EXHIBIT 10.24
STOCK PURCHASE AGREEMENT
dated as of
November 22, 2002
among
NY & CO. GROUP, INC.,
LFAS, INC.
and
LIMITED BRANDS, INC.
relating to the purchase and sale
of
100% of the Common Stock
of
▇▇▇▇▇▇ NEW YORK HOLDING INC.
Table of Contents
Page
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ARTICLE 1 Definitions
Section 1.01. Definitions...................................................1
ARTICLE 2 Purchase and Sale
Section 2.01. Purchase and Sale............................................11
Section 2.02. Closing......................................................12
Section 2.03. Closing Net Working Capital..................................12
Section 2.04. Adjustment To Purchase Price.................................15
Section 2.05. Additional Understanding.....................................16
ARTICLE 3 Representations and Warranties of Parent and Seller
Section 3.01. Corporate Existence and Power................................16
Section 3.02. Corporate Authorization......................................16
Section 3.03. Governmental Authorization...................................17
Section 3.04. Noncontravention.............................................17
Section 3.05. Capitalization...............................................17
Section 3.06. Ownership and Transfer of Shares.............................18
Section 3.07. Subsidiaries.................................................18
Section 3.08. Financial Statements.........................................19
Section 3.09. Inventory....................................................20
Section 3.10. Absence of Certain Changes...................................20
Section 3.11. Material Contracts...........................................22
Section 3.12. Certain Related Party Agreements.............................24
Section 3.13. Litigation...................................................25
Section 3.14. Properties...................................................25
Section 3.15. Licenses and Permits.........................................27
Section 3.16. Environmental Matters........................................27
Section 3.17. Compliance with Laws.........................................28
Section 3.18. Intellectual Property........................................29
Section 3.19. Finders' Fees................................................30
Section 3.20. Labor and Employment Matters.................................30
Section 3.21. Insurance....................................................31
Section 3.22. No Undisclosed Liabilities...................................31
Section 3.23. Sufficiency of Assets; Good Title............................31
Section 3.24. Accounts Receivable..........................................32
Section 3.25. Suppliers....................................................32
Section 3.26. Bank Accounts................................................32
Section 3.27. Investment Intent............................................32
Section 3.28. Lease Guarantees.............................................32
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ARTICLE 4 Representations and Warranties of Buyer
Section 4.01. Corporate Existence and Power................................33
Section 4.02. Corporate Authorization......................................33
Section 4.03. Governmental Authorization...................................33
Section 4.04. Noncontravention.............................................34
Section 4.05. Financing....................................................34
Section 4.06. Purchase and Investment......................................35
Section 4.07. Litigation; Compliance with Laws.............................35
Section 4.08. Finders' Fees................................................35
Section 4.09. Inspections; No Other Representations........................35
Section 4.10. HSR Filing...................................................36
Section 4.11. Valid Issuance of Non-Cash Consideration.....................36
ARTICLE 5 Covenants of Seller and Parent
Section 5.01. Conduct of the Company.......................................36
Section 5.02. Cooperation On Certain Matters...............................39
Section 5.03. Maintenance of Insurance Policies............................41
Section 5.04. Non-solicitation.............................................41
Section 5.05. Confidentiality..............................................41
Section 5.06. Exclusivity..................................................42
Section 5.07. Litigation Update............................................42
Section 5.08. Lease Guarantees.............................................42
Section 5.09. Retail Leases................................................42
Section 5.10. Retail Leases; Non-Competition and Related Matters...........44
Section 5.11. Asset Transfers..............................................46
Section 5.12. Closing Date Cash............................................47
Section 5.13. Change of Control............................................47
ARTICLE 6 Covenants of Buyer
Section 6.01. Other Buyer Activities.......................................47
Section 6.02. Confidentiality..............................................47
Section 6.03. Cooperation on Certain Matters...............................47
Section 6.04. Insurance....................................................50
Section 6.05. Financial Support Arrangement................................50
Section 6.06. Outstanding Checks; Reimbursement of Payments by Parent......51
Section 6.07. Non-solicitation.............................................51
Section 6.08. Proceeds From Credit Card Litigation.........................51
Section 6.09. Priority of Payments under Guaranteed Leases.................52
ARTICLE 7 Covenants of Buyer, Parent and Seller
Section 7.01. Further Assurances...........................................52
Section 7.02. Certain Filings..............................................52
Section 7.03. Public Announcements.........................................52
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Section 7.04. Transition Services..........................................53
Section 7.05. Store Leases Agreement.......................................53
Section 7.06. Securityholders Agreement....................................53
Section 7.07. Covenant Agreement...........................................53
Section 7.08. Master Sublease and Master Assignment........................53
Section 7.09. Cancellation of Related Party Agreements.....................53
Section 7.10. Intercompany Accounts........................................53
Section 7.11. Amendment to Database Marketing Agreement....................53
Section 7.12. Company Websites.............................................54
Section 7.13. Retained Landlord Claims.....................................55
Section 7.14. Retained Owned Real Property.................................55
ARTICLE 8 Tax Matters
Section 8.01. Tax Representations..........................................55
Section 8.02. Tax Covenants................................................56
Section 8.03. Tax Sharing..................................................60
Section 8.04. Indemnification by Parent....................................60
ARTICLE 9 Employee Benefits
Section 9.01. Employee Benefits............................................63
Section 9.02. ERISA Representations........................................64
Section 9.03. Welfare Plans Following the Closing..........................66
Section 9.04. Savings and Retirement Plan..................................69
Section 9.05. Other Employee Plans And Benefit Arrangements................70
Section 9.06. Necessary Action.............................................72
Section 9.07. Indemnification..............................................72
Section 9.08. Third Party Beneficiaries....................................72
ARTICLE 10 Conditions to Closing
Section 10.01. Conditions to Obligations of Buyer, Parent and Seller........72
Section 10.02. Conditions to Obligation of Buyer............................73
Section 10.03. Conditions to Obligation of Parent and Seller................74
ARTICLE 11 Survival; Indemnification
Section 11.01. Survival.....................................................75
Section 11.02. Indemnification..............................................75
Section 11.03. Procedures...................................................76
Section 11.04. Limitation on Damages........................................77
Section 11.05. Exclusivity..................................................78
ARTICLE 12 Termination
Section 12.01. Grounds for Termination......................................78
Section 12.02. Effect of Termination........................................79
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ARTICLE 13 Miscellaneous
Section 13.01. Notices......................................................79
Section 13.02. Amendments and Waivers.......................................80
Section 13.03. Expenses.....................................................80
Section 13.04. Successors and Assigns.......................................81
Section 13.05. Governing Law................................................81
Section 13.06. Jurisdiction.................................................81
Section 13.07. WAIVER OF JURY TRIAL.........................................82
Section 13.08. Counterparts; Third Party Beneficiaries......................82
Section 13.09. Severability.................................................82
Section 13.10. Entire Agreement.............................................82
Section 13.11. Captions; Certain Terms......................................82
Section 13.12. Disclosure Schedule..........................................82
Section 13.13. Specific Performance.........................................83
Section 13.14. No Strict Construction.......................................83
Appendices, Attachments and Exhibits
Appendix 1.01(a) Change of Control Payments
Appendix 1.01(b) Knowledge of Parent and Seller
Appendix 2.01 Warrant Dilution
Appendix 2.03(a) Base Statement of Net Working Capital
Appendix 3.08 Financial Statements
Appendix 5.04(a)(1) List of 5-Year Non-Hire Employees
Appendix 5.04(a)(2) List of 3-Year Non-Hire Employees
Appendix 5.09 Four Wall Profit Contribution
Appendix 6.05 Financial Support Arrangements
Appendix 6.08 Credit Card Litigation
Attachment A Disclosure Schedule
Exhibit A Form of Subordinated Note
Exhibit B Form of Warrant
Exhibit C-1 - C-2 Commitment Letters
Exhibit D Consent Request Letter
Exhibit E Services Agreement
Exhibit F Store Leases Agreement
Exhibit G Securityholders Agreement
Exhibit H Covenant Agreement
Exhibit I Master Sublease
Exhibit J Master Assignment
Exhibit K Retained Leases Assignment and Assumption Agreement
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STOCK PURCHASE AGREEMENT
AGREEMENT dated as of November 22, 2002 among NY & Co. Group, Inc., a
Delaware corporation ("Buyer"), LFAS, INC., a Delaware corporation ("Seller"),
and LIMITED BRANDS, INC., a Delaware corporation ("Parent").
W I T N E S S E T H:
WHEREAS, Seller is the record and beneficial owner of the Shares; and
WHEREAS, each of Parent and Seller desires that Seller sell the Shares to
Buyer, and Buyer desires to purchase the Shares from Seller, in each case, upon
the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.01. Definitions. The following terms, as used herein, have the
following meanings:
"ADS" means ADS Alliance Data Systems, Inc.
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such other
Person. For purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. Notwithstanding the foregoing, for
purposes of this Agreement, none of the Company, any Subsidiary or ADS shall be
considered an Affiliate of Seller or Parent.
"Balance Sheet" means the consolidated balance sheet of the Company and
Subsidiaries as of August 3, 2002, including all notes thereto, included in
Section 3.08 of the Disclosure Schedule.
"Balance Sheet Date" means August 3, 2002.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in New York, New York or Columbus, Ohio are authorized or
required by Law to close.
"Change of Control Payments" means all payments which any employee or
director of the Company or any Subsidiary is entitled to receive as a result of,
or related to, the consummation of the Closing pursuant to arrangements approved
by Parent prior to the Closing, whether such payments shall be due at the time
of the Closing or shall become due at any time following the Closing Date,
including any such payments which shall become due in connection with continuing
employment or director status with the Company or any Subsidiary for a period of
time following the Closing, including the arrangements set forth on Appendix
1.01(a).
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"Combined Tax" means any state, local or foreign income or franchise Tax
with respect to which Parent or any of its Affiliates files Returns on a
consolidated, combined or unitary basis with the Company or any Subsidiary.
"Common Stock" means the common stock, par value $1.00 per share, of the
Company.
"Company" means ▇▇▇▇▇▇ New York Holding, Inc., a Delaware corporation.
"Company Cash" means, for any date of determination, the amount of cash and
cash equivalents held by the Company and the Subsidiaries, including in any bank
account of the Company and the Subsidiaries, as determined in accordance with
GAAP.
"Customs & International Trade Laws" means any law, statute, Executive
Order, regulation, rule, permit, license, directive, order, decree, ordinance,
award, or other decision or requirement having the force or effect of law, of
any arbitrator, court, government or governmental agency or instrumentality
(domestic or foreign), concerning the importation of merchandise, the export of
products and technology, the terms and conduct of international transactions,
and making or receiving international payments, including the Tariff Act of 1930
as amended and other laws administered by the United States Customs Service,
regulations issued or enforced by the United States Customs Service, the Export
Administration Act of 1979 as amended, the Export Administration Regulations,
the International Emergency Economic Powers Act, the Arms Export Control Act,
the International Traffic in Arms Regulations, any other export controls
administered by an agency of the United States government, Executive Orders of
the President regarding embargoes and restrictions on trade with designated
countries and persons, the embargoes and restrictions administered by the United
States Office of Foreign Assets Control, requirements for the marking of wearing
apparel, prohibitions or restrictions on the importation of merchandise made
with the use of slave labor, the Foreign Corrupt Practices Act, the antiboycott
regulations administered by the United States Department of Commerce, the
antiboycott regulations administered by the United States
2
Department of the Treasury, legislation and regulations of the United States and
other countries implementing the North American Free Trade Agreement,
antidumping and countervailing duty laws and regulations, and other laws and
regulations adopted by the governments or agencies of other countries relating
to the same subject matter as the United States statutes and regulations
described above.
"Database Marketing Agreement" means the Consumer Marketing Database
Services Agreement among ADS Alliance Data Systems, Inc., Intimate Brands, Inc.
and Parent, Inc. dated September 1, 2000.
"Disclosure Schedule" means the Disclosure Schedule attached as Attachment
A to this Agreement.
"Environmental Laws" means any and all Laws including all common law
concerning or relating to pollution or the protection of the environment,
including all those relating to hazardous or toxic substances, wastes or
materials, including asbestos, petroleum, and polychlorinated biphenyls.
"Excluded Deferred Compensation Liability" means any liability relating to
deferred compensation payable to current or former employees of the Company and
the Subsidiaries in excess of the sum of (x) $6.0 million and (y) the Final
Closing Excess DC Amount.
"Excluded Escheat Liability" means (i) any escheat liability or similar
item under state unclaimed property laws, in each case in respect of matters
arising prior to the Closing (including sales of gift certificates, issuances of
checks and other transactions occurring prior to the Closing, regardless of when
the obligation to file an unclaimed property report arises), together with any
interest or penalties imposed with respect thereto, and (ii) any Damages arising
out of Buyer's performance of the obligations set forth in Section 6.03(c)(ii),
which together exceed $1.2 million in the aggregate.
"Excluded Insurance Liability" means any liability related to (i) general
liability, automotive liability, product liability and workers' compensation
liability of the Company and the Subsidiaries (of the type reflected in the
"Insurance: Workers' Compensation General Liability and Auto" line item in the
Base Statement of Net Working Capital) in excess of the sum of (x) $1.1 million
and (y) the amount set forth on the Closing Statement of Net Working Capital as
the "Insurance; Workers' Compensation, General Liability and Auto" line item, in
the aggregate, relating to claims arising out of the period prior to the Closing
Date and (1) asserted on or prior to the Closing Date and set forth on Section
3.13 of the Disclosure Schedule, or (2) asserted following the Closing Date and
on or prior to the eighteen-month anniversary of the Closing Date; (ii) general
liability, automotive liability, product liability or workers' compensation
liability of the Company and the Subsidiaries relating to claims asserted on or
prior to the Closing Date but not disclosed on Section 3.13 of the Disclosure
Schedule;
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(iii) general liability, automotive liability, product liability or workers'
compensation liability of the Company and the Subsidiaries for claims arising
out of the period prior to the Closing Date that are asserted following the
eighteen-month anniversary of the Closing Date and are in excess of $1.0 million
per occurrence; and (iv) employment practices liability (other than any
liability relating to employment discrimination claims in an amount not to
exceed $50,000 in the aggregate), fiduciary liability and directors and officers
liability of the Company and the Subsidiaries arising out of the period prior to
the Closing Date.
"Excluded Real Property Liability" means any liability or obligation
arising out of or relating in any way to (a) environmental conditions at or
emanating from the property located at ▇▇▇-▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇ or (b) the Retained Owned Real Property.
"Federal Tax" means any Tax imposed under Subtitle A of the Code with
respect to which the Company or any Subsidiary has filed or will file a Return
with a member of the Limited Tax Group on a consolidated basis.
"Final Determination" shall mean (i) any final determination of liability
in respect of a Tax that, under applicable law, is not subject to further
appeal, review or modification through proceedings or otherwise (including the
expiration of a statute of limitations or a period for the filing of claims for
refunds, amended returns or appeals from adverse determinations), including a
"determination" as defined in Section 1313(a) of the Code or execution of an
Internal Revenue Service Form 870AD or (ii) the payment of Tax by Buyer, Parent,
Seller or any of their Affiliates, whichever is responsible for payment of such
Tax under applicable law, with respect to any item disallowed or adjusted by a
Taxing Authority; provided that such responsible party determines that no action
should be taken to recoup such payment and the other party agrees.
"Financial Statements" means (a) the unaudited consolidated balance sheet
of the Company and Subsidiaries as of February 3, 2001 and February 2, 2002 and
the related unaudited consolidated statement of income and cash flows of the
Company and Subsidiaries for the years ended February 3, 2001 and February 2,
2002 (in each case, including the notes thereto); and (b) the unaudited
consolidated balance sheet of the Company and Subsidiaries as of August 4, 2001
and August 3, 2002 and the related unaudited consolidated statement of income
and cash flows of the Company and Subsidiaries for the twenty-six week period
ended August 4, 2001 and August 3, 2002 (in each case, including the notes
thereto).
"Four Wall Profit Contribution" means, for any retail store, the amount set
forth opposite such retail store's identifying code on Appendix 5.09.
"Four Wall Contribution Threshold" means $375,000.
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"GAAP" means United States generally accepted accounting principles
consistently applied.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
"IBNR Accrual" means, for any date of determination, the accrual for
estimated medical, dental and disability claims incurred but not yet reported as
of such date. The accrual shall be determined in a manner consistent with the
manner in which the "Insurance: Medical" line item included in Appendix 2.03(a)
was determined by applying an historical "lag" estimate for Parent based on the
level of claims paid during Parent's most recently completed fiscal year.
"Indebtedness" means (i) all obligations of the Company or any Subsidiary
for borrowed money or evidenced by bonds, debentures, notes, letters of credit
or other similar instruments excluding trade letters of credit and surety bonds,
(ii) obligations as lessee under capital leases, (iii) obligations to pay the
deferred purchase price of property or services, except accounts payable arising
in the ordinary course of business consistent with past custom and practice and
except for deferred compensation, (iv) all debts of others (of the type set
forth in clauses (i) - (iii) of this defined term) guaranteed or otherwise
supported by the Company or any Subsidiary or secured by a Lien on any of the
assets of any of the Company or any Subsidiary that are due and payable at the
Closing, (v) all amounts owed by the Company or any Subsidiary, or obligations
of the Company or any Subsidiary, to Parent, Seller, any of their Affiliates or
any officer, director, or employee of Parent, Seller or their respective
Affiliates, (vi) all fees and expenses incurred by the Company or any Subsidiary
in connection with the Credit Card Litigation that are due and payable at the
Closing, (vii) all Relevant Costs that are due and payable at the Closing,
(viii) any cost to terminate any hedging obligation, and (ix) any interest,
principal, prepayment penalty, fees, or expenses in respect of those items
listed in clauses (i) through (viii) of this defined term, in each case
determined in accordance with GAAP.
"Intellectual Property" means all of the following in any jurisdiction
throughout the world: (i) patents, patent applications, and patent disclosures;
(ii) trademarks, service marks, trade dress, logos, slogans, trade names, and
corporate names (and all translations, adaptations, derivations, and
combinations of the foregoing), and Internet domain names, together with all
goodwill associated with each of the foregoing; (iii) copyrights, copyrightable
works and mask works, (iv) registrations and applications for any of the
foregoing; (v) confidential business information, know-how and trade secrets,
(vi) computer software (including executable code, source code, databases, data
and related documentation); and (vii) all other similar intellectual property
rights.
"Key Employee" means any person who is listed on Appendices 5.04(a)(1) and
5.04(a)(2).
5
"Knowledge of Parent and Seller" or any other similar knowledge
qualification in this Agreement means that (1) any director or officer of the
Company or any Subsidiary, (2) any employee of the Company or any Subsidiary who
is listed on Appendix 1.01(b), (3) any officer of Parent or Seller who is
reported to directly by any officer or employee of the Company or any
Subsidiary, or (4) the Chief Financial Officer, the General Counsel or the Vice
President Treasury, Mergers and Acquisitions of Parent is actually aware of a
fact or other matter.
"Laws" means any law, statute (including all applicable building, zoning,
subdivision, health and safety and other land use statutes), regulation, rule,
permit, license, certificate, judgment, order, award or other legally binding
decision or requirement of any arbitrator, court, government or governmental
agency or instrumentality (domestic or foreign).
"Lien" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, claim, option, security interest, encumbrance or restriction of
any kind in respect of, binding upon or applicable to such property or asset.
"Limited Tax Group" means, with respect to any Federal Tax, the affiliated
group of corporations (as defined in Section 1504(a) of the Code) of which
Parent is the common parent corporation and, with respect to any Combined Tax,
the applicable consolidated, combined or unitary group of which Parent or any of
its Affiliates is a member.
"Loss of Fundamental Tenant Rights" means: (i) shared space arrangements
are no longer permitted under the lease; (ii) certain "permitted" assignments
are no longer permitted; (iii) loss of landlord contribution rights or the
forfeiture of previous landlord contributions; (iv) loss of "kick-out" and/or
co-tenancy rights; (v) loss of right to complete improvements without landlord's
consent; (vi) loss of expansion, renewal or extension rights/options to the
extent provided under a lease; or (vii) acceleration of rent or increases to the
base rent or other obligations under a lease.
"Material Adverse Effect" means a material adverse effect on the business,
properties, assets, results of operations or financial condition of the Company
and the Subsidiaries, taken as whole.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"Operational Tax" means any sales and use taxes or real and personal
property taxes and, if and to the extent that interest pertains to and
originates from such taxes, then interest, but not penalties, additions to tax
or additional amounts, pertaining to such taxes imposed by any Taxing Authority.
6
"Party in Interest" means any Person whose consent, approval, waiver,
authorization is required, or for or from whom some other condition or notice is
required to be obtained, given or otherwise satisfied, under the terms of the
Retail Leases or any other agreement in connection with the consummation of the
transactions contemplated by the Transaction Documents as they relate to the
Retail Leases.
"Permits" means all governmental licenses, permits, certificates, consents,
approvals, or other governmental authorizations owned or held by, granted to, or
held for the benefit of, any Person.
"Permitted Liens and Exceptions" means (1) Liens for Taxes, assessments and
similar charges that are not yet due and payable; (2) mechanic's, materialman's,
carrier's, repairer' s and other similar Liens arising or incurred in the
ordinary course of business or that are not yet due and payable; (3) Liens
incurred in the ordinary course of business consistent with past practice since
the Balance Sheet Date, except any Liens incurred in connection with the
borrowing of money and Liens relating to liabilities resulting from breach of
contract, breach of warranty, tort, infringement, claim, lawsuit, violation of
law or environmental liability or clean up obligation; or (4) Liens created,
permitted or suffered by any landlord or other superior lessor with respect to
any Leased Real Property.
"Person" means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Pre-Closing Tax Period" means (1) any Tax period ending at or before the
end of the Closing Date; and (2) with respect to a Straddle Period, the portion
of such period ending at the end of the Closing Date.
"Reference Rate" means the rate per annum equal to the "Prime Rate" as
published in The Wall Street Journal, Eastern Edition.
"Related Party" means, with respect to any Person (i) any Person who,
directly or indirectly, owns more than 10% of the capital stock, partnership
interests, membership interests or other equity interests of such other Person
or (ii) any Person 10% or more of the capital stock, partnership interests,
membership interests or other equity interests of which are held by such other
Person. Notwithstanding the foregoing, for purposes of this Agreement, none of
the Company, any Subsidiary or ADS shall be considered a Related Party of Seller
or Parent.
"Required Consent" means, for any Retail Lease, all consents, approvals,
waivers, authorizations and notices or other conditions that are required to be
obtained from or given to any Person, including any Party in Interest, or
otherwise satisfied under the terms of such Retail Lease in connection with the
7
consummation of the transactions contemplated by the Transaction Documents as
they relate to such Retail Lease.
"Retail Lease" means any Lease listed on Schedule 3.14 of the Disclosure
Schedule, other than any Lease for a property that is not for a retail store.
"Retained Litigation Liabilities" means all liabilities (including
reasonable expenses and reasonable attorneys' fees and expenses) arising from
any action, suit, charge, complaint, proceeding, order, investigation or claim
(whether now existing or hereinafter brought), or any settlement, conciliation
or similar agreement, with respect to or in connection with (i) Doe I, et al. v.
The Gap, Inc., et al. (the United States District Court, D.N.M.I.) (99-00717),
(ii) Union of Needletrade Industrial and Textile Employees (Unite), et al. v.
The Gap, Inc., et al., (Superior Court of California, County of San Francisco)
(300474), (iii) Express, LLC et al v. National Processing Company, Inc. et al.
(Court of Common Pleas, Franklin County, Ohio) (02CVH111279); (iv) any
allegation or finding that California store managers of the Company are not
exempt from receiving overtime under California wage and hour laws as of or
before the Closing Date; (v) any liability relating to employment discrimination
in aggregate in excess of $50,000; (vi) Nantong Angang Garments Co. Ltd. ▇.
▇▇▇▇▇▇▇ International Forwarders Ltd. v. Silking Development Ltd. and ▇▇▇▇▇▇
Stores, Inc.) (Commercial Action No. 117 of 1994); (vii) Potomac Electric Power
Co. ▇. ▇▇▇▇▇▇ (Superior Court of the District of Columbia) (Civil Action
CV01CA2827 and CV01CA2828); (viii) Nordlinger ▇. ▇▇▇▇▇▇ (United States District
Court for District of Columbia) (02-CV-00543); (ix) Crossroads Plaza Assoc. v.
Limited Stores et al including ▇▇▇▇▇▇ (Superior Court of the District of
Columbia) (Civil Case No. 020902086); (x) ▇▇▇▇▇▇ ▇▇▇▇▇▇▇'▇ application for,
employment with and termination from, Parent, Seller, the Company, and any
Subsidiary, or any of their respective Affiliates; (xi) Citizens Against Unfair
Treatment v. The Limited et al (Superior Court of California, County of San
Diego) (GIC 772696); and (xii) Litigation against National Processing Co., Inc,
and National Bank of Kentucky. Seven of Limited Brands' merchants, including
▇▇▇▇▇▇ New York Inc. have filed suit against the corporation. We are alleging
breach of contract, conversion and indemnification against National Processing,
and breach of contract conversion, violation of the Uniform Commercial Code and
indemnification against National City Bank of Kentucky, all of which, as set
forth in clauses (i)-(xii) above, shall be retained by Parent.
"Shares" means 100 shares of Common Stock which constitute all of the
outstanding capital stock of the Company.
"Straddle Period" means any Tax period that begins on or before the Closing
Date and ends after the Closing Date.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors
8
or other persons performing similar functions are at the time directly or
indirectly owned by the Company.
"Tax" means (1) any tax, governmental fee or other like assessment or
charge of any kind whatsoever; including withholding on amounts paid to or by
any Person, federal and state income taxes, real property gains taxes, sales and
use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts
taxes, business license taxes, capital stock taxes, real and personal property
taxes, environmental taxes, transfer taxes, severance taxes, alternative or
add-on minimum taxes, and custom duties, together with any interest, penalty,
addition to tax or additional amount imposed by any governmental authority
(whether federal, state, local, municipal, foreign or otherwise) responsible for
the imposition of any such tax (a "Taxing Authority"); (2) any liability for the
payment of any amount of the type described in the immediately preceding clause
(1) as a result of the Company or any Subsidiary being a member of an
affiliated, consolidated, combined or similar group with any other Person at any
time on or prior to the Closing Date; and (3) any liability for the payment of
any amount of the type described in clause (1) or clause (2) above as a result
of any express or implied obligation to indemnify or otherwise assume or succeed
to the liability of any other Person. For the avoidance of doubt, it is
confirmed that the term "Tax" does not include any escheat liabilities or
similar items under state unclaimed property Laws.
"Tax Asset" means any net operating loss, net capital loss, investment tax
credit, foreign tax credit, charitable deduction or any other credit or tax
attribute that could be carried forward or back to reduce income or franchise
Taxes (including deductions and credits related to alternative minimum Taxes)
and losses or deductions deferred by the Code or other applicable Law.
"Transaction Documents" means this Agreement and any and all other
agreements and documents required to be delivered by any party hereto prior to
or at the Closing pursuant to this Agreement.
Each of the following terms is defined in the Section set forth opposite
such term:
Term Section
---- --------
Accounting Referee 8.02
Aggregate Lost Four Wall Profit Contribution 5.09(d)
Allocation Statement 8.02
Base Net Working Capital 2.04
Base Statement of Net Working Capital 2.03(a)
Basket 11.02
Bear ▇▇▇▇▇▇▇ Commitment Letter 4.05
Buyer Preamble
Buyer Material Adverse Effect 4.01
Cap 11.02
9
Term Section
---- --------
Cash Payment 2.01
CFC Commitment Letter 4.05
Claim 11.03
Closing 2.02
Closing Date Cash 2.03(a)
Closing Date Indebtedness 2.03(a)
Closing Excess DC Amount 2.03(a)
Closing IBNR Accrual 2.03(a)
Closing Net Working Capital 2.03(a)
Closing Statement 2.03(a)
Closing Statement of Cash 2.03(a)
Closing Statement of IBNR Accrual 2.03(a)
Closing Statement of Indebtedness 2.03(a)
Closing Statement of Excess Deferred Compensation 2.03(a)
Closing Statement of Net Working Capital 2.03(a)
Company Account 3.26
Company Intellectual Property 3.18
Company Proprietary Information 7.11(a)
Company Securities 3.05
Company Transaction 5.05
Company Websites 7.13
Confidentiality Agreement 5.05
Consent Request Letter 5.09
Copyrights 3.18
Covenant Agreement 7.07
Credit Card Litigation 6.08
Damages 11.02
Delinquent Payment 7.12(d)
Documents 7.11
Domain Names 3.18
Final Closing Date Cash 2.03(c)
Final Closing Date Indebtedness 2.03(c)
Final Closing Excess DC Amount 2.03(c)
Final Closing IBNR 2.03(c)
Final Closing Net Working Capital 2.03(c)
Financial Support Arrangement 6.05
Guaranteed Leases 6.09
Indemnified Party 11.03
Indemnifying Party 11.03
Leased Real Property 3.14(b)
Lease Guarantees 3.28
Leases 3.14(b)
Lease Termination 5.09
Master Assignment 7.08
Master Sublease 7.08
10
Term Section
---- --------
Material Contract 3.11
Non-Cash Consideration 2.01
Owned Real Property 3.14(a)
Parent Preamble
Patents 3.18
Payment Date 6.06
Post-Closing Invoices 6.06
Price Allocation 8.02
Purchase Price 2.01
Real Property 3.14(b)
Related Party Agreements 3.12
Relevant Costs 13.03
Retained Landlord Claims 7.13
Retained Owned Real Property 7.14(a)
Returns 8.01
Scheduled Marks 3.18
Section 338(h)(10) Election 8.02
Securityholders Agreement 7.06
Seller Preamble
Services Agreement 7.04
Shared Stores 3.14(b)
Special Representations 11.01
Store Leases Agreement 7.05
Subsidiary Securities 3.07
Tax Loss 8.04
Termination Date 12.01
Third Party Claim 11.03
TLI Pre-Closing Data 7.12(a)
Transfer Taxes 8.02
Unrelated Party 5.10
WARN Act 3.20
ARTICLE 2
Purchase and Sale
Section 2.01. Purchase and Sale. (a) Upon the terms and subject to the
conditions of this Agreement, Seller shall sell to Buyer and Buyer shall
purchase from Seller, the Shares at the Closing free and clear of all Liens. The
purchase price for the Shares (the "Purchase Price") is (1) $78.5 million in
cash (the "Cash Payment") and (2) the Non-Cash Consideration. The Purchase Price
shall be paid as provided in Section 2.02 and shall be subject to adjustment as
provided in Section 2.04.
(b) "Non-Cash Consideration" means (1) a $75 million 10% Subordinated Note
of Buyer, the form of which is attached as Exhibit A, and (2) a warrant for 15%
of the common stock of the Buyer (subject to dilution for
11
issuance of common stock pursuant to equity incentive plans and issuance of
warrants, if any, in connection with the senior subordinated debt facility to be
entered into on the Closing Date, to the extent set forth on Appendix 2.01) with
a strike price equal to Buyer's per share purchase price for the common stock at
Closing, the form of which is attached as Exhibit B.
Section 2.02. Closing. The closing (the "Closing") of the purchase and sale
of the Shares hereunder shall take place at the offices of ▇▇▇▇▇ ▇▇▇▇ &
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, as soon as possible, but in
no event later than two Business Days, after satisfaction (or, to the extent
permitted under Law, waiver) of the conditions set forth in Article 10, or at
such other time or place as Buyer and Parent may agree. Except as expressly
provided herein, for purposes of this Agreement, including the calculations set
forth in Section 2.03, the Closing shall be deemed to occur at the opening of
business on the Closing Date. At the Closing:
(a) Buyer shall deliver to Seller the Cash Payment in immediately available
funds by wire transfer to an account or accounts designated by Parent, by
written notice to Buyer which notice shall be delivered not later than two
Business Days prior to the Closing Date (or if not so designated, then by
certified or official bank check payable in immediately available funds to the
order of Seller in such amount).
(b) Buyer shall deliver to Seller the Non-Cash Consideration.
(c) Seller shall deliver to Buyer certificates for the Shares duly endorsed
or accompanied by stock powers duly endorsed in blank, with any required
transfer stamps affixed thereto.
Section 2.03. Closing Net Working Capital. As promptly as practicable, but
no later than 60 days, after the Closing Date Buyer will cause to be prepared
and delivered to Parent: (i) the statement of Closing Net Working Capital (the
"Closing Statement of Net Working Capital"); (ii) the statement (the "Closing
Statement of Indebtedness") of Indebtedness of the Company as of the Closing
("Closing Date Indebtedness"); (iii) the statement (the "Closing Statement of
Cash") of Company Cash as of the Closing ("Closing Date Cash"); (iv) the
statement (the "Closing Statement of Excess Deferred Compensation") of all
deferred compensation payable to current and former employees of the Company as
of the Closing in excess of $6.0 million (the "Closing Excess DC Amount"); and
(v) the statement (the "Closing Statement of IBNR Accrual") of IBNR Accrual as
of the Closing (the "Closing IBNR Accrual") (collectively, the "Closing
Statement"). The Closing Statement of Net Working Capital will be accompanied by
a certificate of the Chief Operating Officer of the Company specifying that the
Closing Statement of Net Working Capital was prepared in accordance with the
provisions of this Section 2.03(a) and Appendix 2.03(a) and Buyer shall deliver
back-up detail and data for the Closing Statement of Net Working Capital
equivalent to the back-up detail and data
12
provided in Company "black books" prior to the Closing Date. Prior to January 1,
2003, Parent will provide Buyer with the information necessary to determine all
"top side" adjustments to be reflected in the Closing Statement of Net Working
Capital. Such information shall be in form and level of detail consistent with
the supporting documentation of the Financial Statements presented to Buyer by
Parent. The Closing Statement of Net Working Capital shall include only those
categories of assets and liabilities and line items included in, and be in a
form consistent with, the Base Statement of Net Working Capital set forth in
Appendix 2.03(a) (the "Base Statement of Net Working Capital"). "Closing Net
Working Capital" means the net working capital of the Company and the
Subsidiaries as shown on the Closing Statement of Net Working Capital,
determined as set forth in this Section 2.03(a) and Appendix 2.03(a), with such
exceptions and clarifications as are specified in Appendix 2.03(a). The
determination of the Closing Net Working Capital shall be made by applying the
principles, policies and practices used in connection with the preparation of
the Base Statement of Net Working Capital with the exceptions and clarifications
set forth in the explanatory notes in Appendix 2.03(a). The Closing Statement of
Indebtedness will be accompanied by a certificate of the Chief Operating Officer
of the Company specifying that the Closing Statement of Indebtedness accurately
sets forth the amount of Closing Date Indebtedness. The Closing Statement of
Cash will be accompanied by a certificate of the Chief Operating Officer of the
Company specifying that the Closing Statement of Cash accurately sets forth the
amount of Closing Date Cash. The Closing Statement of Excess Deferred
Compensation will be accompanied by a certificate of the Chief Operating Officer
of the Company specifying that the Closing Statement of Excess Deferred
Compensation accurately sets forth the Closing Excess DC Amount. The Closing
Statement of IBNR Accrual will be accompanied by a certificate of the Chief
Operating Officer of the Company specifying that the Closing Statement of IBNR
Accrual accurately sets forth the amount of Closing IBNR Accrual.
(b) If Parent disagrees with Buyer's calculation of any of Closing Net
Working Capital, Closing Date Indebtedness, Closing Date Cash, Closing Excess DC
Amount or Closing IBNR Accrual delivered pursuant to Section 2.03(a), Parent
may, within 20 days after delivery of the certificate referred to in Section
2.03(a), deliver a notice to Buyer disagreeing with any such calculation and
setting forth Parent's calculation of such amount. Any such notice of
disagreement shall specify in reasonable detail those items or amounts as to
which Parent disagrees and shall specify Parent's proposed adjustment(s) to the
Closing Statement, and Parent shall be deemed to have agreed with all other
items and amounts contained in the Closing Statement of Net Working Capital, the
Closing Statement of Indebtedness, the Closing Statement of Cash, the Closing
Statement of Excess Deferred Compensation and the Closing Statement of IBNR
Accrual delivered pursuant to Section 2.03(a). If Parent shall fail to give
Buyer such notice of disagreement within such 20 day period, Parent shall be
deemed to have agreed with Buyer as to the Closing Statement.
13
(c) If any notice of disagreement shall be duly and timely delivered
pursuant to Section 2.03(b), Buyer and Parent shall, during the 30 days
following such delivery, use their reasonable best efforts to reach agreement on
the disputed items or amounts on the Closing Statement. If, during such 30 day
period, Buyer and Parent are unable to reach agreement with respect to any such
disagreement(s), they shall within five days of the end of such period cause
KPMG in an office mutually selected by Buyer and Parent (provided that such
office shall neither be located in Columbus, Ohio, Indianapolis, Indiana or New
York, New York nor shall such office have a material relationship with Buyer,
Parent or any of their respective Affiliates), promptly to commence a review of
this Agreement and the disputed items or amounts for the purpose of calculating
Closing Net Working Capital, Closing Date Indebtedness, Closing Date Cash,
Closing Excess DC Amount and/or Closing IBNR Accrual, as the case may be, in
accordance with the provisions of Section 2.03(a). In making any such
calculation, KPMG shall consider only those items or amounts in the Closing
Statement of Net Working Capital, the Closing Statement of Indebtedness, the
Closing Statement of Cash, the Closing Statement of Excess Deferred Compensation
and/or the Closing Statement of IBNR Accrual, as the case may be, as to which
Parent has disagreed, as follows:
(i) to the extent there are any disputed items or amounts of
Closing Net Working Capital, KPMG's determination of Closing Net Working Capital
shall not be less than the amount thereof shown in Buyer's calculations
delivered pursuant to Section 2.03(a) or more than the amount thereof shown in
Parent's calculation delivered pursuant to Section 2.03(b);
(ii) to the extent there are any disputed items or amounts of
Closing Date Indebtedness, KPMG's determination shall not be more than the
amount thereof shown in Buyer's calculations delivered pursuant to Section
2.03(a) or less than the amount thereof shown in Parent's calculation delivered
pursuant to Section 2.03(b);
(iii) to the extent there are any disputed items or amounts of
Closing Date Cash, KPMG's determination shall not be less than the amount
thereof shown in Buyer's calculations delivered pursuant to Section 2.03(a) or
more than the amount thereof shown in Parent's calculation delivered pursuant to
Section 2.03(b);
(iv) to the extent there are any disputed items or amounts of
Closing IBNR Accrual, KPMG's determination shall not be less than the amount
thereof shown in Buyer's calculations delivered pursuant to Section 2.03(a) or
more than the amount thereof shown in Parent's calculation delivered pursuant to
Section 2.03(a) or more than the amount thereof shown in Parent's calculation
delivered pursuant to Section 2.03(b); and
(v) to the extent that there are disputed items or amounts of
Closing Excess DC Amount, KPMG's determination shall not be more than the amount
thereof shown in Buyer's calculations delivered pursuant to
14
Section 2.03(a) or less than the amount thereof shown in Parent's calculation
delivered pursuant to Section 2.03(b).
KPMG shall deliver to Buyer and Parent, as promptly as practicable, but in any
event, within 30 days after KPMG has commenced any such review, a report setting
forth such calculation. Any such report shall be final and binding upon the
parties hereto. The Closing Net Working Capital set forth in the Closing
Statement of Net Working Capital, the Closing Date Indebtedness set forth in the
Closing Statement of Indebtedness, the Closing Date Cash set forth in the
Closing Statement of Cash, the Closing Excess DC Amount set forth in the Closing
Statement of Excess Deferred Compensation, and the Closing IBNR Accrual set
forth on the Closing Statement of IBNR Accrual, in each case, either as agreed
to by Parent and Buyer if such statement is not referred to KPMG or as finally
determined by KPMG, shall be the "Final Closing Net Working Capital", the "Final
Closing Date Indebtedness", the "Final Closing Date Cash", the "Final Closing
Excess DC Amount" and the "Final Closing IBNR", respectively.
(d) The cost of any such KPMG review and report shall be borne by the party
whose position with respect to the calculation in Section 2.03(a) bears the
greatest difference to the final position of KPMG.
(e) Buyer and Parent agree that they will, and agree to cause their
respective independent accountants and the Company and each Subsidiary to,
cooperate and assist in the preparation of the Closing Statement of Net Working
Capital, the Closing Statement of Indebtedness, the Closing Statement of Cash,
the Closing Statement of Excess Deferred Compensation and the Closing Statement
of IBNR Accrual and the calculation of the Closing Net Working Capital and in
the conduct of the reviews and determinations identified by Section 2.03(c),
including the making available to the extent necessary of books, records, work
papers and personnel.
Section 2.04. Adjustment To Purchase Price. The Purchase Price shall be:
(1)(x) reduced by the amount, if any by which the Base Net Working Capital
exceeds the Final Closing Net Working Capital or (y) increased by the amount, if
any by which Final Closing Net Working Capital exceeds the Base Net Working
Capital; (2) reduced by the amount, if any, of Final Closing Date Indebtedness;
(3) increased by the amount of Final Closing Date Cash; (4) reduced by the
amount of Final Closing Excess DC Amount; and (5) increased by the amount of the
Final Closing IBNR. "Base Net Working Capital" means $57.1 million.
(b) Any payment made pursuant to Section 2.04(a) shall be made in cash
within five days after such calculation has been determined either by delivery
by Parent to the Company, in the case of a reduction to the Purchase Price, or
by Buyer to Parent, in the case of an increase in the Purchase Price, in
immediately available funds by wire transfer to an account of the other party or
by causing such payment to be credited to such account of such other party as
may
15
be designated by such other party. Any amount payable shall bear interest from
and including the Closing Date to but excluding the actual date of payment at
the Reference Rate. Such interest shall be payable at the same time as the
payment to which it relates and shall be calculated daily on the basis of a year
of 365 days and the actual number of days elapsed.
Section 2.05. Additional Understanding. It is understood that the
establishment of $57.1 million as the amount of Base Net Working Capital (i) was
a negotiated result to establish the base from which any adjustment to the
Purchase Price is to be calculated, (ii) differs from the amount that would be
calculated simply by adding the amounts shown on the Base Statement of Net
Working Capital included in Appendix 2.03(a) and, therefore, (iii) will not
influence or affect in any respect the calculation of Closing Net Working
Capital.
ARTICLE 3
Representations and Warranties of Parent and Seller
Parent and Seller represent and warrant to Buyer, as of the date hereof and
as of the Closing, that, except as set forth in the Disclosure Schedule, which
shall be organized pursuant to the specific sections of this Agreement to which
such disclosure applies:
Section 3.01. Corporate Existence and Power. Each of Parent, Seller and the
Company is a corporation duly incorporated, validly existing and in good
standing under the Laws of its jurisdiction of incorporation. The Company has
all necessary corporate power and authority and all material Permits required to
carry on its business as now conducted, to own and lease the assets which it
owns and leases and to perform all of its obligations under each agreement to
which it is a party or by which it is bound. The Company is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
identified in Section 3.01 of the Disclosure Schedule, which includes each
jurisdiction in which its ownership or leasing of assets or properties or the
nature of its activities requires such qualification, except for those
jurisdictions where the failure to be so qualified, individually or in the
aggregate, has not had, or would not be reasonably likely to have, a Material
Adverse Effect.
Section 3.02. Corporate Authorization. The execution, delivery and
performance by each of Parent and Seller of the Transaction Documents to which
it is a party and the consummation of the transactions contemplated thereby are
within the corporate powers and authority of each of Parent and Seller and have
been duly authorized by all necessary corporate action on the part of Parent and
Seller. To the extent a party thereto, each of the Transaction Documents
constitutes the valid and binding obligation of Parent and Seller, as
applicable, and is enforceable against each of Parent and Seller, as applicable,
in accordance with its respective terms, (1) except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar Laws now or hereafter in effect relating to or affecting creditors'
rights generally, including the
16
effect of statutory and other Laws concerning fraudulent conveyances and
preferential transfers, and (2) subject to the limitations imposed by general
equitable principles (regardless of whether such enforceability is considered in
proceeding at Law or in equity).
Section 3.03. Governmental Authorization. To the extent a party thereto,
the execution, delivery and performance by Parent and Seller, as applicable, of
each of the Transaction Documents and the consummation of the transactions
contemplated thereby require no material action, consent or approval by or in
respect of, material filing with or material notice to, any governmental body,
agency or official other than: (1) compliance with any applicable requirements
of the HSR Act; and (2) compliance with any applicable requirements of the 1933
Act and the 1934 Act and state securities Laws.
Section 3.04. Noncontravention. The execution, delivery and performance by
Parent and Seller, as applicable, of any of the Transaction Documents to which
it is a party, and the consummation of the transactions contemplated thereby do
not and will not (1) violate or conflict with the certificate of incorporation
or bylaws (or other organizational documents) of Parent or Seller, or the
Company or any Subsidiary, (2) subject to the matters referred to in Section
3.03, contravene or conflict with or constitute a violation of any provision of
any Law binding upon or applicable to Parent or Seller, or the Company or any
Subsidiary, (3) with or without the giving of notice or the lapse of time, or
both, constitute a default under or give rise to any right of termination,
foreclosure, cancellation modification, payment, or acceleration of any right or
obligation of Parent or Seller, or the Company or any Subsidiary, or to a loss
of any benefit to which Parent or Seller, or the Company or any Subsidiary is
entitled, under any provision of any material agreement, contract or other
instrument to which Parent or Seller, or the Company or any Subsidiary, is a
party or by which any of them or their respective properties or assets is bound,
or give to others any rights (including rights of termination, foreclosure,
cancellation, modification, payment or acceleration) in or with respect to the
Company, any Subsidiary or any of their respective properties or assets except
for any such default, termination, cancellation, acceleration or loss that would
not be material, or (4) result in, require or permit the creation or imposition
of any Lien (other than Permitted Liens and Exceptions) upon or with respect to
the Company, any Subsidiary, any of their respective properties or assets or the
Shares; provided, however, the provisions of this Section 3.04 shall not be
applicable to Required Consents for Retail Leases, for which the provisions of
Section 5.09 shall apply.
Section 3.05. Capitalization. (a) The authorized capital stock of the
Company consists of 100 shares of Common Stock, of which 100 shares are issued
and outstanding.
(b) The Shares have been duly authorized and validly issued and are fully
paid and non-assessable, and have been issued in compliance with all applicable
Laws. Except for the Shares, there are no (1) outstanding shares of
17
capital stock or voting securities of the Company, (2) securities of the Company
convertible into or exchangeable for shares of capital stock or other voting
securities of the Company, (3) options, warrants or other rights to acquire from
the Company, or other obligations of the Company to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company, or (4) stock appreciation rights,
profit participation or similar rights or securities of the Company (the items
in clauses (1), (2), (3) and (4) being referred to collectively as the "Company
Securities"). There are no outstanding obligations of Parent, Seller, the
Company, any Subsidiary or any other Person to repurchase, redeem or otherwise
acquire any Company Securities. Except for this Agreement, there are no
agreements or other instruments relating to the issuance, voting, sale or
transfer of the Shares or any Company Securities.
Section 3.06. Ownership and Transfer of Shares. Seller is a wholly-owned
subsidiary of Parent. Seller is the record and beneficial owner of the Shares,
free and clear of any Lien. Subject to the matters referred to in Section 3.03,
Seller has the right, authority and power to sell the Shares to Buyer free and
clear of any Lien. Upon delivery to Buyer of the certificate for the Shares at
the Closing, Buyer will acquire good, valid and marketable title to the Shares,
free and clear of any Lien, other than as a result of any action by Buyer or any
of its Affiliates.
Section 3.07. Subsidiaries. (a) The Company has five Subsidiaries. The name
and jurisdiction of incorporation or organization, as the case may be, of each
Subsidiary is identified in Section 3.07 of the Disclosure Schedule. Each
Subsidiary is a corporation or a limited liability company, duly organized,
validly existing and in good standing under the Laws of its jurisdiction of
incorporation or organization, as the case may be. Each Subsidiary has all
corporate or limited liability company powers, and all material Permits required
to carry on its business as now conducted, to own and lease the assets which it
owns and leases and to perform all of its obligations under each agreement to
which it is a party or by which it is bound. Each Subsidiary is duly qualified
to do business as a foreign corporation or limited liability company, as the
case may be, and is in good standing in each jurisdiction identified in Section
3.07 of the Disclosure Schedule, which includes each jurisdiction in which its
ownership or leasing of assets or properties or the nature of its activities
requires such qualification, except for those jurisdictions where the failure to
be so qualified, individually or in the aggregate, has not had, or would not be
reasonably likely to have, a Material Adverse Effect.
(b) All of the outstanding capital stock and limited liability company
ownership interests of each Subsidiary, and the record and beneficial owners
thereof, is set forth in Section 3.07 of the Disclosure Schedule. All of the
issued and outstanding shares of capital stock or limited liability company
ownership interests, as the case may be, of each Subsidiary have been duly
authorized and are validly issued and fully paid and non-assessable, and have
been issued in
18
compliance with all applicable Laws. Except for the outstanding shares of
capital stock or ownership interests, as the case may be, of each Subsidiary
identified in Section 3.07 of the Disclosure Schedule, there are no (1)
outstanding shares of capital stock or other voting securities or ownership
interests of any Subsidiary, (2) securities of the Company or any Subsidiary
convertible into or exchangeable for shares of capital stock or other voting
securities or ownership interests of any Subsidiary, (3) options, warrants or
other rights to acquire from the Company or any Subsidiary, or other obligation
of the Company or any Subsidiary to issue, any capital stock, voting securities,
ownership interests or securities convertible into or exchangeable for capital
stock or voting securities or ownership interests of any Subsidiary or (4) stock
appreciation rights, profit participation or similar rights or securities of any
Subsidiary (the items in clauses (1), (2), (3) and (4) being referred to
collectively as the "Subsidiary Securities"). There are no outstanding
obligations of the Company or any Subsidiary or any other Person to repurchase,
redeem or otherwise acquire any Subsidiary Securities. There are no agreements
or other instruments relating to the issuance, voting, sale or transfer of any
Subsidiary Securities. All of the issued and outstanding shares of capital stock
or ownership interests, as the case may be, of each Subsidiary, are owned free
and clear of any Lien.
(c) None of the Company or any Subsidiary directly or indirectly owns,
controls or has any investment or other interest in any corporation,
partnership, joint venture, business trust or other Person (or has any
obligation or express contractual right to acquire any such investment or other
interest) and neither the Company nor any Subsidiary has agreed, contingently or
otherwise, (1) to share any of its profits with any Person, (2) other than in
ordinary course commercial transactions, to share any losses, costs or
liabilities of any Person or (3) to guarantee the obligations of any Person
other than the Company or any Subsidiary.
Section 3.08. Financial Statements. (a) The Financial Statements are
attached hereto as Appendix 3.08 and fairly present in all material respects the
consolidated financial condition, cash flows and results of operations of the
Company and the Subsidiaries as at the respective dates thereof and for the
periods therein referred to, all in accordance with GAAP as consistently applied
by the Company, except to the extent that the Financial Statements do not
reflect (i) federal and state income taxes (including provision for income
taxes, income taxes payable and deferred income taxes), (ii) liabilities
associated with leases for locations where the Company no longer operates a
store, (iii) liabilities associated with the California overtime and vacation
legal matters through the anticipated closing date, (iv) the liability
associated with the Company's defined benefit plan for union employees, (v)
liabilities associated with lifetime annuity payments to former ▇▇▇▇▇▇ employees
per Section 9.05(d), (vi) liabilities associated with the Jacksonville Pension
Plan, and (vii) liabilities associated with Retained Litigation Liabilities.
19
(b) The Company and the Subsidiaries taken as a whole maintain internal
accounting controls which, in the Company's reasonable judgment, provide
reasonable assurance that (1) transactions are executed in accordance with
management's authorization, and (2) transactions are recorded as necessary to
permit preparation of reliable financial statements and to maintain
accountability for earnings and assets.
(c) The accounting principles, polices and practices, adjustments and
clarifications set forth on Appendix 2.03(a) are consistent with those used in
the preparation of the Balance Sheet, and the accounting principles, described
in the definition of IBNR Accrual are consistent with the methodology used to
determine the $1.669 million in the line item for Insurance-Medical on the
Balance Sheet.
Section 3.09. Inventory. Subject to any reserve therefor included in the
Balance Sheet, at the Balance Sheet Date, all inventories of the Company and
Subsidiaries (including inventory ordered but not yet received) consisted of
items of a quality usable or saleable in the normal course of the business of
the Company consistent with past practices and were in quantities sufficient for
the normal operation of the business of the Company in accordance with past
practices. The values at which inventories are shown on the Balance Sheet have
been determined in accordance with the customary valuation policy of the Company
(which is the lower of average cost, vendor specific cost or market) and in
accordance with GAAP, as consistently applied by the Company. Since the Balance
Sheet Date, the Company has continued to replenish its inventory and to dispose
of out-of-season and slow-moving inventory in a normal and customary manner
consistent with past practices prevailing in the business of the Company.
Section 3.10. Absence of Certain Changes. Except as contemplated by any of
the Transaction Documents, since the Balance Sheet Date, the business of the
Company and Subsidiaries has been conducted in the ordinary course consistent
with past practices and there has not been:
(i) any event, occurrence or development which has had, or would be
reasonably likely to have, a Material Adverse Effect, except for any such
effect resulting from or arising in connection with (1) this Agreement or
the transactions contemplated hereby, (2) changes or conditions in either
the women's apparel sector or retail sector generally or (3) changes in
economic, market regulatory or political conditions generally;
(ii) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of the
Company or by any Subsidiary to any Person other than a Subsidiary or the
Company, or any repurchase, redemption or other acquisition by the Company
or any Subsidiary of any outstanding shares of capital stock or other
securities of the Company, any Subsidiary or any other entity;
20
(iii) any amendment of the charter, bylaws, other constitutive
documents or any outstanding security of the Company or any Subsidiary;
(iv) any incurrence, assumption or guarantee by the Company or any
Subsidiary of any indebtedness for borrowed money other than in the
ordinary course of business consistent with past practice and less than
$25,000 in the aggregate;
(v) any making of any loan, advance or capital contributions to or
investment in any Person by the Company or any Subsidiary other than loans,
advances or capital contributions to a Subsidiary or investments made in a
Subsidiary in the ordinary course of business consistent with past practice
and less than $100,000 in the aggregate and other than travel, relocation
and similar advances to employees in the ordinary course of business and in
an amount less than $25,000 for any employee and less than $100,000 in the
aggregate;
(vi) any change in any method of accounting or accounting practice by
the Company or any Subsidiary (except for any such change required by
reason of a concurrent change in GAAP);
(vii) any (1) employment, deferred compensation, severance, retirement
or other similar agreement entered into between the Company or any
Subsidiary on the one hand, and any director, officer or employee of the
Company or any Subsidiary (or any amendment to any such existing agreement)
on the other, (2) grant of any severance or termination pay to any
director, officer or employee of the Company or any Subsidiary for which
the Company or any Subsidiary is liable, or (3) any change (other than in
connection with hiring or firing directors, officers or employees) in
compensation or other benefits payable by the Company or any Subsidiary to
any director, officer or employee of the Company or any Subsidiary other
than, with respect to employees receiving annual cash or other compensation
less than $100,000, for any changes in the ordinary course of business;
(viii) any agreement, license, contract or commitment pursuant to
which any trade secret, confidential or other proprietary information, or
any customer information of the Company or any Subsidiary may be
transferred, disclosed to or used by any third party outside the ordinary
course of business;
(ix) any adoption of or change in any Employee Plan or Benefit
Arrangement maintained by the Company or any Subsidiary or any compensation
or labor policy;
(x) any sale (other than sales of inventory in the ordinary course of
business), assignment, conveyance, license, lease or other
21
disposition of any material asset or property (including any material
Company Intellectual Property) of the Company or any Subsidiary or
imposition of any Lien (other than Permitted Liens and Exceptions) on any
material asset or property (including any material Company Intellectual
Property) of the Company or any Subsidiary;
(xi) any delay or postponement of the payment of accounts payable and
other liabilities outside the ordinary course of business;
(xii) any cancellation, compromise, waiver or release of any right or
claim (or series of related rights and claims) either involving more than
$25,000 or outside the ordinary course of business;
(xiii) any write-down or write-off of the value of any material asset
except for write-downs or write-offs of accounts receivable and inventory
in the ordinary course of business consistent with past practice;
(xiv) any other material transaction or commitment made, or any
material contract or agreement entered into, by the Company or any
Subsidiary relating to its assets or business, other than transactions and
commitments in the ordinary course of business and those contemplated by
any of the Transaction Documents;
(xv) any entry into, material amendment, termination or receipt of
notice of termination of any Lease of Real Property or any other agreement
or commitment required to be disclosed on Section 3.14 of the Disclosure
Schedule;
(xvi) any agreement, whether or not in writing, to do any of the
foregoing by the Company or any Subsidiary; or
(xvii) any election, change in accounting period, adoption or change
of accounting method, filing of any amended Return, settlement of any Tax
claim or assessment relating to the Company or any Subsidiary, extension or
waiver of the limitation period applicable to any Tax claim or assessment
relating to the Company or any Subsidiary or any other similar action, if
such election, change, adoption, filing, settlement, extension, waiver or
other action would have the effect of materially increasing the Tax
liability of the Company or any Subsidiary for any period ending after the
Closing Date.
Section 3.11. Material Contracts. (a) Except as contemplated by any of the
Transaction Documents, none of the Company nor any Subsidiary has or is bound
by:
(i) any agreement, indenture or other instrument relating to
Indebtedness in excess of $150,000 (other than any such agreement with
Parent or any of its Affiliates), other than in connection with the
issuance
22
of letters of credit in the ordinary course of business; provided that for
purposes of this Section 3.11 the term "Indebtedness" shall be deemed to
refer only to clauses (i) - (iv) of the definition thereof;
(ii) any agreement, contract or commitment, or group of related
agreements, contracts or commitments, relating to a single capital
expenditure of greater than $150,000;
(iii) any loan or advance to, or investment in, any Person or any
agreement, contract or commitment relating to the making of any such loan,
advance or investment, other than travel, relocation and similar advances
to employees in the ordinary course of business and in an amount less than
$25,000 for any employee;
(iv) any guarantee or other contingent liability in respect of any
indebtedness or obligations of any Person (other than in connection with
relocation of employees in the ordinary course of business and in an amount
less than $25,000 for any employee or the endorsement of negotiable
instruments for collection in the ordinary course of business);
(v) any collective bargaining agreement;
(vi) any management service, sales agency, sales representative,
distributorship or any other similar type contract, except for any such
agreements with Parent or any of its Affiliates;
(vii) any agreement relating to the licensing of Intellectual Property
by the Company or any Subsidiary to a third party, or by a third party to
the Company or any Subsidiary (except for any licenses related to
commercially available off-the-shelf software of a value less than $25,000
per annum) and any other agreement affecting the Company's or any
Subsidiary's ability to use or disclose any Intellectual Property;
(viii) any contract, agreement or commitment to which the Company or
any Subsidiary is a party or is otherwise bound (other than customary
"percentage rent" provisions contained in Leases for Real Property)
providing for payments to or by any person or entity based on sales,
purchases or profits, other than direct payments for goods;
(ix) any agreement, contract or commitment limiting the freedom of the
Company or any Subsidiary to engage in any line of business or to compete
with any Person except for customary exclusives and restrictions as may be
contained in leases or other occupancy contracts that relate to a certain
shopping center and not the business generally;
(x) any contract for the purchase of assets or services (other than
employment arrangements and inventory) in an amount exceeding $100,000;
23
(xi) any power of attorney;
(xii) any settlement of any dispute, grievance or litigation, or any
labor conciliation or similar agreement which, in either case, is for an
amount in excess of $25,000 or which results in any performance or
non-performance obligation on the part of the Company or any Subsidiary; or
(xiii) any other material contract, agreement or commitment, to which
the Company or any Subsidiary is a party or by which any of them or their
assets are otherwise bound which is entered into outside the ordinary
course of business of a type that is not referred to in any of the other
clauses of this Section 3.11.
Parent has furnished or made available to Buyer accurate and complete
copies of each agreement, license, lease, plan or other document required to be
disclosed in Section 3.11 of the Disclosure Schedule, including any amendment or
modification thereto, or any waiver pertaining to any provision thereof (each a
"Material Contract").
(b) Each Material Contract to which the Company or any Subsidiary is a
party or by which they or their assets are bound (including each agreement or
contract required to be disclosed pursuant to this Agreement), was made in the
ordinary course of business, is in full force and effect, constitutes the valid
and binding obligation of the Company and Subsidiaries, as applicable, and is
enforceable against each of the Company and Subsidiaries, as applicable, in
accordance with its respective terms, (1) except as enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws
now or hereafter in effect relating to or affecting creditors' rights generally,
including the effect of statutory and other Laws concerning fraudulent
conveyances and preferential transfers, and (2) subject to the limitations
imposed by general equitable principles (regardless of whether such
enforceability is considered in proceeding at Law or in equity). To the
Knowledge of Parent and Seller, there exists no default or event of default or
event, occurrence, condition or act which, with the giving of notice, the lapse
of time or the happening of any other event or condition, would become a default
or event of default thereunder which has had, or would be reasonably likely to
have, either individually or in the aggregate, a Material Adverse Effect.
Neither the Company nor any Subsidiary is now in violation of any of the terms
or conditions of any Material Contract to which it is a party, and to the
Knowledge of Parent and Seller, all of the covenants to be performed by any
other party thereto have been performed in all material respects. No approval,
consent of or notice to any Person is necessary for all of the Material
Contracts to continue in effect following the consummation of the transactions
contemplated by this Agreement.
Section 3.12. Certain Related Party Agreements. Except as set forth in
Section 3.12 of the Disclosure Schedule, there are no agreements, contracts,
commitments or other arrangements by and between Parent, Seller, their
24
respective Affiliates and Related Parties, or any officer, director and employee
of Parent, Seller or their respective Affiliates, on the one hand, and the
Company or any Subsidiary, on the other hand, including any tax-sharing
agreements or other agreements pursuant to which Parent, Seller, such Affiliate
or any officer, director or employee of Parent, Seller or any Affiliate or
Related Party thereof provides or receives any payments, information, assets,
properties, support or other services to or from the Company or any Subsidiary
(including accounting, tax, data processing, information technology and legal
services) (collectively, "Related Party Agreements").
Section 3.13. Litigation. There is no claim, legal action, suit,
arbitration, investigation or proceeding pending against or, to the Knowledge of
Parent and Seller, threatened against or affecting the Company or any Subsidiary
or any of their respective properties or, to the extent relating to the Company
or any Subsidiary or any of their respective properties or to the transactions
contemplated by any of the Transaction Documents, Parent or its Affiliates
before (or that could come before) any court or arbitrator or any governmental
body, agency, official or authority where there is a reasonable possibility of a
judgment adverse to the Company or any Subsidiary which would result in the
Company or any Subsidiary suffering damages in excess of $25,000 or in any
material injunctive or equitable relief. As of the date hereof, there is no
claim, legal action, suit, arbitration, investigation or proceeding pending
against or, to the Knowledge of Parent and Seller, threatened against or
affecting the Company or any Subsidiary, Parent, Seller or any of their
Affiliates, before any court or arbitrator or any governmental body, agency,
official or authority which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay the transactions contemplated by any of the
Transaction Documents. To the Knowledge of Parent and Seller, there are no facts
which could reasonably serve as a basis for any claim, action, suit,
investigation or proceeding which could be reasonably likely to cause a Material
Adverse Effect, or which could in any manner challenge or seek to prevent,
enjoin, alter or materially delay the transactions contemplated by this
Agreement. There are no material unsatisfied judgments, penalties or awards
against or affecting the Company or any Subsidiary or any of their businesses,
properties or assets.
Section 3.14. Properties. (a) Section 3.14(a) of the Disclosure Schedule
correctly describes by common address all real property owned by the Company or
any Subsidiary (the "Owned Real Property"). The Company or a Subsidiary has good
and marketable title to each parcel of Owned Real Property free and clear of
Liens, except Permitted Liens and Exceptions, and there are no leases, subleases
or licenses affecting the Owned Real Property, nor any outstanding options to
purchase the Owned Real Property.
(b) Section 3.14(b) of the Disclosure Schedule contains (i) an accurate and
complete list and summary description of all leases, subleases, licenses,
concessions and other agreements, (the "Leased Real Property", and collectively
with the Owned Real Property, the "Real Property"), pursuant to which the
25
Company or a Subsidiary holds a leasehold or subleasehold estate in, or is
granted the right to use or occupy, any land, buildings, improvements, fixtures
or other interest in real property, including all amendments and modifications
thereto (the "Leases"), which Leases have been made available to Buyer. In
addition, (ii) an accurate and compete list of each Lease which by its terms
expires on or before February 28, 2003 is separately identified on Disclosure
Schedule 3.14(b), and (iii) an accurate and complete list of each Lease which
relates to stores that are shared by (A) the Company or any Subsidiary and (B)
Parent, its Affiliates or any other party which is not an Affiliate of the
Company or a Subsidiary (the "Shared Stores") is separately identified on
Disclosure Schedule 3.14(b). Each Lease set forth in Section 3.14(b) of the
Disclosure Schedule (or required to be set forth in Section 3.14(b) of the
Disclosure Schedule) is valid, binding, enforceable and in full force and
effect; except for Required Consents (for which the provisions of Section 5.09
shall control) there exists no default or event of default or event, occurrence,
condition or act which, with the giving of notice, the lapse of time or the
happening of any other event or condition, would become a default or event of
default under such Lease by tenant or, to the Knowledge of Parent and Seller,
the landlord; no security deposit or portion thereof deposited with respect any
Lease has been applied in respect of a breach or default under such Lease which
has not be redeposited in full; and except as otherwise contemplated by the
Transaction Documents neither the Company or any Subsidiary has assigned,
subleased, mortgaged, deeded in trust or otherwise transferred or encumbered any
Lease or any interest therein.
(c) With respect to all Real Property, the Company and the Subsidiaries
have legal and adequate rights of ingress and egress for operation of the
business of the Company in the ordinary course and consistent in all material
respects with past practice and with the Company's business plans as in effect
on the date hereof, except for rights, the failure of the Company and the
Subsidiaries to have, has not had, or would not be reasonably likely to have a
material adverse effect with respect to any single parcel or property comprising
the Real Property. Except as would not be reasonably likely to have a material
adverse effect with respect to any single parcel or property comprising the Real
Property, no condemnation proceeding or other litigation is pending or, to the
Knowledge of Parent and Seller, threatened which would preclude or impair the
use of any such Real Property by the Company and the Subsidiaries for the
purposes for which it is currently used as of the date hereof.
(d) Except as provided in the Transaction Documents, the Real Property
includes all of the real property used by the Company or any Subsidiary in the
operation of its business.
(e) To the Knowledge of Parent and Seller, all buildings, fixtures,
structures and other improvements and all components thereof included within the
Real Property are in good condition and repair (ordinary wear and tear excepted
and taking into account the age of the Real Property) (and except for repairs
being undertaken (or to be undertaken in accordance with an ordinary maintenance
26
program) in the ordinary course of business by the Company and the Subsidiaries
(either directly or through Parent and its Affiliates) or the relevant landlord)
and sufficient for the continued operation of the business of the Company or any
Subsidiary.
Section 3.15. Licenses and Permits. The Company and the Subsidiaries have
all Permits necessary for the operation of their business as such business is
operated on the date hereof. Section 3.15 of the Disclosure Schedule describes
generally all material Permits necessary for the occupation of the Real Property
of the Company and Subsidiaries in the same manner as such business and Real
Property are being operated and occupied as of the date hereof. Neither the
Company nor any Subsidiary is in default in any material respect or material
noncompliance under any of such Permits.
Section 3.16. Environmental Matters. (a) No written or, to the Knowledge of
Parent and Seller oral, notice, request for information, report, order,
complaint, penalty or other information has been received by Parent or any of
its Affiliates, the Company or any Subsidiary within the five years preceding
the date hereof or as to matters that have not been resolved, and there are no
judicial, administrative or other actions, suits or proceedings pending or, to
the Knowledge of Parent and Seller, threatened which allege a violation of any
Environmental Law, or material liability under Environmental Law, in each case
relating to the Company or any Subsidiary or any property formerly or currently
owned, leased or operated by the Company or any Subsidiary and arising out of
any Environmental Law.
(b) The Company and each Subsidiary, and any property currently owned,
leased or operated by the Company or any Subsidiary, have in full force and
effect all material Permits necessary for their operations to comply with all
applicable Environmental Laws and are, and during the last five years have been,
in material compliance with the terms of such Permits and with all other
applicable Environmental Laws.
(c) There has been no environmental assessment, audit, investigation,
report, sampling report, remediation report, material asbestos survey or report
or other related report related to the Company or any Subsidiary or any property
formerly or currently owned, leased or operated by the Company or any Subsidiary
which is in the possession, custody or control of Parent, the Company or any
Subsidiary and which has not been delivered or made available to Buyer prior to
the date hereof and listed on Section 3.16 of the Disclosure Schedule.
(d) Neither the Company nor any of the Subsidiaries, has treated, stored,
disposed of, arranged for or permitted the disposal of, transported, handled, or
released any substance regulated under Environmental Laws, including any
hazardous substance, or owned or operated any property or facility (and no such
property or facility, including the Real Property, is contaminated by any such
substance) so as to give rise to liabilities under Environmental Laws.
27
(e) Neither the Company nor any of the Subsidiaries has assumed,
undertaken, or otherwise become subject to, any liability of any other person or
entity relating to Environmental Law.
Section 3.17. Compliance with Laws. (a) The Company and each Subsidiary
are, and at all times since January 1, 2000 have been, in compliance in all
material respects with all applicable Laws, and neither the Company nor any
Subsidiary has any basis to expect any notice, order or other written
communication from any governmental agency or instrumentality thereof alleging
any actual or potential material violation of or failure to comply with any Law.
(b) Except as set forth on Section 3.17 of the Disclosure Schedule, and
without in any way limiting the representations and warranties otherwise
provided in Section 3.17 of this Agreement:
(i) the Company and each Subsidiary are in compliance with all
applicable Customs & International Trade Laws in all material respects, and
at no time since January 1, 2000 has either the Company or any Subsidiary
committed any material violation of the International Trade Laws and
Regulations;
(ii) the Company and each Subsidiary are not subject to any civil or
criminal investigation, litigation, audit, compliance assessment, penalty
proceeding or assessment, liquidated damages proceeding or claim,
forfeiture or forfeiture action, claim for additional customs duties or
fees, denial order, suspension of export privileges, governmental sanction,
or any other action, proceeding or claim by a governmental agency (domestic
or foreign) involving or otherwise relating to any alleged or actual
violation of the Customs & International Trade Laws or relating to any
alleged or actual underpayment of customs duties, fees, taxes or other
amounts owed pursuant to the Customs & International Trade Laws where there
is a reasonable possibility of adverse financial consequence to the Company
or any Subsidiary in excess of $25,000 or injunctive or equitable relief,
and the Company and each Subsidiary have paid all customs duties and fees
and brokerage fees owed for merchandise imported by them or imported on
their behalf into the United States; and
(iii) the Company and each Subsidiary have not made or provided any
material false statement or omission to any government agency (domestic or
foreign) or to any purchaser of products, in connection with the
importation of merchandise, the valuation or classification of imported
merchandise, the duty treatment of imported merchandise, the eligibility of
imported merchandise for favorable duty rates or other special treatment,
country-of-origin marking, NAFTA Certificates, marking requirements for
apparel, other statements or certificates concerning origin, quota or visa
rights, export licenses or other export authorizations, licenses or other
approvals required by a foreign
28
government or agency, or any other requirement relating to the Customs &
International Trade Laws.
Section 3.18. Intellectual Property. Section 3.18 of the Disclosure
Schedule sets forth an accurate and complete list of all (1) registered
trademarks and service marks, registrations, and applications for registration
thereof (the "Scheduled Marks"), (2) internet domain name registrations and
related applications (the "Domain Names"), (3) registered copyrights and related
applications (the "Copyrights"), and (4) patents and patent applications
("Patents"), owned or used exclusively in connection with the business of the
Company and the Subsidiaries. The Company and the Subsidiaries (i) own, free and
clear of all Liens (other than Permitted Liens and Exceptions), all right, title
and interest in and to all of the Scheduled Marks, Domain Names, Copyrights and
Patents set forth on Section 3.18 of the Disclosure Schedule, and (ii) together
with the rights granted to the Company and the Subsidiaries under the Services
Agreement, own free and clear of all Liens (other than Permitted Liens and
Exceptions), all right, title and interest in and to, or have a valid and
enforceable license to use, all other Intellectual Property (including
unregistered trademarks, service marks, logos and slogans) necessary for the
operation of the Company's and the Subsidiaries' business as currently conducted
(collectively, and together with other Intellectual Property owned or used by
the Company or any of the Subsidiaries, "Company Intellectual Property"). Each
applied for or registered Scheduled ▇▇▇▇, Copyright, Domain Name and Patent
listed on Section 3.18 of the Disclosure Schedule is in the name of the Company
or one of the Subsidiaries, as indicated on Section 3.18 of the Disclosure
Schedule, on the principal register of the United States Patent and Trademark
Office or the United States Copyright Office or any other applicable agency or
other governmental body in the United States or any of the foreign countries
indicated on Section 3.18 of the Disclosure Schedule. Except as set forth on
Section 3.18 of the Disclosure Schedule, as of the date hereof, to the Knowledge
of Parent and Seller, there is no infringement or misappropriation of, or other
conflict with, any Company Intellectual Property by any other Person. To the
Knowledge of Parent and Seller, the Company and the Subsidiaries have not, and
the use of the Company Intellectual Property and continued operation of the
Company's or the Subsidiaries' businesses as currently conducted, will not,
result in any infringement, misappropriation or other conflict with any
Intellectual Property or other rights of another Person in the United States or
any foreign jurisdiction in which the Company or one of the Subsidiaries
currently operates its business. As of the date hereof, to the Knowledge of
Parent and Seller, there is no claim by any other Person threatened or asserted
contesting the validity, enforceability, use or ownership of any Company
Intellectual Property. All of the Company Intellectual Property is valid and
enforceable. No loss or expiration of any Company Intellectual Property material
to the business of the Company or any of the Subsidiaries is threatened, pending
or reasonably foreseeable. Except as contemplated under the Services Agreement,
immediately following the Closing, the Company Intellectual Property will be
owned or available for use by the Company and the Subsidiaries on terms and
conditions identical to those under which the Company and the Subsidiaries owned
or used
29
the Company Intellectual Property prior to the Closing. Except as would not be
material, all employees and consultants of Parent and its relevant subsidiaries
and of Company and the Subsidiaries involved in the development of the Company's
Intellectual Property have executed agreements providing for nondisclosure of
and assignment to the Company or one of the Subsidiaries of any such
Intellectual Property developed by such employees and consultants.
Section 3.19. Finders' Fees. Except for Banc of America Securities LLC,
whose fees will be paid by Parent, there is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of Seller, Parent, the Company or any Subsidiary which might be entitled
to any fee or commission in connection with the transactions contemplated by
this Agreement.
Section 3.20. Labor and Employment Matters. (a) Except as set forth in
Section 3.20 of the Disclosure Schedule, with respect to the Company and
Subsidiaries: (i) there is no collective bargaining agreement or relationship
with any labor organization; (ii) to the Knowledge of Parent and Seller, no
executive or Key Employee (A) has any present intention to terminate their
employment, or (B) is a party to any confidentiality, non-competition,
proprietary rights or other such agreement between such Employee and any other
Person (besides Seller or its Affiliates solely with respect to confidentiality
obligations to Seller and its Affiliates), or the Company or the Subsidiaries,
as applicable, that would be material to the performance of such Employee's
employment duties, or the ability of the Company and/or the applicable
Subsidiaries to conduct their business; (iii) no labor organization or group of
employees has filed any representation petition or made any written or oral
demand for recognition; (iv) to the Knowledge of Parent and Seller, no union
organizing or decertification efforts are underway or threatened and no other
question concerning representation exists; (v) no labor strike, work stoppage,
slowdown, or other material labor dispute has occurred, and none is underway or,
to the Knowledge of Parent and Seller, threatened; (vi) there is no ▇▇▇▇▇▇▇'▇
compensation liability, experience or matter that could have a Material Adverse
Effect; (vii) there is no employment-related charge, complaint, grievance,
investigation, inquiry or obligation of any kind, pending or threatened in any
forum, relating to an alleged violation or breach by the Company or any
Subsidiary (or its or their officers or directors) of any material law,
regulation or contract; and, (viii) no employee or agent of the Company or any
Subsidiary has committed any act or omission giving rise to material liability
for any violation or breach identified in subsection (vii) above.
(b) Except as set forth in Section 3.20 of the Disclosure Schedule, (i)
there are no agreements for the employment of any officer, individual employee
of the Company or the Subsidiaries on a full-time, part-time, consulting or
other basis (A) providing annual cash or other compensation in excess of
$100,000, (B) providing for the payment of any cash or other compensation or
benefits upon the consummation of the transactions contemplated hereby, (C)
providing any severance benefits or making any severance arrangements, or (D)
30
restricting its ability to terminate the employment of any employee at any time
for any lawful reason or for no reason without penalty or liability, and, (ii)
there are no written personnel policies, rules or procedures applicable to
employees of the Company or any Subsidiary.
(c) With respect to this transaction, any notice required under any law or
collective bargaining agreement has been given, and all bargaining obligations
with any employee representative have been, or prior to the Closing will be,
satisfied. Within the past three years, neither the Company nor any of the
Subsidiaries has implemented any plant closing or layoff of employees that could
implicate the Worker Adjustment and Retraining Notification Act of 1988, as
amended, or any similar foreign, state or local law, regulation or ordinance
(jointly, the "WARN Act"), and no such action will be implemented without
advance notification to Buyer.
Section 3.21. Insurance. Parent has furnished or made available to Buyer an
accurate and complete summary of coverages under all material insurance policies
and bond and surety arrangements covering the assets, business, properties,
operations, employees, officers and directors of the Company and the
Subsidiaries. There is no material claim by the Company or any of the
Subsidiaries pending under any of such policies or bond and surety arrangements
as to which coverage has been questioned, denied or disputed by the underwriters
of such policies or bond and surety arrangements. Section 3.21 of the Disclosure
Schedule provides a claims history under such policies for the last 3 years and
describes any self-insurance arrangements affecting the Company or any of the
Subsidiaries.
Section 3.22. No Undisclosed Liabilities. There are no liabilities of the
Company or any of the Subsidiaries of any kind, whether accrued, contingent,
absolute, determined, determinable or otherwise, other than (a) liabilities
disclosed or provided for in the Balance Sheet or disclosed in accordance with
GAAP in the notes thereto; (b) liabilities existing as of the Balance Sheet Date
but not required under GAAP to be shown on the Balance Sheet; (c) liabilities
disclosed on Section 3.22 of the Disclosure Schedule; (d) liabilities incurred
in the ordinary course of business since the Balance Sheet Date; or (e)
liabilities incurred in connection with the Transaction Documents.
Section 3.23. Sufficiency of Assets; Good Title. Except as provided in the
Transaction Documents, the Company and the Subsidiaries own or lease all
buildings, machinery, equipment, and other tangible assets necessary for the
conduct of their businesses as presently conducted and such buildings,
machinery, equipment and other tangible and intangible assets are in good
operating condition, maintenance and repair, ordinary wear and tear excepted,
are usable in the ordinary course of business and are reasonably adequate and
suitable for the uses to which they are being put. The Company and the
Subsidiaries have good and valid title to, or a valid leasehold interest in, the
material properties and assets, tangible and intangible, shown on the Balance
Sheet or acquired thereafter,
31
free and clear of all Liens, except for (1) properties and assets disposed of in
the ordinary course of business since the Balance Sheet Date and (2) Permitted
Liens and Exceptions.
Section 3.24. Accounts Receivable. All accounts and notes receivable of the
Company and each Subsidiary represent valid obligations from sales made or
services rendered in the ordinary course of business and are not subject to any
right of set-off or any agreements or understandings (oral or written) that
would permit any payor to reduce or satisfy any portion of an obligation by
return of goods or any means other than the payment of cash in the face amount
thereof.
Section 3.25. Suppliers. Section 3.25 of the Disclosure Schedule lists (a)
the names of the twenty suppliers and vendors from whom the Company and the
Subsidiaries made the most purchases during the most recently completed fiscal
year and the aggregate expenditures attributable to each in such year and (b)
each outstanding purchase order commitment to purchase inventory with any
supplier or vendor that is outstanding as of the second Business Day prior to
the date hereof, the products subject to such purchase order and the applicable
supplier or vendor. To the Knowledge of Parent and Seller, the Company and each
Subsidiary enjoys good working relationships under all arrangements and
agreements with their current suppliers (including each of the suppliers listed
in clause (a) of this Section) sufficient to the normal operation of their
businesses.
Section 3.26. Bank Accounts. Section 3.26 of the Disclosure Schedule
contains an accurate and complete list of each bank, checking, money market,
investment or similar account, excluding individual store deposit accounts
(each, a "Company Account"), owned by or used for the business and operations of
the Company and the Subsidiaries and each individual authorized to have access
to and make transactions under each Company Account.
Section 3.27. Investment Intent. Seller is receiving the Non-Cash
Consideration for investment for its own account and not with a view to, or for
sale in connection with, any distribution thereof. Seller (either alone or
together with its advisors) has sufficient knowledge and experience in financial
and business matters so as to be capable of evaluating the merits and risks of
its investment in the Non-Cash Consideration and is capable of bearing the
economic risks of such investment.
Section 3.28. Lease Guarantees. Section 3.28 of the Disclosure Schedule
contains an accurate and complete list of all Leased Real Property for which
guarantees of lease obligations of the Company or any Subsidiary are provided by
Parent, Seller or any of their Affiliates (the "Lease Guarantees").
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ARTICLE 4
Representations and Warranties of Buyer
Buyer represents and warrants to Parent and Seller, as of the date hereof
and as of the Closing, that:
Section 4.01. Corporate Existence and Power. Buyer is a corporation duly
incorporated, validly existing and in good standing under the Laws of its
jurisdiction of incorporation. Buyer has all corporate powers and all
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted, to own and lease the assets which it owns and
leases and to perform all of its obligations under each agreement to which it is
a party or by which it is bound. Buyer is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which its
ownership or leasing of assets or properties or the nature of its activities
requires such qualification except where the failure to have such licenses,
authorizations, consents and approvals, individually or in the aggregate, has
not had, or would not be reasonably likely to have, a material adverse effect on
the business, properties, assets, results of operations or financial condition
of Buyer and the Subsidiaries, taken as a whole (a "Buyer Material Adverse
Effect"). Buyer was formed solely for the purposes of engaging in the
transactions contemplated by this Agreement, and has engaged in no other
business activities and has conducted its operations only as contemplated
hereby. As used in this Article 4 the term "subsidiary" shall mean any entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by Buyer.
Section 4.02. Corporate Authorization. The execution, delivery and
performance by Buyer of the Transaction Documents to which it is a party and the
consummation of the transactions contemplated thereby are within the corporate
powers and authority of Buyer and have been duly authorized by all necessary
corporate action on the part of Buyer. To the extent a party thereto, each of
the Transaction Documents constitutes the valid and binding obligation of Buyer
and is enforceable against Buyer in accordance with its respective terms, (1)
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws now or hereafter in effect relating
to or affecting creditors' rights generally, including the effect of statutory
and other Laws concerning fraudulent conveyances and preferential transfers, and
(2) subject to the limitations imposed by general equitable principles
(regardless of whether such enforceability is considered in a proceeding at Law
or in equity).
Section 4.03. Governmental Authorization. To the extent a party thereto,
the execution, delivery and performance by Buyer of each of the Transaction
Documents and the consummation of the transactions contemplated thereby require
no material action, consent or approval by or in respect of, material filing
with or material notice to, any governmental body, agency or official other than
33
(1) compliance with any applicable requirements of the HSR Act and (2)
compliance with any applicable requirements of the 1933 Act and the 1934 Act and
state securities laws.
Section 4.04. Noncontravention. The execution, delivery and performance by
Buyer, of any of the Transaction Documents to which it is a party and the
consummation of the transactions contemplated thereby do not and will not (1)
violate or conflict with the certificate of incorporation or bylaws (or other
organizational documents) of Buyer, (2) subject to the matters referred to in
Section 4.03, contravene or conflict with or constitute a violation of any
provision of any Law binding upon or applicable to Buyer, or (3) with or without
the giving of notice or the lapse of time, or both, constitute a default under
or give rise to any right of termination, cancellation or acceleration of any
right or obligation of Buyer, or to a loss of any benefit to which Buyer is
entitled under any provision of any agreement, contract or other instrument to
which Buyer is a party or by which Buyer or its properties or assets is bound,
or give to others any rights (including rights of termination, foreclosure,
cancellation or acceleration) in or with respect to Buyer or any of its
properties or assets except for any such default, termination, cancellation,
acceleration or loss that has not had, or would not be reasonably likely to
have, a Buyer Material Adverse Effect.
Section 4.05. Financing.
(a) Bear ▇▇▇▇▇▇▇ Merchant Fund Corp., an Affiliate of Buyer, has received
an executed commitment letter from Congress Financial Corporation, dated as of
November 21, 2002 and executed by Bear ▇▇▇▇▇▇▇ Merchant Fund Corp. as of the
date hereof, an accurate and correct copy of which is attached as Exhibit C-1
(the "CFC Commitment Letter"). Pursuant to the CFC Commitment Letter and subject
to the terms and conditions contained therein, Congress Financial Corporation
has committed to provide senior debt financing in the amount of $120.0 million.
(b) Buyer has received an executed commitment letter from Bear ▇▇▇▇▇▇▇
Merchant Banking II, L.P., dated as of November 22, 2002 and executed by Buyer
as of the date hereof, an accurate and correct copy of which is attached as
Exhibit C-2 (the "Bear ▇▇▇▇▇▇▇ Commitment Letter"). Pursuant to the Bear ▇▇▇▇▇▇▇
Commitment Letter and subject to the terms and conditions contained therein,
Bear ▇▇▇▇▇▇▇ Merchant Banking II, L.P. has committed to provide equity financing
in the amount of up to $85.0 million.
(c) Each of the Bear ▇▇▇▇▇▇▇ Commitment Letter and the CFC Commitment
Letter, is in full force and effect.
34
Section 4.06. Purchase and Investment. Buyer is purchasing the Shares for
investment for its own account and not with a view to, or for sale in connection
with, any distribution thereof. Buyer (either alone or together with its
advisors) has sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its investment
in the Shares and is capable of bearing the economic risks of such investment.
Section 4.07. Litigation; Compliance with Laws. There is no claim, legal
action, suit, arbitration, investigation or proceeding pending against or, to
the knowledge of Buyer, threatened against or affecting, Buyer, any of its
properties or assets, or the transactions contemplated by any of the Transaction
Documents before any court or arbitrator or any governmental body, agency,
official or authority which has had, or would be reasonably likely to have a
Buyer Material Adverse Effect. As of the date hereof, there is no claim, legal
action, suit, arbitration, investigation or proceeding pending against, or to
the knowledge of Buyer, threatened against or affecting Buyer, before any court
or arbitrator or any governmental body, agency, official or authority which in
any manner challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated by this Agreement. Buyer and its subsidiaries are in
compliance in all material respects with all applicable Laws, and neither Buyer
nor any subsidiary of Buyer has any basis to expect any notice, order or other
written communication from any governmental agency or instrumentality thereof
alleging any actual or potential material violation of or failure to comply with
any Law.
Section 4.08. Finders' Fees. Except for Bear ▇▇▇▇▇▇▇ Merchant Manager II,
LLC, whose fees will be paid by Buyer, there is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of Buyer which might be entitled to any fee or commission in
connection with the transactions contemplated by this Agreement.
Section 4.09. Inspections; No Other Representations. Buyer, through its
Affiliates, is an informed and sophisticated purchaser, and has engaged expert
advisors, experienced in the evaluation and purchase of companies such as the
Company and Subsidiaries as contemplated hereunder. Buyer (directly or through
its Affiliates) has undertaken such investigation as it has deemed necessary to
enable it to make an informed and intelligent decision with respect to the
execution, delivery and performance of the Transaction Documents. Buyer
acknowledges that Parent and its Affiliates have given Buyer access to key
employees, documents and facilities of the Company and Subsidiaries and, to the
extent related to the Company or any Subsidiary, Parent and its Affiliates.
Buyer will undertake prior to Closing such further investigation and request
such additional documents and information as it deems necessary. Without
limiting the generality of the foregoing, Buyer acknowledges that Parent and its
Affiliates make no representation or warranty with respect to any projections,
estimates or budgets delivered to or made available to Buyer of future revenues,
future results of operations (or any component thereof), future cash flows or
future financial condition (or any component thereof) of the Company and
Subsidiaries or the
35
future business and operations of the Company and Subsidiaries or any other
information or documents made available to Buyer or its counsel, accountants or
advisors with respect to the Company, Subsidiaries, Parent, any of Parent's
Affiliates or any of the foregoing business, assets, liabilities or operations,
except as expressly set forth in this Agreement.
Section 4.10. HSR Filing. The "person" (as defined in 16
C.F.R.(S)801.1(a)(1)) within which the Buyer is included does not have (a) the
"regularly prepared balance sheet" described in 16 C.F.R.(S)801.11(c)(2), (b)
$10.0 million or more of "total assets," as determined in accordance with 16
C.F.R.(S)801.11(e)(1), or (c) any "annual net sales," as determined in
accordance with 16 C.F.R.(S)801.11.
Section 4.11. Valid Issuance of Non-Cash Consideration. Upon issuance, the
Subordinated Note and Warrant shall have been duly authorized and validly issued
in compliance with all applicable Laws and shall be valid and binding
obligations of Buyer (1) except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar Laws now or
hereafter in effect relating to or affecting creditors' rights generally,
including the effect of statutory and other Laws concerning fraudulent
conveyances and preferential transfers, and (2) subject to the limitations
imposed by general equitable principles (regardless of whether such
enforceability is considered in proceeding at Law or in equity). The shares of
the common stock of Buyer (or other securities) issuable upon exercise of the
Warrant shall upon issuance (i) have been duly authorized and validly issued in
accordance with all applicable Laws (ii) shall be fully paid and non-assessable,
(iii) shall be free of any Liens and (iv) will not have been subject to any
preemptive rights other than those set forth in the Securityholders Agreement.
ARTICLE 5
Covenants of Seller and Parent
Parent and Seller agree that:
Section 5.01. Conduct of the Company. From the date hereof until the
Closing Date, except as set forth on the Disclosure Schedule or as contemplated
by any of the Transaction Documents, Parent and Seller shall cause the Company
and Subsidiaries to (1) conduct their respective businesses in the ordinary
course in a manner consistent with past practice and in material compliance with
all applicable Laws, Permits, agreements and commitments, (2) use their
reasonable efforts to preserve intact their business organizations and
relationships and goodwill with third parties and to keep available the services
of their present employees, (3) maintain their facilities and assets in the same
state or repair, order and condition as they were on the date hereof, ordinary
wear and tear excepted, and (4) maintain their corporate existence and pay and
discharge all debts, liabilities and obligations of the Company and the
Subsidiaries as they become due, other than debts that are disputed in good
faith. Without limiting the
36
generality of the foregoing, from the date hereof until the Closing Date, except
as contemplated by the Transaction Documents, to the extent relating to the
Company and Subsidiaries, Parent and Seller will not, and will cause the Company
and Subsidiaries not to:
(a) adopt or propose any change in its certificate of incorporation or
bylaws;
(b) merge or consolidate with any other Person or acquire a material amount
of assets from any other Person other than (1) pursuant to existing contracts,
agreements or commitments that are disclosed herein or on the Disclosure
Schedule and (2) the acquisition of inventory in the ordinary course of
business;
(c) sell, lease, license or otherwise dispose of any material assets or
property (including any material Company Intellectual Property) except (1)
pursuant to existing contracts or commitments, or (2) for the sale of inventory
in the ordinary course of business or (3) for the sale, lease, disposition or
encumbrance of amounts of assets no longer used in the ordinary course of
business in amounts that are not material;
(d) (i) increase the rates of compensation or vacation or other benefits of
employees earning less than $150,000, except (1) as required by any Law, (2) in
the ordinary course of business consistent with past practice or (3) as required
by any contract in effect on the date hereof and disclosed on Section 3.20(b) of
the Disclosure Schedule, or (ii) increase the rates of compensation or vacation
or other benefits of employees earning $150,000 per year or more, except (1) as
required by any Law or (2) as required by any contract in effect on the date
hereof and identified on Section 3.20(b) of the Disclosure Schedule;
(e) make any loan, advance or capital contribution to or investment in any
Person, except for travel, relocation and similar advances in the ordinary
course of business not to exceed $25,000 for any employee and $150,000 in the
aggregate;
(f) incur, assume or guarantee any debt for borrowed money, other than
letters of credit incurred or entered into in the ordinary course of business
not to exceed $25,000 in the aggregate;
(g) adopt any change in method of accounting or accounting practice except
as required by Law or GAAP;
(h) enter into any new lease or sublease of Real Property or terminate,
amend or cause or permit the extension of the term of any Lease, without first
consulting with and obtaining the consent of Buyer (which consent shall not
unreasonably be withheld, conditioned or delayed);
37
(i) enter into any agreement (or amend, extend or otherwise modify any
existing agreements) for the employment of any officer, individual employee or
other Person on a full-time, part-time, consulting or other basis (A) providing
annual cash or other compensation in excess of $150,000, (B) providing for the
payment of any cash or other compensation or benefits upon the consummation of
the transactions contemplated hereby, (C) providing any severance benefits or
making any severance arrangements, or (D) restricting its ability to terminate
the employment of any employee at any time for any lawful reason or for no
reason without penalty or liability;
(j) implement any layoff of employees that could implicate the WARN Act;
(k) enter into any new contract, or amend, extend or otherwise modify any
existing contract with Parent, any Affiliate of Parent, any Related Party of
Parent or any Related Party of an Affiliate of Parent;
(l) make any capital expenditure (or series of related capital
expenditures) either involving more than $25,000 or outside the ordinary course
of business;
(m) delay or postpone the payment of accounts payable and other liabilities
outside the ordinary course of business or otherwise make any material change in
the cash management practices;
(n) make any material change in inventory policies or procedures, operating
policies or procedures, or advertising and promotion policies or procedures;
(o) cancel, compromise, waive or release any right or claim (or series of
related rights and claims) either involving more than $25,000 or outside the
ordinary course of business;
(p) issue or create any (1) shares of capital stock or voting securities of
the Company, (2) securities of the Company convertible into or exchangeable for
shares of capital stock or other voting securities of the Company, (3) options,
warrants or other rights to acquire from the Company, or other obligations of
the Company to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company, or (4) stock appreciation rights, profit participation or similar
rights or securities of the Company;
(q) enter into a binding agreement to do any of the foregoing;
(r) fail to prosecute, defend, maintain and protect any of the Company
Intellectual Property so as to materially adversely affect the validity or
enforceability thereof; or
38
(s) make or change any election, change any accounting period, adopt or
change any accounting method, file any amended Return, settle any Tax claim or
assessment relating to the Company or any Subsidiary, consent to any extension
or waiver of the limitation period applicable to any Tax claim or assessment
relating to the Company or any Subsidiary or take any other similar action if
such election, change, adoption, amendment, settlement, consent or other action,
would have the effect of materially increasing the Tax liability of the Company
or any Subsidiary for any period ending after the Closing Date.
Section 5.02. Cooperation On Certain Matters.
(a) Access to Information Prior to Closing. From the date hereof until the
Closing Date, Parent and Seller will (1) give, and will cause the Company and
Subsidiaries to give, Buyer and its counsel, financial advisors, auditors,
sources of funding under the Commitment Letters (the "Banks") and other
authorized representatives, reasonable access to the offices, properties,
accountants, members of management and books and records of the Company and
Subsidiaries and, to the extent related primarily to the Company and
Subsidiaries, to the books and records of Parent and Seller and to the key
employees of Parent or Seller who have significant involvement in the Company
and Subsidiaries, during normal business hours and upon reasonable prior notice,
(2) furnish, and will cause the Company and Subsidiaries to furnish, to Buyer
and its counsel, financial advisors, auditors, Banks and other authorized
representatives, such financial and operating data and other information
relating to the Company and Subsidiaries as such Persons may reasonably request
and (3) instruct the employees, counsel, accountants and financial advisors of
Parent, Seller, the Company and the Subsidiaries to cooperate with Buyer in its
investigation of the Company and Subsidiaries. Any investigation pursuant to
this Section 5.02(a) shall be conducted in such a manner as not to interfere
unreasonably with the conduct of the business of Parent or any of its
Affiliates, the Company or any Subsidiary. Notwithstanding the foregoing, Buyer
shall not have access to personnel records relating to individual performance or
evaluation records, medical histories or other information which in Parent's
good faith opinion the disclosure of which could subject Parent or any of its
Affiliates, the Company or any Subsidiary to risk of liability.
(b) Access to Information Following Closing. From and after the Closing
Date, Parent and Seller will afford promptly to Buyer and its counsel, auditors
and other authorized representatives reasonable access to their books of
account, financial and other records, employees and auditors to the extent they
relate to the Company or the Subsidiaries for the period prior to the Closing
Date and are necessary to permit Buyer to determine any matter relating to its
rights and obligations in connection with any audit, investigation, dispute or
litigation or any other reasonable business purpose relating to the Company or
the Subsidiaries or Buyer's rights or obligations under any of the Transaction
Documents; provided that any such access by Buyer and its counsel, auditors and
other
39
authorized representatives shall not unreasonably interfere with the conduct of
the business of Parent or any of its Affiliates.
(c) Litigation Cooperation. Parent shall, and shall cause its Affiliates
to, use reasonable efforts to make available to Buyer and its accountants,
counsel, and other designated representatives, upon written request, the
officers, employees, accountants and representatives of Parent and its
Affiliates as witnesses, and shall otherwise cooperate with Buyer, and furnish
or cause to be furnished such records, information and testimony, and attend
such conferences, discovery proceedings, hearings, trials or appeals, in each
case to the extent reasonably required in connection with any legal,
administrative or other proceeding arising out of the Company's or any of the
Subsidiaries' business and operations prior to the Closing Date in which Buyer
may from time to time be involved or otherwise related to any of the Transaction
Documents (other than with respect to proceedings involving disputes between
Buyer, on the one hand, and Parent and its Affiliates, on the other hand;
provided that any such cooperation shall not unreasonably interfere with the
conduct of the business of Parent or any of its Affiliates.
(d) Cooperation on Tax Matters. Parent shall furnish or cause to be
furnished to Buyer, upon request, as promptly as practicable, such information
(including access to books and records) and assistance as is reasonably
necessary for the filing of any Return (including the Returns specified in
Section 8.02(d)), for the preparation for any audit, and (subject to Section
8.02(b) and Section 8.04(d)) for the prosecution or defense of any claim, suit
or proceeding relating to any proposed Tax adjustment; provided that any such
cooperation shall not unreasonably interfere with the conduct of the business of
Parent or any of its Affiliates. Subject to Parent's control of certain audits
and proceedings under Section 8.02(b) and Section 8.04(d), Parent shall
cooperate with Buyer in the conduct of any audit or other proceeding involving
the Company or any Subsidiary for any Tax purposes and shall execute and deliver
such powers of attorney and other documents as are necessary to carry out the
intent of this subsection.
(e) Retention of Records. From and after the Closing Date, except as
otherwise required by Law or agreed to in writing, Parent and its Affiliates
shall retain all information and records (including records relating to Taxes)
relating to the businesses of the Company and Subsidiaries. In addition, Parent
and its Affiliates shall retain all information and records relating to any
matter as to which Buyer seeks or may seek indemnification from Parent hereunder
until final resolution of the matter to which such information and records
relate. Notwithstanding the prior two sentences of this Section 5.02(e), Parent
and its Affiliates may destroy or otherwise dispose of any such information and
records at any time; provided that (1) any records relating to Taxes shall not
be destroyed or otherwise disposed of prior to the sixth anniversary of the
Closing Date, and (2) prior to such destruction or disposal, (x) Parent shall
provide not less than 90 days' prior written notice to Buyer, specifying the
information and records
40
proposed to be destroyed or disposed of, and (y) if Buyer shall request in
writing prior to the scheduled date for such destruction or disposal that any of
the information and records proposed to be destroyed or disposed of be delivered
to Buyer, Parent shall promptly arrange for the delivery of such of the
information and records as was requested.
(f) Reimbursement. Buyer shall bear all reasonable out-of-pocket costs and
expenses of Parent and its Affiliates (excluding general overhead, salaries and
employee benefits), upon presentation of invoices therefor, which are reasonably
incurred by Parent and its Affiliates in connection with the provision of
information, witnesses or cooperation pursuant to Section 5.02(b) - (e).
Section 5.03. Maintenance of Insurance Policies. Prior to the Closing,
Parent and its Affiliates will maintain insurance policies for the Company and
Subsidiaries and their assets, properties and employees in an amount and scope
consistent with any such insurance policies in effect as of the date hereof.
Subject to the provisions of the Services Agreement and except as set forth in
Article 10, the Company and Subsidiaries shall after the Closing continue to
have coverage under any such insurance policies in effect at the Closing with
respect to, but only with respect to, events occurring prior to the Closing, and
it is understood that (i) the Company and Subsidiaries shall continue to be
responsible for amounts (including deductibles) not covered by such insurance
policies and (ii) the provisions of this Section 5.03 shall not obligate Parent
or any of its Affiliates to pay any money with respect to any insurance policies
(including with respect to insurance policies in effect on or prior to the
Closing) after the Closing.
Section 5.04. Non-solicitation. (a) Parent and its Affiliates shall not,
without the prior written approval of Buyer, directly or indirectly (a) for 18
months after the Closing Date, solicit any person who is an employee of the
Company or any Subsidiary at any time on or after the Closing Date to terminate
his or her relationship with the Company or any Subsidiary, as the case may be;
provided that the foregoing shall not apply to persons hired as a result of the
use of an independent employment agency (so long as the agency was not directed
to solicit such person) or as a result of the use of a general solicitation
(such as an advertisement) not specifically directed to employees of the Company
or any Subsidiary, as the case may be, (b) for 5 years after the Closing Date,
hire, in any capacity, any person who is listed on Appendix 5.04(a)(1), and (c)
for 3 years after the Closing Date, hire, in any capacity, any person who is
listed on Appendix 5.04(a)(2).
Section 5.05. Confidentiality. All confidential information about Buyer or
its Affiliates provided or made available to Parent, Seller or any of their
Representatives (as such term is defined in the Confidentiality Agreement dated
as of July 2, 2002 between Buyer and Parent (the "Confidentiality Agreement"))
will be treated confidentially by Parent, Seller and their respective Affiliates
and representatives in accordance with the confidentiality undertakings set
forth in the Confidentiality Agreement applicable to Buyer with respect to
information about
41
the Company provided or made available to Buyer, its Affiliates and
representatives.
Section 5.06. Exclusivity. None of the Parent, Seller, Company or any of
their respective Affiliates, representatives, officers, employees, directors or
agents shall, directly or indirectly, (a) submit, solicit, initiate, encourage,
entertain, negotiate, accept or discuss, directly or indirectly, any proposal or
offer from any Person or enter into any agreement or accept any offer relating
to any (i) reorganization, liquidation, dissolution or recapitalization of the
Company and the Subsidiaries, (ii) merger or consolidation involving the Company
and the Subsidiaries, (iii) purchase or sale of any assets or capital stock
(other than a purchase or sale of inventory in the ordinary course of business
consistent with past custom and practice) of the Company and the Subsidiaries,
or (iv) similar transaction or business combination involving the Company and
the Subsidiaries, the business of the Company and the Subsidiaries or the assets
of the Company and the Subsidiaries (each of the foregoing action described in
clauses (i) through (iv), a "Company Transaction"), (b) furnish any information
with respect to, assist or participate in or facilitate in any other manner any
effort or attempt by any person to do or seek to do any of the foregoing or (c)
enter into any agreement, arrangement or understanding requiring the Parent, the
Seller or the Company and the Subsidiaries to abandon, terminate or fail to
consummate any of the transactions contemplated hereby. The Parent, the Seller
and the Company agree to (1) notify Buyer immediately if any person makes any
proposal, offer, inquiry or contact with respect to a Company Transaction and
(2) provide Buyer with the terms of (including the identity of the Person
making) any such proposal, offer, inquiry, request or contact and a copy of any
written document.
Section 5.07. Litigation Update. From the date hereof until the Closing
Date, Parent and Seller agree to promptly notify Buyer of any claims, actions,
suits or investigations (arbitration or otherwise) commenced against, or to the
Knowledge of Parent and Seller, threatened, against the Company or any
Subsidiary, Parent or Seller, or any of their Affiliates, before any court or
arbitrator or any governmental body or agency which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay the transactions
contemplated by this Agreement.
Section 5.08. Lease Guarantees. Subject to the provisions of the Master
Sublease and the Store Leases Agreement, Parent shall continue to provide each
Lease Guarantee until the expiration of the original term or any option term if
exercised as of the date hereof of the respective Lease and Parent agrees that
it shall not directly or indirectly take any action to, or fail to take any
action, the failure of which would interfere, void, remove, restrict, modify,
amend, accelerate, terminate or negatively affect any Lease Guarantee.
Section 5.09. Retail Leases.
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(a) From and after the date hereof (including after the Closing Date),
Parent and Seller shall, at their sole cost and expense (provided that in no
event shall Parent or Seller (or any Affiliate thereof) be obligated to pay any
money to a Person to obtain a Required Consent), use their reasonable best
efforts to obtain (and Buyer agrees to cooperate with Parent and Seller in
obtaining) any Required Consent pursuant to a letter agreement substantially in
form and substance as the document set forth on Exhibit D attached hereto (the
"Consent Request Letter"). Any material amendments, modifications or changes to
the Consent Request Letter that adversely affect Buyer shall be approved by
Buyer, which approval Buyer may withhold in its reasonable discretion. Parent
and Seller shall, on a reasonably timely basis, inform Buyer of the status of
the Required Consent process, and each party agrees to provide a copy to the
other party of any written notices received from a Party in Interest from and
after the date hereof until 12 months after the Closing.
(b) Seller may not offer any material leasehold modifications or other
concessions to landlords in connection with the Required Consent process that
adversely affect Buyer without Buyer's consent, which consent Buyer may withhold
in its discretion.
(c) Buyer may, at Buyer's discretion and upon two Business Days' notice to
Parent, elect to make any payment or accept any leasehold modifications or other
concessions to landlords in connection with the Required Consent process;
provided that all costs and obligations to Buyer resulting from Buyer's election
under this subsection (c) shall be borne solely by Buyer and the provisions of
subsection (e) below shall not apply with respect to such payments,
modifications or concessions.
(d) If (i) because of a failure to obtain a Required Consent with respect
to a Retail Lease, a Party in Interest under a Retail Lease gives notice within
12 months after the Closing and thereafter terminates such Retail Lease, evicts
or locks out the Company (or a Subsidiary, as the case may be) or takes any
action that results in the inability of the Company (or a Subsidiary, as the
case may be) to operate out of the premises under such Retail Lease prior to the
expiration of the current term of such Retail Lease (a "Lease Termination")
(provided that at the time of such Lease Termination, Buyer, the Company and/or
the Subsidiaries as applicable are otherwise in material compliance with all of
their other obligations under such Retail Lease) and (ii) as a result thereof,
the aggregate Four Wall Profit Contribution for all retail stores suffering a
Lease Termination (the "Aggregate Lost Four Wall Profit Contribution") exceeds
the Four Wall Profit Threshold, then Parent shall promptly pay to Buyer an
amount equal to the amount by which (x) 3.5 times the Aggregate Lost Four Wall
Profit Contribution (including the amount of the Four Wall Profit Threshold)
exceeds (y) any amounts previously paid to Buyer by Parent under this subsection
(d); provided that Buyer agrees to use commercially reasonable efforts to
resolve any such issues or conflicts with such Party in Interest (provided that
in no event shall Buyer (or any Affiliate thereof) be
43
obligated to pay any money to a Person to obtain a Required Consent or resolve
any such issues). It is understood and agreed that with respect to all Retail
Leases, under no circumstances will the inability to renew or extend a Retail
Lease by the Company at the expiration of the original term (or if currently
under a renewal or extension option, any additional renewal or extension
options) thereof give rise to any payment obligation by Parent or Seller under
this subsection (d).
(e) If (i) because of a failure to obtain a Required Consent with respect
to a Retail Lease, a Party in Interest under such Retail Lease (A) gives notice
within 12 months after the Closing that it intends to exercise its rights under
such Retail Lease (provided that at the time of the exercise of such rights,
Buyer, the Company and/or the Subsidiaries as applicable are otherwise in
material compliance with all of their other obligations under such Retail Lease)
which results in a Loss of Fundamental Tenant Rights, then Parent and Seller
jointly and severally agree to indemnify Buyer for any Damages incurred by Buyer
as a result of such Loss of Fundamental Tenant Rights; provided that Buyer
agrees to use commercially reasonable efforts to resolve any such issues or
conflicts with such Party in Interest (provided that in no event shall Buyer (or
any Affiliate thereof) be obligated to pay any money to a Person to obtain a
Required Consent or resolve any such issues).
(f) The provisions of this Section 5.09 shall provide Buyer and its
Affiliates the exclusive remedy from Parent and its Affiliates with respect to
any Damages suffered or incurred in connection with a Required Consent. In
furtherance, and not in limitation of the foregoing, Buyer and its Affiliates
shall have no right to seek indemnification pursuant to Section 11.02 for the
breach of any representation set forth in Section 3.04 to the extent that Buyer
or any of its Affiliates is entitled to a remedy pursuant to Section 5.09.
Section 5.10. Retail Leases; Non-Competition and Related Matters.
(a) With respect to each Retail Lease, from and after the date of this
Agreement until the fifth (5th) anniversary of the date of this Agreement,
Seller and Parent shall not, directly or indirectly, pursue, solicit, make any
offers to, or accept any offers (whether for their own account or for any third
party (other than the Company pursuant to the Services Agreement)) from, or
negotiate or enter into any lease, license, purchase agreement, occupancy
agreement or other similar agreement (whether for their own account or for any
third party (other than the Company pursuant to the Services Agreement)) with,
the landlord with respect to the premises subject to such Retail Lease (except
as otherwise set forth in the Store Leases Agreement with respect to Shared
Stores). The provisions of the immediately preceding sentence of this subsection
(i) shall not be applicable to the Retail Leases (and the corresponding
premises) set forth on Schedule 5.10 attached hereto and (ii) shall expire and
have no further force and effect (A) with respect to all Retail Leases, (1) upon
a default by the Company or a Subsidiary (after any applicable notice or cure
period) under the lesser of (x) three
44
Guaranteed Leases or (y) 5% of all outstanding Guaranteed Leases and; (2) a
material breach of Section 6.09(b) of this Agreement which breach is not cured
within 15 days of written notice of such breach; (B) with respect to an
individual Retail Lease, upon the date which is six (6) months after the earlier
to occur of (1) the termination (whether voluntarily or involuntarily) of such
Retail Lease or (2) the Company (or any Subsidiary, as the case may be) vacates
the premises subject to such Retail Lease; and (C) as otherwise provided in
subsections (b) and (c) below.
(b) If the Company (or any Subsidiary, as the case may be) desires to
assign any Retail Lease, or sublease all or any part of the premises subject to
such Retail Lease to any Person other than an Affiliate thereof (an "Unrelated
Party"), the Company (or any Subsidiary, as the case may be) and Buyer agree
first to offer to assign such Retail Lease (or sublease the corresponding
premises, as the case may be) to Seller and Parent upon the terms the Company
(or any Subsidiary) intends to assign the Retail Lease or sublease a portion of
the premises subject to the Retail Lease to such Unrelated Party prior to
offering such Retail Lease (or the corresponding premises) to any Unrelated
Party. If Seller or Parent elects not to take an assignment of such Retail Lease
(or sublease the corresponding premises), the Company (or any Subsidiary, as the
case may be) shall have the right, if otherwise permitted by such Retail Lease
and the other Transaction Documents, to offer such Retail Lease (and the
corresponding premises) to Unrelated Parties on terms and conditions not
materially less favorable to the Company (or any Subsidiary, as the case may be)
than were originally offered to Seller and Parent. If the terms and conditions
upon which an Unrelated Party agrees to take an assignment of such Retail Lease
(or sublease the corresponding premises) are materially less favorable to the
Company (or any Subsidiary, as the case may be) than the terms and conditions
originally offered to Seller and Parent, Seller and Parent shall have the right
to match any such offers by any Unrelated Parties and take an assignment of such
Retail Lease (or sublease all or any part of the corresponding premises, as the
case may be). If such Retail Lease is assigned (or the corresponding premises
are subleased) to an Unrelated Party in accordance with the provisions of this
subsection (b), the provisions of the first sentence of subsection (a) above
shall expire and have no further force and effect. If at any time during the
term of a Retail Lease, the Company (or any Subsidiary, as the case may be)
desires or makes a final determination to terminate voluntarily a Retail Lease,
the Company (or any Subsidiary, as the case may be) shall notify Parent of such
determination, and upon such notification by the Company to Parent, the
provisions of the first sentence of subsection (a) above shall expire and have
no further force and effect.
(c) The Company shall advise Parent whether the Company (or any Subsidiary)
has (x) elected not to renew or extend any Retail Lease or (y) made a final
determination that any Retail Lease will not be renewed or extended by the
respective landlord, and upon such notification by the Company to Parent, the
provisions of the first sentence of subsection (a) above shall expire and have
no further force and effect. In addition, Parent shall, in accordance with
Schedule V
45
of the Services Agreement, advise the Company with respect to Limited Brands
stores which may be available for the Company because Parent has elected not to
renew or extend the terms of the leases for such stores (or has otherwise made a
final determination that any such lease will not be renewed or extended by the
respective landlord).
(d) Notwithstanding anything to the contrary set forth in this Section
5.10, Parent shall use its commercially reasonable best efforts to attempt to
(i) with respect to the Retail Lease for the property known as Store 373,
Carousel, New York, (A) extend the term of such Retail Lease until January 31,
2004 and (B) secure alternate space for the Company in the mall at Carousel for
the replacement of existing space at the expiration of such Retail Lease; (ii)
with respect to the Retail Lease for the property known as Store ▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇, (A) extend the term of such Retail Lease until
July 31, 2003 and (B) secure alternate space for the Company in the mall at
Bridgewater Commons for the replacement of existing space at the expiration of
such Retail Lease; and (iii) with respect to the Retail Lease for the property
known as Store ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, and the Retail Lease for the
property known as Store ▇▇, ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, secure space or
alternate space for the Company, as the case may be, in these malls for ▇▇▇▇▇▇;
provided, however, under no circumstances shall Limited Brands be required to
pay any money to any Person or execute or deliver any guaranty or other security
with respect to the renewal, extension or replacement of any Retail Lease or to
secure alternate leased space. Notwithstanding anything herein to the contrary,
the Company (i) acknowledges that any alternate space deals secured for the
Company will likely be for long-term lease arrangements and (ii) agrees that the
Company shall vacate (A) the property known as Store #474, Bridgewater Commons,
New Jersey on or before July 31, 2003 and (B) the property known as Store #95,
St. Louis Galleria, Missouri upon 30 days' prior notice from Parent, or earlier
at Buyer's election (provided the effective date for such termination shall not
be earlier than March 31, 2003), and the Company agrees to execute and deliver
an appropriate lease termination agreement to Parent for the Store #95 Retail
Lease. Buyer agrees that it has been compensated by Parent in the amount of $1.5
million by virtue of a reduction to the Purchase Price with respect to such
arrangements.
Section 5.11. Asset Transfers. Parent and Seller agree to transfer, prior
to the Closing, good and valid title to, or a valid leasehold interest in, any
asset (other than assets covered by the Services Agreement) which (i) is
currently owned or leased, either in whole or in part, by Parent or Seller, and
(ii) was used exclusively in the business of the Company and the Subsidiaries on
the Balance Sheet Date (excluding assets disposed of in the ordinary course of
business). For the avoidance of doubt, effective as of the Closing Date, Parent
agrees to grant, assign and transfer to the Company and the Subsidiaries, and
Buyer agrees to cause the Company and the Subsidiaries to accept such transfer
of, capitalized implementation costs incurred in connection with software
development exclusively for the business of the Company currently reflected on
the balance sheet of Parent and reflected on the financial statements as a "top
side"
46
adjustment (including capitalized implementation costs relating to ▇▇▇▇▇▇
allocation and planning, Island Pacific package migration and MIPS application).
Section 5.12. Closing Date Cash. Parent and Seller agree that the Company
shall have at least $1.5 million of Company Cash at the opening of business on
the Closing Date. It is further agreed by all parties hereto that
notwithstanding any provision of this Agreement to the contrary, (i) Parent and
Seller shall be under no obligation to leave Company Cash in excess of $1.5
million and (ii) in all events, Parent shall be compensated for all Company Cash
in accordance with Section 2.04(a).
Section 5.13. Change of Control. Parent agrees to assume all obligations of
the Company or any of the Subsidiaries for any Change of Control Payments.
Parent agrees to make timely payments with respect to such obligations.
ARTICLE 6
Covenants of Buyer
Buyer agrees that:
Section 6.01. Other Buyer Activities. Buyer shall not engage in any
activities other than in connection with its formation and the consummation of
the transactions contemplated by the Transaction Documents.
Section 6.02. Confidentiality. All information provided or made available
to Buyer or any of its Representatives (as such term is defined in the
Confidentiality Agreement) will be subject to the Confidentiality Agreement,
which agreement shall remain in full force and effect until the Closing and
shall thereupon terminate except that the disclosure, but not the use (to the
extent necessary to operate the Company and the Subsidiaries in the ordinary
course) of any Confidential Information (as defined in the Confidentiality
Agreement) to the extent related solely to Parent or its Affiliates shall
continue to be governed by the terms of the Confidentiality Agreement.
Section 6.03. Cooperation on Certain Matters.
47
(a) Access to Information Following Closing. From and after the Closing
Date, Buyer will afford, and will cause the Company and each Subsidiary to
afford, promptly to Parent and its Affiliates and their counsel, auditors and
other authorized representatives reasonable access to their books of account,
financial and other records, employees and auditors to the extent they relate to
the Company or the Subsidiaries for the period prior to the Closing Date
(provided, that with respect to the post-Closing matters for which Parent has
agreed to indemnify Buyer pursuant to Section 11.02(a)(B)-(H), such access shall
also include the post-Closing period) and are necessary to permit Parent and its
Affiliates to determine any matter relating to their rights and obligations in
connection with any audit, investigation, dispute or litigation (other than with
respect to any investigation, dispute or litigation involving Buyer, on the one
hand, and Parent and its Affiliates on the other hand) relating to the Company
or the Subsidiaries or Parent's or any of its Affiliate's rights or obligations
under any of the Transaction Documents; provided that any such access by Parent
and its Affiliates and their counsel, auditors and other authorized
representatives shall not unreasonably interfere with the conduct of the
business of Buyer, the Company or any of the Subsidiaries.
(b) Litigation Cooperation. Buyer shall use reasonable efforts to make
available to Parent and its Affiliates and their accountants, counsel, and other
designated representatives, upon written request, the officers, employees and
representatives of Buyer and its Affiliates as witnesses, and shall otherwise
cooperate with Parent and its Affiliates, and furnish or cause to be furnished
such records, information and testimony, and attend such conferences, discovery
proceedings, hearings, trials or appeals, in each case to the extent reasonably
required in connection with any legal, administrative or other proceeding
arising out of the Company's or any of the Subsidiaries' business and operations
prior to the Closing Date in which Parent or any of its Affiliates may from time
to time be involved or otherwise related to any of the Transaction Documents
(other than with respect to proceedings involving disputes between Buyer, on the
one hand, and Parent and its Affiliates, on the other hand); provided, however,
that Parent shall use its reasonable best efforts to pursue the Retained
Landlord Claims in a manner that does not involve Buyer, the Company or any of
their Affiliates, or their respective directors, officers, employees or
representatives (including to the extent feasible, pursuing litigation or
similar proceedings in the name of Parent or one of its Affiliates); provided
further that any such cooperation by Buyer and its Affiliates shall not
unreasonably interfere with the conduct of the business of Buyer or any of its
Affiliates. Without limiting the generality of the foregoing, it is understood
that, notwithstanding use of its best efforts as contemplated above, if Parent
is unable to pursue the Retained Landlord Claims without involving Buyer or its
Affiliates, Buyer and its Affiliates will execute all complaints and other court
or similar papers reasonably requested in order to assist Parent and its
Affiliates in their efforts to pursue the Retained Landlord Claims.
(c) Cooperation on Tax and Related Matters.
48
(i) Buyer shall furnish or cause to be furnished to Parent, upon
request, as promptly as practicable, such information (including access to books
and records) and assistance as is reasonably necessary for the filing of any
Return (including the Returns specified in Section 8.02(c)), for the preparation
for any audit, and for the prosecution or defense of any claim, suit or
proceeding relating to any proposed Tax adjustment; provided that any such
cooperation by Buyer shall not unreasonably interfere with the conduct of the
business of Buyer or any of its Affiliates. Buyer shall cooperate with Parent in
the conduct of any audit or other proceeding involving the Company or any
Subsidiary for any Tax purposes and shall execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
subsection.
(ii) For a period of 60 months following the Closing, Buyer
agrees that it shall not liquidate ▇▇▇▇▇▇ New York GC, LLC and shall cause
▇▇▇▇▇▇ New York GC, LLC to continue its past practice with respect to gift
certificates and merchandise credits issued on or before the Closing. For
purposes of filing any returns and other legally required documents due after
the Closing Date with respect to escheat liabilities and similar items of the
Company and the Subsidiaries, Buyer agrees to treat gift certificates and
merchandise credits issued on or before the Closing with respect to which ▇▇▇▇▇▇
New York GC, LLC is liable in a manner consistent with past practice.
(d) Retention of Records. From and after the Closing Date, except as
otherwise required by Law or agreed to in writing, Buyer shall, and shall cause
the Company and Subsidiaries to, retain all information and records (including
records relating to Taxes) relating to the businesses of the Company and
Subsidiaries that were in the possession of the Company or any Subsidiary as of
the Closing Date and, with respect to Taxes, all records related to Returns for
Straddle Periods. In addition, Buyer and its Affiliates shall retain all
information and records relating to the Retained Landlord Claims or any other
matter as to which Parent seeks or may seek indemnification from Buyer
hereunder, in each case until final resolution of the matter to which such
information and records relate. Notwithstanding the prior two sentences of this
Section 6.03(d), Buyer may destroy or otherwise dispose of any such information
and records at any time; provided that prior to such destruction or disposal,
(1) Buyer shall provide not less than 90 days' prior written notice to Parent,
specifying the information and records proposed to be destroyed or disposed of,
and (2) if Parent shall request in writing prior to the scheduled date for such
destruction or disposal that any of the information and records proposed to be
destroyed or disposed of be delivered to Parent, Buyer shall promptly arrange
for the delivery of such of the information and records as was requested.
(e) Reimbursement. Parent shall bear all reasonable out-of-pocket costs and
expenses of Buyer and its Affiliates (excluding general overhead, salaries and
employee benefits), upon presentation of invoices therefor, which are
49
reasonably incurred by Buyer and its Affiliates in connection with the provision
of information, witnesses or cooperation pursuant to Sections 6.03(a) - (d).
Section 6.04. Insurance. Buyer agrees that, subject to Section 5.03, all
insurance policies covering the Company or any Subsidiary maintained by or on
behalf of Parent or its Affiliates shall be terminated following the Closing and
that, after the Closing, Parent and its Affiliates shall have no obligation of
any kind to maintain any form of insurance covering the Company or any
Subsidiary.
Section 6.05. Financial Support Arrangement. (a) From and after the date
hereof (including after the Closing Date), Buyer shall use its reasonable best
efforts to cause the unconditional release with effect at the Closing Date of
Parent and its Affiliates from their obligations under any guarantees, letters
of credit (which, from and after the Closing Date shall not be amended to (i)
increase the amount thereof, (ii) extend the terms thereof or (iii) modify
Parent's obligations thereunder), surety bonds and other financial support
arrangements maintained by Parent or any of its Affiliates in connection with
the business or operations of the Company or any of the Subsidiaries and listed
on Appendix 6.05 hereto (it being understood that the list of letters of credit
set forth on Appendix 6.05 is as of November 20, 2002 and that such list will be
updated prior to the Closing Date to reflect changes in the ordinary course of
business) (collectively, the "Financial Support Arrangements"); provided,
however, that Buyer shall have no affirmative obligation to cause the
unconditional release of Parent and its Affiliates from their obligations under
any guarantees of lease obligations or any letters of credit. It is understood
and agreed that in no event shall Buyer, the Company or any Subsidiary be
obligated to pay any money to any Person to obtain any such unconditional
release. It is further understood that following the Closing the outstanding
letters of credit obligations of Parent and its Affiliates shall be subject to
the Banks' first priority security interest in the inventory of the Company and
the Subsidiaries.
(b) If, from and after the Closing, (1) any amounts are drawn or required
to be paid under any Financial Support Arrangement by Parent or any of its
Affiliates or (2) Parent or any of its Affiliates is required to pay any fees,
costs or expenses under the terms of any Financial Support Arrangement, then
Parent shall promptly provide Buyer with written evidence of the underlying
payment obligation. Upon receipt of such notice, Buyer shall promptly (but in no
event more than five Business Days after receipt of such written evidence)
satisfy such payment obligation on behalf of Parent or its Affiliates, or, if
Parent or any of its Affiliates has made such payments itself, Buyer shall
reimburse Parent for such amounts promptly (but in no event more than five
Business Days) after receipt from Parent of proof of payment.
(c) Any amount payable pursuant to Section 6.05(b) shall bear interest at
the Reference Rate. Such interest shall be payable at the same time as the
payment to which it relates and shall be calculated daily on the basis of a year
of 365 days and the actual number of days elapsed.
50
Section 6.06. Reimbursement of Payments by Parent. It is the intent of the
parties that, except as contemplated by any of the Transaction Documents, all
invoices relating to the Company or any of the Subsidiaries received after the
Closing be paid by the Company or a Subsidiary (as opposed to Parent or any of
its Affiliates) and, in furtherance of such intent, Parent will use its
reasonable commercial efforts to promptly forward to the Company all invoices
relating to the Company or any of the Subsidiaries which are received by Parent
or any of its Affiliates after the Closing ("Post-Closing Invoices"). It is
understood, however, that there may be circumstances in which, notwithstanding
the use of such reasonable commercial efforts, Parent or one of its Affiliates
will pay a Post-Closing Invoice on behalf of the Company or one of the
Subsidiaries. It is agreed that Buyer shall reimburse Parent, or an Affiliate of
Parent, as Parent may designate, for all amounts paid by Parent or any of its
Affiliates in respect of Post-Closing Invoices within ten (10) days after
receipt from Parent of a notice thereof accompanied by written evidence of the
underlying payment (each, a "Payment Date"). If the Buyer fails to pay any
payment within thirty (30) days of the relevant Payment Date, Buyer shall be
obligated to pay, in addition to the amount due on such Payment Date, interest
on such amount at the Reference Rate, plus 3% per annum compounded monthly from
the relevant Payment Date through the date of payment. Notwithstanding the
foregoing, Buyer shall have no obligation to reimburse Parent or any of its
Affiliates for any payment made by Parent or any of its Affiliates in respect of
any Post-Closing Invoice if Buyer or any of its Affiliates paid the same
Post-Closing Invoice.
Section 6.07. Non-solicitation. Except as contemplated by any of the
Transaction Documents, from, and until the expiration of 18 months from the date
of this Agreement, neither Buyer nor any of its Affiliates shall, without the
prior written approval of Parent, directly or indirectly solicit for employment
any person who is an employee of Parent or any of its Affiliates with whom Buyer
or its representatives had contact at any time during the process of Buyer
considering, investigating, negotiating and consummating the transactions
contemplated by this Agreement; provided that the foregoing shall not prohibit
solicitation conducted through an independent employment or recruitment firm (so
long as the firm was not directed to solicit such person or the personnel of
Parent or its Affiliates generally) or as a result of the use of a general
solicitation (such as an advertisement) not specifically directed to employees
of Parent or its Affiliates.
Section 6.08. Proceeds From Credit Card Litigation. Buyer agrees that
Parent shall be entitled to all proceeds, awards, judgments and settlements
which are attributable to Parent, any of its Affiliates, the Company or any of
the Subsidiaries in connection with the matters described in Appendix 6.08 (the
"Credit Card Litigation"); provided that the Company, as a potential class
member to the Credit Card Litigation, may pursue on its own behalf any proceeds,
awards, judgments or settlements for any claims or damages that arise after the
Closing Date. Parent, at its expense, shall control the prosecution of the
Credit Card Litigation.
51
Section 6.09. Priority of Payments under Guaranteed Leases. From and after
the Closing Date, Buyer agrees (a) to cause the Company to make all payments
(whether directly to the master landlord under a Lease or to the sublessor under
the Master Sublease, as the case may be) of rent and other monetary obligations
under each Lease for which a guaranty by Parent is in effect (the "Guaranteed
Leases"), and (b) all such payments with respect to such Guaranteed Leases shall
be made by the Company prior to, or simultaneously with, any payments of rent or
other monetary obligations under any Leases for which a guaranty by Parent is
not in effect.
ARTICLE 7
Covenants of Buyer, Parent and Seller
Buyer, Parent and Seller agree that:
Section 7.01. Further Assurances. Subject to the terms and conditions of
this Agreement, Buyer, Parent and Seller will use their reasonable best efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary or desirable to consummate the transactions contemplated by the
Transaction Documents on or prior to November 27, 2002. Parent, Seller and Buyer
shall execute and deliver, and Parent and Seller, prior to the Closing, and
Buyer, after the Closing, shall cause the Company and each Subsidiary to execute
and deliver, such other documents, certificates, assignments, agreements and
other writings and to take such other actions as may be necessary or appropriate
in order to consummate or implement expeditiously the transactions contemplated
by any of the Transaction Documents.
Section 7.02. Certain Filings. Parent, Seller and Buyer shall cooperate
with one another (1) in determining whether any action by or in respect of, or
filing with, any governmental body, agency, official or authority is required,
or any actions, consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of the
transactions contemplated by any of the Transaction Documents and (2) subject to
the terms and conditions of this Agreement, in taking such actions or making any
such filings, furnishing information required in connection therewith and
seeking timely to obtain any such actions, consents, approvals or waivers.
Section 7.03. Public Announcements. The parties shall consult with each
other before issuing any press release or making any public statement with
respect to any Transaction Document or the transactions contemplated thereby and
will not issue any such press release or make any such public statement prior to
such consultation. Notwithstanding the foregoing, except as provided by Section
6.02, no provision of this Agreement shall relieve Buyer or any of its
Representatives (as such term is defined in the Confidentiality Agreement) from
any of its obligations under the Confidentiality Agreement.
52
Section 7.04. Transition Services. At the Closing, the parties will enter
into a Transition Services Agreement (the "Services Agreement"), the form of
which is attached as Exhibit E.
Section 7.05. Store Leases Agreement. Prior to the Closing, the parties
thereto will enter into a Store Leases Agreement (the "Store Leases Agreement"),
the form of which is attached as Exhibit F.
Section 7.06. Securityholders Agreement. At the Closing, the parties will
enter into a Securityholders Agreement (the "Securityholders Agreement"), the
form of which is attached as Exhibit G.
Section 7.07. Covenant Agreement. At the Closing, the parties thereto will
enter into a Covenant Agreement (the "Covenant Agreement"), the form of which is
attached as Exhibit H.
Section 7.08. Master Sublease and Master Assignment. Prior to the Closing,
the parties thereto will enter into a Master Sublease (the "Master Sublease"),
the form of which is attached as Exhibit I and a Master Assignment and
Assumption Agreement (the "Master Assignment"), the form of which is attached as
Exhibit J.
Section 7.09. Cancellation of Related Party Agreements. Except as
contemplated by any of the Transaction Documents, all Related Party Agreements
shall be cancelled as of the Closing Date; provided that no Related Party
Agreement by and between the Company or any Subsidiary, on the one hand, and the
Company or any Subsidiary, on the other hand, shall be cancelled pursuant
hereto.
Section 7.10. Intercompany Accounts. Except as contemplated by any of the
Transaction Documents, (1) all intercompany accounts payable by Parent or any of
its Affiliates, on the one hand, to the Company or any of the Subsidiaries, on
the other hand, shall, immediately prior to the Closing, be distributed by the
Company to Parent as a dividend, and (2) all intercompany accounts payable by
the Company or any of the Subsidiaries, on the one hand, to Parent or any of its
Affiliates, on the other hand, shall, immediately prior to Closing, be
contributed by Parent to the capital of the Company.
Section 7.11. Amendment to Database Marketing Agreement. With respect to
the Database Marketing Agreement, the parties agree as follows: (1) upon the
request of Buyer and subject to the written approval of ADS, Parent shall enter
into an amendment to the Database Marketing Agreement such that the Company
shall no longer be involved in any manner in the matters addressed by or have
any obligations (other than obligations arising prior to the effective date of
such amendment) under the Database Marketing Agreement and all proprietary
information of the Company or the Subsidiaries generated under or utilized in
connection with the Database Marketing Agreement (including all data and other
53
information maintained by ADS under the Database Marketing Agreement that was
generated from, or which relates to, (A) any of the Company's or any of the
Subsidiaries' customers (including any credit card holders of the Company or any
of the Subsidiaries), to the extent generated from the conduct of the business
or operation of the Company or any of the Subsidiaries and not from the conduct
of the business or operation of Parent or any of its other Affiliates), or (B)
any transactions of or with the Company or any of the Subsidiaries)
(collectively, "Company Proprietary Information") shall be delivered to the
Company; and (2) until the Database Marketing Agreement is amended as
contemplated by clause (1) or the expiration of the Database Marketing
Agreement, (x) Parent shall pass through and the Company and the Subsidiaries
shall have the right to receive the rights under and benefits of the Database
Marketing Agreement that the Company had or received prior to the Closing (but
only insofar relating to the Company Proprietary Information), (y) the Company
shall pay to ADS the flat fee allocated under the ADS Marketing Agreement to the
Company or any of the Subsidiaries in consideration for the benefits provided to
the Company and the Subsidiaries thereunder, and (z) except as set forth below
in this Section, no Company Proprietary Information shall be accessed or used by
Parent or any of its Affiliates in any manner in connection with any business or
operation of Parent or any of its Affiliates. The Company and the Subsidiaries
may keep and continue to use after the execution of this Agreement all copies,
extracts, printouts and other documents that have been generated under or
utilized in connection with the Database Marketing Agreement ("Documents")
within the possession of the Company or any of the Subsidiaries prior to the
execution of this Agreement that encompass or include any proprietary
information of Parent or any of its Affiliates, and Parent and its Affiliates
may keep and continue to use after the execution of this Agreement all Documents
within the possession of Parent or any of its Affiliates prior to the execution
of this Agreement that encompass or include any Company Proprietary Information.
Section 7.12. Company Websites. Parent and Seller acknowledge and agree
that prior to the date of this Agreement, Parent has performed, or arranged for
the performance of, certain development work for the Company in connection with
certain internet websites or portion(s) thereof currently owned and operated by
the Company and the Subsidiaries, or owned and operated by Parent or one of its
subsidiaries exclusively on behalf of the Company and the Subsidiaries
(collectively, "Company Websites"). Effective as of the Closing Date, Parent
hereby grants, assigns and transfers to the Company (x) all content that is
incorporated into or used in any Company Website prior to the Closing Date, and
(y) all other Intellectual Property which is owned by Parent and was created by,
or on behalf of, Parent, for exclusive use in connection with any Company
Websites (which Company Websites are exclusively related to the Company or the
Subsidiaries) prior to the Closing Date and which is incorporated into or used
in the Company Websites prior to the Closing Date. Effective as of the Closing
Date, to the extent that any Intellectual Property used in the Company Websites
is not owned by Parent, or is not used exclusively in the Company Websites,
Parent hereby grants to the Company a perpetual, nonexclusive, royalty-free,
irrevocable,
54
fully transferable license to use any such Intellectual Property (which Parent
has the right to license) which is incorporated into or used in the Company
Websites prior to the Closing Date. Upon the Company's request, Parent shall
confirm the foregoing assignment by execution and delivery of such further
assignments, confirmations or other written instruments as the Company may
reasonably request.
Section 7.13. Retained Landlord Claims. It is further understood and agreed
that (i) effective at Closing, the Company and the Subsidiaries shall assign to
Parent all of their rights to pursue claims for overpayments in respect of any
of the Leases to the extent, but only to the extent, such overpayments relate to
payments made prior to the Closing in respect of periods prior to the Closing
(the "Retained Landlord Claims") and (ii) at and after the Closing, the Company
and the Subsidiaries shall execute such additional written assignments or other
agreements as Parent shall reasonably request to implement or evidence the
assignment of the Retained Landlord Claims. Without limiting the generality of
the foregoing, it is understood and agreed that Parent (i) at its expense, shall
control the pursuit of any and all Retained Landlord Claims and shall be
entitled to pursue and control the prosecution of litigation or similar
proceedings in respect of any such Claim and (ii) shall be entitled to all
proceeds, awards, judgments and settlements in respect of any Retained Landlord
Claims; provided that if, in connection with the pursuit of a Retained Landlord
Claim, it is determined that rent, additional rent or percentage rent (however
characterized) due and payable prior to the Closing in respect of the relevant
lease was not paid in full prior to the Closing (a "Delinquent Payment"), Parent
shall be responsible for such Delinquent Payment.
Section 7.14. Retained Owned Real Property.
(a) Prior to the Closing, Seller shall cause the property located at
▇▇▇▇-▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ and to be transferred by
quitclaim deed from ▇▇▇▇▇▇ New York, Inc. to Seller or one of its Affiliates
(the "Retained Owned Real Property").
(b) Prior to the Closing, Seller shall cause the store leases described in
the Retained Leases Assignment and Assumption Agreement to be assigned from
▇▇▇▇▇▇ New York, Inc. to Parent pursuant to that certain Retained Leases
Assignment and Assumption Agreement in the form attached hereto as Exhibit K.
ARTICLE 8
Tax Matters
Section 8.01. Tax Representations. Parent and Seller represent and warrant
to Buyer as of the date hereof and as of the Closing that, except as set forth
in the Balance Sheet (including the notes thereto) or in Section 8.01 of the
Disclosure Schedule, (1) all Tax returns, statements, reports and forms
(collectively, "Returns") that are material and have been or are required to be
55
filed with any Taxing Authority by, or with respect to, the Company or any
Subsidiary on or before the Closing Date (taking into account any duly obtained
extensions) have been, or will be, timely filed, (2) the Company and the
Subsidiaries (or, in the case of a Return of a Limited Tax Group, Parent) have
timely paid all Taxes shown as due and payable on the Returns that have been
filed, and all material Taxes due and owing on or prior to the Closing Date
(whether or not reflected on a Return) have been, or will be, timely paid, (3)
the Returns that have been filed are accurate and complete in all material
respects, (4) the charges and accruals for Taxes with respect to the Company and
the Subsidiaries reflected on the books of the Company and the Subsidiaries are
adequate to cover material Tax liabilities accruing through the end of the last
period for which the Company and the Subsidiaries ordinarily record items on
their respective books, (5) there is no action, suit, proceeding, investigation,
audit or claim now proposed or pending against or with respect to the Company or
any Subsidiary in respect of any material Tax or any escheat liability, (6)
there are no material liens or security interests on any of the assets of the
Company or any Subsidiary, in each case that arose in connection with any
failure (or alleged failure) to pay any Tax when due and payable, (7) the
Company and the Subsidiaries have withheld and paid in all material respects all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or other
third party, (8) the Company and the Subsidiaries have not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency and (9) Seller is not and will not be on the
Closing Date a foreign person within the meaning of Section 1445 of the Code.
Section 8.02. Tax Covenants. Buyer and Parent agree to make a timely,
effective and irrevocable election under Section 338(h)(10) of the Code and
under any comparable statutes in any other jurisdiction with respect to the
Company and each of its corporate Subsidiaries (all such elections,
collectively, the "Section 338(h)(10) Election"), and to file such election in
accordance with applicable regulations. Immediately following an agreement on
the Price Allocation (as defined below), Parent shall deliver to Buyer two
executed Internal Revenue Service Forms 8023 with respect to the Company and its
corporate Subsidiaries. The Section 338(h)(10) Election shall properly reflect
the Price Allocation. Buyer shall use commercially reasonable efforts to deliver
to Parent within 90 days after the Closing Date, but in any event within 120
days after the Closing Date, a statement (the "Allocation Statement") allocating
the ADSP (as such term is defined in Treasury Regulations Section 1.338-4) of
the assets of the Company and the Subsidiaries in accordance with the Treasury
regulations promulgated under Section 338(h)(10). In the event that Parent and
Seller transfer assets to Buyer under Section 5.11, the Allocation Statement and
Price Allocation will include an allocation to each such asset. If within 30
days after receipt of the Allocation Statement Parent notifies Buyer in writing
that in Parent's judgment, the allocation of one or more items reflected in the
Allocation Statement is not a reasonable allocation, Buyer and Parent will use
their reasonable best efforts to resolve such dispute. If Buyer and Parent fail
to resolve
56
such dispute within 30 days, then: (1) Buyer and Parent within five days after
such 30-day period expires shall select a nationally recognized accounting firm
which is reasonably acceptable to Buyer and Parent and which has no material
relationship with Buyer or Parent (the "Accounting Referee"); (2) the Accounting
Referee shall determine whether the allocation was reasonable and, if not
reasonable, shall appropriately revise the Allocation Statement; and (3) the
costs, fees and expenses of the Accounting Referee shall be borne equally by
Buyer and Parent. If Parent does not respond within 30 days, or upon resolution
of the disputed items, the allocation reflected on the Allocation Statement (as
such may have been adjusted) shall be the "Price Allocation" and shall be
binding on the parties hereto. Parent and Buyer agree to act, and to cause their
respective Affiliates to act, in accordance with the Price Allocation in the
preparation, filing and audit of any Return.
(b) Buyer covenants that it will not and will not cause or permit the
Company, any Subsidiary or any Affiliate of Buyer to (1) take any action on the
Closing Date other than in the ordinary course of business (except, for the
avoidance of doubt, that the parties will make the Section 338(h)(10) Election
as provided herein), including the distribution of any dividend or the
effectuation of any redemption, that could give rise to any increased Tax
liability or reduce any Tax Asset of Parent, Seller, or any other member of a
Limited Tax Group or (2) make (other than the Section 338(h)(10) Election) or
change any Tax election or amend any Return that results in any material
increase in any Tax liability, or any material reduction of any Tax Asset, of
Parent, Seller or any other member of a Limited Tax Group with respect to a
Pre-Closing Tax Period. Buyer covenants that it will not undertake any
liquidation or merger or otherwise cease the corporate existence of Buyer in a
manner that would cause the Section 338(h)(10) Election to be invalid. Parent
covenants that it will not take any action that, or fail to take any action the
omission of which, would cause the Section 338(h)(10) Election to be invalid.
Notwithstanding anything to the contrary in this Agreement, Buyer may make or
change any election, amend any Return or take any Tax position on any Return,
take any action, omit to take any action, or enter into any transaction, merger
or restructuring if, and to the extent that, Buyer determines in good faith that
such election, change, amendment, position, action, omission, or entering is
required by any law, rule or regulation. Buyer agrees that Parent and its
Affiliates are to have no liability for (1) any Tax resulting from any action
referred to in the first or second sentence of this Section 8.02(b) of the
Company, any Subsidiary, Buyer or any Affiliate of Buyer (except to the extent
that such Tax results from any action referred to in the fourth sentence of this
Section 8.02(b)) or resulting from any other breach by Buyer or any of its
Affiliates (including, after the Closing, the Company and the Subsidiaries) of
their obligations under this Article 8, (2) any Tax imposed on the Company or
any Subsidiary for any period or portion thereof beginning after the Closing
Date that is not subject to Parent's indemnification obligation under Section
8.04(a) or 11.02 and (3) any liabilities, costs, expenses (including reasonable
expenses of investigation and attorney's fees and expenses), losses, damages,
assessments, settlements or judgments arising out of or incident to the
imposition, assessment
57
or assertion of any such Tax, and Buyer agrees to indemnify and hold harmless
Parent and its Affiliates against any amount described in the immediately
preceding clauses (1), (2) or (3). Parent agrees to give prompt notice to Buyer
of the assertion of any claim, or the commencement of any action or proceeding,
in respect of which indemnity may be sought under this Section 8.02(b). Buyer
shall not be liable under this Section 8.02(b) for any amount arising out of a
contest or proceeding of which Buyer was not notified as required under this
Section 8.02(b) to the extent that the failure to so notify Buyer materially
prejudiced Buyer. To the extent that a suit, action, or proceeding in respect of
which indemnity may be sought under this Section 8.02(b) is brought against
Parent, Seller or any of their Affiliates (not including the Company, any of the
Subsidiaries, Buyer or any Affiliate of Buyer), then Buyer may participate in
any such suit, action or proceeding at its own expense and the parties hereto
shall cooperate in the defense or prosecution thereof; provided, however, that
if such suit, action or proceeding is brought in respect of a Limited Tax Group,
Parent will have sole control of the conduct thereof. To the extent that such
suit, action, or proceeding is brought against the Company, any of the
Subsidiaries, Buyer, or any Affiliate of Buyer (but not Parent, Seller or their
Affiliates), then Parent may participate in any such suit, action, or proceeding
at its own expense and the parties hereto shall cooperate in the defense or
prosecution thereof; provided, however, that, subject to Section 8.04(d), Buyer
will have sole control of the conduct thereof.
(c) Parent shall prepare (in a manner that complies with its obligations
under Section 8.02(a)) and timely file (1) all Returns of any Limited Tax Group
including the Company or any Subsidiary for all Tax periods and (2) all separate
Returns required to be filed by the Company or any Subsidiary for Pre-Closing
Tax Periods (other than those that are part of Straddle Periods). Buyer shall,
and shall cause its Affiliates, the Company and the Subsidiaries of the Company
to provide, with reasonable promptness in accordance with past practice, any
information and records reasonably requested by Parent for purposes of preparing
the Returns of the Limited Tax Group. Buyer and its Affiliates (including, after
the Closing, the Company and the Subsidiaries) hereby authorize and appoint as
their agent Parent (and any other person it may designate) to complete and file
on their behalf the Returns specified in this Section 8.02(c), and they shall
take such further actions as Parent reasonably requests to evidence such
authority (including executing powers of attorney). In the event that Parent
pays a Taxing Authority an Operational Tax for a Pre-Closing Tax Period that is
actually included as a liability in Final Closing Net Working Capital, Buyer
will reimburse Parent for such amount promptly upon receipt of written notice of
such payment from Parent (accompanied by reasonable corroborating documentation
from Parent) stating that such a payment has been made; provided, however, that
the cumulative amount of any such payments by Buyer and any reduction in
Parent's obligations under Section 8.02(d) shall not exceed (x) the aggregate
amount of the Operational Tax liabilities actually included in the calculation
of Final Closing Net Working Capital minus (y) any amounts paid or payable by
Buyer, or by the Company or the Subsidiaries on or after the Closing Date, to a
Taxing Authority of Operational Tax in respect of any Pre-Closing Tax Period.
58
(d) Buyer shall (1) prepare and timely file all separate Returns required
to be filed by the Company or any Subsidiary for Straddle Periods, (2) prepare
such Returns in a manner consistent with past practice and without a change of
any election or any accounting method, except to the extent that Buyer
determines in good faith that a change in any such practice, election or method
is required by any law, rule or regulation and (3) submit to Parent such Returns
(together with any accompanying schedules, statements and, to the extent
requested by Parent, supporting documentation) at least 30 days prior to the due
date (including extensions) for such Return. Parent shall have the right, at
Parent's expense, to review all work papers and procedures used to prepare any
such Return. If Parent, within 10 days (15 days in the case of income tax
returns) after delivery of any such Return, notifies Buyer in writing that it
objects to any items in such Return, the disputed items shall be resolved by the
parties (within a reasonable time, taking into account the deadline for filing
such Return). Upon resolution of all such items, the relevant Return shall be
adjusted to reflect such resolution and shall be binding upon the parties
without further adjustment. Parent shall promptly pay to Buyer an amount equal
to the Tax that is allocable or related to the portion of the Straddle Period
ending at the end of the Closing Date, as calculated under the principles set
forth in Section 8.04 ("Pre-Closing Straddle Tax"), except that, in the case of
an Operational Tax, the cumulative amount payable by the Parent under this
Section 8.02(d) shall be reduced by (A) the aggregate amount of Operational Tax
liabilities actually included in the calculation of Final Closing Net Working
Capital minus (B) the sum of the amounts paid or payable to Parent by Buyer
under Section 8.02(c) and any amounts paid or payable by Buyer, or by the
Company or the Subsidiaries on or after the Closing Date, to a Taxing Authority
of Operational Tax in respect of any Pre-Closing Tax Period as described in
Section 8.02(c). Any payment by Parent pursuant to this Section shall be made
not later than 30 days after receipt by Parent of written notice from Buyer
(accompanied by reasonable, corroborating documentation) stating that an amount
is due under this Section 8.02(d).
(e) Buyer shall promptly pay or cause to be paid to Parent all refunds of
Taxes and interest thereon received by Buyer, any Affiliate of Buyer, the
Company or any Subsidiary of the Company from a Taxing Authority that are
attributable to Taxes paid by Parent, Seller, the Company or any Subsidiary of
the Company (or any predecessor or Affiliate of Parent) with respect to any
Pre-Closing Tax Period to the extent that any such amounts were not included in
Final Closing Net Working Capital. Any refunds of Tax attributable to the
Company or any Subsidiary and not described in the preceding sentence shall be
for the account of the Company or such Subsidiary, and if Parent or any
Affiliate receives any such refund (or interest thereon), it shall promptly
remit the same to Buyer. If, in lieu of receiving a refund for Taxes with
respect to a Pre-Closing Tax Period, Buyer is required by a Taxing Authority or
elects to reduce a Tax liability or increase a Tax Asset, Buyer shall pay or
cause to be paid to Parent the amount of such reduction or increase, and such
amount will be payable at such time when, on a cash basis, Buyer benefits from
such reduction or increase.
59
(f) All transfer, documentary, sales, use, stamp, registration and other
such Taxes and fees (including any penalties and interest) incurred in
connection with transactions contemplated by this Agreement (including any real
property transfer Tax and any similar Tax) (all such Taxes, "Transfer Taxes")
shall be paid by the party having liability therefor under applicable Law (or,
if both Buyer or one of its Affiliates, on the one hand, and Parent or one of
its Affiliates, on the other hand, have liability under applicable Law, then 50%
of such Tax shall be paid by Buyer and the remaining 50% shall be paid by
Parent), and such party (or, in the case of Taxes paid by both Buyer and Parent,
both parties) will file all necessary Returns and other documentation with
respect to all such Taxes and fees, and, if required by applicable Law, the
other party will, and will cause its Affiliates to, join in the execution of any
such Returns and other documentation; provided that Buyer, on one hand, and
Parent, on the other hand, will each bear 50% of the economic burden of any
Transfer Tax and of the expenses of preparing and filing all necessary Transfer
Tax Returns and other documentation, and Parent and Buyer shall make all such
payments to one another as are necessary to achieve such allocation of such
economic burden; provided further that a reasonable period of time in advance of
paying any Transfer Tax or filing any related Return or other documentation, the
parties will consult with one another in good faith in order to agree whether
the payment of such Transfer Tax or filing of such Return or other documentation
is required under applicable Law. The provisions of this Section 8.02(f), and no
other provision (including Section 8.04), will govern the allocation between the
parties of the economic burden of Transfer Taxes, except to the extent provided
in Section 8.04(a)(5).
Section 8.03. Tax Sharing. (a) Any and all Tax sharing, Tax indemnity or
Tax allocation agreements or arrangements between the Company or any Subsidiary
of the Company on the one hand and Parent, any Affiliate of Parent or any other
member of any Limited Tax Group on the other hand shall be terminated on the day
before the Closing Date. After such date neither the Company, any Subsidiary of
the Company, Parent nor any Affiliate of Parent shall have any further rights or
liabilities thereunder.
(b) Parent shall file Returns claiming (1) the tax deductions for
compensation expense attributable to the exercise of options to purchase
Parent's common stock or the vesting of Parent's restricted stock; or (2) any
other similar compensation-related tax deductions that relate to Parent's stock,
except with respect to any such stock contributed at any time to the Savings and
Retirement Plan on behalf of Covered Employees (as such terms are defined in
Article 9). The Returns of the Limited Tax Group and Buyer and its Affiliates
(including, after the Closing, the Company and the Subsidiaries) shall reflect
the entitlement of the Limited Tax Group to such deductions. Buyer and its
Affiliates (including, following the Closing Date, the Company and the
Subsidiaries) shall not claim the deductions described in clause (1) or clause
(2) of this Section 8.03(b) .
Section 8.04. Indemnification by Parent. Parent and Seller jointly and
severally hereby indemnify Buyer and its Affiliates (which Affiliates shall
60
include the Company and the Subsidiaries) against and agree to hold them
harmless from any (1) Tax of the Company or any Subsidiary of the Company
described in clause (1) of the definition of Tax that relates to a Pre-Closing
Tax Period, (2) Tax described in clause (2) of the definition of Tax (including
any such Tax under Treasury regulation Section 1.1502-6 or similar provisions of
state or local law), (3) Tax of the Company or any Subsidiary of the Company
described in clause (3) of the definition of Tax to the extent that the
obligation to indemnify was entered into, or the assumption of, or succession
to, liability, occurred, prior to the Closing, (4) Tax resulting from the
Section 338(h)(10) Election (other than Transfer Taxes and Operational Taxes,
which are the subject of Clause (5)), (5) notwithstanding anything in Section
8.02(f) to the contrary, Transfer Taxes and Operational Taxes to the extent that
the amount of those Taxes incurred exceeds the amount of Transfer Taxes and
Operational Taxes that would have been incurred if the Section 338(h)(10)
Election had not been made, (6) Tax that results from any breach by Parent or
any of its Affiliates of their obligations under this Article 8 (other than
Section 8.01) and (7) liabilities, costs and expenses (including reasonable
expenses of investigation and attorneys' fees and expenses) arising out of or
incident to the imposition, assessment or assertion of any Tax described in the
immediately preceding clauses (1), (2), (3), (4), (5) or (6), including those
liabilities, costs and expenses incurred in the contest in good faith in
appropriate proceedings relating to the imposition, assessment or assertion of
any such Tax, in each case incurred or suffered by Buyer, any of its Affiliates
or, effective upon the Closing, the Company or any Subsidiary (the sum of (1),
(2), (3), (4), (5), (6) and (7) being referred to as a "Tax Loss"); provided
that Parent shall be obligated to make payments to Buyer in respect of an
Operational Tax pursuant to Section 8.04(a)(1) only to the extent that the
cumulative amount that would otherwise be payable by Parent pursuant to Section
8.04(a)(1) in respect thereof (notwithstanding this proviso) is greater than the
excess of (x) the aggregate amount of Operational Tax liabilities actually
included in the calculation of Final Closing Net Working Capital minus (y) the
sum of any payments made by or payable by Buyer, or by the Company or the
Subsidiaries after the Closing Date, to Parent under Section 8.02(c) or to a
Taxing Authority under Section 8.02(d) in respect of any Operational Tax for any
Pre-Closing Tax Period. For the avoidance of doubt, the indemnities of Parent
contained in this Section 8.04 shall not be subject to any of the limitations
contained in Section 11.02.
(b) For purposes of this Section 8.04 (and, to the extent applicable,
Section 8.02(d)), in the case of any Tax, that is payable for a Straddle Period,
the portion of such Tax related to the portion of such Straddle Period ending at
the end of the Closing Date shall (x) in the case of any Tax that is based on or
related to income, be deemed equal to the amount which would be payable if the
relevant period ended at the end of the Closing Date, (y) in the case of any Tax
that is a sales or use tax, be determined based on a closing of the books, and
(z) in the case of any other Tax, be equal to the amount of such Taxes for the
entire Straddle Period multiplied by a fraction the numerator of which is the
number of days during the Straddle Period that are on or before the Closing Date
and the
61
denominator of which is the number of days in the Straddle Period. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner that is consistent with the Section 338(h)(10) Election and
with the prior practice of the Company and the Subsidiaries.
(c) Any payment by Parent pursuant to this Section 8.04 shall be made not
later than 30 days after receipt by Parent of written notice from Buyer
(accompanied by reasonable, corroborating documentation) stating that any Tax
Loss has been paid by Buyer, any of its Affiliates or former Affiliates or,
effective upon the Closing, the Company or any Subsidiary of the Company and the
amount thereof and of the indemnity payment requested.
(d) If any claim or demand for Taxes in respect of which indemnity may be
sought pursuant to this Section 8.04 is asserted against Buyer, any of its
Affiliates or, effective upon the Closing, the Company or any Subsidiary of the
Company, Buyer shall notify Parent of such claim or demand within 10 days of
receipt thereof, or such earlier time that would allow Parent to timely respond
to such claim or demand, and shall give Parent such information with respect
thereto as Parent may reasonably request. Parent may discharge, at any time, its
indemnification obligation under this Section 8.04 by paying to Buyer the amount
of the applicable Tax Loss, calculated on the date of such payment or, if
greater, as of the first day on which full payment may be made to the applicable
Taxing Authority in connection with a Final Determination in a manner that holds
Buyer and its Affiliates harmless. Parent may, at its own expense, participate
in and, upon notice to Buyer, assume the defense of any such claim, suit,
action, litigation or proceeding (including any Tax audit); provided that in the
case of federal or state income Taxes of a Limited Tax Group, Parent shall
assume the defense of any such claim, suit, action, litigation, or proceeding
(including any Tax audit). If Parent assumes such defense, Parent shall be
entitled to control the claim, suit, action, litigation or proceeding (including
any Tax audit), but shall not settle, resolve, admit or conclude any item in
such claim, suit, action, litigation or proceeding (including any Tax audit) in
a manner that could legally bind with adverse effect Buyer, the Company or their
Affiliates with respect to any Tax period or portion thereof that begins on or
following the Closing Date. Without limiting the foregoing, Parent shall not
agree to adjust an item of the Company or the Subsidiaries for a Pre-Closing Tax
Period to the extent such adjustment would require an adjustment to an item of
the Company or the Subsidiaries in any Tax period beginning on or following the
Closing Date that could reasonably be expected to result in an increase in the
Tax liability of Buyer, the Company or their Affiliates with respect to such Tax
period. Buyer shall have the right (but not the duty) to participate in the
conduct thereof and to employ counsel, at its own expense, separate from the
counsel employed by Parent. Whether or not Parent chooses to defend or prosecute
any claim, all of the parties hereto shall cooperate in the defense or
prosecution thereof. Parent shall not be liable under this Section 8.04 for any
amount arising out of a contest or proceeding of which Parent was not notified
as required under this Section 8.04(d) to the extent that the failure to so
notify Parent materially prejudiced Parent.
62
(e) Any amount paid to or by Parent or Seller under Article 8 or Article 11
will be treated as an adjustment to the Purchase Price unless a Final
Determination causes any such amount not to constitute an adjustment to the
Purchase Price for federal Tax purposes. In such event, Buyer, Parent or Seller,
as the case may be, shall pay an amount that reflects the hypothetical Tax
consequences of the receipt or accrual of such payment, using the maximum
statutory rate (or rates, in the case of an item that affects more than one Tax)
applicable to the recipient of such payment for the relevant year, reflecting
for example, the effect of deductions available for interest paid or accrued and
Taxes such as state and local income Taxes.
ARTICLE 9
Employee Benefits
Section 9.01. Employee Benefits. The following terms, as used herein,
having the following meanings:
"Benefit Arrangement" means each employment, severance, continuation pay,
termination pay, layoff, or other similar written contract, arrangement or
policy and each written plan or arrangement providing for health, medical, life
or other welfare benefit insurance coverage (including any insured, self-insured
or other arrangements), disability benefits, supplemental unemployment benefits,
holiday, dependent care assistance, education or vacation benefits, retirement
benefits or deferred compensation, profit-sharing, bonuses, stock options, stock
purchase, stock appreciation or other material benefits or forms of compensation
or post-retirement insurance or benefits which (1) is not an Employee Plan, (2)
is or has been entered into, maintained, administered or contributed to, as the
case may be, by Parent, any of its Affiliates, the Company or any Subsidiary and
(3) covers any Company Employee.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of ERISA
and Section 4980B of the Code and any similar state Laws.
"Company Employee" means each individual who is a current or former
employee of the Company or any Subsidiary, and each employee of Parent or Seller
listed on Section 9.03(a)(i) of the Disclosure Schedule.
"Employee Plan" means each "employee benefit plan," as such term is defined
in Section 3(3) of ERISA, which (1) is subject to any provision of ERISA, (2) is
or has been entered into, maintained, administered or contributed to, as the
case may be, by Parent, any of its Affiliates or the Company or any Subsidiary
and (3) covers any Company Employee.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
63
"ERISA Affiliate" of any entity means any other entity which, together with
such entity, would be treated as a single employer under Section 414 of the
Code.
"▇▇▇▇▇▇ Plan" means the Pension Plan of Local 1102 Pension Fund (▇▇▇▇▇▇
Employees) as Amended and Restated Effective January 1, 1997 (Including
Amendments through November 20, 2001).
(b) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
---- -------
ABO 9.05
Buyer's Welfare Benefit Plans 9.03
Covered Employee 9.03
Defined Benefit Plan 9.02
Multiemployer Plan 9.02
New Plan 9.05
Plan Assets 9.05
Returned Employee 9.03
Savings and Retirement Plan 9.04
Seller Investments 9.04
Short-Term Inactive Employees 9.03
SRP 9.05
SRP Participants 9.05
Successor Plan 9.04
Successor Plan Parties 9.04
Section 9.02. ERISA Representations. Parent and Seller represent and
warrant to Buyer that:
(a) Section 9.02(a) of the Disclosure Schedule sets forth an accurate and
complete list of each Employee Plan which does not include the arrangement
described in Section 9.02(a)-1 of the Disclosure Schedule. With respect to each
such Employee Plan, Parent has furnished to Buyer an accurate and complete copy
of the plan document and any associated trust agreement, the most current
summary plan description (and any summary of material modifications thereto),
the most recently filed Form 5500 (and any schedules attached thereto), and the
most recent Internal Revenue Service determination letter, as applicable, of
each such Employee Plan. Except with respect to the arrangement set forth on
Section 9.02(a)-1 of the Disclosure Schedule, each Employee Plan has been
maintained in material compliance with its terms and with the requirements
prescribed by any and all applicable statutes, orders, rules and regulations,
including ERISA and the Code, and any applicable collective bargaining
agreement.
64
(b) Section 9.02(b) of the Disclosure Schedule sets forth each Benefit
Arrangement. Parent has furnished to Buyer accurate and complete copies of each
such Benefit Arrangement and the most current summary (if any) distributed to
Company Employees of each such Benefit Arrangement. Except with respect to the
arrangement set forth on Section 9.02(a)-1 of the Disclosure Schedule, each
Benefit Arrangement has been maintained in material compliance with its terms
and with the requirements prescribed by any and all applicable Laws and any
applicable collective bargaining agreement.
(c) The Internal Revenue Service has issued a favorable determination
letter with respect to each Employee Plan that is intended to qualify under
Section 401(a) of the Code, and, to the Knowledge of Parent and Seller, except
with respect to the arrangement set forth on Section 9.02(a)-1 of the Disclosure
Schedule, no event has occurred after the date of such letter that would cause
or could reasonably be expected to cause the disqualification of such Employee
Plan.
(d) Except as set forth on Section 9.02(d) or with respect to the
arrangement set forth on Section 9.02(a)-1 of the Disclosure Schedule, none of
Parent or any ERISA Affiliate of Parent, the Company or any Subsidiary has
within the past six years made any contributions (or has been obligated to make
any contributions) to a "Multiemployer Plan," as defined in Section 3(37) of
ERISA or to a "Defined Benefit Plan," as defined in Section 3(35) of ERISA. None
of Parent or any ERISA Affiliate of Parent, the Company or any Subsidiary has
any liability with respect to a Multiemployer Plan or a Defined Benefit Plan
that has not been satisfied in full prior to the Closing Date (other than
contributions or premium payments not yet due), and none of Parent or any ERISA
Affiliate of Parent, the Company or any Subsidiary is bound by any contract or
agreement or has any obligation or liability under Section 4204 of ERISA.
(e) There are no Employee Plans or Benefit Arrangements that provide (or
will provide) medical, life insurance, death benefits or any other welfare-type
benefits with respect to former employees (including retirees and dependents of
former employees and retirees) of the Company or any Subsidiary, other than
benefits that are required to be provided pursuant to COBRA.
(f) The consummation of the transactions contemplated by this Agreement
will not, separately or together, (1) except as set forth on Section 9.02(f) of
the Disclosure Schedule, entitle any Company Employee to receive from Parent,
the Company or any Subsidiary severance pay, unemployment compensation, or any
other payment, or (2) accelerate the time of payment or vesting of, or increase
the amount of, compensation due from Parent, the Company or any Subsidiary to
any such Company Employee or director of the Company or any Subsidiary.
(g) Except as set forth on Section 9.02(g) of the Disclosure Schedule,
there are no material actions, suits or claims (other than routine claims for
65
benefits) pending or, to the Knowledge of Parent and Seller, threatened against
any Employee Plan or Benefit Arrangement or any assets of an Employee Plan or
Benefit Arrangement.
(h) Except with respect to the arrangement set forth on Section 9.02(a)-1
of the Disclosure Schedule, all contributions (including all employer
contributions and employee salary reduction contributions) that are due have
been made within the time periods prescribed by ERISA and the Code to each
Employee Plan or Benefit Arrangement (as applicable) which is an "employee
pension benefit plan" (as defined in Section 3(2) of ERISA), and all
contributions for any period ending on or prior to the Closing Date which are
not yet due have been made or will be made to such Employee Plan or Benefit
Arrangement. All premiums or other payments required to be paid for all periods
ending on or before the Closing Date have been paid or will be paid with respect
to each Employee Plan or Benefit Arrangement (as applicable) that is an
"employee welfare benefit plan" (as such term is defined in Section 3(1) of
ERISA).
(i) To the Knowledge of Parent and Seller, with respect to any Employee
Plan, Benefit Arrangement, or any other employee benefit plan (within the
meaning of Section 3(3) of ERISA) that Parent or any ERISA Affiliate of Parent
maintains, to which any of them contributes or has any obligation to contribute,
or with respect to which any of them has any liability or potential liability,
except with respect to the arrangement described in Section 9.02(a)-1 of the
Disclosure Schedule there have been no "prohibited transactions" (within the
meaning of Section 406 of ERISA and Section 4975 of the Code), and no
"fiduciary" (within the meaning of Section 3(21) of ERISA) has any liability for
breach of fiduciary duty or any other failure to act or comply in connection
with the administration or investment of any Employee Plan or Benefit
Arrangement.
(j) Parent and each ERISA Affiliate of Parent have complied in all material
respects with the requirements of COBRA.
Section 9.03. Welfare Plans Following the Closing. (i) Effective upon the
Closing or at the end of the transition service period for employee benefits set
forth in Schedule I of the Services Agreement, Buyer shall provide the Covered
Employees with coverage under the applicable employee welfare benefit plans (as
defined in Section 3(l) of ERISA) sponsored by Buyer (collectively called
"Buyer's Welfare Benefit Plans"). For purposes of this Agreement, a "Covered
Employee" means each individual who is employed by the Company or the
Subsidiaries on the Closing Date and each individual listed on Section
9.03(a)(i) of the Disclosure Schedule. (ii) Notwithstanding the foregoing,
individuals who are employed by the Company or any Subsidiary immediately prior
to the Closing but who commenced a disability leave prior to the 270-day period
ending on the Closing Date shall not be deemed "Covered Employees" for any
purpose under this Agreement and shall continue to receive or be eligible to
receive the long-term disability benefits (and any other employee benefits to
66
which they may be entitled) from Parent at the sole cost and expense of Parent.
Individuals who are employed by the Company or any Subsidiary immediately prior
to the Closing but who commenced a disability leave within the 270-day period
ending on the Closing Date, or who on the Closing Date are on short-term
disability leave (collectively, "Short-Term Inactive Employees") shall, subject
to the following provisions, be deemed employees of the Company and, with the
full cooperation of Parent, the Company shall make available to Short-Term
Inactive Employees such disability benefits as they were receiving immediately
prior to the Closing Date; provided that Parent shall be solely responsible for
procuring long-term disability coverage for any Short-Term Inactive Employee who
is or becomes eligible therefore. Those Short-Term Inactive Employees who are
able to return, and do in fact present themselves to the Company seeking to
return, to active employment with the Company or any Subsidiary within 270 days
following the commencement of any disability leave will become Covered Employees
(such Short-Term Inactive Employees, collectively, "Returned Employees") for all
purposes of this Article 9 effective on the date of such return. The Company
shall provide to Parent the name of each Returned Employee promptly following
the date such Returned Employee returns to work. In consideration of the
foregoing, Parent shall be solely responsible for payment of that portion of the
actual cost of salary continuation expenses, separation payments, disability
benefits and health care benefits paid or made available by the Company to
Short-Term Inactive Employees during the period commencing on the Closing Date
through such 270-day period in an amount which is equal to the sum of (x) and
(y), where (x) is the amount by which such costs exceed $250,000 in the
aggregate for all Returned Employees and (y) is the amount of such costs for all
Short-Term Inactive Employees who do not become Returned Employees. Parent shall
also be solely responsible for all costs and expenses related to any disability
benefit payment that any Short-Term Inactive Employee or Covered Employee is
entitled to receive for any period prior to the Closing Date. All costs incurred
with respect to the Short-Term Inactive Employees shall be initially paid by
Parent, provided that Parent shall be entitled to reimbursement from the Company
of such costs incurred on or after the Closing Date with respect to a Returned
Employee (to the extent such costs do not exceed $250,000 in the aggregate for
all Returned Employees) upon submission of an invoice to the Company following
the return to employment with the Company of such Returned Employee. In
addition, following the expiration of the 270-day period described above, Parent
shall be solely responsible and shall bear all costs and expenses for any
employee benefits and payments to which any Short-Term Inactive Employees who do
not become Returned Employees may be entitled. Covered Employees shall be
eligible to participate in Buyer's Welfare Benefit Plans on any such return
subject to Buyer's right to modify or eliminate any employee benefit plan or
program maintained by it at any time.
(b) Buyer shall credit the Covered Employees for service with Seller and
its Affiliates and the Company and Subsidiaries prior to the Closing Date for
purposes of eligibility to participate in, and to receive benefits under,
Buyer's Welfare Benefit Plans; provided, however, that such service credit was
recognized
67
under the analogous welfare benefit plan in which the Covered Employees
participated immediately prior to the Closing; provided further that all
employees of the Company or any Subsidiary shall be employees at will of the
Company or any Subsidiary, and nothing contained in this Section 9.03 or
elsewhere in this Agreement shall be construed to prevent the termination of
employment of any such employee, any change in the compensation or employee
benefits available to any such employee, or the amendment or termination of any
particular employee benefit plan to the extent permitted by its terms.
(c) Buyer covenants that Buyer's Welfare Benefit Plans shall credit each
Covered Employee for any coinsurance or deductibles paid prior to the date the
Covered Employee becomes a participant in Buyer's Welfare Benefit Plans, if any,
with respect to the calendar year in which such participation commences. Such
credit shall be given for the purpose of satisfying any applicable coinsurance
or deductible requirements under any of Buyer's Welfare Benefit Plans in which
the Covered Employee is eligible to participate after the Closing Date.
(d) Buyer covenants that Buyer's Welfare Benefit Plans shall not treat any
transaction contemplated hereby as an event which, in and of itself, would cause
the Covered Employees to be subject to any preexisting condition limitation and
shall otherwise satisfy the requirements of COBRA (solely with respect to the
Covered Employees who experience a qualifying event after the Closing Date).
(e) INTENTIONALLY OMITTED.
(f) Parent shall be responsible for all benefits, obligations and
liabilities related to the employment or termination of employment of any
Covered Employee or any other individual by Parent and its ERISA Affiliates
which arise or are attributable to periods prior to the Closing (including all
liabilities, costs, claims and other obligations under any Employee Plan or
Benefit Arrangement and regardless of when such benefits, obligations and
liabilities are reported). For purposes of this Section 9.03(f), (A) a life
insurance claim shall be deemed to arise or be attributable to the period prior
to the Closing if the death occurs prior to the Closing, (B) disability claim
shall be treated in accordance with Section 9.03(a) and (C) all other claims
shall be deemed to arise or be attributable to the period prior to the Closing
if the services or products (including doctors' services or products, hospital
services or products, and pharmacy services or products) that are the subject of
the claim are performed, provided or purchased prior to the Closing.
(g) Notwithstanding any other provision of this Section 9.03, immediately
prior to the Closing, Parent shall transfer to the Company each Employee Plan in
which only Covered Employees participate immediately prior to the Closing and
which is listed on Section 9.03(g) of the Disclosure Schedule.
(h) The Company's obligations under this Section 9.03 are in addition to
the Company's obligations under Section 9.04 and Section 9.05.
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Section 9.04. Savings and Retirement Plan. (a) On or prior to the Closing
Date or as soon as practicable thereafter, Parent shall cause the trustee of
Parent Savings and Retirement Plan (the "Savings and Retirement Plan") to
segregate the assets of such Savings and Retirement Plan representing the full
account balances of the Covered Employees as of the Closing, make any and all
filings and submissions to the appropriate governmental agencies arising in
connection with such segregation of assets and make all necessary amendments to
such Savings and Retirement Plan and related trust agreement to provide for such
segregation of assets and the transfer of assets as described below. The manner
in which the account balances of the Covered Employees under the Savings and
Retirement Plan are transferred shall not be affected by such segregation of
assets.
(b) Buyer shall designate a tax-qualified defined contribution plan (the
"Successor Plan") to accept the transfer of assets as described herein and agree
to take all necessary action, if any, to qualify such plan under the applicable
provisions of the Code and shall make any and all filings and submissions to the
appropriate governmental agencies required to be made by it in connection with
the transfer of assets described below. The Successor Plan shall grant each
Covered Employee service credit for service prior to Closing for purposes of
eligibility and vesting. The Company shall use its commercially reasonable best
efforts to establish the Successor Plan effective as of the Closing Date so that
Covered Employees shall be eligible to participate in the Successor Plan
immediately following the Closing Date. The transfer shall not occur until (1)
Buyer shall have provided Parent with a certification from Buyer, with
appropriate indemnities, as to such qualified status satisfactory to Parent and
(2) Parent shall have provided to Buyer reciprocal certification and indemnities
as to the qualified status of the Savings and Retirement Plan satisfactory to
Buyer, both in the form attached as Section 9.04(b) of the Disclosure Schedule.
As soon as practicable following the satisfaction of the conditions set forth
above, Parent shall cause the trustee of the Savings and Retirement Plan to
transfer, in accordance with Section 414(l) of the Code (in the form of cash,
shares of Parent or shares of any current or former ERISA Affiliate of Parent
that are currently held in the Savings and Retirement Plan for the benefit of
Covered Employees, and, to the extent practicable, in the same relative
proportions as the account balances of the Covered Employees are invested as of
the date of the special valuation conducted in connection with such transfer)
the full account balances of Covered Employees under the Savings and Retirement
Plan, as well as actual earnings (including any losses or expenses related
thereto) attributable to the period from the Closing to the date of transfer
described herein, reduced by any necessary benefit or withdrawal payments to or
in respect of the Covered Employees occurring during the period from the Closing
to the date of transfer described herein, to the appropriate trustee as
designated by Buyer under the trust agreement forming a part of the Successor
Plan. Notwithstanding any other provision of this Agreement (including this
Article 9 and Article 11), Parent and Seller shall indemnify and hold harmless
Buyer, the Company, any Subsidiary, their ERISA Affiliates, the Successor Plan
and any "fiduciary" (within the meaning of Section 3(21) of ERISA) of the
Successor Plan (collectively, the
69
"Successor Plan Parties") from and against any and all claims and liabilities
related to the in-kind transfer of shares of Parent or shares of any current or
former ERISA Affiliate of Parent that are currently held in the Savings and
Retirement Plan for the benefit of Covered Employees and all other employer
securities (the "Seller Investments") from the Savings and Retirement Plan to
the Successor Plan pursuant to this Section 9.04(b) and the continued
maintenance of the Seller Investments under the Successor Plan on behalf of
Covered Employees after the Closing Date other than claims and liabilities
arising from any breach of fiduciary duty arising after the Closing or from any
mandatory or Company or trustee-directed liquidation or cash-out of such Seller
Investments following the Closing Date; provided that the Successor Plan Parties
shall cause the Successor Plan to provide that no contributions to the Successor
Plan made on account of time periods commencing after the Closing Date may be
invested in the Seller Investments, and that such Seller Investments shall at
all times be subject to liquidation at the election of the Successor Plan
participant for whose benefit such Seller Investments are transferred in
accordance with the terms of the Successor Plan and the reasonable
administrative procedures related thereto.
(c) In consideration for the transfer of assets described herein, Buyer
shall, and shall cause the Company to, effective as of the date of transfer
described herein, assume all of the obligations of Parent and the Company in
respect of the account balances so transferred (exclusive of any portion of such
account balances which are paid or otherwise withdrawn prior to the date of
transfer described herein) upon or prior to the Closing. Buyer shall cause the
Company to make all contributions to the Successor Plan required under the
Savings and Retirement Plan in respect of Covered Employees' service with the
Company through the Closing Date to the extent the liabilities for such
contributions are properly accrued on the Balance Sheet. Buyer shall not assume
any other obligations or liabilities arising under or attributable to the
Savings and Retirement Plan.
Section 9.05. Other Employee Plans And Benefit Arrangements. (a) Upon or as
soon as practicable following the Closing, Buyer shall, or shall cause the
Company to, establish a nonqualified deferred compensation plan ("New Plan")
that preserves the vesting and benefit payment provisions of the Limited Brands,
Inc. Supplemental Retirement Plan (As Amended and Restated Effective January 1,
2002) (the "SRP") (other than such provisions as are set forth in Section 7.1 of
the SRP, which shall apply only to new deferrals made after January 1, 2003) for
the individuals whose names and account balances are listed on Section 9.05(a)
of the Disclosure Schedule (the "SRP Participants"). Subject to Section 2.03,
effective as of the Closing, Buyer shall cause the Company to (1) accept the
transfer of participant account balances from the SRP to the New Plan with
respect to the SRP Participants in an aggregate amount not to exceed $6.0
million and (2) assume all obligations and liabilities attributable to the
period prior to the Closing in respect of such SRP Participants to the extent
the amount of such obligations and liabilities does not exceed the sum of (x)
$6.0 million and (y) the amount of the Final Closing Excess DC Amount paid to
Buyer or its
70
Affiliates pursuant to Section 2.03. Section 9.05(a) of the Disclosure Schedule
shall also set forth the following information regarding each Covered Employee
who is a participant in the SRP on the Closing Date: the name of the Covered
Employee, his/her job title, and the total amount credited to his/her SRP
account as of the Closing.
(b) Except as provided in (a) above, Parent shall assume and retain all
obligations and liabilities under the SRP. Prior to the Closing Date, Parent
shall take all actions as may be necessary to cause the SRP to be amended to
reflect that no Termination of Employment (as defined in the SRP) will occur
with respect to any Covered Employee as a result of consummating the
transactions contemplated by this Agreement, which such actions shall include
causing the amendment to the SRP set forth in Section 9.05(b) of the Disclosure
Schedule to become effective prior to the Closing Date; and Parent and Seller
hereby agree and acknowledge that Buyer's and the Company's obligations set
forth in Section 9.05(a) above shall be contingent upon Parent's performance of
its obligations regarding the amendment of the SRP as set forth in this Section
9.05(b).
(c) From the date hereof until the Closing Date, except as contemplated by
the Transaction Documents, to the extent relating to the Company and
Subsidiaries or any Covered Employee, Parent and Seller will not, and will cause
the Company and Subsidiaries not to, enter into, amend, modify, renew or
terminate any Employee Plan or Benefit Arrangement.
(d) Notwithstanding any other provision of this Agreement (including this
Article 9 and Article 11), Parent and Seller shall indemnify and hold harmless
Buyer, the Company, any Subsidiary, their ERISA Affiliates and any "fiduciary"
(within the meaning of Section 3(21) of ERISA) from and against any and all
claims and liabilities relating to (i) the payments to the individuals set forth
on Section 9.05(d) of the Disclosure Schedule and (ii) the arrangement described
in Section 9.02(a)-1 of the Disclosure Schedule.
(e) Prior to the Closing Date, Parent shall request and recommend to the
Compensation Committee of its Board of Directors that such Committee take all
actions as may be necessary to cause all stock options granted to each Covered
Employee which are scheduled to vest on or prior to February 6, 2003 to be fully
vested on the Closing Date and exercisable for the lesser of (x) 12 months
following the Closing Date, and (y) 90 days following such Covered Employee's
termination of employment with the Company.
(f) In the event that the accrued benefit obligation under the ▇▇▇▇▇▇ Plan
determined by the actuary for the ▇▇▇▇▇▇ Plan on an ongoing basis as of November
30, 2002, using the actuarial and other assumptions currently utilized by such
actuary in the actuarial valuation being prepared for the 2002 plan year,
provided that such assumptions are in accordance with FAS 87 (the "ABO") exceeds
the market value of the assets of the ▇▇▇▇▇▇ Plan determined as of
71
November 30, 2002 (the "Plan Assets"), Parent shall pay to the Company an amount
in cash equal to the amount by which the ABO exceeds the Plan Assets.
Section 9.06. Necessary Action. Parent and Buyer agree to take all action,
or cause such action to be taken, which may be necessary in order to effectuate
the transactions contemplated by this Article, including adopting any necessary
amendments to the Employee Plans and Benefit Arrangements and making all filings
and submissions to the appropriate governmental agencies required to be made in
connection with the events contemplated by Section 9.04.
Section 9.07. Indemnification. Buyer hereby indemnifies, and shall cause
the Company after the Closing to indemnify, Parent and each of its ERISA
Affiliates against and agrees, and shall cause the Company to agree after the
Closing, to hold Parent and each of its ERISA Affiliates harmless from any and
all Damages that Parent and each of its ERISA Affiliates may incur or suffer as
a result of any failure by Buyer and the Company to satisfy and discharge their
obligations under this Article. Parent and each of its ERISA Affiliates hereby
indemnifies Buyer and the Company and each of their ERISA Affiliates against and
agrees to hold Buyer and the Company and each of their ERISA Affiliates harmless
from any and all Damages that Buyer and the Company and each of their ERISA
Affiliates may incur as a result of any failure by Parent and its ERISA
Affiliates to satisfy and discharge their obligations under this Article.
Section 9.08. Third Party Beneficiaries. No provision of this Article shall
create any third party beneficiary rights in any Company Employee (including any
beneficiary or dependent thereof) or in any other person.
ARTICLE 10
Conditions to Closing
Section 10.01. Conditions to Obligations of Buyer, Parent and Seller. The
obligations of Buyer, Parent and Seller to consummate the Closing are subject to
the satisfaction (or, to the extent permitted by Law, waiver by the relevant
party) of the following conditions:
(a) Any applicable waiting period under the HSR Act relating to the
transactions contemplated by the Transaction Documents shall have expired or
been terminated.
(b) No provision of any applicable Law and no judgment, injunction, order
or decree shall prohibit the consummation of the Closing.
(c) No suit, action, proceeding or investigation shall have been brought or
threatened by any Person which is reasonably likely to result in (i) any action
which would prevent or materially delay the consummation of the Closing or (ii)
an order requiring the Closing, if consummated, to be rescinded.
72
Section 10.02. Conditions to Obligation of Buyer. The obligation of Buyer
to consummate the Closing is subject to the satisfaction (or, to the extent
permitted by Law, waiver by Buyer) of the following further conditions:
(a) (1) Parent and Seller shall have performed or complied in all material
respects with all of the agreements and covenants required by the Transaction
Documents to be performed or complied with by them at or prior to the Closing
Date, (2) (A) the representations and warranties of Parent and Seller contained
in this Agreement and in any certificate or other writing delivered by Parent or
Seller pursuant hereto that are not subject to any qualifications as to
materiality or Material Adverse Effect shall be true and correct in all material
respects, and (B) the representations and warranties of Parent and Seller
contained in this Agreement and in any certificate or writing delivered by
Parent or Seller pursuant hereto that contain qualifications as to materiality
or Material Adverse Effect shall, disregarding all qualifications and exceptions
contained therein as to materiality, be accurate at and as of the Closing Date,
as if made at and as of such time, except for any inaccuracies which,
individually or in the aggregate, have not had, or would not be reasonably
likely to have, a Material Adverse Effect and (3) Buyer shall have received a
certificate signed by an executive officer of Parent to the foregoing effect.
(b) Since the date hereof there shall have been no fact, event or
circumstance which has had or could reasonably be expected to have a Material
Adverse Effect and Buyer shall have received a certificate signed by an
executive officer of Parent to the foregoing effect.
(c) Buyer, or its Affiliates, shall have obtained at least $10 million of
cash proceeds of the financing contemplated by the CFC Commitment Letter. The
CFC Commitment Letter shall be in full force and effect.
(d) Parent and Seller shall have caused the following documents to be
executed and delivered to Buyer:
(i) an opinion of ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇, dated the Closing Date
with respect to matters addressed in the first sentence of Section 3.01, Section
3.02, Section 3.03 and the first sentence of Section 3.05(b), in a form
reasonably acceptable to Buyer.
(ii) letters of resignation and release from the directors of the
Company and each Subsidiary;
(iii) such other documents regarding the corporate organization,
existence, authorization and similar matters relating to Parent, Seller, the
Company or any Subsidiary as Buyer may reasonably request;
(iv) the Services Agreement;
(v) the Store Leases Agreement;
73
(vi) the Securityholders Agreement;
(vii) the Covenant Agreement;
(viii) the Master Sublease and Master Assignment;
(ix) (1) Parent shall have executed domain name transfer
agreements which transfer the following domain names to the Company: (A)
▇▇▇▇▇▇▇▇.▇▇, (B) ▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇, (C) ▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, (D)
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇, and (E) ▇▇▇▇▇▇▇▇▇▇▇▇.▇▇ and (2) ▇▇▇▇▇▇▇ ▇▇▇ shall have
executed a domain name transfer agreement which transfers the following domain
name to the Company: ▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇; and
(x) Buyer shall have received a statement signed by Parent and
Seller conforming with the requirements of Treasury regulation section
1.1445-2(b)(2) certifying that Seller is not a foreign person within the meaning
of Section 1445 of the Code, and such certificate shall be accurate, complete
and valid on the Closing Date.
Section 10.03. Conditions to Obligation of Parent and Seller. The
obligation of Parent and Seller to consummate the Closing is subject to the
satisfaction (or, to the extent permitted by Law, waiver by Seller) of the
following further conditions:
(a) (1) Buyer shall have performed or complied in all material respects
with all of the agreements, covenants and conditions required by this Agreement
to be performed or complied with by them on or prior to the Closing Date, (2)
the representations and warranties of Buyer contained in this Agreement and in
any certificate or other writing delivered by Buyer pursuant hereto,
disregarding all qualifications and exceptions contained therein as to
materiality, shall be accurate at and as of the Closing Date, as if made at and
as of such time, except for any inaccuracies which, individually or in the
aggregate, have not had, or would not be reasonably likely to have, a Buyer
Material Adverse Effect and (3) Parent shall have received a certificate signed
by an executive officer of Buyer to the foregoing effect.
(b) Buyer shall have caused the following documents to be delivered to
Parent and Seller:
(i) an opinion of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, dated the Closing Date with
respect to the matters addressed in the first sentence of Section 4.01, Section
4.02, Section 4.03 and Section 4.11, in a form reasonably acceptable to Parent.
(ii) such other documents regarding the corporate organization,
existence, authorization and similar matters relating to Buyer as Parent may
reasonably request;
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(iii) the Services Agreement;
(iv) the Store Leases Agreement;
(v) the Securityholders Agreement;
(vi) the Covenant Agreement; and
(vii) the Master Sublease and Master Assignment.
(c) Parent shall be reasonably satisfied that the terms and conditions of
the definitive credit facility contemplated by the CFC Commitment Letter and the
terms and conditions of the definitive credit facility with Capital Source
Finance LLC, if any, do not materially and adversely affect Parent's rights
under the Transaction Documents, it being understood that the terms and
conditions set forth in the CFC Commitment Letter are acceptable to Parent.
ARTICLE 11
Survival; Indemnification
Section 11.01. Survival. The representations and warranties of the parties
hereto contained in this Agreement or in any certificate or other writing
delivered pursuant hereto or in connection herewith shall survive the Closing
until eighteen months after the Closing Date; provided that (i) the
representations and warranties contained in Sections 3.01, 3.02, 3.05, 3.06,
3.07, 3.12, 3.19, 3.27, 4.01, 4.02, 4.06, 4.08, 4.09, and 4.11 (collectively,
the "Special Representations") shall survive indefinitely; (ii) the
representations and warranties contained in Section 3.16 shall survive until
three years after the Closing Date; and (iii) the representations and warranties
contained in Article 8 and Article 9 shall survive until expiration of the
statute of limitations applicable to the matters covered thereby (giving effect
to any waiver, mitigation or extension thereof). The covenants and agreements
contained in this Agreement shall survive in accordance with their terms.
Notwithstanding the foregoing, any representation or warranty in respect of
which indemnity may be sought under this Agreement shall survive the time at
which it would otherwise terminate pursuant to the preceding sentence, if notice
of the inaccuracy or breach thereof giving rise to such right of indemnity shall
have been given to the party against whom such indemnity may be sought prior to
such time.
Section 11.02. Indemnification. Parent and Seller jointly and severally
hereby indemnify Buyer, its Affiliates (which Affiliates shall include the
Company and the Subsidiaries) and their respective directors, officers,
employees and agents ("Buyer Indemnitees") against and agrees to hold each of
them harmless from any and all damage, loss, liability, cost, claim, penalty,
and expense (including reasonable expenses of investigation and reasonable
attorneys' fees and expenses in connection with any action, suit or proceeding
whether involving a Third Party Claim or a Claim solely between the parties
hereto) ("Damages") incurred or suffered by any Buyer Indemnitee arising out of
or
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relating in any way to (A) any inaccuracy or breach of warranty or breach of
covenant or agreement made or to be performed by Parent pursuant to this
Agreement (other than representations, warranties, covenants and agreements
pursuant to Section 8.02, 8.03 or 8.04, the remedy for which is provided in
Article 8), (B) the Credit Card Litigation, (C) the Retained Litigation
Liabilities, (D) any Excluded Deferred Compensation Liability, (E) any Excluded
Insurance Liability, (F) any Excluded Escheat Liability, (G) any Excluded Real
Property Liability, (H) any liability relating to lifetime annuity payments to
former ▇▇▇▇▇▇ employees, and (I) any Indebtedness that was due and payable at
the Closing but which Parent did not pay and any Indebtedness that has become
due and payable; provided that with respect to indemnification by Parent and
Seller pursuant to this Section 11.02(a) for breaches of representations and
warranties other than any Special Representations, (x) Parent and Seller shall
not be liable unless the aggregate amount of Damages exceeds $2.7 million (the
"Basket Amount") and then only to the extent of such excess; (y) Parent and
Seller shall have no liability for any individual claim for Damages that is less
than $25,000 (provided, that with respect to claims for Damages for which any
Buyer Indemnitee would be entitled to indemnification hereunder but for the
provisions of this clause (y), Buyer shall provide Parent with documentation
regarding any such claim and shall be entitled to aggregate the amount of such
Damages for purposes of satisfying the Basket Amount in clause (x) of this
Section 11.02(a)) and (z), the joint and several maximum liability of Parent and
Seller for all such breaches of representations and warranties (other than the
representations and warranties set forth in Sections 3.05 and 3.06) shall not
exceed $78.5 million (the "Cap").
(b) Buyer and the Company jointly and severally hereby indemnify Parent and
its Affiliates and their respective directors, officers, employees and agents
("Parent Indemnitees") against and agrees to hold each of them harmless from any
and all Damages incurred or suffered by Parent or any of its Affiliates arising
out of any breaches of representations and warranties or breach of covenant or
agreement made or to be performed by Buyer pursuant to this Agreement (other
than pursuant to Article 8, the remedy for which is provided in Article 8);
provided that with respect to indemnification by Buyer for any breaches of
representations and warranties other than any Special Representations pursuant
to this Section 11.02(b), (x) Buyer shall not be liable unless the aggregate
amount of Damages with respect to such breaches by such Person exceeds the
Basket Amount and then only to the extent of such excess; (y) the maximum
liability of Buyer for all such breaches of representations and warranties shall
not exceed the Cap.
(c) For purposes of determining a party's indemnification obligations for
any representations and warranties hereunder, all qualifications of materiality
or Material Adverse Effect and all dollar amount thresholds shall be disregarded
(except with respect to Section 3.10(i)).
Section 11.03. Procedures. (a) The party seeking indemnification under
Section 11.02 (the "Indemnified Party") agrees to give prompt notice to the
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party against whom indemnity is sought (the "Indemnifying Party") of the
assertion of any claim, or the commencement of any suit, action or proceeding
("Claim") in respect of which indemnity may be sought under such Section and
will provide the Indemnifying Party such information with respect thereto that
the Indemnifying Party may reasonably request. The failure to so notify the
Indemnifying Party shall not relieve the Indemnifying Party of its obligations
hereunder, except to the extent such failure shall have actually adversely
prejudiced the Indemnifying Party.
(b) The Indemnifying Party shall be entitled to participate in the defense
of any Claim asserted by any third party ("Third Party Claim") and, subject to
the limitations set forth in this Section, shall be entitled to control the
defense of such Third Party Claim and appoint lead counsel for such defense, in
each case at its expense; provided that it has acknowledged responsibility for
the defense of such Claim; provided further that Parent shall control the
defense of, and appoint the lead counsel in connection with the Credit Card
Litigation; any Retained Litigation Liability; any Excluded Deferred
Compensation Liability; any Excluded Insurance Liability; any Excluded Real
Property Liability; any liability related to lifetime annuity payments to former
▇▇▇▇▇▇ employees; any Excluded Escheat Liability and any liability related to
Indebtedness for which the Buyer is indemnified pursuant to 11.02(a)(I) so long
as the Indemnified Party shall be entitled to participate in such defense.
Notwithstanding the foregoing, in any litigation or proceeding of which Parent
shall control the defense, any Indemnified Person shall have the right to
participate in such litigation or proceeding and to retain its own counsel, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Person unless (i) Parent and such Indemnified Person shall have
mutually agreed in writing to the retention of such counsel; (ii) representation
of both parties by the same counsel would, in the opinion of counsel to such
Indemnified Person, be inappropriate due to actual or potential differing
interests between the Company and such Indemnified Person; or (iii) if the
Parent fails or is failing to actively defend such Third Party Claim.
(c) If the Indemnifying Party shall assume the control of the defense of
any Third Party Claim in accordance with the provisions of this Section 11.03,
the Indemnifying Party shall obtain the prior written consent of the Indemnified
Party before entering into any settlement of such Third Party Claim unless (i)
the settlement does not require the Indemnified Party to pay money damages and
(ii) the settlement is for money damages only. If the Indemnified Party has
assumed the defense of any Third Party Claim in accordance with the provisions
of this Section 11.03, the Indemnified Party shall obtain the prior written
consent of the Indemnifying Party before entering into any settlement of such
Third Party Claim.
Section 11.04. Limitation on Damages.
(a) The amount of any Damages payable under Section 11.02 by the
Indemnifying Party shall be net of any amounts actually recovered by the
Indemnified Party under applicable insurance policies.
77
(b) Notwithstanding anything in this Agreement to the contrary, (i) except
for Damages arising out of a breach of a representation (A) set forth in Section
3.08(a), or (B) relating to a fact or event that either is recurring or had, has
or will have a direct recurring effect on the earnings of the Company, no
Damages shall be determined or increased based on any multiple of any financial
measure (including earnings, sales or other benchmarks) that might have been
used by Buyer in the valuation of the Company and the Subsidiaries or their
businesses and operations (it being understood that the foregoing exception for
Damages arising out of a breach of a representation (A) set forth in Section
3.08(a), or (B) relating to a fact or event that either is recurring or had, has
or will have a direct recurring effect on the earnings of the Company, shall not
constitute an admission or acknowledgement that Damages in respect of such a
breach should be determined or increased based on any such multiple, but instead
is simply an exception to the prohibition on making such a claim in the case of
such a breach) and (ii) except as contemplated by clause (i) no Buyer
Indemnitees nor Parent Indemnitees shall be entitled to any consequential,
special, exemplary, or punitive damages.
(c) No Buyer Indemnitee shall be entitled to any indemnification hereunder
for any breach of representations and warranties if Parent can establish that
(i) Parent had no Knowledge of the breach and (ii) Buyer had actual knowledge of
such breach and that such breach would result in material liability .
Section 11.05. Exclusivity. After the Closing, Sections 8.02, 8.04, 9.06
and 11.02 will provide the exclusive remedy for any misrepresentation, breach of
warranty, covenant or other agreement (other than the remedies contained in
Sections 2.04, 5.02, 5.09, 6.03 and 13.13) or other claim arising out of this
Agreement or the transactions contemplated hereby except for claims of fraud.
ARTICLE 12
Termination
Section 12.01. Grounds for Termination. This Agreement may be terminated
and the transactions contemplated herein may be abandoned at any time prior to
the Closing:
(a) by mutual written agreement of Seller and Buyer;
(b) by either Seller or Buyer if the Closing shall not have been
consummated on or before November 27, 2002 (the "Termination Date"); provided,
however, that neither of the parties may terminate this Agreement pursuant to
this clause if the Closing shall not have been consummated by the Termination
Date by reason of the failure of such party or any of its Affiliates to perform
in all material respects any of its or their respective covenants or agreements
contained in this Agreement;
78
(c) by either Buyer, on the one hand, or Seller, on the other hand, if a
material breach of any provision of this Agreement has been committed by the
other party or any of its Affiliates and such breach is not capable of being
satisfied or cured by the Termination Date; or
(d) by either Seller or Buyer if consummation of the transactions
contemplated hereby would violate any nonappealable final order, decree or
judgment of any court or governmental body having competent jurisdiction.
The party desiring to terminate this Agreement pursuant to clauses
12.01(b)-(d) shall give notice of such termination to the other party.
Section 12.02. Effect of Termination. If this Agreement is terminated as
permitted by Section 12.01, such termination shall be without liability of any
party (or any Affiliate, stockholder, director, officer, employee, agent,
consultant or representative of such party) to any other party to this
Agreement; provided that if such termination shall result from the (1) failure
of any party to fulfill a condition to the performance of the obligations of the
other party that is within the control of such party, (2) failure of any party
to this Agreement to perform a covenant or agreement contained in any
Transaction Document, or (3) willful or negligent breach by any party to this
Agreement of any representation or warranty contained in any Transaction
Document, such party shall be fully liable for any and all Damages incurred or
suffered by any other party as a result of such failure or breach. The
provisions of Sections 5.05, 6.02 (it being understood that all provisions of
the Confidentiality Agreement will remain in full force and effect), 6.07, 12.02
and Article 13 shall survive any termination hereof pursuant to .
ARTICLE 13
Miscellaneous
Section 13.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given,
if to Buyer, to:
c/o Bear ▇▇▇▇▇▇▇ Merchant Banking
Bear, ▇▇▇▇▇▇▇ & Co., Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice) to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
79
Washington, D.C. 20005
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
if to Parent or to Seller, to:
Limited Brands, Inc.
Three Limited Parkway
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice) to:
▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or telecopy number and with such other copies, as such
party may hereafter specify for the purpose by notice to the other parties. All
such notices, requests and other communications shall be deemed received on the
date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a Business Day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding Business Day in the place of receipt.
Each such notice, request or other communication shall be effective (1) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
in this Section and evidence of receipt is received or (2) if given by any other
means, upon delivery or refusal of delivery at the address specified in this
Section 13.01.
Section 13.02. Amendments and Waivers. (a) Any provision of this Agreement
may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed, in the case of an amendment, by each party to this Agreement, or
in the case of a waiver, by the party against whom the waiver is to be
effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by Law.
Section 13.03. Expenses. Except to the extent otherwise expressly provided
in any of the Transaction Documents: (1) all costs and expenses incurred
80
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such cost or expense and (2) Parent shall be
responsible for all out-of-pocket costs and expenses incurred by the Company and
Subsidiaries prior to the Closing Date in connection with the sale process or
the preparation, execution and delivery of the Transaction Documents and actions
taken at the direction of Parent or Seller to permit Parent and Seller to
consummate the Closing. Without limiting the generality of the foregoing, it is
understood that Parent shall not be responsible for any costs or expenses of the
Company or the Subsidiaries if such costs or expenses were incurred in
connection with matters attributable to post-Closing periods (including
financing related fees and expenses or store separation costs) or any fees and
expenses of Buyer, any of its Affiliates or any of their respective advisors or
agents). Costs of the type referred to in clause (2) above for which Parent is
responsible are referred to as "Relevant Costs".
Section 13.04. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. No party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the
consent of each other party hereto; provided that Buyer may assign this
agreement (i) to any of its Affiliates, (ii) to its lenders for collateral
security purposes, or (iii) to a subsequent purchaser of all or a substantial
portion of the Company's business, but no such transfer or assignment will
relieve the Buyer of its obligations hereunder.
Section 13.05. Governing Law. This Agreement shall be governed by and
construed in accordance with the Law of the State of New York, without regard to
the conflicts of Law rules of such state.
Section 13.06. Jurisdiction. Except as otherwise expressly provided in this
Agreement, the parties hereto agree that any suit, action or proceeding seeking
to enforce any provision of, or based on any matter arising out of or in
connection with, any of the Transaction Documents or the transactions
contemplated thereby shall be brought in the United States District Court for
the Southern District of New York or any New York State court sitting in New
York City, Borough of Manhattan, so long as one of such courts shall have
subject matter jurisdiction over such suit, action or proceeding, and that any
cause of action arising out of any of the Transaction Documents shall be deemed
to have arisen from a transaction of business in the State of New York, and each
of the parties hereby irrevocably consents to the jurisdiction of such courts
(and of the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by Law, any
objection that it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without
81
limiting the foregoing, each party agrees that service of process on such party
as provided in Section 13.01 shall be deemed effective service of process on
such party.
Section 13.07. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
Section 13.08. Counterparts; Third Party Beneficiaries. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. Each Transaction Document shall become effective when each party
thereto shall have received a counterpart thereof signed by the other party
thereto. No Transaction Document is intended to confer upon any Person other
than the parties thereto any rights or remedies hereunder.
Section 13.09. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement or the application of any
such provision to any Person or circumstance shall be held to be prohibited by,
illegal or unenforceable under applicable law or rule in any respect by a court
of competent jurisdiction, such provision shall be ineffective only to the
extent of such prohibition, illegality or unenforceability, without invalidating
the remainder of such provision or the remaining provisions of this Agreement.
Section 13.10. Entire Agreement. The Transaction Documents, together with
the Confidentiality Agreement, constitute the entire agreement between the
parties with respect to the subject matter of this Agreement and supersedes all
prior agreements and understandings, both oral and written, between the parties
with respect to the subject matter of this Agreement. No representation,
inducement, promise, understanding, condition or warranty not set forth herein
has been made or relied upon by any party hereto.
Section 13.11. Captions; Certain Terms. The captions herein are included
for convenience of reference only and shall be ignored in the construction or
interpretation hereof. All references to "$" or " dollars" shall be to United
States dollars and all references to "days" shall be to calendar days unless
otherwise specified. Whenever the words "include," "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words,
"without limitation."
Section 13.12. Disclosure Schedule. The parties acknowledge and agree that
(1) the Disclosure Schedule to this Agreement may include certain items and
information solely for informational purposes for the convenience of Buyer and
(2) the disclosure by Parent or Seller of any matter in the Disclosure Schedule
82
shall not be deemed to constitute an acknowledgment by Parent or Seller that the
matter is required to be disclosed by the terms of this Agreement or that the
matter is material. If any section of the Disclosure Schedule discloses an item
of information in such a way as to make its relevance to the disclosure required
by another section of the Disclosure Schedule readily apparent, the matter shall
be deemed to have been disclosed in such other section of the Disclosure
Schedule, notwithstanding the omission of an appropriate cross-reference to such
other section of the Disclosure Schedule.
Section 13.13. Specific Performance. Each party acknowledges and agrees
that the other parties would be damaged irreparably in the event any provision
of this Agreement is not performed in accordance with its specific terms or
otherwise is breached, so that a party shall be entitled to injunctive relief to
prevent breaches of this Agreement and to enforce specifically this Agreement
and the terms and provisions hereof in addition to any other remedy to which
such party may be entitled, at law or in equity. In particular, the parties
acknowledge that the business of the Company and the Subsidiaries is unique and
recognize and affirm that in the event Parent or Seller breaches this Agreement,
money damages may be inadequate and Buyer may have no adequate remedy at law, so
that Buyer shall have the right, in addition to any other rights and remedies
existing in its favor, to enforce its rights and the other parties' obligations
hereunder not only by action for damages but also action for specific
performance, injunctive, and/or other equitable relief.
Section 13.14. No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party hereto by virtue
of the authorship of any of the provisions of this Agreement.
[Remainder of page intentionally left blank; next page is signature page]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
NY & CO. GROUP, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Secretary
LFAS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Senior Vice President
LIMITED BRANDS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President - Treasurer