscal 1996-
Net sales $49,311 $46,827 $ 49,100 $63,344
Gross profit 16,416 15,223 16,017 21,055
Net income 184 225 640 2,201
Basic net income per share $ .02 $ .02 $ .06 $ .20
Diluted net income per $ .02 $ .02 $ .06 $ .20
share
Basic weighted average
common shares outstanding 11,048 11,044 11,014 10,788
Diluted weighted average
common shares outstanding 11,297 11,298 11,305 11,170
<PAGE>
Schedule II
TREND-LINES, INC. AND SUBSIDIARY
Valuation and Qualifying Accounts
(In Thousands)
Balance, Charged to Balance,
Beginning Costs and End of
of Period Expenses Deductions Period
Allowance for Doubtful
Accounts:
March 2, 1996 $ 93 $ - $ - $ 93
March 1, 1997 $ 93 $ 92 $ - $185
February 28, 1998 $ 185 $ 89 $ 56 $218
ASSET PURCHASE AGREEMENT
By and Between
TREND-LINES, INC.
and
GOLF ACQUISITION LIMITED PARTNERSHIP
Dated as of December 31, 1997
TABLE OF CONTENTS
Section 1. Sale and Purchase of Purchased Assets; Related
Transactions 1
1.1 Sale and Purchase of Purchased Assets 1
(a) Leases 2
(b) Inventory 2
(c) Fixed Assets 2
(d) Prepaid Expenses. 2
(e) Contracts 2
(f) Licenses and Permits 2
(g) Intangible Assets 2
(h) Records and Documents 3
(i) Goodwill 3
(j) Warranties 3
(k) Deposits 3
1.2 Excluded Assets. 3
1.3 Method of Conveyance 3
1.4 Assumed Obligations 4
1.5 Excluded Obligations 5
1.6 Effective Time of Closing 6
Section 2. Purchase Price. 6
2.1 Purchase Price 6
2.2 Payment of the Purchase Price 6
2.3 Holdback Funds Escrow 7
2.4 Determination of Inventory 7
2.5 Post-Closing Adjustment. 8
2.6 Allocation 10
Section 3. Representations and Warranties of Seller 11
3.1 Organization and Qualification 11
3.2 Authorization; No Restrictions, Consents or Approvals 11
3.3 Absence of Certain Changes 12
3.4 Taxes 12
3.5 Ownership of Purchased Assets 12
3.6 Leases; Exclusive Possession; Not in Default 13
3.7 Contracts and Other Documents 13
3.8 Labor Difficulties 14
3.9 ERISA; Employee Benefit Plans 14
3.10 Employees 15
3.11 Licenses and Permits 15
3.12 INTENTIONALLY OMITTED 15
3.13 Compliance With Law 16
3.14 Intangible Assets 16
3.15 Pending Litigation 16
3.16 Customer List 16
3.17 Financial Statements 16
3.18 INTENTIONALLY OMITTED 17
3.19 Inventory 17
3.20 Suppliers 17
3.21 No Third Party Option 17
3.22 Certain Land Use Matters 18
(a) Condition of Leased. 18
(b) Public Utilities 18
(c) Legal Compliance 18
3.23 Environmental Matters 18
Section 4. Representations and Warranties of Buyer 21
4.1 Organization and Qualification 21
4.2 Authorization; No Restrictions, Consents or Approvals 21
4.3 Pending Litigation 21
4.4 . Financial Statements 22
Section 5. Post-Closing Covenants 22
5.1 NVB Signage and Labels 22
5.2 . Cooperation 22
5.3 Returns 22
5.4. Post-Closing Access 23
5.5. Covenant Not to Compete 23
5.6 Cooperation in Third-Party Litigation 24
5.7. Discharge of Business Obligations 25
5.8 Certain Employment Matters 25
5.9 Gift Certificates Fund 25
5.10 Further Assurances 26
Section 6. Survival of Representations and Warranties and
Covenants; Indemnification. 26
6.1. Survival of Representations and Warranties and
Covenants 26
6.2. Indemnification by Seller 26
6.3. Indemnification by Buyer 28
6.4. Indemnification Payments 29
6.5. Procedure for Third Party Claims 29
6.6. INTENTIONALLY OMITTED 30
6.7. Remedies Cumulative 30
6.8. Successors 30
Section 7. Brokerage. 30
7.1. Finders and Brokers Fees. 30
Section 8. General Provisions 31
8.1. Sales and Transfer Taxes 31
8.2. No Third Party Beneficiaries 31
8.3. Expenses of the Parties; Certain Litigation 31
8.4. Amendment and Waiver 31
8.5. Miscellaneous 31
8.6. Binding Effect 31
8.7. Publicity 31
8.8. Complete Agreement 32
8.9. Notices 32
8.10. Assignment 33
8.11. Severability 33
8.12. Effect of Investigation 33
SCHEDULES
Schedule 1.1(a): Leases
Schedule 1.1(e): Contracts
Schedule 1.2: Excluded Assets
Schedule 1.3(a): Permitted Liens
Schedule 1.4: Assumed Obligations
Schedule 2.2: Payment of Purchase Price
Schedule 2.5.1(a): Interim Date Balance Sheet
Schedule 2.5.2(c): Examples
Schedule 3.2: Seller's Authorization; No Restrictions,
Consents or Approvals
Schedule 3.3: Disclosure of Certain Changes
Schedule 3.6(b)(i): Knowledge of Seller
Schedule 3.6(b)(ii): Knowledge of Buyer
Schedule 3.8: Labor Difficulties
Schedule 3.13: Legal Compliance
Schedule 3.15: Pending Litigation
Schedule 3.17: Financial Statements
Schedule 3.23(b)(iii): Hazardous Materials
Schedule 4.4: Financial Statements
CROSS REFERENCE SHEET
Each of the following terms is defined in this Agreement in the
respective Section referenced adjacent to such term.
Defined Term Section Reference
Agreement Preamble
Area Section 5.5(a)
AA Section 2.5.1(c)
Assumed Obligations Section 1.4
Best Knowledge Section 3.6(b)
Business Recitals
Buyer Preamble
Buyer Indemnitee(s) Section 6.2
Buyer's Aggregate Threshold Amount Section 6.3(b)
Buyer's Audited Financial Statements Section 4.4
Buyer's Current Plan Section 5.8
Buyer's Disclosure Letter Section 4
Buyer's Indemnification Cap Section 6.3(b)
Buyer's Physical Inventory Count Section 2.4(a)
Buyer's Physical Inventory Count Papers Section 2.4(c)
Buyer's Threshold Amount Section 6.3(b)
Buyer's Six Month Financial Statements Section 4.4
Closing Section 1.6
Contracts Section 1.1(e)
Contract Tangible Net Worth Section 2.5.1(a)
Credit Obligations Section 1.5(i)
Disclosed Exceptions Sections 3 and 4
Effective Time of Closing Section 1.6
Employee Benefit Plans Section 3.9
Employee List Section 3.10
Employee Non-Vacation Compensation Section 3.10
Environmental Compliance Liability Section 3.23
Environmental Conditions Section 3.23
Environmental Laws Section 3.23
Environmental Notice Section 3.23
Excluded Assets Section 1.2
Excluded Obligations Section 1.5
Escrow Agreement Section 2.3
Final Accounting Section 5.9
Final Tangible Net Worth Section 2.5.1(a)
Fixed Assets Section 1.1(c)
GAAP Section 2.4(d)
Gift Certificate Fund Section 5.9
Gift Certificates/Store Credits Section 1.5(k)
Hazardous Materials Section 3.23
Holdback Fund Section 2.3
Household Hazardous Waste Section 3.23(b)(iii)
Independent Accountant Section 2.5.1(d)
Intangible Assets Section 1.1(j)
Interim Date Balance Sheet Section 2.5.1(a)
Interim Date Balance Sheet Work Papers Section 2.5.1(b)
Inventory Section 1.1(b)
Knowledge Section 3.6(b)
Laws Section 3.13
Leases Section 1.1(a)
Leased Premises Recitals
Licenses and Permits Section 1.1(f) and 3.11
Liens Section 1.3(a)
Losses Section 6.2
Monthly Accounting Section 5.9
Nine Month Financial Statements Section 3.17
NVB Schedule 1.2
NVB Franchise Schedule 1.2
Permitted Liens Section 1.3(a)
Person Section 1.5(b)
Post-Closing Access Section 5.4
Post-Closing Adjustment Section 2.5.1(a)
Prepaid Expenses Section 1.1(d)
Purchase Price Section 2.1
Purchased Assets Section 1.1
Records Section 1.1(h)
Release Section 3.23
Response Action Section 3.23
Seller Preamble
Seller Indemnitee(s) Section 6.3
Seller's Aggregate Threshold Amount Section 6.2(a)(vi)
Seller's Audited Financial Statements Section 3.17
Seller's Disclosure Letter Section 3.2
Seller's Indemnification Cap Section 6.2(a)(vi)
Seller's Indemnification Obligation Fund Section 6.4
Seller's Indemnification Obligations Section 6.4
Seller's Threshold Amount Section 6.2(a)(vi)
Services Agreement Section 3.2
Store Employees Section 5.8
Stores Recitals
Subleases Section 3.6
Taxes Section 3.4
Transfer Taxes Section 1.3(b)
Year End Balance Sheet Section 2.5.1(c)
Year End Balance Sheet Work Papers Section 2.5.1(c)
Year End Date Section 2.5.1(c)
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into this
31st day of December, 1997 (the "Agreement") by and between TREND-
LINES, INC., a Massachusetts corporation (the "Buyer"), and GOLF
ACQUISITION LIMITED PARTNERSHIP, a Massachusetts limited
partnership (the "Seller").
WHEREAS, Seller operates thirteen (13) golf and tennis
retail stores (the "Stores") located in southern Maine, eastern
Massachusetts and southern New Hampshire on premises leased from
third parties and set forth on Schedule 1.1(a) (the "Leased
Premises"), which offer golf and tennis sporting goods and
sportswear (collectively, the "Business"); and
WHEREAS, Buyer wishes to purchase from Seller, and Seller
desires to sell to Buyer, certain of the assets of Seller,
including, without limitation, all of the Seller's interests and
rights in and under the Leases (as defined herein) and certain
related contracts used in conducting the Business, as more fully
described herein, it being the intention of Buyer to employ such
assets as part of its own business and not to continue Seller's
enterprise as such, it being understood that, subject to specific
exceptions to the contrary as expressly set forth herein, Buyer
shall not be deemed a successor to, or a continuation of, Seller;
and
WHEREAS, subject to the foregoing, Seller desires to sell
and Buyer desires to purchase the Purchased Assets (as defined
herein), in accordance with the terms, conditions, and agreements
hereinafter contained.
NOW, THEREFORE, in consideration of the mutual premises and
the covenants and promises hereinafter contained, and other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto intending to be
legally bound hereby agree as follows:
Section 1. Sale and Purchase of Assets; Related Transactions
1.1 Sale and Purchase of Purchased Assets. On the terms
and subject to the conditions set forth in this Agreement, Seller
does hereby agree to sell, convey, transfer and assign to Buyer,
and Buyer does hereby agree to purchase and accept from Seller,
all right, title and interest of Seller in and to certain of the
assets of Seller used in or related to the Business, including,
without limitation, the assets described in subsections (a)
through (m) hereof, as such assets shall exist at the Effective
Time of Closing (as defined herein) (but excluding the Excluded
Assets, as defined herein) (collectively, the "Purchased
Assets"), free and clear of all Liens, except Permitted Liens (as
each such term is defined herein).
(a) Leases Seller's leases of the Premises
listed on Schedule 1.1(a), complete copies of which leases have
been delivered by Seller to Buyer (the "Leases").
(b) Inventory. All goods and merchandise (including,
but not limited to, tennis and private label tennis and golf
equipment and sportswear) held by Seller for sale in the ordinary
conduct of Seller's Business, including, but not limited to,
packaging materials related thereto (the "Inventory").
(c) Fixed Assets. All equipment, leasehold
improvements, fixtures, motor vehicles, construction in progress,
parts, furniture, furnishings, office and computer equipment and
other fixed assets and equipment now owned by Seller and used in
the Business, other than those constituting Excluded Assets,
including, without limitation, any of the following: electric
panels, switchboards, lighting equipment, wiring, shelving,
office partitions, wall-to-wall carpeting, drapery rods, venetian
blinds, window shades, screens, screen doors, storm windows and
doors, awnings, shutters, kitchen equipment, fixtures and trade
fixtures and telephone and computer systems (the "Fixed Assets").
(d) Prepaid Expenses. All prepaid obligations and
expenses, utility deposits and other items of property of a
similar nature benefiting Seller, the Business or the Purchased
Assets, excluding any prepaid expenses which Seller shall have
terminated as of the Effective Time of Closing or prepaid items,
the benefits of which have been fully received by Seller prior to
the Effective Time of Closing, to the extent so received by
Seller (the "Prepaid Expenses").
(e) Contracts. All contracts, contract rights,
agreements, vendor agreements, purchase orders, sales orders,
commitments, supply agreements, and equipment, real estate and
other leases (in addition to the Leases set forth on Schedule
1.1(a) in respect of the Business in which Seller has any present
or future right or interest prior to or at the Effective Time of
the Closing, including, without limitation, those set forth on
Schedule 1.1(e) (the "Contracts").
(f) Licenses and Permits. All right, title and
interest in and to all licenses, permits, approvals, and
authorizations including, without limitation, applications
therefor, relating to Seller's operation of the Business which
are held by or have been granted to, or have been applied for, by
Seller, to the extent assignment or transfer is permitted by
applicable Law (the "Licenses and Permits").
(g) Intangible Assets. All right, title and interest
of Seller with respect to the Business in and to all inventions,
technology, slogans, data, studies, customer lists, supplier
lists, advertising lists, restrictive covenants, computer
software (including documentation and related object and source
codes, indemnity rights, and other intangible assets now used or
presently planned to be used by Seller in connection with and
relating to the Business and all of the goodwill associated
therewith, but excluding therefrom the intangible assets owned
directly or indirectly by "NVB" or otherwise related to the "NVB
Franchise" (as each such term is defined on Schedule 1.2) (the
"Intangible Assets").
(h) Records and Documents. All books, files, papers,
technical and research analyses, sales, marketing and other
studies, data and plans, records and other data pertaining to the
Business or to Persons employed in respect to the Business (to
the extent permitted by Law), or relating to any of the Purchased
Assets including, without limitation, all manuals, purchase
orders, invoices, items of payment, correspondence, internal
memoranda, forecasts, price lists, sales records, personnel
records (to the extent permitted by Law), customer lists,
financial records and other written or printed materials or
materials in any other medium whatsoever relating to any of the
foregoing, financial or otherwise (collectively, the "Records")
excluding therefrom (a) such Records as Buyer may from time
advise Seller to retain, (b) such Records of Seller pertaining to
NVB or otherwise related to the NVB Franchise, and (c) such
Records of Seller pertaining to partnership matters of its
limited or general partners and similar documents not material to
the operations of Seller.
(i) Goodwill. All of the goodwill of the Business and
the operation thereof, but excluding therefrom the goodwill
associated with or owned directly or indirectly by NVB or
otherwise related to the NVB Franchise and those other items that
are set forth on Schedule 1.2.
(j) Warranties. All warranties and guaranties made to
or in favor of the Seller or with respect to the Purchased Assets
and any components thereof.
(k) Deposits. All deposits made by customers for
goods, merchandise or services not yet delivered or rendered as
of the Effective Time of Closing.
1.2 Excluded Assets. Anything to the contrary herein
provided notwithstanding, the Purchased Assets shall not include
the assets listed on Schedule 1.2, all of which shall be retained
by Seller (the "Excluded Assets") and shall not be sold,
assigned, transferred, conveyed or delivered to Buyer.
1.3 Method of Conveyance
(a) Upon payment of the Purchase Price, less the
amount of the Holdback Fund described in Section 2.3, the sale,
transfer, conveyance, assignment and delivery by Seller of the
Purchased Assets to Buyer in accordance with Section 2 shall be
effected as of the Effective Time of Closing by Seller's
execution and delivery of one or more bills of sale, assignments,
and other instruments of conveyance and transfer, as Buyer
reasonably deems necessary to vest in Buyer good and clear record
and marketable title to, the Purchased Assets, free and clear of
any and all liens, encumbrances, claims, charges, security
interests, rights of Seller and any third party, rights of
redemption, equities, and any other restrictions of any kind or
nature whatsoever, including any leases, escrows, options,
security or other deposits, rights of redemption, chattel
mortgages, conditional sales contracts, collateral security
arrangements and other title or interest retention arrangements
(collectively, "Liens"), except for (i) Liens for current taxes
not yet due, (ii) undetermined and inchoate Liens arising or
potentially arising under statutory provisions which have not at
the time been filed or registered in accordance with applicable
Law (as defined herein) or of which written notice has not been
duly given in accordance with applicable Law or which, though
filed or registered, relate to obligations not due or delinquent,
(iii) Liens, if any, which are specifically identified in
Schedule 1.3(a), (iv) Liens, if any, created by Buyer, and (v)
Liens which are or which relate only to the Assumed Obligations
(collectively, "Permitted Liens").
(b) Seller shall be responsible for and shall pay all
transfer taxes, recording fees and documentary stamps
(collectively, "Transfer Taxes"), payable by reason of the
purchase and sale of the Purchased Assets to Buyer, assignment of
the Leases to Buyer or Buyer's assumption of the Assumed
Obligations hereunder.
(c) Seller covenants and agrees that if either (i) any
of the Purchased Assets cannot be transferred or assigned by
Seller without the consent of or notice to a third party and in
respect of which any necessary consent or notice has not been
obtained or given as of the Effective Time of Closing, or (ii)
any of the Purchased Assets are non-assignable in their nature,
Seller hereby transfers to Buyer all of Seller's beneficial
interest in and to the same, in any event, and Seller covenants
and agrees, (x) to hold such Purchased Assets in trust for, and
for the benefit of, Buyer; and (y) to use its best efforts to
obtain and secure and will have obtained and secured such consent
within thirty (30) days of the date hereof and to give such
notice as may be required to effect valid transfer(s) or
assignment(s) of such Purchased Assets; and (z) to make or
complete such transfer(s) or assignment(s) as soon as possible.
1.4 Assumed Obligations. On the terms and subject to the
conditions set forth in this Agreement, Buyer does hereby agree
to assume and, subject to all rights of offset, defenses, causes
of action, counterclaims and claims of any nature against third
parties that may be available to Buyer in respect of the Assumed
Obligations, does hereby agree to satisfy and discharge, as the
same shall become due, without duplication (a) all of Seller's
obligations under the Contracts and the Leases which are
specifically identified in Schedule 1.4, and are assigned to
Buyer at Closing, if and to the extent assignable, but only to
the extent any such obligations arise and accrue after the
Effective Time of Closing and then only in respect of events and
time periods occurring after the Effective Time of Closing; (b)
all of Seller's obligations under all Licenses and Permits which
are transferred to Buyer hereunder, if and to the extent
transferable, but only to the extent any such liabilities and
obligations accrue after the Effective Time of Closing and then
only in respect of events and time periods occurring after the
Effective Time of Closing; (c) all trade payables which arise in
connection with the operation of the Business and which are
specifically identified in Schedule 1.4, and are assumed by Buyer
at Closing; and (d) all of Seller's obligations under those
Accounts Payable, Accrued Liabilities, Sales Taxes Payable and
Gift Certificate Liabilities which in each case are specifically
included and reflected on the Closing Date Balance Sheet of
Seller, as described in Section 2.5 and delivered to Buyer
thereunder, and which are assumed by Buyer at Closing
(collectively, the "Assumed Obligations").
1.5 Excluded Obligations. Buyer is not assuming, and
Seller shall remain fully responsible for, all past, present and
future indebtedness, liabilities, obligations, contracts and
commitments of Seller and any predecessors in interest of the
Business, known or unknown, fixed or contingent, whether arising
out of or resulting from the Business or the assets thereof, or
otherwise, that are not included and reflected on the Year End
Balance Sheet or that are not otherwise Assumed Obligations
(collectively, the "Excluded Obligations"). Without limiting the
foregoing, the Excluded Obligations shall include, but not be
limited to, any and all liabilities arising from or related to:
(a) the negligent acts or omissions of Seller, whether
in tort or otherwise;
(b) product liability or similar claims for injury to
any person, corporation, association, partnership, limited
liability company, joint venture, organization, business,
individual, government or any agency or political subdivision
thereof or any other entity (a "Person") or property with respect
to products purchased or sold by Seller prior to the Effective
Time of Closing;
(c) any liability of Seller for Taxes (other than
Sales Tax Payable which are specifically included and reflected
on the Year End Balance Sheet or real and personal property taxes
levied on property of Seller used in connection with the Business
and which are subject to the Closing Apportionments in accordance
with Section 5.1 hereof);
(d) any suits, actions, or claims alleging
infringement by Seller, prior to Closing, of patents, trademarks,
trade names or other intellectual property rights held by others;
(e) any liability in respect of any Environmental
Condition or any Environmental Compliance Liability;
(f) any warranty (whether or not provided by any
manufacturer or vendor) or other contingent liability with
respect to (iii) products purchased or sold by Seller prior to
the Effective Time of Closing or (iv) services provided by Seller
prior to the Effective Time of Closing;
(g) any liability for commitments made by Seller
relating to the employment, relocation or termination (including,
but not limited to, severance pay) of any employee, officer or
agent of Seller;
(h) any liability owed to NVB or in respect of the NVB
Franchise;
(i) any liability in respect of that certain Revolving
Loan, Term Loan and Security Agreement between Seller and
Greyhound Financial Corporation, dated as of June 30, 1994, and
all of "Borrower's Obligation" (as defined thereunder) thereunder
and related Loan Documents (collectively, the "Credit
Obligations"), all of which have been satisfied and discharged
contemporaneously with the Closing;
(j) any debts, liabilities or obligations of Seller or
its Affiliates which conflict with or are contrary to the
representations and warranties of Seller set forth in this
Agreement or which are covered by Seller's indemnity provided for
in Section 6.2;
(k) any undisclosed liability, indebtedness or
obligation existing in respect to any Contract or Lease which,
although comprising a part of the Assumed Obligations pursuant to
Section 1.4, is not revealed or reasonably contemplated by the
terms of the Contracts or Leases furnished to Buyer, the
Schedules to this Agreement or otherwise disclosed with
specificity in writing to Buyer, other than gift certificates and
store credits issued by Seller prior to the Effective Time of
Closing, all or a portion of which items shall be covered by the
Gift Certificates Fund as provided for under Section 5.9
(collectively the "Gift Certificates/Store Credits"); and
(l) any other suits, actions or claims (excluding
therefrom claims arising from Gift Certificates/Store Credits
(which shall be covered by the provisions of Section 5.9 in
respect of the Gift Certificates Fund) and customer returns made
after the Effective Time of Closing for merchandise purchased
prior to such Effective Time of Closing (which shall be reflected
on the Year End Balance Sheet in accordance with GAAP,
consistently applied, and Section 5.3) against Seller.
All Excluded Obligations shall remain the sole
responsibility of Seller, and Seller agrees to indemnify, in
accordance with Section 6.2 hereof, Buyer from and against, any
and all such indebtedness, obligations and liabilities.
1.6 Effective Time of Closing. The closing (the "Closing")
of the transactions contemplated by this Agreement has occurred
contemporaneously with the execution and delivery of this
Agreement and shall be deemed to be effective for all purposes as
of 12:00 p.m. December 31, 1997 (the "Effective Time of
Closing").
Section 2. Purchase Price.
2.1 Purchase Price. Subject to the adjustment provisions
of Section 2.5, and upon the terms and subject to the conditions
contained in this Agreement, Seller does hereby convey, transfer,
assign and deliver to Buyer the Purchased Assets in exchange for
(a) Buyer's assumption of the Assumed Obligations; and (b)
Buyer's payment to Seller of the aggregate purchase price (the
"Purchase Price"), which shall be equal to the sum of (i) the
Tangible Net Worth of Seller (as defined herein) plus (ii)
$6,000,000.
2.2 Payment of the Purchase Price. Buyer does hereby tender
to Seller the Purchase Price, less the amounts set forth in
Section 2.3 (the "Holdback Fund") and in Section 6.4 (the
"Seller's Indemnification Obligations Fund"), respectively, the
payment of which shall be effected by wire transfer in
immediately available funds on or before 2:00 p.m. on January 6,
1998, subject to subsequent adjustment, if any, pursuant to
Section 2.5. The amount so paid on January 6, 1998, subject to
subsequent adjustment, has been derived in the manner reflected
on Schedule 2.2.
2.3 Holdback Funds Escrow. A portion of the Purchase
Price, in the amount of $250,000, shall constitute the Holdback
Fund and shall be held by the law firms of Robinson & Cole LLP
and Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C.
(collectively, the "Escrow Agents") in an interest bearing
account (the "Holdback Fund"), under an Escrow Agreement of even
date herewith by and among Buyer, Seller and the Escrow Agents
(the "Escrow Agreement"), to fund the Post-Closing Adjustment,
which Escrow Agreement shall also provide for the separate
holding and disbursement of funds for the Seller's
Indemnification Obligations and the Gift Certificates Fund,
respectively, and shall be disbursed pursuant to and in
accordance with the terms of Section 2.5 and the Escrow
Agreement.
2.4 Determination of Inventory. The quantity and valuation
of the Inventory shall be determined as follows:
(a) The value of the Inventory as of the Effective
Time of Closing shall be determined from the books and records of
Seller. A physical inventory was taken after the close of
business on December 30, 1997 and completed prior to 11:59 p.m.
on December 31, 1997, and the books and records of Seller shall
be adjusted for Inventory quantities as of December 31, 1997, and
such Inventory shall be valued in accordance with paragraph (b)
of this Section 2.4. Such physical inventory was conducted by
Seller's representatives at Seller's expense subject to review by
Buyer's representatives at Buyer's expense. Notwithstanding any
provision herein to the contrary, Buyer shall conduct its own
physical inventory with the assistance of RGIS ("Buyer's Physical
Inventory Count") at the Stores and shall use its best commercial
efforts, including, but not limited to, diverting RGIS personnel
from performing inventory counts at Buyer's other retail stores,
to cause such Count to be completed by the close of business on
January 10,1998. Any difference (positive or negative) between
the value of the Inventory as based on Buyer's Physical Inventory
Count and the Seller's perpetual Inventory shall be reflected by
an adjustment, positive or negative, as the case may be, in the
Inventory to be reflected on the Year End Balance Sheet; and the
expenses incurred to perform the Buyer's Physical Inventory Count
shall be paid by Buyer and Seller in equal shares.
(b) Buyer shall use its best efforts to cause RGIS to
give priority to performing Buyer's Physical Inventory Counts at
the Westwood, Woburn, Framingham, Boston, Nashua, New Hampshire
and Salem, Massachusetts Stores. Until all Buyer's Physical
Inventory Counts are completed, Buyer shall exercise all
commercially reasonable efforts to protect and afford security to
the Inventory and shall prohibit access by any person during non-
business hours to any Store as to which the Buyer's Physical
Inventory Count is not complete (and Buyer shall afford Seller,
at its request, access to alarm company records to check store
access events during non-business hours).
Pursuant to agreement with the Buyer, Seller intends to
retain and place in Stores for which the Buyer's Physical
Inventory Count is not completed, Cambridge Associates' inventory
security personnel who shall act as agents of the Seller to
observe the Buyer's Physical Inventory Count and to ensure the
security and integrity of the Inventory. In connection with such
activities, such inventory security personnel may, among other
things, observe registers, check sales receipts for merchandise
removed from any Store, and monitor store-room and loading dock
activities. The Buyer shall cooperate with the inventory
security personnel in connection with such efforts.
(c) At the time the Buyer's Physical Inventory Count
is complete, a copy thereof shall be delivered to Buyer together
with other relevant documents in connection with the preparation
of such Count (collectively, the "Buyer's Physical Inventory
Count Papers"). Unless Seller provides written notice of a
specific objection to the Buyer's Physical Inventory count before
the close of business on the second Business Day after the date
of Seller's receipt of the Buyer's Physical Inventory Count
Papers, such Buyer's Physical Inventory Count shall become
binding upon Buyer and Seller and will form the basis of the
computation under the third sentence of Section 2.4(a). If
Buyer, by written notice to Seller before the close of business
on such second Business Day objects to the Buyer's Year End
Inventory Count, then those aspects as to which the specific
objection was made shall not become binding. Buyer and Seller
will discuss such objection and, if they reach written agreement
concerning the aspects as to which objection was made, then the
terms of such Agreement, and the aspects of the Buyer's Physical
Inventory Count not objected to, shall be binding upon Buyer and
Seller and will form the basis for the computation under the
third sentence of Section 2.4(a). If a written agreement is not
reached within two (2) Business Days after Seller gives notice of
an objection, then those aspects of Buyer's Physical Inventory
Count or the entire Buyer's Physical Inventory Count, as
applicable, as to which objection is made shall be submitted to
RGIS for another and final physical count. RGIS shall be
requested to perform its physical account and to submit a written
report of the same within two (2) Business Days of instructions
to such effect from Buyer and Seller provided that such
instruction shall be limited to the scope of the matters as to
which Buyer and Seller have not reached agreement pursuant to the
second preceding sentence. Such final physical count shall be
deemed to be not appealable and binding upon Buyer and Seller and
will form the basis for the computation under the third sentence
of Section 2.4(a). All of the fees and disbursements of RGIS
shall be shared equally by Buyer and Seller.
(d) The Inventory reflected on the Interim Date
Balance Sheet was valued, and the Inventory to be reflected on
the Year End Balance Sheet (as defined herein) shall be valued,
at the lower of cost (on a first-in, first-out basis) or market
in accordance with generally accepted accounting principles
("GAAP"), consistently applied, provided, however, that in no
event shall the reserve for inventory (the "Inventory Reserve")
to be reflected thereon exceed $50,000 even if it would be
inconsistent with GAAP.
(e) Any disagreement regarding the quantity or value
of the Inventory, or both, shall be resolved in the manner and at
the time described in Section 2.5.1.
2.5 Post-Closing Adjustment.
2.5.1 (a) The Purchase Price will be adjusted (the
"Post-Closing Adjustment"), dollar for dollar following the
Effective Time of Closing (i) to the extent that the Tangible Net
Worth of Seller as of December 31, 1997 (the "Final Tangible Net
Worth") shown upon the Year End Balance Sheet differs from the
Tangible Net Worth of Seller at November 30, 1997 (the "Contract
Tangible Net Worth") shown upon the Interim Date Balance Sheet of
Seller dated as of November 30, 1997 (the "Interim Date Balance
Sheet") attached to Schedule 2.5.1(a).
(b) For purposes of this Agreement, Tangible Net Worth
shall mean total assets (other than Excluded Assets) less
intangible assets (including, but not limited to, the intangible
assets owned directly or indirectly by NVB or otherwise related
to the NVB Franchise) less total liabilities (other than Excluded
Obligations) as reflected on the Interim Date Balance Sheet and
on the Year End Balance Sheet, respectively. In determining
Tangible Net Worth, except for the Inventory Reserve and except
for the application of Section 5.3, there should be no deduction
for any Inventory which is determined not to be salable in the
ordinary course of business as previously conducted by Seller.
The Interim Date Balance Sheet was prepared by Seller and
delivered to Buyer prior to the date hereof, and Seller has made
available to Buyer all of Seller's work papers and other relevant
documents in connection with the preparation of the Interim Date
Balance Sheet (collectively, the "Interim Date Balance Sheet Work
Papers").
(c) The Tangible Net Worth, as of December 31, 1997
(the "Year End Date"), shall be determined by Seller and
reflected on the Balance Sheet of Seller dated as of the Year End
Date (the "Year End Balance Sheet"). As promptly as possible and
in any event within sixty (60) days after the date hereof, Seller
shall prepare the Year End Balance Sheet, with the assistance and
cooperation of Buyer, which Year End Balance Sheet shall be
audited and accompanied by a report from Arthur Andersen LLP
("AA"), Seller's independent certified public accountants, which
shall state, among other things, that the Year End Balance Sheet,
as of the Year End Date, fairly represents, in all material
respects, the financial position of Seller as of the Year End
Date, in conformity with GAAP consistently applied. At the time
the Year End Balance Sheet is delivered to Buyer, Seller shall
make available to Buyer all of Seller's work papers and other
relevant documents in connection with the preparation of the Year
End Balance Sheet (collectively, the "Year End Balance Sheet Work
Papers"). Buyer shall pay AA for its fees in connection with
auditing the Year End Balance Sheet and Seller shall reimburse
Buyer for such portion of such fees as shall be equal to the
amount paid by Seller to AA for the audit of Seller's 1996
Audited Financial Statements against receipt of reasonable
evidence as to the payment of such fees by Seller.
(d) Unless Buyer provides written notice of a specific
objection to the Year End Balance Sheet before the close of
business on the tenth (10th) Business Day after the date of
Buyer's receipt of the Year End Balance Sheet and the Year End
Balance Sheet Work Papers, such Year End Balance Sheet shall
become binding upon Buyer and Seller and will form the basis of
the computation under Section 2.5.2. If Buyer, by written notice
to Seller before the close of business on such tenth (10th)
business day, objects to the Year End Balance Sheet, then those
aspects as to which the specific objection was made shall not
become binding. Buyer and Seller will discuss such objection
and, if they reach written agreement concerning the aspects as to
which objection was made, then the terms of such agreement, and
the aspects of the Year End Balance Sheet not objected to, shall
be binding upon Buyer and Seller and will form the basis for the
computation under Section 2.5.2. If a written agreement is not
reached within ten (10) business days after Buyer gives notice of
an objection, then those aspects as to which objection is made
shall be submitted to Deloitte Touche LLP (Boston Office) (the
"Independent Accountant"), whose fees and disbursements shall be
shared equally by Buyer and Seller. The Independent Accountant
shall resolve the dispute and submit a written statement of such
resolution, provided, that the review of the Independent
Accountant will be restricted as to scope to address only those
matters as to which Buyer and Seller have not reached agreement
pursuant to the second preceding sentence. Such written
statement, together with those aspects of the Year End Balance
Sheet not objected to, shall become final, non-appealable and
binding upon Buyer and Seller and will form the basis for the
computation under Section 2.5.2. In the event that Deloitte
Touche LLP (Boston Office) is unable or refuses to serve as the
Independent Accountant and in the event the parties are unable to
agree upon another Independent Accountant, the Independent
Accountant shall be chosen by the Resident Manager of the Boston
Office of AA.
2.5.2 (a) If the Contract Tangible Net Worth is greater
than the Final Tangible Net Worth, then the difference shall be
subtracted from the Holdback Fund and if the amount of such
deficiency is greater than the amount of the Holdback Fund,
Seller shall pay to Buyer an amount equal to such deficiency.
Payment shall be made not more than ten (10) Business Days
following the determination of the Final Tangible Net Worth
pursuant to Section 2.5.1 hereof in the manner described above,
and such amount (exclusive of the interest accrued with respect
to the Holdback Fund while it was held in the Holdback Escrow)
shall bear interest from the date hereof to the date of payment
at the rate of eight percent (8%) per annum for up to the first
twenty-one (21) Business Days following the date the Seller's
books are closed and made available to the Independent Accountant
for purposes of the Independent Accountant beginning its audit
work in respect of the Year End Balance Sheet and at the rate of
twelve (12%) percent per annum thereafter. If the amount to be
deducted from the Holdback Fund is less than the full amount
thereof, Buyer shall direct the Escrow Agents to promptly pay the
balance thereof (including any accrued but unpaid interest) to
Seller in accordance with the provisions of the Escrow Agreement.
(b) If the Contract Tangible Net Worth is less than the
Final Tangible Net Worth, then the difference, plus the amount of
the Holdback Fund (including the interest accrued with respect
tot he Holdback Fund while it was held in the Holdback Escrow)
shall be paid to Seller not more than ten (10) Business Days
following the determination of the Final Tangible Net Worth
pursuant to Section 2.5.1 hereof in the manner described above,
and the amount of such difference shall bear interest from the
date hereof to the date of payment at the rate of 8% per annum
for up to the first twenty-one (21) Business Days following the
date the Seller's books are closed and made available to the
Independent Accountant beginning its audit work in respect of the
Year End Balance Sheet and at the rate of twelve percent (12%)
per annum thereafter.
(c) Schedule 2.5.2(c) sets forth a series of computation
examples to illustrate the provisions set forth in this
paragraph. For purposes of this Agreement, the term "Business
Day" shall mean any day which is not a Saturday, Sunday, or a day
on which banks in the City of Boston, Massachusetts are required
by law, executive order or governmental decree to be closed.
2.6 Allocation. Seller and Buyer agree that the Purchase
Price shall be allocated among the Purchased Assets first, dollar
for dollar to reflect the applicable book values of the total
assets as reflected on the Closing Date Balance Sheet (other than
Excluded Assets and intangible assets) and second to goodwill.
Seller further agrees to cooperate with Buyer in completing and
delivering to Buyer or the Internal Revenue Service such
information concerning the determination of the purchase price as
may be required pursuant to the Internal Revenue Code.
Section 3. Representations and Warranties of Seller
To induce Buyer to execute and deliver this Agreement
and to consummate the transactions contemplated hereby, except as
set forth (the "Disclosed Exceptions") in the disclosure letter
delivered to Buyer by Seller on or prior to the date of the
execution hereof (the "Seller's Disclosure Letter"), which is
hereby made an integral part of this Agreement as if fully set
forth herein, Seller hereby makes each of the representations and
warranties set forth in this Section 3, each of which shall
survive the execution and delivery to the extent set forth in
Section 6, all of which are material and have been relied upon by
the Buyer and each of which shall be true and correct in all
respects as of the date hereof. References to Schedules in this
Section 3 shall be deemed to refer to the Schedules set forth in
the Seller's Disclosure Letter, unless otherwise indicated.
Seller hereby represents and warrants to Buyer as follows:
3.1 Organization and Qualification. Seller is a limited
partnership duly organized, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts. Seller has
all requisite power and authority to own those properties and
conduct those businesses presently owned or conducted by it, and
is duly qualified to do business as it is now being conducted and
is in good standing as a foreign limited partnership in each
other jurisdiction where the property owned, leased or used by it
or the conduct of its business makes such qualification
necessary.
3.2 Authorization; No Restrictions, Consents or Approvals.
Seller has full power and authority to enter into and perform
this Agreement and the Services Agreement dated as of the date
hereof and executed and delivered by Seller and Buyer (the
"Services Agreement") and all partnership and partner action
necessary to authorize the execution and delivery of this
Agreement and the Services Agreement and the performance by it of
its obligations hereunder and thereunder has been duly taken.
Each of this Agreement and the Services Agreement has been duly
executed by Seller and constitutes the legal, valid, binding and
enforceable obligation of Seller, enforceable against Seller in
accordance with its terms. The execution and delivery of this
Agreement and the Services Agreement and the sale of the
Purchased Assets and the consummation of the transactions
contemplated herein and therein, do not (i) conflict with or
violate any of the terms of the Limited Partnership Agreement of
Seller or any applicable Law which would have a Material Adverse
Effect, (ii) result in the creation or imposition of any Lien on
any of the Purchased Assets, (iii) conflict with, or result in or
constitute a default under or breach or violation of or grounds
for termination of, any license, permit or other governmental
authorization to which Seller is a party or by which Seller may
be bound, or result in the violation by Seller of any Law to
which Seller or any assets of Seller may be subject, which would
materially adversely affect the Purchased Assets or the
transactions contemplated herein and therein. Except as set
forth in Schedule 3.2, no authorization, consent or approval of,
notice to, or filing with, any public body or governmental
authority or any other person is necessary in connection with the
execution and delivery by Seller of this Agreement, the Services
Agreement or the performance by Seller of its obligations
hereunder or thereunder. For purposes of this Agreement, the term
"Material Adverse Effect" with respect to the Seller shall mean
any change, effect or circumstance that, individually or when
taken together with all other changes, effects or circumstances
that have occurred prior to the date hereof or is reasonably
likely to be materially adverse to (i) the Purchased Assets or
(ii) Buyer's title to the Purchased Assets or (iii) the
transactions contemplated herein and the Services Agreement..
3.3 Absence of Certain Changes. Except to the extent set
forth on Schedule 3.3, since November 30, 1997, there has not
been any material adverse change, or to Seller's Knowledge
development involving a prospective material adverse change, with
respect to the Purchased Assets including, but not limited to,
(i) any damage or destruction or property loss whether or not
covered by insurance, materially and adversely affecting the
Purchased Assets, (ii) any increase in the compensation or bonus,
incentive compensation, profit sharing, retirement, insurance,
medical reimbursement or other employee benefit plan or
arrangement payable or owed or to become payable or owed by
Seller with respect to the Store Employees (as defined herein),
other than increases made on the basis of historical practice and
in the ordinary course of business and compensation increases
attendant to promotions and falling within the normal range for
the new position (iii) any release or waiver of any material
right or claim of Seller with respect to any of the Leases,
Contracts or the Licenses and Permits, (iv) any Lien on any of
the Purchased Assets, or (vi) any material change by Seller in
accounting principles or methods.
3.4 Taxes. Seller with respect to the Business has
timely-filed (timely being understood to include all properly
granted extensions) all returns required to be filed by it with
respect to all federal, state and local and foreign income,
payroll, withholding, excise, sales, personal property, use,
business and occupation, franchise and occupancy, real estate or
other taxes (all of the foregoing taxes including interest and
penalties thereon and including estimated taxes, being
hereinafter collectively, the "Taxes") and has paid all Taxes
which are shown to have become due pursuant to such returns and
has paid all other Taxes for which it has received a notice of
assessment or demand for payment or has otherwise been made aware
of a deficiency. All such returns or reports are true and
correct in all material respects.
3.5 Ownership of Purchased Assets. Subject to the Sale to
Buyer pursuant to this Agreement, Seller is the owner of, and
holds good and clear record and marketable title to, the
Purchased Assets free and clear of any Liens, except Permitted
Liens, if any. Seller does hereby transfer to the Buyer good and
clear marketable title (and, to Seller's Knowledge with respect
to leasehold interests under the Leases, insurable at normal
rates with respect to the tangible assets constituting part of
the Purchased Assets), under all applicable Laws, in and to all
of the Purchased Assets, free and clear of all Liens, except
Permitted Liens.
3.6 Leases; Exclusive Possession; Not in Default. (a)
Seller enjoys exclusive, peaceful and undisturbed possession
under the Leases (subject to the provisions thereof) and personal
property leases constituting part of the Purchased Assets to
which Seller is a party. Seller has posted security deposits for
the performance of its obligations under the Leases as set forth
on Schedule 1.1(a), and, to the best of Seller's Knowledge, there
are no claims or charges against such security deposits which
have been asserted or, for which there exists a legal basis for
such assertion. With respect to the Leases and such personal
property leases, the consent of only the landlords and those
lenders under financing documents identified as Contracts on
Schedule 1.4 have been required for and have been obtained by
Seller to consummate the transactions required by this Agreement
and the same do not breach, or constitute a default of, such
leases. Schedule 1.1(a) contains a list of the Leases covering
the Stores, and any subleases (the "Subleases") thereunder as to
which Seller is lessor, sublessee or sublessor. A copy of each
such Lease and Sublease has been provided to Buyer. No other
real property (owned or leased) is used in connection with the
Business. No partner of Seller, nor any Affiliate of Seller,
owns directly or indirectly, in whole or in part, any of the real
properties described on Schedule 1.1(a) or any interest therein.
Seller is not in default with respect to any term or condition of
any Lease, nor, to the best Knowledge of Seller, has any event
occurred which, through the passage of time or the giving of
notice, or both, would constitute a default thereunder, would
cause the acceleration of any obligation of Seller or the
creation of a Lien, except as provided on Schedule 3.2, or
interfere with Seller's right to occupy any leasehold, which
default or acceleration would have a material adverse effect on
the Purchased Assets taken as a whole. For purposes of this
Agreement, the term "Affiliate" means any Person that directly or
indirectly through one or more intermediaries, controls or is
controlled by or is under common control with the Person
specified. For purposes of this definition, control of a Person
means the power, direct or indirect, to direct or cause the
direction of the management and policies of such Person whether
by contract or otherwise and, in any event, without limitation of
the foregoing, any Person owning 10% or more of the voting
securities of another Person shall be deemed to control that
Person.
(b) For purposes of this Agreement, the term
"Knowledge" or "Best Knowledge" shall mean, (a) with respect to
Seller, the actual knowledge of any of the individuals listed on
Schedule 3.6(b)(i) and (b) with respect to Buyer, the actual
knowledge of any of the individuals listed on Schedule
3.6(b)(ii). Neither the listing nor description of any item or
matter in any Schedule, Exhibit or Annex hereto, nor the
furnishing or availability for review of any document referred to
herein, and any Agreement, Instrument or Document given in
connection herewith, or in any such Schedule, Exhibit or Annex
shall be construed to modify, qualify or disclose an exception to
any representation or warranty, except solely to the extent that
such representation or warranty relates to the existence or non-
existence of the item, matter or document itself.
3.7 Contracts and Other Documents. Schedule 1.1(e) sets
forth a complete listing or description of all Contracts
(excluding from such listing or descriptions (i) purchaser orders
of merchandise ordered in the ordinary course of business and
(ii) contracts which do not involve payment or receipt of more
than $10,000) to which Seller is a party in connection with the
Business. Each of the Contracts is valid, binding and
enforceable in accordance with its terms, and is in full force
and effect; there are no existing defaults on the part of Seller
or, to the best of Seller's Knowledge, any other party, under any
Contract, and no event of default under any such Contract has
occurred and is continuing which (whether with or without the
giving of notice, lapse of time or both, or the happening of any
other event) would constitute a default under such Contract; each
such Contract will, subject to obtaining any applicable consent
continue to be in full force and effect on the same terms and
conditions without the need for any action on the part of Buyer
except for Buyer's performance of the Assumed Obligations; to the
best of Seller's Knowledge, each such Contract reflects the
complete understanding among the parties thereto; and complete
copies of each such Contract including all amendments thereto,
have been delivered to Buyer at or prior to the date hereof.
Seller's interest in each of the Contracts is free and clear of
all Liens (other than any created by Buyer). Except for those
Contracts which are listed on Schedule 1.1(e), or which have been
entered into by Seller in the ordinary course of business and do
not involve payment or receipt of more than $10,000, Seller is
not a party to any Contract or similar document. Neither Seller
nor, to the best of Seller's Knowledge, any other party is in
default under any Contract.
3.8 Labor Difficulties. Except as set forth in Schedule
3.8, to the best of Seller's Knowledge, with respect to the
Business (i) Seller is not a party to a union agreement or
collective bargaining agreement and no attempt to organize any
Store Employees of Seller has been made, proposed or threatened;
(ii) there is no labor strike, formal dispute, formal grievance,
arbitration proceeding, general slowdown or stoppage, or charge
of unfair labor practice pending before a court, regulatory body
or arbitration tribunal, or, to the best of Seller's Knowledge,
threatened against or affecting the Purchased Assets or the
Business, and no event has occurred which would constitute
reasonable grounds for such a strike, dispute, grievance,
proceeding or charge; (iii) no union representation question
exists respecting any Store Employees of Seller; (iv) there are
no charges or complaints of discrimination pending before the
United States Equal Employment Opportunity Commission or any
other federal, state, local or foreign agency or tribunal against
Seller; (v) Seller does not presently employ, and at no time
during the past year did it employ, any illegal alien; and (vi)
Seller is in compliance with all federal, state and local labor
and employment-related Laws.
3.9 ERISA; Employee Benefit Plans. Seller does not
currently sponsor or maintain and has not at any time since
September 2, 1974 sponsored or maintained any qualified or
nonqualified "employee pension plan" as that term is defined in
Section 3(2) of ERISA. Seller does not currently sponsor or
maintain with respect to its Store Employees any plan or any type
of benefit offered under any arrangement subject to
characterization as an "employee welfare benefit plan" within the
meaning of Section 3(3) of ERISA (collectively referred to as the
"Employee Benefit Plans") other than as reflected on the Employee
List. Seller has not received any written notice of
noncompliance, and to Seller's Knowledge, Seller is in compliance
with all terms of the Employee Benefit Plans and with ERISA, and
all other applicable Laws as they affect Seller and its Store
Employees, except to the extent that failure to comply would not
have a Material Adverse Effect. Seller has not received written
notice of, and to Seller's Knowledge there are no demands by any
Store Employee (or beneficiary or dependent of any Store
Employee) for benefits, except those benefits pending payment or
satisfaction in the ordinary course of business.
3.10 Employees. Seller has delivered to Buyer an
accurate and complete list (the "Employee List") of: (i) the
names and current salaries or wage rate and Employee Benefit
Plans benefits, as applicable, of all of Seller's employees,
including but not limited to, the Store Employees. Except as set
forth on the Employee List, there are no bonuses, profit sharing,
incentives, commissions or other compensation of any kind,
including severance benefits (collectively "Employee Non-Vacation
Compensation") due to or expected by present or former employees
of Seller with respect to the Business as of the date hereof
which have not been fully paid prior to such date or are expected
to be paid by Seller within thirty (30) days hereafter. All
accrued vacation time and pay earned by the Store Employees (and
such of Seller's non-Store Employees who become employees or
independent consultants of Buyer) prior to and subsequent to
December 31, 1997, shall be timely paid or awarded or credited,
as the case may be, by Buyer in accordance with Buyer's customary
employee benefit plans, policies, programs and arrangements
maintained by Buyer for its own comparable employees.
3.11 Licenses and Permits. To Seller's Knowledge,
Seller has obtained, has fully paid for, and has in full force
and effect all such licenses, franchises, permits, approvals,
certificates, certifications and other authorizations from all
applicable governmental authorities which have been material and
necessary for the conduct of the Business as currently conducted
and the ownership, use, occupancy and operation of the Purchased
Assets and the Leased Premises or otherwise relating to the Store
Locations (the "Licenses and Permits"). To Seller's Knowledge,
the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not
result in the revocation, cancellation, suspension, modification,
or limitation of any of such Licenses and Permits and will not
give to any Person any right to revoke, cancel, suspend, modify,
or limit any of such Licenses and Permits. To Seller's Knowledge,
all such Licenses and Permits are transferable to Buyer.
3.12 INTENTIONALLY OMITTED.
3.13 Compliance With Law. Except as set forth in
Schedule 3.13, with respect to the Purchased Assets and the
Leased Premises, Seller has at all times operated in compliance
in all material respects to the extent necessary with all
applicable federal, state, local, or other laws, rules,
regulations, guidelines, orders, injunctions, building and other
codes, ordinances, permits, licenses, authorizations, judgments,
decrees of federal, state, local, foreign or other authorities,
and all orders, writs, decrees and consents of any governmental
or political subdivision or agency thereof, or any court or
similar Person established by any such governmental or political
subdivision or agency thereof (collectively, the "Laws"),
including but not limited to all applicable Laws relating to the
safe conduct of business, employment discrimination, wages and
hours, employment of illegal aliens, collective bargaining, the
payment of withholding and social security taxes, product
labeling, antitrust, consumer protection, occupational safety and
health, consumer product safety, the importation of goods and
product liability, except to the extent that failure to comply
would not have a Material Adverse Effect; and to Seller's
Knowledge, no event has occurred which would constitute
reasonable grounds for a claim that non-compliance has occurred
or is occurring.
3.14 Intangible Assets. Seller owns all rights and
interest to or possesses valid and binding licenses or other
rights to use the Intangible Assets free and clear of all Liens
(other than Permitted Liens) or distribution rights. Seller is
not required to pay any royalty, license fee or similar
compensation with respect to the Intangible Assets in connection
with the current or prior conduct of its Business. No written
claims have been asserted by any Person with respect to the use
of the Intellectual Property or Intangible Assets by Seller. To
Seller's Knowledge, no Person is infringing upon the Intangible
Assets. No Person, other than Seller, owns or has any
proprietary, financial or other interest, direct or indirect, in
whole or in part, in any Intangible Asset.
3.15 Pending Litigation. Except as set forth in
Schedule 3.15, with respect to the Business, the Leased Premises
and the Contracts, there are no actions, suits, claims,
enforcement actions, or proceedings pending or threatened against
Seller or any Person by reason of it or he being a director,
shareholder, or officer of Seller, whether at law or in equity or
before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality
which, if adversely determined, would have a Material Adverse
Effect nor is there outstanding any writ, order, decree, or
injunction applicable to Seller that (i) calls into question
Seller's authority or right to enter into this Agreement and
consummate the transactions contemplated hereby, or (ii) would
otherwise prevent or delay the transactions contemplated by this
Agreement.
3.16 Customer List. Seller has delivered to Buyer a
copy of Seller's most complete customer list with respect to the
Business.
3.17 Financial Statements. Schedule 3.17 sets forth
(a) the audited financial statements as of December 31, 1996,
which include the balance sheet of Seller as of December 31,
1996, statement of operations and retained earnings of Seller for
the fiscal year ended December 31, 1996, and statement of changes
in financial position of the Business for the fiscal year ended
December 31, 1996, together with the related notes thereto,
including the report thereon of Seller's independent certified
public accountant, AA (collectively, the "Seller's Audited
Financial Statements"), (b) and an interim unaudited balance
sheet of Seller as of September 30, 1997, and an unaudited
statement of operations and retained earnings and an unaudited
statement of changes in financial position of Seller for the nine
month period then ended (collectively, the "Nine Month Financial
Statements") and (c) the Unaudited Interim Date Balance Sheet of
Seller as of November 30, 1997. The Seller's Audited Financial
Statements and the Nine Month Financial Statements are complete
and correct and fairly present the financial condition of Seller
as of the dates thereof and the results of its operations for the
fiscal years and periods ended on such dates. The Seller's
Audited Financial Statements and Nine Month Financial Statements
have been prepared in accordance with GAAP, consistently applied.
To Seller's Knowledge, the Interim Date Balance Sheet as of
November 30, 1997 fairly presents, in all material respects, the
financial condition of Seller as of the Interim Date in
conformity with GAAP, consistently applied with those used in
preparation of the Seller's Audited Financial Statements, and
provides the basis for calculating the Tangible Net Worth of
Seller as of such date.
3.18 INTENTIONALLY OMITTED.
3.19 Inventory. All Inventory of Seller's Business was
acquired and has been maintained in the ordinary course of
Seller's Business and, except to the extent reserves have been
accrued on the Interim Date Balance Sheet in accordance with past
custom and practice of Seller, is of good and merchantable
quality and consists substantially of a quality, quantity and
condition saleable in the ordinary course of Seller's Business.
Seller is not under any liability or obligation with respect to
the return of any Inventory in the possession of wholesalers or
retailers. All inventory items shown on the Interim Date Balance
Sheet are, and those that are existing at the Closing will be,
priced on the first-in, first-out (FIFO) basis at lower of cost
or market, and reflect write-downs to realize values in the case
of items which have become obsolete or unsalable. The values of
the Inventories stated on the Interim Date Balance Sheet reflect
the normal inventory valuation policies of the Seller with
respect to the Business and were determined in accordance with
GAAP, consistently applied. Purchase commitments for Inventory
on order are not in excess of normal requirements, and none are
at prices materially in excess of current market prices. Since
the date of the Interim Date Balance Sheet, no inventory items
have been sold or disposed of except through sales in the
ordinary course of Seller's Business.
3.20 Suppliers. Except with respect to NVB and
Affiliates thereof, Seller has no Knowledge of any supplier's
intention to discontinue or substantially reduce the size or
number of transactions it consummates with Seller as it relates
to the Business prior to Closing or will consummate with Buyer
upon the consummation of the transactions contemplated herein.
3.21 No Third Party Option. There are no existing
agreements, options, commitments or rights with, of or to any
Person to acquire any of Seller's assets, properties or rights
included in the Purchased Assets or any interest therein, except
for those contracts entered into in the ordinary course for the
sale of inventory of Seller.
3.22 Certain Land Use Matters.
(a) Condition of Leased. To Seller's Knowledge,
the improvements upon the Leased Premises are in good condition
and all systems and appliances, including, by way of example
only, to the extent applicable to the Leased Premises, lighting,
heating, cooling, plumbing, electrical, water and gas are in good
working condition. All material defects with respect to the
Leased Premises and Known to Seller, and all systems and
appliances applicable thereto, have been disclosed to Buyer by
Seller in writing.
(b) Public Utilities. Adequate supplies of all
public utilities, including water, sewer, gas, electric,
telephone and drainage facilities and other utilities required by
Law or by the normal use and operation of the Leased Premises are
installed to and connected with the Leased Premises and have been
historically adequate to serve the Leased Premises for normal
usage of the Leased Premises by Seller as an occupant thereof and
its licensees and invitees.
(c) Legal Compliance. Seller has no Knowledge of
any condemnation, environmental, zoning or other land use
regulation proceedings or investigations, either instituted or
planned to be instituted by any Person, which would detrimentally
affect the use and operation of the Leased Premises and for
Buyer's intended purpose or the value of the Leased Premises, nor
has Seller received any written notice of any special assessment
proceedings affecting the Leased Premises. No written notice
from any governmental body has been served upon Seller claiming
or requiring, or calling attention to the need for, any work,
repairs, construction, alterations or installation on or in
connection with the Leased Premises, which has not been complied
with.
3.23 Environmental Matters.
(a) Definitions. As used in this Agreement, the following
terms have the respective meanings set forth below:
"Environmental Compliance Liability" means any and all
liabilities, damages and costs arising under, or related to,
compliance with any Environmental Law applicable to the Business
or the Leased Premises, or any operations or assets associated
therewith, which may result in claims and/or demands by and/or
liabilities to third parties, including but not limited to,
governmental entities.
"Environmental Conditions" shall mean any and all
circumstances with respect to any real property, any and all
circumstances with respect to any soils, bedrock formations,
surface waters, groundwaters, ponds, wetlands, stream sediments,
air and similar environmental media, and any and all
circumstances with respect to any of the structures and any of
the building and construction materials that may require Response
Action and/or that may result in claims and/or demands by and/or
liabilities to third parties including, but not limited to
governmental entities, and either that:
(i) are or were previously located at or near the
Leased Premises; or that
(ii) result or previously resulted from the
operation of Business at the Leased Premises or from the
activities or events that occur or previously occurred at or near
any of the Leased Premises.
This term shall expressly include, but shall not be limited to,
such on-site and off-site circumstances related to any
Environmental Notice or other investigation or proceeding under
the Comprehensive Environmental, Response, Compensation and
Liability Act, 42 U.S.C. 9601 et seq., as amended, ("CERCLA") or
analogous state statute.
"Environmental Laws" means any and all federal, state,
local or municipal written and published Laws, rules, orders,
regulations, statutes, ordinances, codes, or requirements of any
governmental authority regulating or imposing standards of
liability or standards of conduct (including common laws)
concerning air, water, solid waste, Hazardous Materials, worker
and community right-to-know, hazard communication, noise,
radioactive material, resource protection, subdivision, inland
wetlands and watercourses, health protection and other
environmental, health, safety, building, land use, and local
government concerns.
"Environmental Notice" shall mean any summons,
citation, directive, order, claim, pleading, proceeding,
judgment, notice of potential liability, letter or any other
written communication from the United States Environmental
Protection Agency ("USEPA"), or from any other federal, state or
local agency or authority, or from any other entity or any
individual, concerning any intentional or unintentional act or
omission which has resulted in or which may result in the Release
of any Hazardous Material into the environment, including but not
limited to, soils, bedrock formations, surface waters,
groundwaters, ponds, wetlands, stream sediments, air or other
environmental media, or concerning any violation or alleged
violation of Environmental Laws, and shall expressly include
actions under CERCLA and the imposition of any lien pursuant to
any federal, state or local Environmental Laws.
"Hazardous Materials" means any petroleum, petroleum
products, fuel oil, waste oil, explosives, reactive materials,
ignitable materials, corrosive materials, hazardous chemicals,
hazardous wastes, hazardous substances, extremely hazardous
substances, toxic substances, toxic chemicals, radioactive
materials, medical waste, biomedical waste, infectious materials,
pollutants, toxic pollutants, herbicides, fungicides,
rodenticides, insecticides, contaminant, or pesticides and
including, but not limited to, any other element, compound,
mixture, solution or substance which may pose a present or
potential hazard to human health or the environment.
"Release" means releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, ejecting, escaping,
leaching, disposing, seeping, infiltrating, draining or dumping,
or as otherwise defined under Environmental laws. This term
shall be interpreted to include both the noun form and the verb
form, present, past and future tense, as appropriate.
"Response Action" means any efforts of any governmental
entity, Seller, Buyer, or other Person, or the contractors,
subcontractors or agents of any governmental entity, Seller,
Buyer, or Person, which are made, designed, initiated, or
maintained to address any Environmental Condition or
Environmental Compliance Liability and may include investigation,
remedial design, site monitoring, containment, mitigation, clean-
up, transport, removal, disposal, restoration and other remedial
efforts of any kind, including but not limited to the expenses
incurred by any governmental entity in evaluating, monitoring or
overseeing any Response Action.
(b) Environmental Representations and Warranties by Seller.
Seller hereby represents and warrants to Buyer:
(i) Seller has not received any Environmental Notice
seeking any information or alleging any violation of
Environmental Laws with respect to the Leased Premises.
(ii) Seller has complied with all applicable filing and
notification requirements Known to Seller under applicable
Environmental Laws as in effect as of the date hereof that are
required in connection with the Leased Premises or any activities
conducted by Seller on the Leased Premises at any time prior to
the date hereof, except to the extent that failure to comply
would not have a Material Adverse Effect.
(iii) Except as described in Schedule 3.23(b)(iii),
to Seller's Knowledge, neither Seller nor any other Person, has
caused or permitted the Leased Premises to be used to generate,
manufacture, refine, transport, treat, store, handle, dispose,
transfer, produce or process any Hazardous Materials (except in
quantities characterized as "Household Hazardous Waste") at any
time prior to the date hereof, except in compliance with all
applicable Environmental Laws. To Seller's Knowledge, solid
waste generated at the Leased Premises has been disposed of by
properly licensed haulers. Seller has not caused or permitted
the Release of any Hazardous Materials that occurred at,
affected, or related to the Leased Premises, or any of the
activities conducted thereon, whether on-site or off-site of the
Leased Premises, at any time prior to the date hereof, except for
Releases in compliance with all Environmental Laws. To Seller's
Knowledge, the Leased Premises do not contain any Hazardous
Materials except in quantities characterizable as "Household
Hazardous Waste" and no such materials are located on, in, or
under any of the Leased Premises except in compliance with all
Environmental Laws.
(iv) To Seller's Knowledge the Leased Premises and
Seller's historical use thereof and operation therein were and
are in compliance with all Environmental Laws, except to the
extent that failure to comply would not have a Material Adverse
Effect. There are no environmental proceedings, either
instituted or, to the best of Seller's Knowledge, planned to be
instituted, which would detrimentally affect the use and
operation of the Leased Premises for the purposes that Seller
presently uses and operates the Leased Premises.
Section 4. Representations and Warranties of Buyer
To induce Seller to execute and deliver this Agreement and
to consummate the transactions contemplated hereby, except as set
forth (the "Disclosed Exceptions") in the disclosure letter
delivered to the Seller by Buyer on or prior to the date of the
execution hereof (the "Buyer's Disclosure Letter") which is
hereby made an integral part of this Agreement as if fully set
forth herein, the Buyer hereby makes each of the representations
and warranties set forth in this Agreement, including those set
forth in this Section 4, each of which shall survive the
execution and delivery hereof to the extent set forth in Section
6, all of which are material and have been relied upon by Seller
and each of which shall be true and correct in all respects as of
the date hereof. References to Schedules in this Section 4 shall
be deemed to refer to the Schedules set forth in the Buyer's
Disclosure Letter, unless otherwise indicated. Buyer hereby
represents and warrants to Seller as follows:
4.1 Organization and Qualification. Buyer is a corporation
duly organized, validly existing and in good standing under the
laws of the Commonwealth of Massachusetts. Buyer has all
requisite power and authority to own those properties and conduct
those businesses presently owned or conducted by it, and is duly
qualified to do business as it is now being conducted and is in
good standing as a foreign corporation in each other jurisdiction
where the property owned, leased or used by it or the conduct of
its business makes such qualification necessary.
4.2 Authorization; No Restrictions, Consents or Approvals.
Buyer has full corporate power and authority to enter into and
perform this Agreement and the Services Agreement, and has taken
all necessary action to authorize the execution and delivery of
this Agreement and the Services Agreement and the performance by
it of its obligations hereunder and thereunder. Each of this
Agreement and the Services Agreement has been duly executed by
Buyer and constitutes the legal, valid, binding, and enforceable
obligations of Buyer. The execution and delivery of this
Agreement and the Services Agreement and the consummation by
Buyer of the transactions contemplated herein or therein, do not
(v) conflict with or violate any of the terms of Articles of
Organization or Bylaws of Buyer as each have been amended from
time to time, or any applicable Law, or (vi) conflict with, or
result in a breach of any of the terms of, or result in the
acceleration of any indebtedness or obligations under, any
agreement, obligation, or instrument by which Buyer is bound and
which would materially adversely affect the transactions
contemplated herein or therein. No authorization, consent, or
approval of any governmental authority or any other person is
necessary or required in connection with the execution and
delivery by Buyer of this Agreement or the Services Agreement or
the performance by Buyer of Buyer's obligations hereunder or
thereunder.
4.3 Pending Litigation. There are not actions, suits,
claims, enforcement actions or proceedings pending or threatened
against Buyer or any Person by reason of it or he being a
director or officer of Buyer, whether at law or in equity or
before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality
which, if adversely determined, would have a material adverse
effect (i) on the financial position of Buyer or (ii) that calls
into question Buyer's authority or right to enter into this
Agreement or the Services Agreement and consummate the
transactions contemplated hereby or thereby, or would otherwise
prevent or delay the transactions contemplated by this Agreement
or the Services Agreement.
4.4 . Financial Statements. Schedule 4.4 sets forth (a)
the audited financial statements as of March 1, 1997 which
include the balance sheet of Buyer as of March 1, 1997,
statements of operations, stockholder's equity and cash flows of
Buyer for the fiscal year ended March 1, 1997, together with the
related notes thereto, including the report thereon of Buyer's
independent certified public accountant, AA (collectively, the
"Buyer's Audited Financial Statements"), (b) and an interim
unaudited balance sheet of Buyer as of August 30, 1997 and an
unaudited statement of operations and cash flows of Buyer for the
six month period then ended (collectively, the "Buyer's Six Month
Financial Statements"). The Buyer's Audited Financial Statements
and the Buyer's Six Month Financial Statements are complete and
correct and fairly present the financial condition of Buyer as of
the dates thereof and the results of its operations for the
fiscal year and periods ended on such dates. The Buyer's Audited
Financial Statements and Buyer's Six Month Financial Statements
have been prepared in accordance with GAAP, consistently applied.
Section 5. Post-Closing Covenants. From and after the
Effective Time of Closing, the parties hereto shall be bound by
the following covenants:
5.1 NVB Signage and Labels. Immediately after payment of
the Purchase Price pursuant to Section 2.2, Buyer shall cover all
NVB signage at or on the Leased Premises and shall, within thirty
(30) days thereafter, remove and dispose of all such signage at
its cost. Further, Buyer shall not offer for sale any Inventory
or other Purchased Asset bearing any NVB label, tag, pricing
sticker or other NVB identification.
5.2 . Cooperation. Buyer and Seller agree (a) to
cooperate with each other in determining whether any filings are
required to be made or consents required to be obtained in any
jurisdiction in connection with the consummation of the
transactions contemplated hereby and in making or causing to be
made any such filings promptly and in seeking to obtain in a
timely manner any such consents; and (b) to use all reasonable
efforts to obtain promptly the satisfaction of any other
requirements or conditions to the consummation of the
transactions contemplated herein, including, but not limited to,
those set forth on the Closing Agenda of even date herewith.
Buyer and Seller shall furnish to each other and to each other's
counsel all such information as may be reasonably required in
order to effectuate the foregoing. In addition, Seller shall
furnish to Buyer a complete list of and/or copies of the Licenses
and Permits transferred to Buyer hereunder within forty-five (45)
days of the date hereof.
5.3 Returns. Pending completion of the audit of the Year
End Balance Sheet in accordance with Section 2.5(c), Buyer shall
maintain, with respect to each item of returned merchandise, (i)
a copy of the receipt pertaining to such an item and (ii)
documentation indicating and describing in reasonable detail what
the customer returning such merchandise received in exchange
therefor (e.g. cash, merchandise credit or other merchandise).
Buyer and Seller agree that returns are defined as the negative
sale events that result in the customer's receipt of cash or a
negative commercial credit card transaction in exchange for the
return of merchandise to the inventory of the Buyer. The
merchandise must have been originally purchased at a Store of the
Seller and returned in accordance with the Seller's standard
return policy. Returned products for which either replacement
product of any kind, a gift certificate(s) or other form of
merchandise credit, or placement of an order for merchandise not
currently available, any of which are equal to or greater in
value than the original transaction, will be excluded from the
definition of returns. The reserve for returns, as presented on
the Year End Balance Sheet, shall be calculated by assessing the
original selling prices of items returned in return transactions
during January 1998 less the cost of each such item as carried in
the Seller's December 31, 1997 inventory valuation.
5.4. Post-Closing Access. Buyer shall give to Seller and
its respective authorized representatives such reasonable access,
at Seller's cost and expense, during normal business hours and
upon prior notice ("Post-Closing Access"), to books and records
constituting part of the Purchased Assets, the Leased Premises or
otherwise relating to the Business (including without limitation
all such accounting books and tax records) as Seller may
reasonably require in connection with the preparation and filing
of tax returns or any claim made by any party with respect to a
liability or obligation that is not an Assumed Obligation,
pertaining to any reasonable and proper purpose in connection
with the conduct of the Business prior to the date hereof and to
verify the Accounting provided for under Section 5.9.
5.5. Covenant Not to Compete.
(a) Seller hereby covenants and agrees that for the
period commencing with the date hereof and ending two (2) years
from such date, Seller shall not, within or from a 15 mile radius
of any of Seller's Stores (the "Area"), directly or indirectly,
own, manage, operate, finance, join, control, or participate in
the ownership, management, operation, finance or control of, or
be connected with, in any manner, any entity, business enterprise
or operation engaged in the marketing, sale, licensing or
distribution of golf/tennis equipment or apparel through retail
stores.
(b) In addition to the restrictions imposed by Section
5.5(a), Seller hereby covenants and agrees that for the period
commencing with the date hereof and ending two (2) years from
such date, Seller shall not, directly or indirectly, within the
Area, induce or attempt to induce or influence any current
employee of Seller to terminate his or her employment with Buyer.
(c) Seller shall hold in confidence and refrain from
disclosing, publishing or making use of all Knowledge and
information of a confidential nature relating to the Business
prior to the date hereof, except Knowledge and information which
(i) is or becomes generally available to the public other than as
a result of a disclosure prohibited hereby, or (ii) is required
to be disclosed by Law.
(d) For the purposes of this Agreement, the words
"directly or indirectly" as used in this Section 5.5 herein shall
include, but not be limited to, (i) acting as an agent, officer,
director, representative, consultant, independent contractor, or
employee of any entity or enterprise, and (ii) participating in
any such competing entity or enterprise as an owner, partner,
limited partner, member, joint venturer, material creditor or
stockholder (except as a stockholder holding less than five
percent (5%) interest in a corporation whose shares are traded on
a national securities exchange or in the over-the-counter market
unless Seller controls such corporation, either alone or with
others).
(e) Seller acknowledges that its expertise in the
Business is of a special and unique character, which gives said
expertise a peculiar value, and that a breach by Seller of the
provisions of this Section 5.5 of this Agreement cannot
reasonably or adequately be compensated in damages in an action
at law; and such a breach of any of the provisions contained in
this Agreement will cause Buyer irreparable injury and damage.
Seller further acknowledges that it possesses unique skills,
Knowledge and ability and that competition by it, in violation of
this Agreement or any other breach of the provisions of this
Agreement would be extremely detrimental to Buyer. By reason
thereof, Seller agrees that Buyer shall be entitled, in addition
to any other remedies they may have under this Section 5.5 of
this Agreement or otherwise, to preliminary and permanent
injunctive and other equitable relief to prevent a breach or
curtail any breach or threatened breach of this Section 5.5 of
this Agreement by Seller; provided, however, that no
specification in this Agreement of a specific legal or equitable
remedy shall be construed as a waiver or prohibition against the
pursuing of other legal or equitable remedies in the event of
such a breach.
5.6 Cooperation in Third-Party Litigation.
(a) Seller shall provide such cooperation as Buyer or
its counsel may reasonably request in connection with (i) any
proceedings related to the Business other than the Excluded
Obligations; (ii) Seller's conduct of the Business prior to the
Effective Time of Closing which are hereafter pending or
threatened and to which Buyer is a party, (iii) any proceedings
for which Seller is entitled to indemnification from Buyer under
Section 6.3. Such cooperation shall include, but not be limited
to, making employees of Seller available upon the reasonable
request and at the expense of Buyer or its counsel to consult
with and assist Buyer and its counsel in connection with any such
proceedings and to prepare for and testify in any such
proceedings, including depositions, trials and arbitration
proceedings.
(b) Buyer shall provide such cooperation as Seller or
its counsel may reasonably request in connection with (i) pending
or threatened proceedings set forth in Schedule 3.15; (ii) any
proceedings relating to the Business which are hereafter pending
or threatened and to which Seller is a party; and (iii) any
proceedings for which Buyer is entitled to indemnification from
Seller under Section 6.2 hereof. Such cooperation shall include,
but not be limited to, making employees of Buyer available upon
the reasonable request and at the expense of Seller or its
counsel to consult with and assist Seller and its counsel
regarding any such proceedings and to prepare for and testify in
connection with any such proceedings, including depositions,
trials and arbitration proceedings.
(c) The provisions of this Section 5.6 are not
intended to conflict with, and shall not override the provisions
of Section 6 hereof.
5.7. Discharge of Business Obligations. Seller shall pay
and discharge when due all obligations and liabilities of Seller
with respect to the Business and the Leases incurred prior to the
Effective Time of Closing (except for the Assumed Obligations),
and in furtherance of the foregoing shall discharge on a timely
basis all such liabilities or obligations to employees, trade
creditors, suppliers and customers.
5.8 Certain Employment Matters. The Buyer shall offer to
employ employees currently employed by Seller and located in the
Stores (the "Store Employees"), but Buyer shall not be required
to offer employment to any administrative employee currently
employed by Seller or located at Seller's administrative facility
in Walpole, Massachusetts, except for such administrative
employees as Buyer may desire to employ or to otherwise retain as
independent consultants for transitional matters. The provisions
of this Section 5.8 shall not be construed to create any
liability or obligation to any third party or to limit the rights
and obligations of the Buyer to manage and operate the Business
from and after the date hereof, including management of its
employees, its employment policies and employee benefits, health
and welfare programs, in a manner which it believes in its sole
judgment to be in its best interests. Seller will bear the cost
of any severance or other similar payments for such
administrative employees, and Buyer will bear the cost of any
severance or other similar payments of the non-administrative
employees. Buyer's offer of employment to Store Employees shall
include permitting such Store Employees who so elect to
participate in Buyer's Section 401(k) profit sharing plan, based
on the terms and conditions as now in effect ("Buyer's Current
Plan"), the right of such Store Employees to "roll over" their
respective retirement accounts now maintained with Seller, and
Buyer shall use its best commercially reasonable efforts to amend
Buyer's Current Plan to count for eligibility and vesting
purposes for such electing Store Employees their respective years
of service under the Seller's 401(k) plan.
5.9 Gift Certificates Fund. Buyer shall maintain with the
Escrow Agents under the Escrow Agreement an interest bearing
escrow account for the purpose of processing all Gift
Certificates/Store Credits (the "Gift Certificates Fund") issued
by Seller prior to the Effective Time of Closing. By the tenth
(10th) business day after the end of each calendar month
following the date hereof to and including December, 1999, the
Buyer shall render a monthly accounting (the "Monthly
Accounting") to the Escrow Agents and the Seller of the
activities for such month in respect of Gift Certificates/Store
Credits processed or redeemed at the Stores and the Buyer shall
be entitled to receive from the Gift Certificates Escrow Account
the amounts shown to be due Buyer on such Monthly Accounting. The
initial amount to be deposited in the Gift Certificates Fund
shall be consistent with the amounts for Gift Certificate/Store
Credits reflected on the Interim Date Balance Sheet. Buyer shall
render a final accounting (the "Final Accounting") to Seller of
the Gift Certificates Fund on or before January 15, 1999. The
balance remaining in the Gift Certificates Fund as of January 20,
1999, shall be disbursed to Seller on or before January 30, 1999.
Buyer shall permit Seller and its authorized representatives Post-
Closing Access in accordance with Section 5.4 to verify the
accuracy of any Monthly Accounting and of the Final Accounting.
5.10 Further Assurances. Seller from time to time at
Buyer's request, will execute, acknowledge and deliver to Buyer
such other instruments of conveyance and transfer and will take
such other actions and execute and deliver such other documents,
certifications and further assurances as Buyer may reasonably
require in order to vest more effectively in Buyer, or to put
Buyer more fully in possession of, any of the Purchased Assets
and the Leased Premises. Each of the parties hereto will
cooperate with the other and execute and deliver to the other
parties hereto such other instruments and documents and take such
other actions as may be reasonably requested from time to time by
any other party hereto as necessary to carry out, evidence and
confirm the intended purposes of this Agreement.
Section 6. Survival of Representations and Warranties and
Covenants; Indemnification.
6.1. Survival of Representations and Warranties and
Covenants. The representations, warranties, covenants, and
obligations of Buyer and Seller set forth in this Agreement and
in any certificate, agreement, or instrument delivered in
connection with the transactions contemplated hereby, shall
survive the Closing for the following periods:
(a) with respect to representations, warranties,
covenants, and obligations arising under Section 3.5, Section
3.6, Section 3.23, Section 5 and this Section 6 of this
Agreement, for an indefinite period of time;
(b) with respect to representations, warranties,
covenants and obligations arising under Section 3.4 of this
Agreement, for a period of time prior to the expiration of the
applicable statute of limitations plus three months; and
(c) for all other matters a period through
and including December 31, 1998.
6.2. Indemnification by Seller. (a) In addition to and
not in limitation of Seller's indemnification obligations set
forth elsewhere in this Agreement, Seller shall defend,
indemnify, and hold harmless Buyer and its affiliates and their
respective officers, directors, shareholders, agents and
employees (individually, a "Buyer Indemnitee" and collectively
the "Buyer Indemnitees"), from and against any and all claims,
losses, deficiencies, liabilities, obligations, damages,
penalties, punitive damages, costs, and expenses (including,
without limitation, legal, accounting and consulting fees),
whether or not resulting from third party claims (collectively,
"Losses"), suffered by a Buyer Indemnitee, which arise out of or
result from:
(i) any inaccuracy or misrepresentation in or breach
of any of the representations, warranties, covenants or
agreements made by Seller in this Agreement or in any document,
certificate or affidavit delivered by Seller pursuant to the
provisions of this Agreement the effect of which would have a
Material Adverse Effect (without duplicative regard to references
to "materiality" or Material Adverse Effect" in the context of
any such representation, warranty, covenant or agreement, as
applicable);
(ii) any Environmental Condition or Environmental
Compliance Liability, as those terms are defined in this
Agreement, in respect of the Leased Premises, regardless of
whether any such Environmental Condition, the exposure thereto or
any Environmental Compliance Liability resulted from activities
of Seller or Seller's predecessor in interest in respect of the
Leased Premises, the effect of which would have a Material
Adverse Effect (without duplicative regard to references to
"materiality" or Material Adverse Effect" in the context of any
such representation, warranty, covenant or agreement, as
applicable);
(iii) CERCLA, or similar state law, for materials
handled by or on the Leased Premises whether on-site or
elsewhere, on or prior to the Effective Time of Closing the
effect of which would have a Material Adverse Effect (without
duplicative regard to references to "Materiality" or Material
Adverse Effect" in the context of any such representative,
warranty, covenant or agreement as applicable);
(iv) any Tax, obligation, liability, debt or commitment
of Seller which is not an Assumed Obligation (or is an Excluded
Obligation), whether or not paid by Buyer; and
(v) any other matter related to the conduct of the
Business by Seller or the use or ownership of the Purchased
Assets prior to the Effective Time of Closing (including, but not
limited to, all acts, omissions and conditions existing or
occurring prior to the Effective Time of Closing for which any of
the Buyer Indemnitees is alleged to be liable pursuant to any
successor or similar theory of liability).
(vi) Notwithstanding the foregoing, the Seller shall
not be liable to the Buyer Indemnitees for indemnification claims
under Section 6.2 until the aggregate amount of indemnification
claims under Section 6.2 exceeds $25,000 in the case of a single
claim (the "Seller's Threshold Amount") or $300,000 in the
aggregate in the case of all claims taken together (the "Seller's
Aggregate Threshold Amount"), and in the event such aggregate
claims exceed the Seller's Aggregate Threshold Amount, the Seller
shall be liable for the full amount of such aggregate claims;
provided, however, that Seller shall not be liable for the
payment of indemnification claims asserted by written notice to
the Seller on or before (A) June 30, 1998, in excess of the
aggregate maximum amount of $400,000 or (B) December 31, 1998, in
excess of the aggregate maximum amount of $300,000 (collectively,
the "Seller's Indemnification Caps"), as the case may be; and
provided further, that notwithstanding any provision in this
Agreement to the contrary, the dollar limitations in respect of a
single claim and in respect of the aggregate claims and in
respect of the Seller's Indemnification Caps shall not apply to
(x) claims pertaining to a breach of the representations,
warranties, covenants and obligations contained in Sections 3.4,
3.5 or 3.6 of this Agreement, (y) the covenants and obligations
set forth under Section 5 or (z) any fraud or intentional
misrepresentation on the part of the Seller or things or matters
that are intentionally or fraudulently hidden or concealed by or
on behalf of the Seller. In determining whether the aggregate
amount for which the Buyer Indemnitees are entitled to be
indemnified hereunder is at least the Seller Threshold Amount or
the Seller Aggregate Threshold Amount, as the case may be, or is
or would be in excess of the Seller's Indemnification Caps, as
applicable, any requirement contained in this Agreement that any
misrepresentation or breach of warranty or covenant or event or
fact be "Material" or have a "Material Adverse Effect" in order
to constitute a misrepresentation, omission or breach of
warranty, covenant or agreement under this Agreement shall be
disregarded in its entirety.
6.3. Indemnification by Buyer.(a) Buyer shall defend,
indemnify and hold harmless Seller and Seller's officers,
directors, agents and employees (individually, a "Seller
Indemnitee" and collectively the "Seller Indemnitees") from and
against any and all Losses, suffered by a Seller Indemnitee,
which arise out of or result from (i) any inaccuracy or
misrepresentation in or breach of any of the representations,
warranties, covenants or agreements made by Buyer in this
Agreement or in any document, certificate or affidavit delivered
by Buyer pursuant to the provisions of this Agreement; (ii) any
Taxes arising from the operation by Buyer after the Effective
Time of Closing of the Business purchased by Buyer; (iiii) any of
the Assumed Obligations; or (iv) any other matter related to the
conduct of the Business by Buyer or the use or ownership of the
Purchased Assets after the Effective Time of Closing (but
excluding any acts, omissions and conditions existing or
occurring prior to the Effective Time of Closing for which any of
the Seller Indemnitees is alleged to be liable pursuant to any
successor or similar theory of liability).
(b) Notwithstanding the foregoing, the Buyer shall not be
liable to the Seller Indemnitees for indemnification claims under
Section 6.3 until the aggregate amount of indemnification claims
under Section 6.3 exceeds $25,000 in the case of a single claim
(the Buyer's Threshold Amount") or $300,000 in the aggregate in
the case of all claims taken together (the "Buyer's Aggregate
Threshold Amount"), and in the event such aggregate claims exceed
the Buyer's Aggregate Threshold Amount, the Buyer shall be liable
for the full amount of such aggregate claims; provided, however,
that Buyer shall not be liable for the payment of indemnification
claims asserted by written notice to the Seller on or before (A)
June 30, 1998, in excess of the aggregate maximum amount of
$400,000 or (B) December 31, 1998, in excess of the aggregate
maximum amount of $300,000 (collectively, the "Buyer's
Indemnification Caps") as the case may be; and provided further,
that notwithstanding any provision in this Agreement to the
contrary, the dollar limitations in respect of a single claim and
in respect of the aggregate claims and in respect of the Buyer's
Indemnification Caps shall not apply to (x) claims pertaining to
Buyer's obligations in respect of the Assumed Obligations as set
forth in Section 1.4 of this Agreement or (y) claims pertaining
to any fraud or intentional misrepresentation on the part of the
Buyer or things or matters that are intentionally or fraudulently
hidden or concealed by or on behalf of the Buyer. In determining
whether the aggregate amount for which the Seller Indemnitees are
entitled to be indemnified hereunder is at least the Buyer's
Threshold Amount or the Buyer Aggregate Threshold Amount, as the
case may be, or is or would be in excess of the Buyer's
Indemnification Caps, as applicable, any requirement contained in
this Agreement that any misrepresentation or breach of warranty
or covenant or event or fact be "material" or have a "material"
adverse effect in order to constitute a misrepresentation,
omission or breach of warranty, covenant or agreement under this
Agreement shall be disregarded in its entirety.
6.4. Indemnification Payments. A portion of the Purchase
Price, in the initial amount of Two Hundred Thousand Dollars
($200,000) shall constitute the Seller's Indemnification
Obligations Fund and security for the payment of indemnification
claims under Section 6.2. and 6.5, as applicable ("Seller's
Indemnification Obligations") and shall be held by the Escrow
Agents in an interest bearing account (the "Seller's
Indemnification Obligation Fund") under the Escrow Agreement, and
shall be disbursed pursuant to the provisions of this Section 6.4
and the Escrow Agreement. In the event a Buyer Indemnitee becomes
entitled to indemnification pursuant to Section 6.2 or 6.5 as
applicable, such Buyer Indemnitee shall have the immediate right,
exercisable with notice to Seller, to request payment of the
amount of any such indemnity claim against the Seller's
Indemnification Escrow in accordance with the provisions of the
Escrow Agreement. The rights of each Buyer Indemnitee under this
Section 6.6 shall be in addition to, and not in limitation of,
any other rights which it may have. On or before December 31,
1998, Buyer shall notify Seller of any claim(s) by Buyer
Indemnitees against the Sellers' Indemnification Obligation Fund
for indemnification under Section 6.2 and 6.5, as applicable.
Seller shall have the burden to prove by a preponderance of
evidence that the Buyer Indemnitees were not entitled to
indemnification for the claim or as related to any third party
claims by Buyer Indemnitees under Section 6.5, that the Buyer
Indemnitees did not defend such third party claim in a reasonably
prudent manner. In the event the dollar amount of indemnity
claims for which Buyer Indemnitees have requested payment against
the Seller's Indemnification Obligations Fund on or before June
30, 1998, is less than $100,000 in the aggregate, the amount of
the Seller's Indemnification Obligation Fund in excess of
$100,000 shall be disbursed to Seller in accordance with the
Escrow Agreement. In the event the dollar amount of such
indemnity claims for which Buyer Indemnitees have requested
payment against such Fund on or before June 30, 1998, is more
than $100,000 but less than $200,000 in the aggregate, the
difference between $100,000 and such dollar amount shall be
disbursed to Seller in accordance with the Escrow Agreement.
Subject to the provisions of the Escrow Agreement, all indemnity
payments, whether by Buyer or Seller, to be made under this
Agreement shall be made in immediately available funds.
6.5. Procedure for Third Party Claims
(a) Notice to the indemnifying party shall be given
promptly after receipt by any Seller Indemnitee or Buyer
Indemnitee of actual Knowledge of the commencement of any action
or the assertion of any claim that will likely result in a claim
by it for indemnity pursuant to this Agreement. Such notice
shall set forth in reasonable detail the nature of such action or
claim to the extent known, and include copies of any written
correspondence from the party asserting such claim or initiating
such action. The indemnifying party shall be entitled, at its
own expense, to assume or participate in the defense of such
action or claim. In the event that the indemnifying party
assumes the defense of such action or claim, it shall be
conducted by counsel chosen by such party and approved by the
party seeking indemnification, which approval shall not be
unreasonably withheld.
(b) With respect to actions as to which the
indemnifying party does not exercise its right to assume the
defense, the party seeking indemnification shall assume and
control the defense of and contest such action with counsel
chosen by it and approved by the indemnifying party, which
approval shall not be unreasonably withheld. The indemnifying
party shall be entitled to participate in the defense of such
action, the cost of such participation to be at its own expense.
The indemnifying party shall be obligated to pay the reasonable
attorneys' fees and expenses of the party seeking indemnification
to the extent that such fees and expenses related to claims as to
which indemnification is payable under Sections 6.2 or 6.3, as
such expenses are incurred and in the case of a Buyer Indemnitee
seeking such indemnification, such Buyer Indemnitee shall have
the right, exercisable with notice to Seller, to request payment
of the amount of such indemnity claim against the Seller's
Indemnification Escrow in accordance with the provisions of the
Escrow Agreement. The party seeking indemnification shall have
full rights to dispose of such action and enter into any monetary
compromise or settlement.
(c) Both the indemnifying party and the indemnified
party shall cooperate fully with one another in connection with
the defense, compromise, or settlement of any such claim or
action, including, without limitation, by making available to the
other all pertinent information and witnesses within its control.
6.6. INTENTIONALLY OMITTED.
6.7. Remedies Cumulative. The remedies provided for herein
shall be cumulative and shall not preclude assertion by any party
of any other rights or the seeking of any other remedies against
any other party. Nothing contained in Section 6 shall be
construed in any way to limit, impair or modify any provisions of
this Agreement or to otherwise impose any additional liability or
obligation on Buyer at any time for any liability or obligation
of Seller other than Buyer's obligation to indemnify Seller
hereunder.
6.8. Successors. The merger, consolidation, liquidation,
dissolution or winding up of, or any similar transaction with
respect to, the parties hereto shall not affect in any manner the
obligations of the parties pursuant to Section 6 or any other
term or provision of this Agreement, and the parties covenant and
agree to make adequate provision for their liabilities and
obligations hereunder in the event of any such transaction.
Section 7. Brokerage.
7.1. Finders and Brokers Fees. The parties each agree to be
responsible for its respective broker or finder in connection
with the transactions contemplated by this Agreement and
indemnify and hold harmless one another against any loss,
liability, damage, cost, claim, or expense incurred by reason of
any compensation, including, without limitation, brokerage,
commission, or finder's fee, alleged to be payable because of any
act, omission, or statement of the indemnifying party.
Section 8. General Provisions
8.1. Sales and Transfer Taxes Seller shall pay any and all
taxes, federal, state, or local, in the nature of income, sales,
conveyance, recording, or transfer taxes required to be paid in
respect of the conveyance, assignment, or transfer to Buyer of
the Purchased Assets.
8.2. No Third Party Beneficiaries. Nothing in this
Agreement is intended, nor shall it be construed, to confer any
rights or benefits upon any Person (including, but not limited
to, any employee or former employee of Seller) other than the
parties hereto, and solely to the extent provided in Section 6,
the other Seller Indemnitees and Buyer Indemnitees, and no other
Person shall have any rights or remedies hereunder.
8.3. Expenses of the Parties; Certain Litigation. All
expenses involved in the preparation, authorization, and
consummation of this Agreement, incurred up to and including the
date hereof, including, without limitation, all fees and expenses
of agents, representatives, counsel, and accountants in
connection therewith, shall be borne solely by the party who
shall have incurred the same, and the other party shall have no
liability in respect thereof; provided, however, that nothing
herein shall be construed to release or impair any claim for
damages by any party.
8.4. Amendment and Waiver. This Agreement may not be
changed or terminated orally. No waiver of compliance with any
provision or condition hereof, and no consent provided for herein
shall be effective unless evidenced by an instrument in writing
duly executed by the party hereto sought to be charged with such
waiver or consent.
8.5. Miscellaneous. The Section headings of this Agreement
are for convenience of reference only and do not form a part
hereof and do not in any way modify, interpret, or construe the
intentions of the parties. This Agreement may be executed in one
or more counterparts and all such counterparts shall constitute
one and the same instrument. This Agreement shall be governed by
and construed in accordance with the Laws of the Commonwealth of
Massachusetts; without giving effect to the conflict of laws
principles thereof.
8.6. Binding Effect. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their
respective administrators, legal representatives, successors and
permitted assigns.
8.7. Publicity No party hereto or its representatives will,
without the prior written consent of the other parties, disclose
to any other person any information that has been made available
in connection with this Agreement (other than information which
has been published or made publicly available other than by
unauthorized disclosure of a party), make any public announcement
concerning the transactions contemplated hereby or disclose any
of the terms, conditions, or other facts with respect to this
Agreement, except as required by Law. If circumstances make it
impossible to give such prior written notice, then any disclosure
made shall be no more extensive than is necessary to meet the
minimum requirement imposed on the party making such disclosure.
8.8. Complete Agreement. This Agreement and the Exhibits
and Schedules and other documents referred to herein contain the
entire agreement between the parties hereto with respect to the
transactions contemplated herein and supersede all previous
negotiations, commitments, and writings.
8.9. Notices. Any notice, report, demand, waiver, consent
or other communication given by a party under this Agreement
(each a "notice") shall be in writing, may be given by a party or
its legal counsel, and shall deemed to be duly given (i) when
personally delivered, or (ii) upon delivery by United States
Express Mail or similar overnight courier service which provides
evidence of delivery, or (iii) when five (5) days have elapsed
after its transmittal by registered or certified mail, postage
prepaid, return receipt requested, addressed to the party to whom
directed at that party's address as it appears below or another
address of which that party has given notice, or (iv) when
transmitted by telex (or equivalent service), the sender having
received the answer back of the addressee, or (v) when delivered
by facsimile transmission if a copy thereof is also delivered in
person or by overnight courier. Notices of address change shall
be effective only upon receipt notwithstanding the provisions of
the foregoing sentence.
Notice to Buyer shall be sufficient if given to:
Trend-Lines, Inc.
135 American Legion Highway
Revere, Massachusetts 02151
ATTN: Richard H. Griner, President
Fax: (617) 853-0066
with a copy to:
Robinson & Cole LLP
One Boston Place
Boston, MA 02108-4404
ATTN: David A. Garbus, Esq.
Fax: (617) 557-5999
Notice to Seller shall be sufficient if given to:
Golf Acquisition Limited Partnership
41 Harriman Road
Hudson, MA 01749
ATTN: Mr. John J. Iacobucci
Fax: (978) 562-4770
with a copy to:
Mintz Levin Cohn Ferris Glovsky & Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
ATTN: Stanford N. Goldman, Jr., Esq.
Fax: (617) 542-2241
8.10. Assignment. Except as expressly provided herein,
this Agreement and any rights pursuant hereto shall not be
assignable by either party without the prior written consent of
the other party.
8.11. Severability. If any term or provision of this
Agreement shall be held to be invalid or unenforceable for any
reason, such term or provision shall be ineffective to the extent
of such invalidity or unenforceability without invalidating the
remaining terms and provisions hereof, and this Agreement shall
be construed as if such invalid or unenforceable term or
provisions had not been contained herein.
8.12. Effect of Investigation. Any inspection,
preparation or compilation of information or audit of the
inventories, properties, financial condition or other matters
relating to Seller conducted by or on behalf of Buyer pursuant to
this Agreement shall in no way limit, affect or impair the
ability of Buyer to rely upon the representations, warranties,
covenants and agreements of Seller set forth herein.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be duly executed as of the date first above written.
TREND-LINES, INC.
By:/s/ Richard H. Griner
Name: Richard H. Griner
Title: President
GOLF ACQUISITION LIMITED PARTNERSHIP
By: GOLF ACQUISITION CORP.
Its sole general partner
By:/s/ John J. Iacobucci
Name: John J. Iacobucci
Title: Vice President
Schedule 1.2
to the
Asset Purchase Agreement
Excluded Assets
1. Any and all assets, liabilities, rights and obligations
relating to the agreement by and between Seller and [Nevada
Bob's] ("NVB"), including, without limitation, trademarks,
copyrights, tradenames and other franchise rights, as well as
inventory sourced directly or indirectly by or through NVB and
bearing a trademark or label of NVB (or of any derivative of the
name "Nevada Bob's").
2. Cash (other than Store impressed cash funds on hand in
the approximate amount of $300 per Store for which amounts Buyer
should reflect as a credit to Seller in connection with the
calculation of the amount to be subtracted from the Holdback
Fund).
3. Accounts Receivable.
4. Unamortized deferred financing costs.
5. Office furniture utilized by John J. Iacobucci.
6. Personal computer utilized by John J. Iacobucci.
7. Leased automobile utilized by John J. Iacobucci.
8. Amounts prepaid under John J. Iacobucci's life
insurance contract.
9. Office supplies.
10. Entire contents of John J. Iacobucci's office including
pictures on wall.
11. John J. Iacobucci's personal computer, printer, laptop
other printer.
12. Office copier - Canon GP GP55F.
13. 10 lateral file cabinets.
14. John J. Iacobucci's employment agreement.
15. John J. Iacobucci's records and documents.
16. General manager's personal computer, laptop and
printer.
17. Head buyer's laptop and printer.
18. Two sets of J. Nicklaus commemorative club sets.
Exhibit 23.01
Arthur Andersen LLP
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K,
into the Company's previously filed Registration Statements
on Form S-8 (File No. 33-87690 and 333-38289).
/s/Arthur Andersen LLP
Boston, Massachusetts
May 21, 1988.
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