Exhibit 2.1
SALE AGREEMENT
dated as of
May 24, 1996
by and among
Melville Corporation,
Wilsons Center Inc.,
and
Wilsons The Leather Experts Inc.
SALE AGREEMENT
AGREEMENT dated as of May 24, 1996 by and among Wilsons The Leather
Experts Inc., a Minnesota corporation ("Newco"), Wilsons Center, Inc., a
Minnesota corporation (the "Company"), and Melville Corporation, a New York
corporation ("Melville").
W I T N E S S E T H:
WHEREAS, Melville is the owner of 100 shares of common stock of the
Company (the "Company Shares"), constituting one hundred percent of the issued
and outstanding capital stock of the Company;
WHEREAS, Melville desires to transfer the Company Shares to Newco in
exchange for $2,000,000, the Common Shares (as defined below) of Newco, the
Preferred Shares (as defined below) of Newco, the Note (as defined below) of
Newco, the Warrant (as defined below) and the Management Warrant (as defined
below);
WHEREAS, the consummation of the transactions contemplated hereby is a
condition precedent to the obligations of the parties to the Stock Purchase
Agreements (as defined below) to consummate the transactions contemplated
thereby;
NOW, THEREFORE, in consideration of good and valuable consideration
the receipt and sufficiency of which is hereby acknowledged, together with the
mutual covenants and agreements herein contained, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. (a) The following terms, as used herein, have the
following meanings:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person; provided that none of the Company, Newco or any Subsidiary of the
Company or Newco shall be considered an Affiliate of Melville for purposes of
this Agreement.
"Articles of Incorporation" means the articles of incorporation of
Newco having substantially the terms and conditions set forth in Exhibit D to be
filed prior to the Closing Date.
"Balance Sheet" means the consolidated balance sheet of the Company,
the Subsidiaries and the Excluded Subsidiaries as at December 31, 1995.
"Balance Sheet Date" means December 31, 1995.
"Base Working Capital" means $85,000,000.
"Benefit Arrangement" means any employment, severance or similar
contract, arrangement or policy, or any plan or arrangement (whether or not
written) providing for severance benefits, insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights or other forms of incentive compensation or post-retirement
insurance, compensation or benefits that (i) is not an Employee Plan, (ii) is
entered into or maintained, as the case may be, by Melville or any of its ERISA
Affiliates and (iii) covers any employee or former employee (or any of their
respective dependents) of the Company or any of its Subsidiaries.
"Brooklyn Park Property" means the distribution center/warehouse
located at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇.
"Business Day" means any day other than a Saturday, Sunday or a day
which is a statutory holiday under the laws of the United States, the State of
New York or the State of Minnesota.
"Charter" means, with respect to any juridical Person, the certificate
or articles of incorporation, or other analogous organizational or constituent
documents of such Person (including, in the case of a partnership, such
partnership's partnership agreement, or in the case of a limited liability
company, such limited liability company's limited liability company agreement).
"Class A Common Stock" means the Class A Common Stock, par value $.01
per share of Newco having the rights, voting power, preferences and restrictions
designated in the Articles of Incorporation.
"Class B Common Stock" means the Class B Common Stock, par value $.01
per share of Newco having the rights, voting power, preferences and restrictions
designated in the Articles of Incorporation.
"Class C Common Stock" means the Class C Common Stock, par value $.01
per share of Newco having the rights, preferences and restrictions designated in
the Articles of Incorporation.
"Closed Store Lease" means each real property lease related to stores
that have been closed as listed in Schedule 1.1.
"Closing Date" means the date of the Closing.
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"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Common Shares" means 4,800,000 shares of the Class A Common Stock to
be issued by Newco to Melville.
"Common Stock" means the Common Stock, par value $.01 per share, of
Newco.
"Contribution" means, with respect to any Lease, the "adjusted
contribution A" of the Store that is the subject of such Lease for the fiscal
year ended December 31, 1995, as reflected in the 1995 Revised Stores Profit and
Loss Statement of the Company and the Subsidiaries previously delivered to
Newco.
"Designated Closed Store Lease" means each Closed Store Lease to which
the Company or a Subsidiary is a party and does not include any Closed Store
Lease to which an Excluded Subsidiary (but not the Company or a Subsidiary) is a
party.
"Effective Rent" means, with respect to any Lease, the Original
Minimum Rent of such Lease plus the Original Percentage Rent of such Lease.
"Employee Plan" means any "employee benefit plan", as defined in
Section 3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by Melville or any of its ERISA
Affiliates and (iii) covers any employee or former employee (or any of their
respective dependents) of the Company or any of its Subsidiaries.
"Employment Agreements" means the employment agreement between Newco
and ▇▇▇▇ ▇▇▇▇▇▇ and the employment agreement between Newco and ▇▇▇▇▇ ▇▇▇▇▇▇,
both to be executed on the Closing Date in substantially the form as set forth
in Exhibit J.
"Environmental Claim" means any notice from a Person alleging (i) the
Company's or any Subsidiary's material non-compliance with, or failure to
perform any material duty under, any Environmental Laws or (ii) potential
material liability of the Company or any Subsidiary (including, without
limitation, potential material liability for investigatory costs, cleanup costs,
governmental response costs, natural resource damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting from (A)
the presence, or release into the environment, of any Hazardous Substance at any
location, whether or not owned by the Company or any Subsidiary, or (B)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Law.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
requirements or directives of any federal, state, local or foreign government,
ministry, department or agency as in effect on the Closing Date, relating to
protection of the environment or to the effect on the environment of any
hazardous or toxic substances or to human health and safety, including without
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limitation (i) the generation, handling, treatment, storage, disposal,
transportation or release of any hazardous or toxic substance and (ii) the
protection, conservation, regulation, management or remediation of soil,
groundwater, surface water or air.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and any successor statute thereto, together with all regulations
thereunder.
"ERISA Affiliate" of any entity means any other entity (whether or not
an Affiliate of such entity) which, together with such entity, would be treated
as a single employer under Section 414 of the Code.
"Escrow Agent" means The Bank of New York, or such other party as may
be mutually agreed by Newco and Melville.
"Escrow Agreement" means an escrow agreement in form and substance
reasonably satisfactory to Newco, Melville and the Escrow Agent, containing
terms and conditions which are customary for such agreements.
"Excluded Subsidiary" means each subsidiary of the Company that is a
party to a Closed Store Lease and is not otherwise a party to a Lease.
"Final Working Capital" means the Closing Working Capital (i) as shown
in the calculation delivered pursuant to Section 2.4(a), if no notice of
disagreement with respect thereto is duly delivered pursuant to Section 2.4(b);
or (ii) if such a notice of disagreement is delivered, (A) as agreed by Newco
and Melville pursuant to Section 2.4(c) or (B) in the absence of such agreement,
as shown in the Independent Accountant's calculation delivered pursuant to
Section 2.4(c); provided that, in no event shall Final Working Capital be less
than the calculation of Closing Working Capital delivered pursuant to Section
2.4(b) or more than the calculation of Closing Working Capital delivered
pursuant to Section 2.4(a).
"Hazardous Substances" means (i) any flammable substances, explosives,
radioactive materials, hazardous wastes, toxic substances, pollutants and
contaminants and all other materials or substances identified in or regulated by
any Environmental Laws and (ii) asbestos, PCBs, urea formaldehyde, nuclear fuel
or material, chemical waste, known carcinogens, petroleum products and by-
products (including any fraction thereof) and radon.
"Headquarters Lease" means the Lease Agreement dated as of September
1, 1991 between the Equitable Life Assurance Society of the United States, as
landlord and Wilsons House of Suede Inc., as tenant for floors 3, 4, 5 and 6 at
Interchange South Building, 400 Highway ▇▇▇ ▇▇▇▇▇, ▇▇. ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇,
which is subject to that certain Lease Assignment and Assumption Agreement dated
as of November 22, 1995 between Wilsons House of Suede, Inc., as Assignor and
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, as Assignee and Consent to Assignment among the Equitable
Life Assurance Society of the United States, Wilsons House of Suede, Inc. and
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇.
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"▇▇▇ ▇▇▇" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended.
"Income Tax" means any Tax which is, in whole or in part, based on or
measured by income or gains, together with any interest, penalty, addition to
tax or additional amounts imposed by any governmental authority responsible for
the imposition of any such tax (domestic or foreign) (a "Taxing Authority").
"Indebtedness" means (i) all indebtedness of the Company or any
Subsidiary to lending institutions and all other indebtedness for borrowed money
created, incurred or accrued by the Company or any Subsidiary, or guaranteed by
the Company or any Subsidiary or for which the Company or any Subsidiary or the
holder is otherwise liable or responsible (including an agreement to assume the
indebtedness of others), (ii) all amounts owing by the Company or any Subsidiary
under indentures, and (iii) all payment obligations secured by any mortgage,
indenture or deed of trust upon any assets owned by the Company or any
Subsidiary though neither the Company nor any Subsidiary may have assumed or
become liable for the payment of such obligations; provided that (a)
intercompany indebtedness between Melville and its Affiliates, on the one hand,
and the Company and the Subsidiaries, on the other hand, that will no longer be
outstanding on the Closing Date as provided in Section 6.5, or between the
Company and its Subsidiaries or between Subsidiaries, (b) outstanding letters of
credit other than any letters of credit that Melville or a Melville Affiliate
has caused the Company to be obligated under without the knowledge of the
Management Disclosure Group, and (c) payables in the ordinary course of business
in connection with the obtaining of materials or services shall not be included
in this definition.
"Independent Accountants" means Deloitte & Touche LLP, or if Deloitte
& Touche LLP is unwilling to act as the Independent Accountants, a nationally
recognized independent accounting firm chosen by, and mutually acceptable to,
both Newco and Melville (other than KPMG Peat Marwick or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Co.,
SC), or if Newco and Melville are unable to mutually agree upon Independent
Accountants, then Newco and Melville shall mutually request the American
Arbitration Association to appoint the Independent Accountants; provided that
the Independent Accountants shall not include KPMG Peat Marwick or ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & Co., SC.
"Intellectual Property Right" means any trademark, service ▇▇▇▇, trade
name, trade dress, invention, patent, trade secret, copyright, know-how
(including any registrations or applications for registration of any of the
foregoing) or any other similar type of proprietary intellectual property right.
"Investor Stock Purchase Agreement" means the Stock Purchase Agreement
between Melville and the Investors to be executed by the Investors on or prior
to the Closing Date having the terms and conditions substantially as set forth
in Exhibit G.
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"Investors" means the investors listed on the signature pages to the
Investor Stock Purchase Agreement.
"Lease" means each real property lease or sublease to which the
Company or any Subsidiary is a party, other than a Closed Store Lease or the
Headquarters Lease.
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset. For the purposes of this
Agreement, a Person shall be deemed to own subject to a Lien any property or
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such property or asset.
"Management Disclosure Group" means ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and any officer of the Company with the title of vice
president or a title senior to the title of vice president.
"Management Shares" means 2,050,000 shares of Class B Common Stock,
450,000 shares of Class C Common Stock and 1,200,000 shares of restricted Class
B Common Stock of Newco to be issued by Newco to the Managers pursuant to the
Manager Stock Purchase Agreement.
"Management Warrant" means the warrant to be issued by Newco to
Melville to purchase 1,200,000 shares of Class A Common Stock of Newco, as such
number of shares may be reduced by the terms of the Management Warrant, having
the terms and conditions specified in Exhibit C hereto.
"Manager Stock Purchase Agreement" means the Stock Purchase Agreement
between Newco and the Managers to be executed by the Managers on or prior to the
Closing Date having the terms and conditions substantially as set forth in
Exhibit F.
"Managers" means the managers listed on the signature pages to the
Manager Stock Purchase Agreement.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the condition (financial or otherwise), business,
assets, operations, or results of operations of such Person and its
Subsidiaries, taken as whole.
"Melville's ESOP" means The Melville Corporation and Subsidiaries
Employee Stock Ownership Plan.
"Melville's 401(k) Profit Sharing Plan" means the 401(k) Profit
Sharing Plan of Melville Corporation and Affiliated Companies.
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"Melville Group" means, with respect to federal Income Taxes, the
affiliated group of corporations (as defined in Section 1504(a) of the Code) of
which Melville is a member and, with respect to state income or franchise Taxes,
an affiliated, consolidated, combined, unitary or similar group of which
Melville, the Company or any of their respective Affiliates is a member.
"Melville's Individual Account Plans" means Melville's ESOP and
Melville's 401(k) Profit Sharing Plan.
"Melville Subsidiary" means any Subsidiary of Melville other than
Newco, the Company or any of the Company's Subsidiaries.
"MRC" means Melville Realty Company, Inc., a New York corporation.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
3(37) of ERISA.
"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.
"Note" means the senior secured subordinated note due December 31,
2000 of Newco in the principal amount of $55,811,000 to be issued to Melville by
Newco having the terms and conditions specified in Exhibit A hereto.
"Note Repayment Date" means the date on which all of principal and
interest payable under the Note has been paid in full.
"Original Minimum Rent" means, with respect to any Lease, the amount
provided for by such Lease as minimum, base or other fixed amount of rent as of
the Closing Date.
"Original Percentage Rent" means, with respect to any Lease, the
amount of percentage rent provided for by such Lease, calculated in accordance
with the percentages and breakpoints provided for in such Lease, for (i) the
most recent 12-month period ending prior to the Closing Date or (ii) such other
period as is specifically provided for in such Lease.
"Person" means an individual, corporation, limited liability company,
partnership, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Pledge Agreements" means each pledge agreement to be entered into on
the Closing Date between Melville and the Company, Rosedale Wilsons Inc., and
River Hills
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Wilsons Inc., respectively, having terms and conditions substantially similar to
the terms and conditions of the pledge agreement to be entered into on or prior
to the Closing Date between Wilsons House of Suede, Inc., a California
corporation, a Subsidiary of the Company, certain other Subsidiaries of the
Company and GE Capital as agent for the lenders thereunder (the "Senior Pledge
Agreement") except that the Pledge Agreement shall vary from the Senior Pledge
Agreement in such other respects as reasonably required by GE capital.
"Post-Closing Tax Period" means any Tax period ending after the
Closing Date, excluding the portion, if any, of such Tax period up to and
including the Closing Date.
"Pre-Closing Tax Period" means any Tax period ending on or before the
Closing Date; provided that if a Tax period ending after the Closing Date
contains any days which fall prior to or on the Closing Date, any portion of
such Tax period up to or including the Closing Date shall also be included in
the Pre-Closing Tax Period.
"Preferred Shares" means 7,405 shares of Preferred Stock of Newco to
be issued to Melville pursuant to Section 2.2(a).
"Preferred Stock" means the Series A Preferred Stock, par value $.01
per share, of Newco having the rights, voting power, preferences and
restrictions designated in the Articles of Incorporation.
"Registration Rights Agreement" means the registration rights
agreement to be entered into on the Closing Date between Melville, Newco, the
Managers, Leather Investors Limited Partnership I and the partners thereof
listed on the signature pages thereto having the terms and conditions specified
in Exhibit E hereto.
"Release Payment" means any payment required by any Landlord in
connection with a Lease before delivery by such Landlord of its Consent (as
hereinafter defined) with respect thereto, regardless of whether such payment is
required pursuant to the terms of the applicable Lease or is otherwise required
by such Landlord (including but not limited to any additional remodeling costs,
transfer or assignment charges, administration fees and fees and expenses of
counsel in connection therewith).
"Remediation" means any investigation, testing, remediation, cleanup,
treatment, monitoring, removal, disposal or abatement activities.
"Rent Increase" means an increase in rent (including, if applicable,
retroactive rent to the Closing Date); provided that an increase in rent shall
not be deemed to be a Rent Increase unless either (i) the Original Minimum Rent
is increased to an amount greater than the Effective Rent or (ii) the Original
Percentage Rent is increased such that the amount that would have been payable
under the applicable Lease for the most recent 12-month period ending prior to
the Closing Date is greater than the Effective Rent payable under such Lease for
such period.
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"Return" means any return, statement, report or form relating to
Taxes.
"Security Agreement" means the security agreement to be entered into
on the Closing Date between Melville and Newco having terms and conditions
substantially similar to the terms and conditions of the security agreement to
be entered into on or prior to the Closing Date between Wilsons House of Suede,
Inc., a California corporation, a Subsidiary of the Company, certain other
Subsidiaries of the Company and General Electric Capital Corporation ("GE
Capital") as agent for the lenders thereunder (the "Senior Security Agreement")
except that Melville shall have a second priority security interest in the same
assets that are subject to the Senior Security Agreement and the Security
Agreement shall vary from the Senior Security Agreement in such other respects
as reasonably required by GE Capital.
"Shareholders Agreement" means the shareholders agreement to be
entered into on the Closing Date among Newco, the Managers, Leather Investors
Limited Partnership I, Leather Investors Limited Partnership II and the
investors listed on the signature pages thereto.
"Stock Purchase Agreements" means the Investor Stock Purchase
Agreement and the Manager Stock Purchase Agreement.
"Stores" means, collectively, the stores that are the subject of the
Leases, each of which individually is referred to as a Store.
"Subsidiary" means, with respect to any Person, any other 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 such Person. Unless
otherwise specified in this Agreement, any reference to a Subsidiary shall mean
a Subsidiary of the Company; provided that no Excluded Subsidiary shall be
considered to be a Subsidiary of the Company.
"Tax" means (i) any tax imposed under Subtitle A of the Code, any net
income, alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, value added, transfer, franchise, profits, license, withholding
of tax on amounts paid to or by the Company or any Subsidiary, payroll,
employment, excise, severance, stamp, capital stock, occupation, property,
windfall profit tax, premium, custom, duty or other tax, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest, penalty, addition to tax or additional amounts imposed by a Taxing
Authority and (ii) any liability, including but not limited to liability under
Treasury Regulation Section 1.1502-6, for the payment of any amount of the type
described in the immediately preceding clause (i).
"Terminated Lease" means any Lease (i) the premises of which Newco,
the Company or any Subsidiary cannot take or maintain possession of as of the
Closing Date as a result of an injunction or restraining order concerning or
resulting from the sale of the
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Company Shares contemplated by this Agreement, provided that if such injunction
or order is later lifted, such Lease will no longer be a Terminated Lease,
unless such Lease becomes a Terminated Lease under another provision of this
Agreement, (ii) the premises of which Newco, the Company or any Subsidiary must
vacate after the Closing Date as a result of (A) a final court or arbitration
order, judgment, ruling by a court or arbitrator, writ or other process
concerning or resulting from the sale of the Company Shares pursuant to this
Agreement for which all applicable appeal periods have expired or (B) a
settlement concerning or resulting from the sale of the Company Shares pursuant
to this Agreement negotiated by Newco with Landlord which requires Newco to
vacate such Store; provided that such settlement shall be subject to the prior
approval of Melville, which approval shall not be unreasonably conditioned,
delayed or withheld, or (iii) which Melville and Newco at any time mutually
agree is a Terminated Lease.
"Title IV Plan" means an Employee Plan, other than any Multiemployer
Plan, subject to Title IV of ERISA.
"Warrant" means the warrant to be issued by Newco to Melville to
purchase 1,500,000 shares of Class A Common Stock, having the terms and
conditions specified in Exhibit B hereto.
"Warrant Shares" means the shares of Common Stock of Newco to be
issued upon the exercise of the Warrant and the Management Warrant.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
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Acquisition Proposal 6.7
Annual Financials 3.7
Authorized Preferred Stock 5.9
Cash Consideration 2.2(a)
Closing 2.2
Closing Balance Sheet 2.4(a)
Closing Working Capital 2.4(a)
Commitment Letter 8.7
Company Intellectual Property Rights 3.17
Company Securities 3.5(b)
Consent 9.6(a)
Damages 13.2(a)
Delivered Lease 9.6(a)
Direct Rollover 11.2(a)
Director and Officer Claims 13.2(a)
Estimated Closing Balance Sheet 2.3(a)
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Term Section
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Estimated Closing Working
Capital Statement 2.3(b)
Estimated Working Capital 2.3(b)
Expense Letters 15.3
Financing 8.7
Financing Agreement 8.7
GE Capital 1.1(a)
Indemnified Party 13.4(a)
Indemnifying Party 13.4(a)
Insured Claim 7.12
Inventory Firm 2.4(a)
Inventory Statement 2.4(a)
KPMG Peat Marwick Report 2.4(a)
Landlord 9.6(a)
Long-term Disability 11.1(a)
Loss 10.2(b)
Melville's Insurance Policies 7.12
Miscellaneous Taxes 10.5(a)
Newco Plan 11.2(a)
Newco Securities 5.9(b)
Permits 3.18
Price Allocation 10.2(a)
Section 338(h)(10) Election 10.2(a)
Senior Pledge Agreement 1.1(a)
Senior Security Agreement 1.1(a)
Short-term Disability 11.1(a)
Specified Indemnity Provision 13.2(a)
Spray Litigation 13.2(a)
Store Contribution 9.6(b)
Subsidiary Securities 3.6(b)
Subsidiary Shares 12.2
Successor Individual Account Plan 11.2(c)
Tax Accountants 10.2(a)
Tax Loss 10.5(a)
Tax Packages 10.2(f)
Third Party Claims 13.4(a)
Transfer Taxes 10.2(d)
Transferred Employees 11.1
Working Capital Payment 2.2(c)
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ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale. Upon the terms and subject to the conditions
of this Agreement, Melville agrees to sell, assign and deliver to Newco and
Newco agrees to purchase from Melville, the Company Shares at the Closing.
2.2 Closing. The closing (the "Closing") of the purchase and sale of
the Company Shares hereunder shall take place at the offices of ▇▇▇▇▇ ▇▇▇▇ &
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ May 25, 1996, or at such
other time or place as Melville and Newco may agree and shall be deemed to be
effective at 11:59 p.m. on the Closing Date. At the Closing,
(a) Newco shall deliver to Melville:
(i) $2,000,000 (the "Cash Consideration") in immediately
available funds by wire transfer to an account at a bank designated by
Melville by notice to Newco (to be designated no later than two business
days prior to the Closing Date); provided that if the account is not so
designated, Newco shall still be obligated to pay $2,000,000 as soon as
practicable after receipt by Newco from Melville of the designation of an
account at a bank for a wire transfer of the $2,000,000;
(ii) the Note;
(iii) the Warrant;
(iv) the Management Warrant;
(v) the Common Shares; and
(vi) the Preferred Shares.
(b) Melville shall deliver to Newco certificates for the Company
Shares duly endorsed or accompanied by stock powers duly endorsed in blank, with
any required transfer stamps affixed thereto, together with the stock
certificates for all shares of capital stock of the Subsidiaries (all of which
shall be registered in the name of the Company or its Subsidiaries).
(c) Melville shall deliver immediately available funds in an amount
equal to the amount by which the Base Working Capital exceeds Estimated Closing
Working Capital ("Working Capital Payment"), by wire transfer to an account
designated by the Company.
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Notwithstanding the foregoing, if the Closing Date shall be a day other than a
Business Day, on the Business Day immediately preceding the Closing Date, (x)
Newco, or its designee, shall deliver the Cash Consideration, in immediately
available funds by wire transfer, the Note, the Warrant, the Management Warrant,
the Common Shares and the Preferred Shares to the Escrow Agent for deposit
pursuant to the Escrow Agreement, (y) Melville shall deliver to the Escrow Agent
certificates for the Company Shares duly endorsed or accompanied by stock powers
duly endorsed in blank, with any required transfer stamps affixed thereto, and
in form proper for transfer, for deposit pursuant to the Escrow Agreement and
(z) Melville shall make the Working Capital Payment pursuant to Section 2.2(c).
All funds deposited with the Escrow Agent shall be applied by the Escrow Agent
in accordance with the terms of the Escrow Agreement to make the payment
required by Section 2.2(a)(i), provided that interest on such funds deposited by
Newco shall accrue and be payable to Newco from the date of deposit with the
Escrow Agent through and including the Closing Date and interest on such funds
deposited by Newco shall accrue and be payable to Melville from but not
including the Closing Date through and including the date of payment of such
funds to Melville by wire transfer of immediately available funds. The Note,
the Warrant, the Management Warrant, the Common Shares and the Preferred Shares
and the certificates for the Company Shares shall be distributed by the Escrow
Agent in accordance with the terms of the Escrow Agreement to satisfy the
requirements of Sections 2.2(a)(ii)-(vi) and 2.2(b), respectively. The fees and
expenses of the Escrow Agent shall be borne by Newco and Melville equally;
provided that if any amounts in respect of such fees are accrued by Newco and
the Company prior to Closing, such amounts shall be excluded from the
calculation of Estimated Working Capital and Closing Working Capital pursuant to
Article 2.
2.3 Estimated Adjustment to Working Capital. (a) Prior to the
Closing, the Company (including its officers at the time of the preparation of
the Estimated Closing Balance Sheet who, other than the Managers, are not
officers or employees of Melville or any of its Affiliates), with participation
by Melville, shall prepare, or cause to be prepared, a consolidated balance
sheet of the Company and the Subsidiaries (the "Estimated Closing Balance
Sheet") as of the close of business on the Closing Date. The Estimated Closing
Balance Sheet shall be prepared in accordance with generally accepted accounting
principles applied consistently with the Company's past practices used in the
preparation of the Annual Financials.
(b) Based upon the Estimated Closing Balance Sheet, the Company
(including its officers at the time of the preparation of the Estimated Closing
Balance Sheet who, other than the Managers, are not officers or employees of
Melville or any of its Affiliates), with participation by Melville, shall
prepare, or cause to be prepared, prior to the Closing, an Estimated Closing
Working Capital Statement in substantially the form of Schedule 2.3(b). Assets
and liabilities on the Estimated Closing Working Capital Statement will be equal
to such items in the Estimated Closing Balance Sheet except as otherwise
specified in Schedule 2.3(b). The Estimated Closing Working Capital Statement
will exclude those assets and liabilities detailed in Schedule 2.4(a)-1 under
the column titled "Items
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Assumed/Retained by Melville". "Estimated Working Capital" means the estimated
working capital figure appearing on the Estimated Working Capital Statement. The
Company shall deliver such Estimated Closing Balance Sheet and Estimated Working
Capital Statement to Melville by the close of business on the day which is the
third business day prior to the Closing Date. If Melville disagrees with the
calculation of Estimated Working Capital delivered pursuant to the preceding
sentence by more than $500,000, Melville will notify the Company no later than
the close of business on the next succeeding business day and Melville and the
Company (through its officers who, other than the Managers, are not employees of
Melville or any of its Affiliates) shall agree on the calculation of the
Estimated Working Capital by the Closing Date. If the parties fail to agree on
the calculation of the estimated Working Capital, the Closing shall not occur
until the parties reach agreement on such calculation. Any delay of the Closing
pursuant to this Section 2.3(b) shall not constitute a failure of any condition
contained in Article 12 or give rise to a right of termination pursuant to
Article 14.
(c) If Base Working Capital exceeds Estimated Working Capital,
Melville shall contribute to the Company, on or prior to Closing, the amount of
the excess, as provided in Section 2.2(c).
2.4 Closing Balance Sheet. (a) As promptly as practicable following
the Closing Date but no later than 30 days after Closing, the Company shall
prepare a consolidated balance sheet of the Company and its Subsidiaries and the
Excluded Subsidiaries as of and including the Closing Date (the "Closing Balance
Sheet") in accordance with generally accepted accounting principles applied
consistently with the Company's past practices used in the preparation of the
Annual Financials. During the two days prior to and including the Closing Date,
R.G.I.S. (the "Inventory Firm") shall conduct a wall-to-wall physical count of
all owned inventory located at the stores, distribution centers and/or
warehouses of the Company and its Subsidiaries for purposes of preparing the
Closing Balance Sheet. Melville, Newco, the Company and their representatives
shall be entitled to observe the physical count of the inventory. The cost of
the physical count of the inventory conducted by the Inventory Firm shall be
borne by Melville. As promptly as practicable and no later than fifteen (15)
days following the Closing Date, the Inventory Firm shall deliver to Melville
and Newco a written statement setting forth the inventory count as of and
including the Closing Date (the "Inventory Statement"). The inventory reflected
on the Closing Balance Sheet shall be calculated in accordance with accounting
principles consistently applied by the Company consistent with past practice
based on the Inventory Statement, using the retail method consistent with the
Company's past practice. Amounts reflected on the Closing Balance Sheet for
those elements, accounts or items to be included in the calculation of the
Closing Working Capital shall include all known and estimated assets and
liabilities as of and including the Closing Date consistent with the Company's
past practices used in preparation of the Annual Financials.
As promptly as practicable following the receipt of the unaudited
Closing Balance Sheet, KPMG Peat Marwick LLP, at Melville's cost, shall issue an
independent
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auditors' report of the Closing Balance Sheet including an unqualified opinion
as to such Closing Balance Sheet (the "KPMG Peat Marwick Report") (and prior to
the issuance by KPMG Peat Marwick LLP of such report, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Co., SC
and representatives of Newco and the Company reasonably designated by Newco
shall have the opportunity to review KPMG Peat Marwick's work papers and to be
present during the performance of all such procedures). KPMG Peat Marwick LLP
shall furnish the KPMG Peat Marwick Report to Newco and Melville within 60 days
following the Closing.
In connection with the KPMG Peat Marwick Report, KPMG Peat Marwick LLP
shall issue an Independent Accountant's Report on Applying Agreed Upon
Procedures in accordance with Statement on Auditing Standards No. 75 relating to
a Closing Working Capital Statement in substantially the form of Schedule
2.4(a). Current assets and current liabilities on the Closing Working Capital
Statement will be equal to such items in the Closing Balance Sheet except as
otherwise specified in Schedule 2.4(a). The Closing Working Capital Statement
will exclude those assets and liabilities detailed in Schedule 2.4(a)-1 under
the column titled "Items to be Assumed/Retained by Melville". "Closing Working
Capital" means the closing working capital figure appearing on the Closing
Working Capital Statement but shall not include the Working Capital Payment.
The parties agree that the Closing Working Capital Statement and the
calculation of Closing Working Capital shall not include as liabilities any
amounts which Melville, and not the Company or any Subsidiary, is required to
pay pursuant to the terms of this Agreement.
Schedule 2.4(a)-1 sets forth a statement of assets and liabilities to
be retained by Melville and the Company respectively.
(b) If Newco disagrees with the calculation of Closing Working Capital
delivered pursuant to Section 2.4(a), Newco may, within 15 days after delivery
of the documents referred to in Section 2.4(a), deliver a notice to Melville
disagreeing with such calculation and setting forth Newco's calculation of
Closing Working Capital. Any such notice of disagreement shall specify those
items or amounts as to which Newco disagrees, and Newco shall be deemed to have
agreed with all other items and amounts contained in the Closing Working Capital
Statement and the calculation of Closing Working Capital delivered pursuant to
Section 2.4(a). During such 15-day period, Melville shall use its commercially
reasonable efforts to provide Newco reasonable access to the partners and
employees of KPMG Peat Marwick who were involved in the preparation of the KPMG
Peat Marwick Report (together with access to the workpapers relating thereto);
provided that such access shall not interfere with the normal conduct of
business by such partners and employees.
(c) If a notice of disagreement shall be delivered pursuant to Section
2.4(b), Newco and Melville shall, during the 15 days following such delivery,
use their best efforts to reach agreement on the disputed items or amounts in
order to determine, as may be required, the amount of Closing Working Capital
which amount shall not be less than the amount
-15-
thereof shown in the calculation delivered pursuant to Section 2.4(b) nor more
than the amount thereof shown in the calculation delivered pursuant to Section
2.4(a). If, during such period, Newco and Melville are unable to reach such
agreement, they shall immediately thereafter cause the Independent Accountants
to review this Agreement and the disputed items or amounts for the purpose of
calculating Closing Working Capital. In making such calculation, the Independent
Accountants shall consider only those items or amounts in the Closing Working
Capital Statement or the calculation of Closing Working Capital delivered
pursuant to Section 2.4(a) as to which Newco has disagreed. The Independent
Accountants shall deliver to Newco and Melville, within 15 days, a written
report setting forth such calculation. Such report shall be final and binding
upon Newco and Melville. The cost of such review and report shall be borne (i)
by Newco in the proportion, if any, that (A) the amount by which Final Working
Capital exceeds the calculation of Closing Working Capital delivered pursuant to
Section 2.4(b) bears to (B) the difference between the calculation of Closing
Working Capital delivered pursuant to Section 2.4(a) and the calculation of
Closing Working Capital delivered pursuant to Section 2.4(b), and (ii) by
Melville with respect to the remainder of such cost.
(d) Newco, Melville and the Company agree that they will cooperate and
assist in the preparation of the Estimated Closing Balance Sheet, Estimated
Closing Working Capital Statement, Closing Balance Sheet, Closing Working
Capital Statement and the calculation of Estimated Working Capital and Closing
Working Capital and in the conduct of the audits and reviews referred to in this
Section, including without limitation, (i) the right of Melville and its agents
to have prompt and reasonable access during normal business hours to the
properties, books and records and employees of the Company and the Subsidiaries
and (ii) the right of Melville to have a representative present at the Company
or any Subsidiary during normal business hours.
2.5 Adjustment of Working Capital. (a) If Estimated Working Capital
exceeds Final Working Capital, Melville shall contribute to Newco, in the manner
and with interest as provided in Section 2.5(b), the amount of such excess. If
Final Working Capital exceeds Estimated Working Capital, Newco shall pay to
Melville, in the manner and with interest as provided in Section 2.5(b), the
amount of such excess.
(b) Any contribution pursuant to Section 2.5(a) shall be made within
five days after the Final Working Capital has been determined by delivery by
Newco or Melville, as the case may be, by wire transfer of immediately available
funds to an account of the other party designated by such other party. The
amount of any payment to be made pursuant to this Section shall bear interest
from but not including the Closing Date to but excluding the date of payment at
a rate per annum equal to the reference rate from time to time of ▇▇▇▇▇▇
Guaranty Trust Company of New York. 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.
-16-
2.6 Legending of Securities. The Note, Warrant, Management Warrant,
Common Shares and Preferred Shares to be issued to Melville shall bear the
following legend:
"The [Note/Warrant/Management Warrant/Common Shares/Preferred
Shares] represented hereby has not been registered under the
Securities Act of 1933, as amended, and may not be offered, sold,
transferred or otherwise disposed of unless registered with the
Securities and Exchange Commission of the United States and the
securities regulatory authorities of applicable states or unless in
the written opinion of counsel to holder reasonably acceptable to
Newco that is delivered to Newco an exemption from such registration
[and, with respect to the Note, the Trust Indenture Act of 1939,] is
available."
2.7 Allocation of Note. The Note shall be treated first as
consideration for the inventories of the Company and its Subsidiaries.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company represents and warrants to Newco as of the date hereof and
as of the Closing Date that, except as disclosed in the Schedules hereto:
3.1 Corporate Existence and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota. The Company has all corporate powers and authority and all material
governmental licenses, authorizations, permits, consents and approvals required
to own its assets, lease the properties leased by it and carry on its business
as now conducted. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the nature of the
business done or the properties owned or leased by the Company require such
qualification, except for those jurisdictions where failure to be so qualified
does not and would not, individually or in the aggregate, have a Material
Adverse Effect on the Company. Each jurisdiction in which the Company is
qualified to do business is set forth in Schedule 3.1. The Company has
heretofore delivered to Newco true and complete copies of the articles of
incorporation and bylaws of the Company as currently in effect and has made
available to Newco minute books containing all minutes and written actions of
the shareholders and directors of the Company, and all actions taken by the
shareholders and directors of the Company are reflected in such minutes and
actions. True and correct lists of the directors and officers of the Company
have been furnished to Newco.
3.2 Corporate Authorization. The execution, delivery and performance
by the Company of this Agreement are within the Company's corporate powers and
have been
-17-
duly authorized by all necessary corporate action on the part of the Company.
This Agreement constitutes a valid and binding agreement of the Company
enforceable in accordance with its terms, except as (i) the enforceability
hereof may be limited by bankruptcy, insolvency, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (ii) the
availability of equitable remedies may be limited by equitable principles of
general applicability.
3.3 Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement require no action by or in respect
of, or filing with, any governmental body, agency, or official, except for (i)
if required, satisfaction of the requirements of the HSR Act, (ii) compliance
with any applicable requirements of the 1934 Act and (iii) any such action or
filing as to which the failure to make or obtain would not, individually or in
the aggregate, have a Material Adverse Effect on the Company and would not
impair in any respect the ability of the Company or Melville to consummate the
transactions contemplated by this Agreement.
3.4 Non-Contravention. The execution, delivery and performance by
the Company of this Agreement do not and will not (i) violate the Charter or
bylaws of the Company or any Subsidiary, (ii) assuming compliance with the
matters referred to in Section 3.3, violate any applicable statute, law, rule,
regulation, ordinance, judgment, ruling by a court, writ, injunction, order or
decree, (iii) require any consent or other action by, or, except as referred to
in Section 3.3, any notice to, any Person under, constitute a default or create
a penalty under, conflict with, or give rise to any right of termination,
cancellation or acceleration of any right or obligation of the Company or any
Subsidiary or to a loss of any benefit to which the Company or any Subsidiary is
entitled under, any agreement, contract, lease, license or other instrument
(other than any Lease) binding upon or applicable to the Company or any
Subsidiary or to which any asset of the Company or any Subsidiary is subject or
any license, franchise, permit or other similar authorization held by the
Company or any Subsidiary, or (iv) result in the creation or imposition of any
material Lien on any asset of the Company or any Subsidiary, except, in the case
of clauses (ii) and (iii), to the extent that any such violation, failure to
obtain any such consent or other action, default, conflict, penalty, right or
loss, individually or in the aggregate, does not and would not have a Material
Adverse Effect on the Company and would not impair in any respect the ability of
the Company or Melville to consummate the transactions contemplated by this
Agreement.
3.5 Capitalization. (a) The authorized capital stock of the Company
consists of 100 shares of common stock, no par value per share. As of the date
hereof, there are outstanding 100 shares of common stock.
(b) All outstanding shares of common stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable. The
Company has not issued any shares of Company Shares or other capital stock or
other voting or equity securities of the Company in violation of any preemptive
rights. Except as disclosed in Section 3.5(a), there are no outstanding (i)
shares of capital stock or voting or equity securities of the
-18-
Company, (ii) securities of the Company convertible into or exchangeable for
shares of capital stock or voting or equity securities of the Company or (iii)
options, warrants, subscriptions or other rights to acquire from the Company, or
commitment or other obligation of the Company to issue, any capital stock, other
voting or equity securities or securities convertible into or exchangeable for
capital stock or other voting or equity securities of the Company (the items in
clauses (i), (ii) and (iii) being referred to collectively as the "Company
Securities"). There are no outstanding commitments or other obligations of the
Company or any Subsidiary to repurchase, redeem or otherwise acquire the Company
Shares or any Company Securities.
(c) The stock certificates and transfer books of the Company and each
Subsidiary have been made available to Newco and are true and complete, and
constitute all of the stock certificates and transfer books of the Company and
each Subsidiary.
3.6 Subsidiaries. (a) Each Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate powers and authority and all
governmental licenses, authorizations, permits, consents and approvals required
to own its assets, lease the properties leased by it and carry on its business
as now conducted. Each Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the nature of the
business done or the properties owned or leased by such Subsidiary require such
qualification except for those jurisdictions where failure to be so qualified
does not and would not, individually or in the aggregate, have a Material
Adverse Effect on the Company. All Subsidiaries and their respective
jurisdictions of incorporation are disclosed in Schedule 3.6. Schedule 3.6 also
sets forth each jurisdiction in which each Subsidiary is qualified to do
business as a foreign corporation. The Company has heretofore made available to
Newco true and complete copies of the Charter and bylaws of each Subsidiary as
currently in effect and has made available to Newco minute books containing all
minutes and written actions of the shareholders and directors of each
Subsidiary, and all actions taken by the shareholders and directors of each
Subsidiary are reflected in such minutes and actions. True and correct lists of
the directors and officers of each Subsidiary have been furnished to Newco.
(b) All of the outstanding capital stock of, and other voting and
equity securities and ownership interests in, each Subsidiary, is owned,
directly or indirectly, of record and beneficially by the Company, free and
clear of any Lien and free of any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other voting and equity securities or ownership interests). No
Subsidiary has issued any shares of its capital stock or other voting or equity
securities of such Subsidiary in violation of any preemptive rights. There are
no outstanding (i) securities of any Subsidiary convertible into or exchangeable
for shares of capital stock or other voting or equity securities or ownership
interests in any Subsidiary or (ii) options, warrants, subscriptions or other
rights to acquire from the Company or any Subsidiary, or commitment or other
obligation of the Company or any Subsidiary to issue, any capital stock or other
voting or equity securities or ownership interests in, or any securities
convertible into or exchangeable for any capital stock or other voting or equity
securities or ownership interests
-19-
in, any Subsidiary (the items in clauses (i) and (ii), together with the
outstanding capital stock of, and other voting and equity securities and
ownership interests in, each Subsidiary, being referred to collectively as the
"Subsidiary Securities"). There are no outstanding commitments or obligations of
the Company or any Subsidiary to repurchase, redeem or otherwise acquire any
outstanding Subsidiary Securities.
3.7 Financial Statements. The unaudited consolidated balance sheet
of the Company, the Subsidiaries and the Excluded Subsidiaries as of March 31,
1996 and the audited consolidated balance sheets of the Company, the
Subsidiaries and the Excluded Subsidiaries as of December 31, 1994 and December
31, 1995 and the consolidated statements of income and cash flows thereof for
each of the quarter ended March 31, 1996 (unaudited) and the years ended
December 31, 1993, December 31, 1994 and December 31, 1995 (audited) (such
consolidated balance sheets as of each such year end and consolidated statements
of income and cash flows for each such year being referred to herein as the
"Annual Financials") previously delivered to Newco, present fairly, in all
material respects, the consolidated financial position of the Company, the
Subsidiaries and the Excluded Subsidiaries as of the dates thereof and their
consolidated results of operations for the periods then ended in conformity with
generally accepted accounting principles applied on a basis consistent with the
Company's past practices throughout the periods involved and presented in
accordance with Regulation S-X of the 1933 Act.
3.8 Absence of Certain Changes. Except as disclosed in Schedule 3.8,
or as contemplated by this Agreement or the discontinuance of the issuance of
lease guarantees by MRC, since the Balance Sheet Date, the business of the
Company and the Subsidiaries has been conducted in the ordinary course
consistent with past practices and there has not been:
(a) any event, occurrence, development or state of circumstances or
facts which has had or would reasonably be expected to have a Material Adverse
Effect on the Company and the Subsidiaries, other than any resulting from or
attributable to (i) the transactions contemplated by this Agreement and (ii)
changes in general economic conditions that have not had a materially more
adverse effect on the Company and the Subsidiaries, taken as a whole, than on
similar retail businesses;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company or any
of the Subsidiaries, or any repurchase, redemption or other acquisition by the
Company or any Subsidiary of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or any Subsidiary,
other than any distribution to the Company and its Subsidiaries or Melville and
its Affiliates in the ordinary course consistent with past practice, including
but not limited to distributions in connection with the repayment or
cancellation of any intercompany debt, advance or other balance;
(c) any amendment of any term of any outstanding security of the
Company or any Subsidiary;
-20-
(d) any incurrence, assumption or guarantee by the Company or any
Subsidiary of any Indebtedness;
(e) any creation or assumption by the Company or any Subsidiary of, or
imposition by any Person of, any Lien on any material asset of the Company or
any Subsidiary, other than in the ordinary course of business consistent with
past practices;
(f) any making of any loan, advance or capital contributions to or
investment in any Person, other than (i) loans, advances or capital
contributions to or investments between the Company and any Subsidiary or
between Subsidiaries, (ii) intercompany indebtedness between Melville and its
Affiliates, on the one hand, and the Company and the Subsidiaries, on the other
hand, and (iii) loans or advances to suppliers in the ordinary course of
business;
(g) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company or any
Subsidiary which, individually or in the aggregate, has had or would have a
Material Adverse Effect on the Company;
(h) any transaction or commitment made, or any contract or agreement
entered into, by the Company or any Subsidiary relating to its assets or
business (including the acquisition or disposition of any assets) or any
relinquishment by the Company or any Subsidiary of any contract or other right,
in either case, material to the Company and the Subsidiaries, taken as a whole,
other than (i) transactions and commitments in the ordinary course of business
consistent with past practices and (ii) those contemplated by this Agreement;
(i) any change in any method of accounting or accounting practice by
the Company or any Subsidiary, except for any change after the date hereof
required by reason of a concurrent change in generally accepted accounting
principles;
(j) any (i) employment, deferred compensation, severance, retirement
or other similar agreement entered into with any director, officer or employee
of the Company or any Subsidiary (or any amendment to any such existing
agreement), (ii) grant of any severance or termination pay to any director,
officer or employee of the Company or any Subsidiary, or (iii) increase in
compensation or other benefits payable to any director, officer or employee of
the Company or any Subsidiary pursuant to any severance or retirement plans or
policies thereof, except in each case in the ordinary course of business
consistent with past practice;
(k) any adoption of, or material change to, any Benefit Arrangement or
Employee Plan with respect to which the Company or any of its Subsidiaries has
or may have any liability or obligation after the Closing;
(l) any labor dispute, other than routine individual grievances, or
any activity or proceeding by a labor union or representative thereof to
organize any employees of
-21-
the Company or any Subsidiary, or any lockouts, strikes, slowdowns, work
stoppages or threats thereof by or with respect to any employees of the Company
or any Subsidiary; or
(m) any cancellation or compromise by the Company or any Subsidiary of
any debt or other obligation owed to, or claim held by, it or other
relinquishment by the Company or any Subsidiary of any contract or other right
other than (i) for intercompany indebtedness between Melville and its
Affiliates, on the one hand, and the Company and the Subsidiaries, on the other
hand, or between the Company and its Subsidiaries or between Subsidiaries, or
(ii) for compromises of trade debt in the ordinary course of business consistent
with past practice.
3.9 No Undisclosed Material Liabilities. There are no liabilities
or obligations of the Company or any Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, other
than:
(i) liabilities provided for in the Balance Sheet or disclosed
in the notes thereto;
(ii) intercompany indebtedness between the Company and any
Subsidiary or between Subsidiaries, or intercompany indebtedness between
Melville and its Affiliates, on the one hand, and the Company and the
Subsidiaries, on the other hand, all of which indebtedness between Melville
and its Affiliates, on the one hand, and the Company and the Subsidiaries,
on the other hand, shall no longer be outstanding at the Closing as
provided in Section 6.5;
(iii) liabilities incurred in the ordinary course of business
consistent with past practice since the Balance Sheet Date;
(iv) liabilities disclosed in Schedule 3.9 or any other Schedule
to this Agreement; and
(v) other undisclosed liabilities which, individually or in the
aggregate, are not material to the Company and the Subsidiaries, taken as a
whole.
3.10 Labor Matters. The Company and the Subsidiaries have complied
and are complying with all Federal, state, local and foreign statutes, laws,
rules, regulations, ordinances and policies of a material nature respecting
employment and employment practices and have not and are not engaged in any
unfair labor practice or unlawful discriminatory act. Except as disclosed in
Schedule 3.10, there is no pending or threatened charge or complaint by or
against the Company or any Subsidiary before the Equal Employment Opportunity
Commission, any other federal governmental authority relating to labor or
employee matters or any similar foreign, state or local governmental authority.
Except as set forth on Schedule 3.10, neither the Company nor any Subsidiary is
a party to, or subject to, any collective bargaining or other similar agreement
with any labor union or other similar association representing employees of the
Company and the Subsidiaries, nor is any collective bargaining
-22-
agreement currently being negotiated by the Company or any Subsidiary with
respect to any employees of the Company or any Subsidiary and, to the knowledge
of Melville or the Company, no movement to designate a collective bargaining
agent to represent any such employees is being (or since January 1, 1996 has
been) conducted or is threatened. No lockout, strike, slowdown, work stoppage
or, to the knowledge of Melville or the Company, threats thereof by or with
respect to any employees of the Company or any Subsidiary have occurred since
January 1, 1996.
3.11 Material Contracts. (a) Except as disclosed in Schedule 3.11,
and except for any agreements that are terminable on not more than 90 days
notice and without the payment of any penalty by, or any Material Adverse Effect
on, the Company from the loss of the benefits of such agreements, individually
or in the aggregate, neither the Company nor any Subsidiary is a party to or
bound by:
(i) any lease, sublease, license, tenancy, concession or other
occupancy agreement (other than the Closed Store Leases, the Headquarters
Lease and the Leases) providing for annual rentals of $250,000 or more;
(ii) any agreement for the purchase of goods, services,
equipment or other assets that provides for annual payments by the Company
and the Subsidiaries of $250,000 or more, other than purchase orders for
inventory and other arrangements with suppliers entered into in the
ordinary course of business;
(iii) any sales, distribution or other similar agreement
providing for the sale by the Company or any Subsidiary of materials,
supplies, goods, services, equipment or other assets that provides for
annual payments to the Company and the Subsidiaries of $250,000 or more;
(iv) any partnership, joint venture or other similar agreement
or arrangement;
(v) any agreement relating to Indebtedness (whether incurred,
assumed, guaranteed or secured by any asset), other than any such agreement
for the deferred purchase price of tangible personal property with an
aggregate outstanding principal amount not exceeding $250,000 and which may
be prepaid on not more than 30 days notice without the payment of any
penalty;
(vi) any license, franchise or similar agreement;
(vii) any agency, dealer, sales representative, advertising,
promotional, marketing or other similar agreement that provides for annual
payments by the Company or any Subsidiary of $250,000 or more;
(viii) any agreement (other than the Closed Store Leases, the
Headquarters Lease and the Leases) that limits the freedom of the Company
or any
-23-
Subsidiary to compete in any line of business or with any Person or in any
area or which would so limit the freedom of the Company or any Subsidiary
after the Closing Date;
(ix) any agreement with (A) Melville or any of its Affiliates,
(B) any Person directly or indirectly owning, controlling or holding with
power to vote, 5% or more of the outstanding voting securities of Melville
or any of its Affiliates, (C) any Person 5% or more of whose outstanding
voting securities are directly or indirectly owned, controlled or held with
power to vote by Melville or any of its Affiliates or (D) any director or
officer of Melville or any of its Affiliates or any "associates" or members
of the "immediate family" (as such terms are respectively defined in Rule
12b-2 and Rule 16a-1 of the ▇▇▇▇ ▇▇▇) of any such director or officer;
(x) any agreement with any director or officer of the Company
or any Subsidiary or with any "associate" or any member of the "immediate
family" (as such terms are respectively defined in Rules 12b-2 and 16a-1 of
the ▇▇▇▇ ▇▇▇) of any such director or officer;
(xi) any agreement relating to any outstanding commitment for
capital expenditures since the Balance Sheet Date through June 30, 1996 in
excess of $3,600,000;
(xii) any guaranty by the Company or a Subsidiary of any
liability or obligation of any other Person other than the Company or a
Subsidiary, or any outstanding letters of credit that Melville or a
Melville Affiliate has caused the Company to be obligated under without the
knowledge of the Management Disclosure Group;
(xiii) any agreement pursuant to which the Company, any
Subsidiary or any other Person have an aggregate future liability in excess
of $1,000,000, except for (A) purchase orders of the nature described in
clause (ii), (B) liabilities between the Company and a Subsidiary or
between Subsidiaries, or (C) intercompany liabilities between the Company
or a Subsidiary, on the one hand, and Melville or an Affiliate, on the
other hand, that will no longer be outstanding on the Closing Date as
provided in Section 6.5;
(xiv) Employment agreements including compensation in excess of
$100,000; or
(xv) any other agreement, commitment, arrangement or plan not
made in the ordinary course of business that is material to the Company and
the Subsidiaries, taken as a whole.
(b) Each agreement, contract, commitment, arrangement, lease (other
than the Closed Store Leases, the Headquarters Lease and the Leases) or plan
disclosed in
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Schedule 3.11 is a valid and binding agreement of the Company or a Subsidiary,
as the case may be, and is in full force and effect, and neither the Company nor
any Subsidiary is nor, to the knowledge of Melville or the Company, is any other
party thereto in default or breach in any material respect under the terms of
any such agreement, contract, commitment, arrangement, lease or plan and to the
knowledge of Melville or the Company no event has occurred which constitutes or,
with the lapse of time or the giving of notice or both, would constitute such a
default or breach by the Company or any Subsidiary (or, to the knowledge of
Melville or the Company, any other party thereto) thereunder.
(c) The Company has made available to Newco true and correct copies of
all material agreements entered into by the Company or any Subsidiary since
January 1, 1988 relating to the disposition or acquisition of businesses by the
Company or any Subsidiary.
3.12 Litigation. Except as disclosed in Schedule 3.12, there is no
claim, action, suit, arbitration, investigation, proceeding or enforcement
action pending against, or to the knowledge of Melville or the Company,
threatened against or affecting, the Company or any Subsidiary or any of their
respective properties before any court or arbitrator or any governmental body,
agency or official (i) in which there is a reasonable possibility of an adverse
decision which would have a Material Adverse Effect on the Company, (ii) with
respect to litigation filed prior to the date hereof which in any manner
challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement, or (iii) if filed after the date hereof, which
in any manner challenges or seeks to prevent, enjoin, alter or materially delay
the transactions contemplated by this Agreement and which has a reasonable
likelihood of success on the merits. To the knowledge of Melville, Schedule
3.12 contains a list of all litigation pending against the Company or any
Subsidiary.
3.13 Compliance with Laws and Court Orders. Neither the Company nor
any Subsidiary is in violation of, or has since January 1, 1995 violated, any
applicable statute, law, rule, regulation, or ordinance, judgement, injunction,
order or decree, except for such violations that have not had and will not have
individually or in the aggregate a Material Adverse Effect on the Company and
the Subsidiaries. Since January 1, 1995 none of Melville, the Company or any
Subsidiary has received notice of any material violation by the Company or a
Subsidiary of any applicable statute, law, rule, regulation or ordinance.
Neither the Company nor any Subsidiary is in violation of, or has since January
1, 1995 violated any material judgment, ruling, writ, injunction, order or
decree of any court or of any governmental agency or instrumentality which apply
to the Company or any Subsidiary.
3.14 Leases. (a) The Company has given Newco a true and complete
copy of the Closed Store Leases, the Headquarters Lease, and each Lease,
together with all amendments and modifications thereto. Schedule 3.14(a)
contains a list of all Stores. Except for any consequence caused by the
transactions contemplated hereunder, the Headquarters Lease, each Lease and each
such amendment and modification is a valid and binding agreement of the tenant
thereunder and is in full force and effect. Except as set forth in Schedule
3.14(a), the Company and the Subsidiaries are not (and, to the knowledge of
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Melville and the Company, no other party is) in default in any material respect
under the Headquarters Lease or any Lease, and no event or breach has occurred
which constitutes or, with the lapse of time or the giving of notice or both,
would constitute such a material default by the Company or any Subsidiary
thereunder, (or, to the knowledge of Melville or the Company, any other party
thereto) other than any default resulting from the transactions contemplated by
this Agreement.
(b) Except as set forth on Schedule 3.14(b), as of the Closing Date,
the Company and the Subsidiaries shall have paid to Landlord under the
Headquarters Lease and each Lease all monies then due and owing pursuant to the
provisions of such Headquarters Lease and Lease other than monies then due and
owing in amounts not in excess of $7,500 which the Company or its Subsidiaries
deem to be in dispute.
(c) Except as set forth on Schedule 3.14(c), no leasing commissions
are payable by the Company or any Subsidiary in respect of the Closed Store
Leases, the Headquarters Lease or any Lease, including if the term of any such
lease is extended or renewed or the premises expanded.
3.15 Properties. (a) All real property owned by the Company or any
Subsidiary is listed on Schedule 3.15(a). The Company and the Subsidiaries have
good title to the real property listed in Schedule 3.15(a), or in the case of
leased property have valid leasehold interests in or the right to use, all
property and assets (whether real or personal, tangible or intangible) reflected
on the Balance Sheet or acquired after the Balance Sheet Date or otherwise used
in the operation of the business of the Company or any Subsidiary. As of the
Closing, neither Melville nor any Affiliate of Melville will own or have a right
to use any of the property described in the immediately preceding sentence.
None of such property or assets and none of such leasehold interest is subject
to any Liens, except:
(i) Liens disclosed on the Balance Sheet;
(ii) Liens disclosed in Schedule 3.15(a)(ii) or any other
Schedule to this Agreement;
(iii) Liens for Taxes not yet due or being contested in good
faith (and for which adequate accruals or reserves have been established on
the Balance Sheet); or
(iv) Liens on real property (other than Liens securing
obligations for borrowed money) which do not materially detract from the
value or materially interfere with any present or intended use of such
property or assets; or
(v) Materialmen's, warehouse, landlord's and similar Liens
securing obligations that are not due and payable that arise by operation
of law in the ordinary course of business.
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(b) Except as disclosed on Schedule 3.15(b), there are no developments
affecting any such property or assets (whether real or personal) pending or, to
the knowledge of Melville or the Company threatened, which might materially
detract from the value of such property or assets or materially interfere with
any present or intended use of any such property or assets, other than any such
developments affecting leased property resulting from the transactions
contemplated by this Agreement.
3.16 Environmental Matters. (a) Except as disclosed in Schedule
3.16:
(i) No Environmental Claim has been received by the Company or
any Subsidiary or, to the knowledge of Melville or the Company, by any
person or entity whose liability for such Environmental Claim has or may
have been retained or assumed, either contractually or by operation of law,
by the Company or any Subsidiary nor, to the knowledge of Melville or the
Company, is any such Environmental Claim threatened.
(ii) No penalty has been assessed against the Company or any
Subsidiary with respect to any (A) alleged material violation by the
Company or any Subsidiary of any Environmental Law or (B) alleged material
failure by the Company or any Subsidiary to have any permit, certificate,
license, approval, registration or authorization required under any
Environmental Law in connection with the conduct of its business;
(iii) Neither the Company nor any Subsidiary has violated, or
has created any condition that requires any remediation under, any
Environmental Laws except for any such violation or condition that would
not reasonably be expected to result, individually or in the aggregate, in
a material liability to the Company and its Subsidiaries, taken as a whole.
(iv) Neither the Company nor any Subsidiary has generated at or
transported from any real property now or previously owned or leased by it
any Hazardous Substances which have been transported to or disposed of in
any offsite disposal or other facility, except for any such transportation
or disposal which would not reasonably be expected to result in a Material
Adverse Effect on the Company.
(v) Without in any way limiting the generality of the
foregoing, to the knowledge of Melville or the Company, Schedule 3.16(a)
lists (a) all underground storage tanks located on any property presently
owned or leased by the Company or any Subsidiary and deposited, placed or
buried thereon by, or pursuant to the sole authorization of, the Company or
any Subsidiary and (b) all monitoring ▇▇▇▇▇ on any property presently owned
or leased by the Company or any Subsidiary (regardless of whether such
▇▇▇▇▇ are in use) dug or made by, or pursuant to the sole authorization of,
the Company or any Subsidiary.
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(vi) To the knowledge of ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ has made available
to Newco all environmental reports and investigations which Melville, the
Company or any Subsidiary has obtained since January 1, 1993 with respect
to the Headquarters Lease, any Lease or any Closed Store Lease.
3.17 Intellectual Property. (a) Schedule 3.17 contains a list of
all material Intellectual Property Rights owned or licensed and used or held for
use by the Company or the Subsidiaries other than Intellectual Property Rights
licensed by the Company or a Subsidiary pursuant to customary, non-negotiated
licenses of computer software ("Company Intellectual Property Rights"),
specifying as to each, as applicable: (i) the nature of such Intellectual
Property Right; (ii) the jurisdictions by or in which such Intellectual Property
Right is recognized without regard to registration or has been issued or
registered or in which an application for such issuance or registration has been
filed, including the respective registration or application numbers; and (iii)
licenses, sublicenses and other agreements as to which the Company or any
Subsidiary is a party and pursuant to which any Person is authorized to use such
Intellectual Property Right, including the identity of all parties thereto, a
description of the nature and subject matter thereof, the applicable royalty and
the term thereof.
(b) (i) Since January 1, 1995, neither the Company nor any Subsidiary
has been a defendant in any action, suit, investigation or proceeding relating
to, or otherwise has been notified (nor has Melville been notified) of, any
alleged claim or infringement by the Company or any Subsidiary of Intellectual
Property Rights, and neither Melville nor the Company has knowledge of any other
such infringement, (ii) to the knowledge of Melville and the Company, neither
the Company nor any Subsidiary is materially infringing on Intellectual Property
Rights of others, and (iii) neither Melville nor the Company has knowledge of
any continuing infringement by any other Person of any Company Intellectual
Property Rights. No Company Intellectual Property Right is subject to any
outstanding judgment, injunction, order, decree or agreement restricting the use
thereof by the Company or restricting the licensing thereof by the Company to
any Person. The Company has not entered into any agreement to indemnify any
other Person against any charge of infringement of any Intellectual Property
Right.
(c) To the knowledge of Melville or the Company, neither the Company
nor any Subsidiary has used or enforced, or failed to use or enforce, any
material Company Intellectual Property Right in any manner which limits its
validity or could result in its invalidity.
(d) The Company Intellectual Property Rights constitute all
Intellectual Property Rights needed to carry on the businesses of the Company
and the Subsidiaries as now conducted, and, except as listed on Schedule
3.17(d), neither Melville nor any of its Affiliates have any rights to or
interests in any Company Intellectual Property Rights other than (i) interests
which will be transferred to the Company or a Subsidiary of the Company prior to
the Closing and (ii) interests identified on Schedule 3.17(d) owned by Melville
which
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will be licensed to the Company at Closing pursuant to royalty-free, perpetual,
freely transferable licenses in form and substance reasonably acceptable to
Newco. The Company will own or have the right to use all Company Intellectual
Property Rights immediately after the Closing.
3.18 Licenses and Permits. The Company and the Subsidiaries have all
licenses, franchises, permits or other similar authorizations affecting, or
relating in any way to, the assets of the Company or any Subsidiary or necessary
to carry on the business of the Company and its Subsidiaries as now conducted
(the "Permits") other than those Permits the Company's failure of which to have
would not have a Material Adverse Effect on the Company and the Subsidiaries.
Except as disclosed in Schedule 3.18, such Permits are valid and in full force
and effect and none of the Permits will be terminated or impaired or become
terminable, in whole or in part, as a result of the transactions contemplated
hereby except as would not reasonably be expected to have a Material Adverse
Effect on the Company.
3.19 Fixed Assets. All of the Stores are equipped and complete with
all fixtures, leasehold improvements, furnishing, machinery, equipment, signs
and other tangible personal property reasonably necessary for the operation of
the Stores in accordance with the Company's customary business practices. Such
assets are in normal working condition consistent with their age and useful
lives and shall be in the same condition on the Closing Date, subject to
ordinary wear and tear and damage due to fire or other casualty.
3.20 Insurance. The Company or a Subsidiary or an Affiliate of the
Company has in force property and casualty insurance on the real property owned
by the Company or a Subsidiary, the Headquarters Lease and each Lease, and all
tangible assets owned or leased by the Company or a Subsidiary on a replacement
cost basis and general and product liability insurance on the Company and each
Subsidiary in the amounts set forth on Schedule 3.20. Set forth on Schedule
3.20 is a true and correct schedule of all such policies. All premiums due and
payable as of the date hereof have been paid with respect to such policies.
Schedule 3.20 also sets forth a claims run under such policies as of April 1,
1996. Melville or the Company has delivered or made available to Newco a true
and correct copy of each such policy, self-insurance authorization or agreement
listed in Schedule 3.20.
3.21 No Recalls. No products of the Company or any Subsidiary have
been recalled voluntarily or involuntarily since January 1, 1995, no recall is
being considered by the Company or the Subsidiary and no recall has been
requested or ordered by any governmental authority or consumer group.
3.22 Benefit Plans. Schedule 3.22 contains a list of all Benefit
Arrangements and Employee Plans.
3.23 Accounts; Funds, etc. After the Closing Date, all bank or other
depository accounts arising out of, relating to or established for the Company
or any Subsidiary shall be held by, and accessible only to, the Company or the
relevant Subsidiary.
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There are no material powers of attorney in force from the Company or any
Subsidiary to Melville or any Affiliate or any director, officer or employee of
Melville or any of its Affiliates who is not a Manager or an employee of the
Company or any Subsidiary except for agency agreements which will be terminated
at or prior to Closing.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ represents and warrants to Newco as of the date hereof and as
of the Closing Date that, except as disclosed in the Schedules hereto:
4.1 Corporate Existence and Power. Melville is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York and has all corporate powers and authority and all material
governmental licenses, authorizations, permits, consents and approvals required
to own the Company Shares and carry on its business as now conducted. Melville
has heretofore delivered to Newco true and complete copies of the certificate of
incorporation and bylaws of Melville as currently in effect.
4.2 Corporate Authorization. The execution, delivery and performance
by Melville of this Agreement, the Warrant, the Management Warrant, the Security
Agreement, each Pledge Agreement, the Registration Rights Agreement and the
Escrow Agreement are within Melville's corporate powers and have been duly
authorized by all necessary corporate action on the part of Melville. This
Agreement constitutes, and the Warrant, the Management Warrant, the Security
Agreement, each Pledge Agreement, the Registration Rights Agreement and the
Escrow Agreement, when executed and delivered by Melville, will constitute,
valid and binding agreements of Melville enforceable in accordance with their
terms, except as (i) the enforceability hereof and thereof may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
4.3 Governmental Authorization. The execution, delivery and
performance by Melville of this Agreement, the Registration Rights Agreement,
the Warrant, the Management Warrant, the Security Agreement, each Pledge
Agreement and the Escrow Agreement require no action by or in respect of, or
filing with, any governmental body, agency or official, except for (i) if
required, satisfaction of the requirements of the HSR Act, (ii) compliance with
any applicable requirements of the 1934 Act and (iii) any such action or filing
as to which the failure to make or obtain would not, individually or in the
aggregate, have a Material Adverse Effect on Melville and would not impair in
any respect the ability of Melville or the Company to consummate the
transactions contemplated by this Agreement.
4.4 Non-Contravention. The execution, delivery and performance by
Melville of this Agreement, the Warrant, the Management Warrant, the Security
Agreement,
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each Pledge Agreement, the Registration Rights Agreement and the Escrow
Agreement do not and will not (i) violate the Charter or bylaws of Melville or
any Melville Subsidiary, (ii) assuming compliance with the matters referred to
in Section 4.3, violate any applicable statute, law, rule, regulation,
ordinance, judgment, ruling by a court, writ, injunction, order or decree, (iii)
require any consent or other action by, or except as referred to in Section 4.3,
any notice to any Person under, constitute a default or create a penalty under,
conflict with or give rise to any right of termination, cancellation or
acceleration of any right or obligation of Melville, any Melville Subsidiary,
the Company or any Subsidiary or to a loss of any benefit to which Melville, any
Melville Subsidiary, the Company or any Subsidiary is entitled under, any
agreement or other instrument (other than any Lease) binding upon or applicable
to Melville, any Melville Subsidiary, the Company or any Subsidiary or any
license, franchise, permit or other similar authorization held by Melville, any
Melville Subsidiary, the Company or any Subsidiary, or (iv) result in the
creation or imposition of any Lien on any asset of Melville, any Melville
Subsidiary, the Company or any Subsidiary except, in the case of clauses (ii)
and (iii) to the extent that any such violation, failure to obtain any such
consent or other action, default, conflict, penalty, right or loss, individually
or in the aggregate, does not and would not have a Material Adverse Effect on
Melville or the Company and would not impair in any respect the ability of
Melville or the Company to consummate the transactions contemplated by this
Agreement.
4.5 Ownership of Shares. Melville is the record and beneficial owner
of the Company Shares, free and clear of any Lien and any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of the Shares), and will transfer and deliver to Newco at the Closing
valid title to the Shares free and clear of any Lien and any such limitation or
restriction. Upon delivery of the Company Shares hereunder and payment of the
consideration therefor pursuant to this Agreement, Newco will be the record and
beneficial owner of the Company Shares.
4.6 Acquisition for Investment. Melville is acquiring the Note, the
Warrant, the Management Warrant and, except as contemplated by the Investor
Stock Purchase Agreement, the Common Shares and the Preferred Shares hereunder
for investment for its own account and not with a view to, or for sale in
connection with, any distribution thereof. Melville (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 Note, the Warrant, the Management Warrant, the Common Shares
and the Preferred Shares and is capable of bearing the economic risks of such
investment.
4.7 Litigation. There is no claim, action, suit, arbitration,
investigation or proceeding or enforcement action pending against, or to the
knowledge of Melville, threatened against or affecting, Melville before any
court or arbitrator or any governmental body, agency or official, (i) in which
there is a reasonable possibility of an adverse decision which would reasonably
be expected to have a Material Adverse Effect on the Company, (ii) with respect
to litigation filed prior to the date hereof, which in any manner challenges or
seeks to prevent, enjoin, alter or delay the transactions contemplated by this
Agreement, or
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(iii) if filed after the date hereof, which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the transaction contemplated by this
Agreement and which has a reasonable likelihood of success on the merits.
4.8 Finder's Fees. There is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of Melville who might be entitled to any fee or commission from Newco or any of
its Affiliates upon consummation of the transactions contemplated by this
Agreement. CS First Boston Corporation has been retained by Melville as a
finder in connection with the sale of the Company Shares, but Melville shall be
responsible for all, and shall hold Newco and its Affiliates (including the
Company and the Subsidiaries) harmless against any, payments to CS First Boston
Corporation arising from the transfer or sale of the Company Shares or otherwise
arising from the consummation of the transactions resulting from this Agreement.
4.9 Shared Contracts, Other Contracts. Except for the Leases and the
Headquarters Lease or as disclosed on Schedule 4.9, neither Melville nor any of
its Affiliates is a party to any material contract or agreement relating to the
business of the Company or any Subsidiary or any contract providing for shared
purchases of assets, goods or services by Melville or any of its Affiliates, on
the one hand, and the Company or any Subsidiary on the other hand.
4.10 Services. Schedule 4.10 sets forth all material services that
Melville or any of its Affiliates performs for the Company or any Subsidiary.
4.11 Nonforeign Certification. Melville is not a "foreign person"
within the meaning of Section 1445 of the Code.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco represents and warrants to Melville as of the date hereof and as
of the Closing Date that:
5.1 Existence and Power. Newco is a corporation duly organized,
validly existing and in good standing under the laws of Minnesota and has all
corporate powers and authority and all material governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted. Newco has heretofore delivered to Melville true and
complete copies of the articles of incorporation and bylaws of Newco as
currently in effect.
5.2 Corporate Authorization. The execution, delivery and performance
by Newco of this Agreement, the Note, the Warrant, the Management Warrant, the
Registration
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Rights Agreement, the Security Agreement, each Pledge Agreement and the Escrow
Agreement and the issuance of the Common Shares and the Preferred Shares are
within Newco's corporate powers and have been duly authorized by all necessary
corporate action on the part of Newco. This Agreement constitutes and the
Registration Rights Agreement, the Security Agreement, each Pledge Agreement and
the Escrow Agreement when executed and delivered by Newco will constitute valid
and binding agreements of Newco enforceable in accordance with their terms,
except as (i) the enforceability hereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) the availability of equitable remedies may
be limited by equitable principles of general applicability. When issued and
delivered at Closing in accordance with the terms hereof, each of the Note, the
Warrant, the Management Warrant, the Common Shares and the Preferred Shares as
of Closing will constitute a valid and binding obligation of Newco enforceable
in accordance with their terms, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
the enforcement of creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
5.3 Governmental Authorization. The execution, delivery and
performance by Newco of this Agreement, the Note, the Warrant and the Management
Warrant, the Security Agreement, each Pledge Agreement, the Registration Rights
Agreement and the Escrow Agreement, and the issuance of the Common Shares and
the Preferred Shares require no action by or in respect of, or filing with
(except for filings to perfect security interests created under the Security
Agreement), any governmental body, agency or official except for (i) if
required, satisfaction of the requirements of the HSR Act, (ii) compliance with
any applicable requirements of the 1934 Act, (iii) in the case of the Note, the
Warrant and the Management Warrant, compliance with any state or federal
securities laws, and (iv) any such action or filing as to which the failure to
make or obtain would not, individually or in the aggregate, have a Material
Adverse Effect on Newco and would not impair in any respect the ability of Newco
to consummate the transactions contemplated by this Agreement.
5.4 Non-Contravention. The execution, delivery and performance by
Newco of this Agreement, the Note, the Warrant, the Management Warrant, the
Security Agreement, each Pledge Agreement, the Registration Rights Agreement and
the Escrow Agreement, and the issuance of the Common Shares and the Preferred
Shares do not and will not (i) violate the Charter or bylaws of Newco or (ii)
assuming compliance with the matters referred to in Section 5.3 and the accuracy
of the representations of Melville contained in Section 4.6, violate any
applicable statute, law, rule, regulation, ordinance, judgment, ruling by a
court, writ, injunction, order or decree.
5.5 Acquisition for Investment. Newco is acquiring the Company
Shares for investment for its own account and not with a view to, or for sale in
connection with, any distribution thereof. Newco (either alone or together with
their advisors) has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating
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the merits and risks of its investment in the Company Shares and is capable of
bearing the economic risks of such investment.
5.6 Litigation. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of Newco threatened against or
affecting, Newco before any court or arbitrator or any governmental body, agency
or official (i) in which there is a reasonable possibility of an adverse
decision which would reasonably be expected to have a Material Adverse Effect on
Newco, (ii) with respect to litigation filed prior to the date hereof which in
any manner challenges or seeks to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement, or (iii) if filed after the date
hereof, which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated by this Agreement and which has a
reasonable likelihood of success on the merits.
5.7 Finders' Fees. There is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of Newco who might be entitled to any fee or commission from Melville or any of
its Affiliates upon consummation of the transactions contemplated by this
Agreement.
5.8 Certain Matters Relating to the Warrant and the Management
Warrant. When issued upon exercise of the Warrant and the Management Warrant in
accordance with their terms, all Warrant Shares will be duly authorized, validly
issued, fully paid and non-assessable and will be free and clear of all Liens
and will not be subject to any preemptive or similar rights.
5.9 Capitalization. (a) The authorized capital stock of Newco
consists of 60,000,000 shares, consisting of 50,000,000 shares of Common Stock,
par value $.01 per share, of which 25,000,000 are undesignated as to class,
15,000,000 are designated as Class A Common Stock, 7,500,000 are designated as
Class B Common Stock and 2,500,000 are designated as Class C Common Stock, and
of 10,000,000 shares of preferred stock, par value $.01 per share ("Authorized
Preferred Stock"), of which 15,000 are designated as Preferred Stock. As of
the date hereof, there are no outstanding shares of capital stock of Newco.
(b) All outstanding shares of Common Stock and Preferred Stock of
Newco have been duly authorized and validly issued and are fully paid and non-
assessable. Newco has not issued any shares or other capital stock or other
voting or equity securities of Newco in violation of any preemptive rights.
Except as disclosed in Section 5.9(a) and except (i) for the Common Shares, the
Preferred Shares, the Warrant and the Management Warrant to be issued to
Melville at Closing as contemplated by this Agreement and (ii) the Management
Shares to be issued to the Managers on the Closing Date, there are no
outstanding (x) shares of capital stock or voting or equity securities of Newco,
(y) securities of Newco convertible into or exchangeable for shares of capital
stock or voting or equity securities of Newco or (z) options, warrants,
subscriptions or other rights to acquire from Newco, or commitment or other
obligation of Newco to issue, any capital stock, other voting or equity
securities or securities convertible into or exchangeable for capital stock or
other voting or equity securities
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of Newco (the items in clauses (x), (y) and (z) being referred to collectively
as the "Newco Securities"). There are no outstanding commitments or other
obligations of Newco or any Subsidiary to repurchase, redeem or otherwise
acquire any Newco Securities except pursuant to the Shareholders Agreement.
5.10 Financing. Newco has received and furnished copies to Melville
of a commitment letter (the "Commitment Letter") from GE Capital dated as of
April 29, 1996 pursuant to which GE Capital has committed, subject to the terms
and conditions thereof, to enter into a revolving credit agreement with Newco or
an Affiliate of Newco and GE Capital as Agent, which commitment letter
contemplates that an Affiliate of GE Capital will seek to syndicate the
remaining financing needed under such revolving credit agreement. The revolving
credit agreement referred to above is referred to herein as the "Financing
Agreement," and the financing to be provided thereunder or under any alternative
arrangements made by Newco is referred to herein as the "Financing." The
Management Disclosure Group believes the aggregate proceeds of the Financing (in
the event of a successful syndication) will be in an amount sufficient to carry
on the business as now conducted, and to pay all related fees and expenses. As
of the date hereof, Newco knows of no facts or circumstances that are reasonably
likely to result in any of the conditions set forth in the Financing Agreement
not being satisfied.
ARTICLE 6
COVENANTS OF THE COMPANY
The Company agrees as follows:
6.1 Conduct of the Company. Except as otherwise contemplated by this
Agreement or the discontinuance of the issuance of lease guarantees by MRC, from
the date hereof until the Closing Date, the Company and the Subsidiaries shall
conduct their businesses in the ordinary course consistent with past practice
and shall use their best efforts to preserve intact their business organizations
and relationships with third parties and to keep available the services of their
present officers and employees. Without limiting the generality of the
foregoing, except as otherwise contemplated by this Agreement, from the date
hereof until the Closing Date:
(i) the Company will not adopt or propose, or permit any
Subsidiary to adopt or propose, any change in the Charter or bylaws of the
Company or any Subsidiary;
(ii) the Company shall not, and shall not permit any Subsidiary
to, enter into the merger or consolidation of the Company or any Subsidiary
with any other Person or the acquisition by the Company or any Subsidiary
of a material amount
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of assets of any other Person, other than inventory in the ordinary course
of business, or otherwise acquire assets except in the ordinary course of
business;
(iii) the Company and its Subsidiaries shall not sell, lease,
license or otherwise dispose of or subject to the imposition of any Lien
any material assets or property except (A) pursuant to existing contracts
or commitments disclosed in Schedule 3.11 to this Agreement or the non-
disclosure of which does not create a misrepresentation under Section 3.11
of this Agreement and (B) in the ordinary course consistent with past
practice;
(iv) the Company and the Subsidiaries will not incur any capital
expenditures which, together with all other capital expenditures made since
the Balance Sheet Date through June 30, 1996, exceed $3,600,000 in the
aggregate;
(v) the Company and the Subsidiaries will not incur any
Indebtedness or create or allow to be created any Liens other than (A)
purchase money Indebtedness on tangible personal property and Liens solely
on such tangible personal property consistent with past practice and (B)
letters of credit in connection with the purchase of inventory;
(vi) the Company will not permit any material sums or other
assets of the Company or any Subsidiary to be paid, as compensation or
otherwise to or withdrawn by directors, officers or employees of Melville
or any of its Affiliates who are not Managers or employees of the Company
or a Subsidiary; and
(vii) neither the Company nor its Subsidiaries will agree or
commit to do any of the foregoing prohibited acts.
The Company and its Subsidiaries shall not (A) take or agree or commit
to take any action that would make any representation or warranty of the Company
or Melville hereunder inaccurate in any respect at, or as of any time prior to,
the Closing or (B) omit or agree or commit to omit to take any action necessary
to prevent any such representation or warranty from being inaccurate in any
respect at any such time.
6.2 Access to Information. From the date hereof until the Closing
Date, the Company (i) will give, and will cause each Subsidiary to give,
Melville, Newco, their counsel, financial advisors, auditors and other
authorized representatives access during normal business hours to the offices,
properties, books and records of the Company and the Subsidiaries, (ii) will
furnish, and will cause each Subsidiary to furnish, to Melville, Newco, their
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information relating to the Company or
any Subsidiary as such Persons may reasonably request including, allowing such
Persons to be present during, and to assist in, the preparation of such
financial and operating data at the Company and (iii) will instruct the
employees, counsel and financial advisors of the Company and the Subsidiaries to
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cooperate with Melville and Newco in their investigation of the Company and the
Subsidiaries.
6.3 Notices of Certain Events. The Company shall promptly notify
Newco and Melville of:
(i) any notice or other communication received from any Person
alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) any notice or other communication received from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened prior to the Closing against,
relating to or involving or otherwise affecting the Company or any
Subsidiary that, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 3.12 or that relate to
the consummation of the transactions contemplated by this Agreement.
6.4 Resignation. At or prior to the Closing Date, the Company will
deliver or cause to be delivered to Melville the resignations of all Managers
and all employees of the Company and the Subsidiaries who are officers and/or
directors of Melville or any Affiliate of Melville.
6.5 Intercompany Accounts. As of the Closing, no intercompany
accounts reflecting intercompany transactions between Melville and its
Affiliates, on the one hand, and the Company and the Subsidiaries, on the other
hand, will be outstanding and any agreements relating to such intercompany
accounts shall have been terminated. As of the Closing, no balance in any
intercompany accounts reflecting intercompany transactions between the Company
and the Subsidiaries or between Subsidiaries will be outstanding. As of the
Closing, the Company shall have no liability for principal and accrued interest
under a credit facility dated as of May 1, 1995 of the Company and its
Subsidiaries with the Bank of Boston. The Estimated Closing Balance Sheet, the
Estimated Closing Working Capital Statement, Estimated Working Capital and
Closing Working Capital shall be prepared and calculated after giving effect to
the transactions agreed to in this Section 6.5.
6.6 New Stores. The Company and the Subsidiaries shall proceed with
the plans and preparations for new stores and the remodeling of certain existing
Stores during calendar year 1996, in the locations and in conformity with the
schedule of openings and remodelings disclosed in Schedule 6.6; provided that
the covenants contained in Section 6.6 shall be applicable only prior to
Closing. The terms and conditions of leases, agreements for the construction,
build-out and remodeling shall, to the extent not otherwise agreed to as of
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the date hereof, be subject to the consent of Melville and Newco, which consent
shall not, unless otherwise prohibited by Section 6.1, be unreasonably
conditioned, delayed or withheld.
6.7 Other Offers. From the date hereof until the Closing Date or
termination hereof, the Company and the Subsidiaries will not, directly or
indirectly, take any action to solicit, initiate or encourage any Acquisition
Proposal or in any manner discuss, consider or accept any Acquisition Proposal.
For purposes of this Agreement, "Acquisition Proposal" means any offer or
proposal for, or any indication of interest in, a business combination involving
the Company and the Subsidiaries or the acquisition of any equity interest in,
or a substantial portion of the assets of, the Company or any Subsidiary, other
than the transactions contemplated by this Agreement.
ARTICLE 7
COVENANTS OF ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ agrees as follows:
7.1 Conduct of the Company. Except as otherwise contemplated by this
Agreement or necessary to effectuate the transactions hereunder or cause MRC not
to issue any lease guarantees, from the date hereof until the Closing Date,
Melville shall use its commercially reasonable efforts to cause the Company and
the Subsidiaries to conduct their businesses in the ordinary course consistent
with past practice and shall use its best efforts to preserve intact the
business organizations and relationships of the Company and the Subsidiaries
with third parties and to keep available the services of their present officers
and employees. Without limiting the generality of the foregoing, except as
otherwise contemplated by this Agreement, from the date hereof until the Closing
Date:
(i) Melville will not adopt or propose any change in the
Charter or bylaws of the Company or any Subsidiary;
(ii) Melville will not cause the Company or any Subsidiary to
enter into the merger or consolidation of the Company or any Subsidiary
with any other Person or the acquisition by the Company or any Subsidiary
of a material amount of assets of any other Person, other than inventory in
the ordinary course of business, or otherwise acquire assets except in the
ordinary course of business;
(iii) Melville will not cause the Company and its Subsidiaries
to sell, lease, license or otherwise dispose of or subject to the
imposition of any Lien any material assets or property except (A) pursuant
to existing contracts or commitments disclosed in Schedule 3.11 to this
Agreement or the non-disclosure of which does not create a
misrepresentation under Section 3.11 of this Agreement, (B) in the ordinary
course consistent with past practice and (C) dividends of cash or
intercompany
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receivables between the Company or a Subsidiary, on the one hand, Melville
or an Affiliate, on the other hand or between Subsidiaries, or from any
Subsidiary to the Company;
(iv) Melville will not cause the Company and the Subsidiaries to
incur any capital expenditures which, together with all other capital
expenditures made since the Balance Sheet Date through June 30, 1996,
exceed $3,600,000 in the aggregate;
(v) Melville will not cause the Company and the Subsidiaries to
incur any Indebtedness or create any Liens other than (A) purchase money
Indebtedness on tangible personal property and Liens solely on such
tangible personal property consistent with past practice and (B) letters of
credit in connection with the purchase of inventory; or
(vi) Melville will not cause the Company nor its Subsidiaries to
agree or commit to do any of the foregoing prohibited acts.
Melville will not (A) take or agree or commit to take any action that
would make any representation or warranty of Melville hereunder inaccurate in
any material respect at, or as of any time prior to the Closing or (B) omit or
agree or commit to omit to take any action necessary to prevent such
representation or warranty from being inaccurate in any respect at any such
time, and will not cause the Company and its Subsidiaries to (x) take or agree
or commit to take any action that would make any representation or warranty of
the Company hereunder inaccurate in any respect at, or as of any time prior to,
the Closing or (y) omit or agree or commit to omit to take any action necessary
to prevent any such representation or warranty from being inaccurate in any
respect at any such time.
7.2 Access to Information. From the date hereof until the Closing
Date, Melville (i) will give, and will cause each Subsidiary to give, Newco, its
counsel, financial advisors, auditors and other authorized representatives
reasonable access during normal business hours to the offices, properties, books
and records of the Company and the Subsidiaries and to the books and records of
Melville relating to the Company and the Subsidiaries, (ii) will furnish, and
will cause each Subsidiary to furnish, to Newco, its counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data and other information relating to the Company or any Subsidiary
as such Persons may reasonably request and (iii) will instruct the employees,
counsel and financial advisors of Melville to cooperate with Newco in its
investigation of the Company and the Subsidiaries.
7.3 Notices of Certain Events. Melville shall promptly notify Newco
of:
(i) any notice or other communication received from any Person
alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement;
-39-
(ii) any notice or other communication received from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or involving
or otherwise affecting the Company or any Subsidiary that, if pending on
the date of this Agreement, would have been required to have been disclosed
pursuant to Section 3.12 or that relate to the consummation of the
transactions contemplated by this Agreement.
7.4 Intercompany Accounts. As of the Closing, no intercompany
accounts reflecting intercompany transactions between Melville and its
Affiliates, on the one hand, and the Company and the Subsidiaries, on the other
hand, will be outstanding and any agreements relating to such intercompany
accounts shall have been terminated. As of the Closing, no balance in any
intercompany accounts reflecting intercompany transactions between the Company
and the Subsidiaries or between Subsidiaries will be outstanding. Melville
shall take such further action as may be necessary so that the only indebtedness
of the Company or any Subsidiary to third parties (including Melville and its
Affiliates as third parties) for borrowed money and the only guaranties by the
Company or any Subsidiary of, or security on assets of the Company or any
Subsidiary for, indebtedness of third parties (including Melville and its
Affiliates as third parties) for borrowed money outstanding immediately prior to
the Closing will be as described in Schedule 7.4. As of the Closing, the
Company shall have no liability for principal and accrued interest under a
credit facility dated as of May 1, 1995 of the Company and its Subsidiaries with
the Bank of Boston. The Estimated Closing Balance Sheet, the Estimated Closing
Working Capital Statement, Estimated Working Capital and Closing Working Capital
shall be prepared and calculated after giving effect to the transactions agreed
to in this Section 7.4.
7.5 Other Offers. From the date hereof until the Closing Date or
termination hereof, Melville will not, directly or indirectly, take any action
to solicit, initiate or encourage any Acquisition Proposal or in any manner
discuss, consider or accept any Acquisition Proposal.
7.6 Loss. If any Store or other asset of the Company or any
Subsidiary is damaged by fire or other casualty prior to the Closing Date or is
condemned in whole or in part, Melville shall assign to Newco all insurance
proceeds or condemnation awards, if any, for such Store or other asset which
relate to the Store and the assets of the Company and the Subsidiaries. To the
extent the Company and the Subsidiaries are self-insured, Melville shall pay to
Newco that amount needed to restore the Store and the assets of the Company and
the Subsidiaries to the same condition which such Store and such assets were in
prior to such casualty; provided that to the extent any such amount is taken
into account in connection with the preparation of the calculation of Estimated
Working Capital and Closing Working Capital pursuant to Article 2, Melville
shall no longer be obligated to pay such amount to Newco pursuant to this
Section 7.6. In addition, to the extent that the proceeds of insurance or such
-40-
condemnation awards are not sufficient to return a Store to operation, Melville
shall pay to Newco, at or prior to Closing, an amount equal to three times the
Contribution of such Store but in no event less than $100,000 less the amount of
the proceeds of any such insurance or condemnation award and additional payments
referred to above in Section 7.6.
7.7 Confidentiality. From and after the Closing Date, Melville and
its Affiliates will hold in confidence and not use, and will use their best
efforts to cause their respective officers, directors, employees, accountants,
counsel, consultants, advisors and agents to hold in confidence and not use,
unless compelled to disclose by judicial or administrative process or by other
requirements of law (including but not limited to the rules and regulations of
the Internal Revenue Service or any comparable foreign or state agency or
authority) in which event Melville will, and will cause its Affiliates to, use
their commercially reasonable efforts to give sufficient advance notice to Newco
and the Company to enable Newco or the Company to attempt to receive appropriate
protective orders, all confidential documents and information concerning the
Company and the Subsidiaries (including information provided pursuant to Section
6.2 or 7.2), and such information relating to Newco, as may be received from
Newco, except to the extent that such information can be shown to have been (i)
in the public domain through no fault of Melville or (ii) lawfully acquired
after the Closing by Melville from sources other than Newco, the Company or any
Subsidiary. Melville shall be liable for any breach by any such Person of such
obligations. The obligation of Melville and its Affiliates to hold any such
information in confidence shall be satisfied if they use commercially reasonable
efforts to preserve the confidentiality of such information.
7.8 Records. At the Closing or as soon thereafter as practicable,
but in no event later than 30 days after the Closing Date, Melville will deliver
or cause to be delivered to the Company all corporate records of the Company and
its Subsidiaries and all other original agreements, documents, books and records
relating solely to the Company or any Subsidiary in the possession of Melville
or any of its Affiliates; provided that the Company for a period of five years
from the Closing Date shall have reasonable access on reasonable notice to
records in the possession of Melville which do not relate solely to the Company
or any Subsidiary; provided further that if at any time after such five year
period, Melville intends to destroy such records, Melville shall notify Newco in
writing of such intention and Newco shall have a period of 30 days from the date
of such notice to, at Newco's expense, take possession of such records.
7.9 Resignations. At or prior to the Closing Date, Melville will
deliver or cause to be delivered to Newco the resignations of all officers and
directors of the Company and each Subsidiary other than the Managers or any
employees of the Company and the Subsidiaries.
7.10 Audited Financial Statements. As soon as practicable after the
Closing, but in no event later than 60 days after the Company delivers the
Closing Balance Sheet, Melville will deliver or cause to be delivered to the
Company an audited Closing Balance Sheet and the related consolidated statement
of income and cash flow therefor for the period
-41-
from January 1, 1996 through and including the Closing Date, prepared in
conformity with generally accepted accounting principles applied on a basis
consistent with preparation of the Annual Financials and presented in accordance
with Regulation S-X of the 1933 Act.
7.11 Status of Newco. From the date hereof to the Closing Date,
Melville will not take any action to change the composition of the board of
directors of Newco unless Newco consents to such change.
7.12 Insurance. (a) From and after the Closing, Melville shall use
commercially reasonable efforts, subject to the terms of Melville's Insurance
Policies, as hereinafter defined, to retain the right for claimants against the
Company, any Subsidiary or any director, officer or employee of the Company or
any Subsidiary to make claims and receive recoveries from insurers (and the
right of the Company and its Subsidiaries and directors, officers and employees
thereof to reimbursement from the insurer for payment by the Company or any
Subsidiary or any director, officer or employee thereof of such claims in the
event of coverage disputes), under (i) any workers compensation, commercial
general liability, automobile liability, product liability or other liability
insurance policies maintained at any time prior to the Closing by Melville or an
Affiliate, and (ii) any umbrella policies maintained at or at any time prior to
Closing by Melville or an Affiliate relating to matters of the nature covered by
such policies described in clause (i) (collectively, "Melville's Insurance
Policies"), covering any loss, liability, claim, damage or expense relating to
the assets, business, operations, conduct, products and employees (including
former employees) of the Company or any Subsidiary that relates to or arises out
of occurrences prior to the Closing (an "Insured Claim"), provided that to the
extent Melville's Insurance Policies provide for any deductibles, Melville shall
be liable for, and shall hold harmless and indemnify the Company and the
Subsidiaries against, the portion of any Insured Claim which is subject to such
deductible. If any amounts for deductibles under Melville's Insurance Policies
are accrued by the Company prior to the Closing, such amounts shall be excluded
from the calculation of Estimated Working Capital and Closing Working Capital
pursuant to Article 2. Subject to the terms of Melville's Insurance Policies,
Melville agrees to use commercially reasonable efforts so that the Company and
each Subsidiary shall have the right, power and authority, in the name of
Melville or any of its Affiliates, to make directly any request to the insurer
for payment of Insured Claims under Melville's Insurance Policies.
(b) In the event that any legal action, arbitration, negotiation or
other proceedings are required for coverage to be asserted against any insurer
or on an Insured Claim, in each case against or on behalf of the Company or any
Subsidiary or any director, officer or employee of the Company or any
Subsidiary, (i) the Company shall, to the extent possible, do so at its own
expense, provided that nothing stated herein shall limit the right of the
Company or any Subsidiary to the recovery of such expenses under Melville's
Insurance Policies or (ii) if the Company is not permitted to assert coverage
for an Insured Claim, upon notice from Newco or the Company, Melville or one of
its Affiliates shall do so, and, in such event, Newco and the Company shall hold
harmless and indemnify Melville and its Affiliates
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for any reasonable out-of-pocket costs and expenses not recoverable under
Melville's Insurance Policies that they may incur because of such action.
(c) Each of Melville, Newco, the Company and the Subsidiaries shall
use its commercially reasonable efforts to cooperate fully and to cause its
Affiliates to cooperate fully with the others in making requests and asserting
obligations of insurers for payment of Insured Claims against or on behalf of
the Company and the Subsidiaries or any director, officer or employee of the
Company or any Subsidiary under Melville's Insurance Policies.
7.13 Termination of Agency Agreement. Melville shall cause Melville
Equipment Leasing Corp. and the Company to terminate the Agency Agreement
between them dated as of December 29, 1995.
ARTICLE ▇
▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇ agrees that:
8.1 Confidentiality. Prior to the Closing Date and after any
termination of this Agreement, Newco and its Affiliates will hold in confidence
and not use, and will use their best efforts to cause their respective officers,
directors, employees, accountants, counsel, consultants, advisors and agents to
hold in confidence and not to use, unless compelled to disclose by judicial or
administrative process or by other requirements of law, all confidential
documents and information concerning Melville, the Company or any Subsidiary
furnished to Newco or its Affiliates in connection with the transactions
contemplated by this Agreement, except to the extent that such information can
be shown to have been (i) previously known on a nonconfidential basis by Newco,
(ii) in the public domain through no fault of Newco or (iii) later lawfully
acquired by Newco from sources other than Melville or the Company or any
Subsidiary and except that such Person may use such information for purposes
relating to consummation of the transactions contemplated hereby; provided that
Newco may disclose such information to its officers, directors, employees,
accountants, counsel, consultants, advisors and agents and the Managers in
connection with the transactions contemplated by this Agreement and to its
potential lenders and to potential purchasers of Common Shares and Preferred
Shares of Newco in connection with obtaining the financing for the transactions
contemplated by this Agreement so long as such Persons are informed by Newco of
the confidential nature of such information and are directed by Newco to comply
with the foregoing obligations. Newco shall be liable for any breach by any
such Person of such obligations. The obligation of Newco and its Affiliates to
hold any such information in confidence shall be satisfied if they use
commercially reasonable efforts to preserve the confidentiality of such
information. If this Agreement is terminated, Newco and its Affiliates will,
and will use their best efforts to cause their respective officers, directors,
employees, accountants, counsel, consultants, advisors and agents and the
Managers to, destroy or deliver
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to Melville, upon request, all documents and other materials, and all copies
thereof, obtained by Newco or its Affiliates or on their behalf from Melville or
the Company or any Subsidiary in connection with this Agreement that are subject
to such confidence.
8.2 Access. On or after the Closing Date until the Note Repayment
Date, Newco (i) will give, and will cause the Company and each Subsidiary to
give, Melville, its counsel, financial advisors, auditors and other authorized
representatives access upon reasonable notice during normal business hours to
the offices, properties, books and records of the Company and the Subsidiaries
and to the books and records of Newco, relating to the Company and the
Subsidiaries, (ii) will furnish, and will cause the Company and each Subsidiary
to furnish, to Melville, its counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information relating to Newco, the Company or any Subsidiary as such Persons may
reasonably request and (iii) will instruct the employees, counsel and financial
advisors of the Company and the Subsidiaries to cooperate with Melville in
obtaining information concerning the Company and the Subsidiaries.
8.3 Notices of Certain Events. Newco shall promptly notify Melville
of:
(i) any notice or other communication received from any Person
alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) any notice or other communication received from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or involving
or otherwise affecting Newco that, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to
Section 5.6 or that relate to the consummation of the transactions
contemplated by this Agreement.
8.4 Warrant Shares Reserved for Issuance. Newco shall at all times
cause sufficient authorized shares of its common stock to be reserved for
issuance of Warrant Shares upon exercise of the Warrant and the Management
Warrant.
8.5 Delivery of Information Following Closing. So long as any
principal amount of or interest on the Note remains unpaid or the Warrant has
not been exercised in respect of all Warrant Shares issuable thereunder or the
Management Warrant has not been exercised in respect of all Warrant Shares
issuable thereunder (or the number of shares issuable thereunder has not been
reduced to zero):
(i) Newco shall deliver to Melville copies of all financial
statements, reports and compliance certificates required to be delivered by
Newco to
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any of its lenders or all securityholders on the same day of delivery
thereof to such lenders or securityholders;
(ii) Newco shall promptly notify Melville of any default by
Newco under any credit agreement, indenture or other agreement or
instrument relating to or governing any indebtedness for borrowed money or
other material obligation of Newco except as would not have a Material
Adverse Effect on Newco or the Company; and
(iii) Newco shall cause its senior management and senior
management of the Company to be available to Melville at such times and
from time to time as Melville may reasonably request upon reasonable notice
in connection with the transactions contemplated hereby and to discuss the
business and affairs of Newco, the Company and their respective Affiliates.
8.6 Shareholders Agreement. Newco will not amend, alter or repeal
any of the provisions of the Shareholders Agreement as long as the Warrant is
outstanding without the consent of Melville which consent shall be exercised in
the reasonable judgment of Melville.
8.7 Indenture. Newco agrees that, at the request of Melville, Newco
will cooperate in preparing and will execute an indenture relating to the Note
(prepared at Melville's expense, including the payment by Melville of the
reasonable attorneys' fees of Newco's counsel and accountants) in a form
reasonably satisfactory to Newco.
8.8 Articles of Incorporation. Newco shall file the Articles of
Incorporation prior to the Closing Date.
ARTICLE 9
COVENANTS OF NEWCO, MELVILLE, AND THE COMPANY
Newco, Melville, and the Company, as the case may be, agree as
follows:
9.1 Commercially Reasonable Efforts. Subject to the terms and
conditions of this Agreement, Newco, Melville and the Company will use
commercially reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary or desirable under applicable
laws and regulations to consummate the transactions contemplated by this
Agreement (including using commercially reasonable efforts to obtain Financing
on terms reasonably satisfactory to Newco); provided that nothing stated herein
shall require Melville, the Company or Newco to make any payment to obtain any
consent or Permit that is a condition to consummating this Agreement. Melville,
Newco and the Company agree, and Newco, after the Closing, agrees to cause the
Company and each Subsidiary, to execute and deliver such other documents,
certificates, agreements and other
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writings and to take such other actions as may be necessary or desirable in
order to consummate or implement expeditiously the transactions contemplated by
this Agreement.
9.2 Certain Filings. Newco, Melville, and the Company shall
cooperate and Newco, after the Closing, will cause the Company to cooperate,
with one another (i) 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 this Agreement and (ii) 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.
All filing fees required under the HSR Act shall be paid by Melville at the time
of the filing thereunder if such a filing is required under the HSR Act.
9.3 Public Announcements. Newco, Melville and the Company agree not
to issue and Newco, after the Closing, will cause the Company not to issue, any
press release or make any public statement with respect to this Agreement or the
transactions contemplated hereby without the approval of the other, which
approval shall not be unreasonably withheld, and, except as may be required by
applicable law or any listing agreement with any national securities exchange,
will not issue any such press release or make any such public statement prior to
receipt of such approval; provided that Newco may make any public statement
without the prior approval of Melville after the Closing, if such public
statement is made in connection with an offering of securities and is required,
in Newco's reasonable judgment, to be made under the 1933 Act or the ▇▇▇▇ ▇▇▇.
9.4 Designated Closed Store Leases and Excluded Subsidiaries. Prior
to the Closing Date, Melville shall cause the Designated Closed Store Leases and
the Excluded Subsidiaries to be contributed, distributed or otherwise
transferred or assigned to Melville or one of its Affiliates; provided that, to
the extent any such contribution, distribution, transfer or assignment is
prohibited by a judgment, injunction, order or decree or by applicable law,
Newco and Melville shall use their best efforts to implement any lawful
arrangement designed to effect the intent of such parties hereunder.
9.5 Certain Matters Relating to Lease Consents. (a) If prior to the
first anniversary of the Closing Date, neither Melville nor Newco has received
any written notice from a lessor or sublessor or other party entitled to give
such notice on behalf of either (a "Landlord") under a Lease for any Store
indicating that a consent or other approval (a "Consent") of such Landlord is
required under such Lease in connection with the transactions contemplated by
this Agreement or that any of such transactions are prohibited by or otherwise
violate any of the provisions of such Lease (a "Violation"), a Consent shall be
deemed to have been delivered with respect to such Lease (a "Delivered Lease").
If prior to such first anniversary Melville, Newco, the Company or any
Subsidiary has received any such written notice from a Landlord, such Lease
shall not be considered a Delivered Lease until (a) two years have elapsed from
the Closing Date without the commencement of legal
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proceedings by such Landlord against Melville, Newco, the Company or any
Subsidiary resulting from the transactions contemplated by this Agreement or (b)
such Landlord withdraws its objections in writing or legal proceedings having
been commenced within two years after the Closing Date are discontinued with
prejudice or otherwise resolved against such Landlord without further right of
appeal on the part of such Landlord. If legal proceedings are commenced against
Melville, Newco, the Company or any Subsidiary regarding any such Consent or
Violation within two years of the Closing Date, Newco shall be responsible for
defending such action and Newco and Melville shall share equally the cost and
expense of such defense, including attorney fees of counsel to Newco reasonably
acceptable to Melville. If legal proceedings are commenced against Melville,
Newco, the Company or any Subsidiary regarding any such Consent more than two
years after the Closing Date, Newco shall be responsible for defending such
action at Newco's sole cost and expense.
(b) Melville's liability to Newco for each Terminated Lease shall,
notwithstanding any provision in this Agreement to the contrary, be no more than
and no less than three times the Contribution of such Terminated Lease but in no
event less than $100,000 (the "Store Contribution"); provided that the payment
in this sentence is the sole payment required related to Terminated Leases. If
Newco, the Company or any Subsidiary cannot take or maintain possession of a
Store as of the Closing Date as a result of an injunction or restraining order
concerning or resulting from the sale of the Company Shares to Newco pursuant to
this Agreement and such injunction or order is later lifted prior to the first
anniversary of the Closing Date, such Lease will no longer be a Terminated Lease
and Newco shall, within five business days after such injunction or order is
lifted, pay in cash to Melville, if such injunction or order is lifted prior to
November 1, 1996, an amount equal to the payment received by Newco from Melville
pursuant to this Section 9.5(b) or, if such injunction or order is lifted
between November 1, 1996 and the day prior to the first anniversary of the
Closing Date, an amount equal to half of the payment received by Newco from
Melville pursuant to this Section 9.5(b), provided that if such injunction or
order is not lifted prior to November 1, 1996, but is lifted prior to the first
anniversary of the Closing Date, as a result of Newco's or the Company's failure
to cooperate in any proceeding or action relating to such injunction or order,
Newco shall pay Melville an amount equal to the payment received by Newco from
Melville pursuant to this Section 9.5(b). For each Lease determined to be a
Terminated Lease, Melville shall, within five business days after Newco, the
Company or any Subsidiary has vacated the Store pertaining to such Terminated
Lease, pay in cash to Newco an amount equal to the Store Contribution of such
Lease.
(c) (i) Except as otherwise provided in this Agreement, Newco's only
obligation with respect to a Terminated Lease which becomes a Terminated Lease
as of the Closing Date shall be to accept delivery of the inventory from the
Store relating to such Terminated Lease; provided that the cost of shipping such
inventory from the Store subject to the Terminated Lease to Newco shall be
shared equally between Melville and Newco.
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(ii) Except as otherwise provided in this Agreement, Newco's
only obligations with respect to a Terminated Lease which the Company or a
Subsidiary must vacate after the Closing Date shall be (A) to remove the
inventory from the Store relating to such Terminated Lease and (B) deliver
possession of such Store to Landlord as soon as practicable, broom clean
and in a condition substantially equivalent to the condition in which such
Store was in at Closing.
(d) If, at any time subsequent to the Closing Date, any Landlord
provides as a condition to the delivery of a Consent with respect to the
applicable Lease (other than a Delivered Lease) (i) a Release Payment or (ii) a
Rent Increase, Melville shall, upon written notice thereof delivered to Melville
by Newco at any time within 30 days following the date Newco, the Company or any
Subsidiary enters into an agreement (including but not limited to any amendment
to such Lease or a new lease which replaces such Lease) with such Landlord
providing for such Release Payment or such Rent Increase, as the case may be,
pay to Newco in cash an amount equal to (x) in the case of a Release Payment,
50% of such Release Payment, or (y) in the case of a Rent Increase, 50% of the
present value (applying a discount rate of 10%) of the Rent Increase for the
remainder of the current term of the applicable Lease exclusive of any options
contained in such Lease; provided that, in the event of a Rent Increase
resulting from an increase in the Original Percentage Rent, for purposes of the
calculation in this clause (y), the amount of such Rent Increase shall be deemed
to be equal to the difference in rent that would have been payable for the most
recent 12-month period ending prior to the Closing Date had such increase in
Original Percentage Rent been in effect under such Lease. In no event shall the
amount required to be paid by Melville pursuant to this Section 9.5(d) exceed
the Store Contribution of the applicable Lease. Upon payment by Melville of any
amount required to be paid by it pursuant to this Section 9.5(d) with respect to
any Lease, such Lease shall be deemed to be a Delivered Lease and Melville shall
have no further obligation of any kind whatsoever with respect to such Lease.
(e) (i) If, at any time prior to the Closing Date, any Landlord
provides as a condition to the delivery of a Consent with respect to the
applicable Lease (other than a Delivered Lease) (A) a Release Payment or (B) a
Rent Increase, Melville shall obtain the consent of Newco prior to causing the
Company or any Subsidiary to enter into an agreement (including but not limited
to any amendment to such Lease or a new lease which replaces such Lease) with
such Landlord providing for such Release Payment or such Rent Increase, as the
case may be, which consent of Newco shall not be unreasonably conditioned,
delayed or withheld; provided that if Newco does not so consent, the applicable
Lease shall be deemed to be a Terminated Lease. Melville may otherwise enter
into, or cause the Company or any Subsidiary to otherwise enter into, any such
agreement with any Landlord to obtain the Consent of such Landlord with respect
to the applicable Lease, so long as such agreement does not provide for a
Release Payment or a Rent Increase, and such Lease shall be deemed to be a
Delivered Lease.
(ii) If Newco consents to such Release Payment or such Rent
Increase, as the case may be, Melville shall, on the Closing Date, pay to
Newco in cash
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an amount equal to (A) in the case of a Release Payment, 50% of such
Release Payment or (B) in the case of a Rent Increase, 50% of the present
value (applying a discount rate of 10%) of the Rent Increase for the
remainder of the current term of the applicable Lease; provided that, in
the event of a Rent Increase resulting from an increase in the Original
Percentage Rent, for purposes of the calculation in this clause (B), the
amount of such Rent Increase shall be deemed to be equal to the difference
in rent that would have been payable for the most recent 12-month period
ending prior to the Closing Date had such increase in Original Percentage
Rent been in effect under such Lease. Upon payment by Melville of any
amount required to be paid by it pursuant to this Section 9.5(e)(ii) with
respect to any Lease, such Lease shall be deemed to be a Delivered Lease
and Melville shall have no further obligation of any kind whatsoever with
respect to such Lease.
(f) Each of Newco and Melville agree to keep the other generally
apprised of the status of any matters that are the subject of this Section 9.5.
9.6 Guarantee Arrangements. Subject to the terms and conditions of
this Agreement, Newco, Melville and the Company will use commercially reasonable
efforts to take, and Newco, after the Closing, will cause the Company to use
commercially reasonable efforts to take, or cause to be taken, all actions and
to use commercially reasonable efforts to do, or cause to be done, all things
necessary or desirable to cause the Company, or an Affiliate of the Company
(other than any Manager or Investor or any Affiliate who is an individual)
acceptable to Melville, the Company and Newco, to be substituted for MRC as the
guarantor of the Headquarters Lease and the Leases to the extent permitted under
the Financing; provided that nothing stated herein shall require Melville, the
Company or Newco to make any payment (other than incidental postage and office
expenses) to obtain such substitution. Melville, Newco and the Company agree,
and Newco, after the Closing, agrees to cause the Company and each Subsidiary,
to execute and deliver such documents, certificates, agreements and other
writings and to take such other actions as may be necessary or desirable in
order to consummate or implement such substitution, subject to the proviso in
the immediately preceding sentence.
9.7 Shared Contracts. With respect to the shared contracts listed on
Schedule 4.9, if requested by Newco, Melville, Newco and the Company each agree
to use commercially reasonable efforts following the Closing to separate such
contracts or otherwise provide that the respective obligations of Melville and
its Affiliates, on the one hand, and the Company and its Subsidiaries, on the
other hand, with respect thereto shall reflect their respective benefits under
such contracts and that their respective benefits under such contracts after the
Closing shall be based upon their respective use of such assets, goods and
services covered by such contracts in the ordinary course of business.
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ARTICLE 10
TAX MATTERS
10.1 Tax Representations. Melville and the Company each represent
and warrant to Newco as of the date hereof and as of the Closing Date that,
except as set forth in the Balance Sheet (including the notes thereto) or on
Schedule 10.1, to Melville's or the Company's knowledge, as the case may be
(with respect to the Company and the Subsidiaries), (i) all material Returns
required to be filed on or before the date hereof with respect to any Pre-
Closing Tax Period by, or with respect to, the Company or any Subsidiary have
been duly and timely filed (taking into account any extensions); (ii) no
position is reflected in a Return referred to in clause (i) for which the
applicable limitation period has not expired (and for which a closing agreement
has not been entered into) which (A) was not, at the time such Return was filed,
supported by substantial authority (as determined for purposes of Section 6662
of the Code, or any predecessor provision, and any comparable provisions of
applicable foreign, Federal, state, or local tax statutes, rules or regulations)
and (B) would have a Material Adverse Effect on the Company if decided against
the taxpayer; (iii) all Taxes shown as due and payable on any Return have been
timely paid, withheld or provision has been made therefor; and (iv) 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; (v) there has been no waiver or extension of any applicable
statute of limitations period for the assessment or collection of any Taxes,
which period (after giving effect to such waiver or extension) has not yet
expired; (vi) there are no requests for rulings, subpoenas or information
pending with respect to any matter relating to Taxes; (vii) any adjustment of
Taxes made by the Internal Revenue Service in any examination which is required
to be reported to state, local, foreign or other taxing authorities has been so
reported, and any additional Taxes due with respect thereto have been paid;
(viii) no power of attorney has been granted by the Company and/or any
Subsidiary, and is currently in force, with respect to any matter relating to
Taxes; (ix) neither Melville nor any of its Affiliates has made with respect to
the Company or any Subsidiary, or any property held by the Company or any
Subsidiary, any consent under Section 341(f) of the Code; (x) no property of the
Company or any Subsidiary is "tax exempt use property" within the meaning of
Section 168(h) of the Code; (xi) neither the Company nor any Subsidiary is a
party to any lease made pursuant to Section 168(f)(8) of the Internal Revenue
Code of 1954, as amended; and (xii) neither the Company nor any Subsidiary is a
party to any agreement that has resulted in or could result in an obligation to
make payments that would not be deductible under Section 280G of the Code.
10.2 Tax Covenants. (a) Melville and Newco agree to make a timely,
complete and irrevocable election under Section 338(h)(10) of the Code and under
any comparable statutes in any other jurisdiction (other than the United Kingdom
or any other jurisdiction outside of the United States) with respect to the
Company and each of the Subsidiaries (the "Section 338(h)(10) Election"), and to
file such election in accordance with applicable regulations. Melville and
Newco agree to cooperate (and cause their respective
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subsidiaries to cooperate) in all respects for the purpose of effectuating a
timely and complete Section 338(h)(10) Election, including without limitation,
the execution and filing of any forms or returns. The Section 338(h)(10)
Election shall properly reflect the Price Allocation (as hereinafter defined).
Within 150 days after the Closing Date, Newco shall deliver to Melville an
allocation of the modified ADSP (as such term is defined in Treasury Regulations
Section 1.338(h)(10)-1), excluding any selling costs described in Treasury
Regulations Section 1.338(h)(10)-1(f)(4)(ii) among the assets of the Company and
the Subsidiaries in accordance with the Treasury regulations promulgated under
Section 338(h)(10). Melville shall have the right to review the Allocation
Statement. If within 30 days after receipt of the Allocation Statement Melville
notifies Newco in writing that Melville disagrees with a material item reflected
in the Allocation Statement because the proposed treatment of such item could
have an adverse effect on the Tax liability, or any Tax attribute that could
reduce the Tax liability of Melville or any of its Affiliates, Newco and
Melville will negotiate in good faith to resolve such dispute. If Newco and
Melville fail to resolve such dispute within 30 days, it shall be resolved by a
nationally recognized independent accounting firm chosen and mutually acceptable
to both Newco and Melville (the "Tax Accountants"). The costs, fees and expenses
of such firm shall be borne equally by Newco and Melville. Upon resolution of
the disputed items, the allocation reflected on the Allocation Statement shall
be adjusted to reflect such resolution and shall be the "Price Allocation" which
shall be binding on the parties hereto. Melville and Newco agree to act in
accordance with the Price Allocation in the preparation and filing of any
Return.
(b) Newco covenants that it will not, nor will it cause or permit the
Company, any Subsidiary or any Affiliate of Newco (i) to take any action on the
Closing Date other than in the ordinary course of business or as contemplated by
this Agreement, including but not limited to the distribution of any dividend or
the effectuation of any redemption that could give rise to any Tax liability of
the Melville Group or to any loss of Melville or the Melville Group under this
Agreement, (ii) to make or change any Tax election (other than the making of the
Section 338(h)(10) Election), amend any Return or take any position on any
Return that results in any increased Tax liability or reduction of any Tax
attribute that could reduce the Tax liability of the Melville Group, provided
that it is agreed that the foregoing covenant shall not preclude Newco from
making Tax elections on or amending or taking a position on any Federal Income
Tax Return for a Post-Closing Tax Period or any other Tax Return that does not
include days in the Pre-Closing Tax Period, (iii) to liquidate or merge Newco
into another entity for a period of two years following the Closing Date,
provided that during such two-year period Newco may be liquidated or merged into
an unrelated corporation if, and only if, such liquidation or merger is effected
pursuant to the acquisition of Newco by such corporation and none of the
Managers or Investors has ever had nor will have any affiliation other than as a
non-officer employee (other than ownership of less than 1% of its outstanding
capital stock by any Managers and Investors in the aggregate) with such
corporation prior to its acquisition of Newco, (iv) to liquidate or merge the
Company, or any entity into which the Company has been liquidated or merged,
into Newco for a period of two years following the Closing Date or (v) to sell,
convey, exchange or otherwise transfer
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(including by merger or liquidation) all or substantially all of the property or
assets of the Subsidiaries of the Company, taken as a whole, to or with Newco
for a period of two years following the Closing Date. Newco agrees that Melville
is to have no liability for any Tax resulting from any action, referred to in
the preceding sentence, of the Company, Newco or any Affiliate of Newco, and
agrees to indemnify and hold harmless Melville and its Affiliates against any
such Tax and any liabilities and expenses (including without limitation
reasonable expenses of investigation and reasonable accountants' and attorneys'
fees and expenses) (any such liability or expense referred to herein as a
"Loss") incurred in connection therewith. Melville agrees to give prompt notice
to Newco 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
10.2(b). Newco may participate in and assume the defense of any such suit,
action or proceeding at its own expense. If Newco assumes such defense, Melville
shall have the right (but not the duty) to participate in the defense thereof
and to employ counsel, at its own expense, separate from the counsel employed by
Newco. Whether or not Melville chooses to defend or prosecute any claim, the
parties hereto shall cooperate in the defense or prosecution thereof. Newco
represents that it has no present intention, nor does it have any present
intention to cause or permit (i) the merger or liquidation of Newco into another
entity, (ii) the liquidation or merger of the Company, or any entity into which
the Company has been liquidated or merged, into Newco, or (iii) the sale,
conveyance, exchange or other transfer (including by merger or liquidation) of
all or substantially all of the property or assets of the Subsidiaries of the
Company, taken as a whole, to or with Newco, and Newco represents further that
there are no present negotiations, offers or communications with or from any
Person regarding the acquisition of Newco following its acquisition of the
Company Shares (other than pursuant to the Investor Stock Purchase Agreement) by
such Person, or an Affiliate, joint venturer, partner or relative of such
Person, or by any other Person if such Person is acting (formally or informally,
for compensation or otherwise) as an accountant, advisor, agent, attorney,
banker, broker, dealer, facilitator, finder, intermediary, investment banker or
in any other similar type of capacity.
(c) Newco shall promptly pay or shall cause prompt payment to be made
to Melville of all refunds of Taxes and interest thereon received by, or
credited to the Tax liability of, Newco, any Affiliate of Newco, the Company, or
any Subsidiary attributable to Taxes paid by Melville, the Company or any
Subsidiary (or any predecessor or Affiliate of Melville) with respect to any
Pre-Closing Tax Period and not reflected on the Working Capital Balance Sheet.
If a state does not recognize the Section 338(h)(10) Election, Newco may carry
back any losses from a Post-Closing Tax Period to a Pre-Closing Tax Period and,
if the relevant return does not include Melville or any of its Affiliates,
including all corporations (other than Newco, the Company or any Subsidiary)
that were Affiliates of Melville during any Pre-Closing Tax Period, Newco shall
be entitled to any refunds and interest thereon resulting from such carryback.
(d) All transfer, documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest) incurred in
connection with this
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Agreement (including any New York State Real Property Transfer Gains Tax, New
York State Real Estate Transfer Tax, New York City Real Property Transfer Tax
and any similar tax imposed by any Taxing Authority) ("Transfer Taxes") shall be
borne and paid by Melville, and Melville will, at its own expense, file all
necessary Returns and other documentation with respect to all such Taxes and
fees, and, if required by applicable law, Newco will, and will cause its
Affiliates and, effective upon the Closing, the Company and its Subsidiaries to,
join in the execution of any such Returns and other documentation.
(e) Melville shall include the income of the Company and the
Subsidiaries in Melville's federal consolidated Income Tax Return, and shall
file all state, foreign and local Income Tax Returns of the Company and the
Subsidiaries, for all tax periods ending on or before the Closing Date and shall
be responsible for remitting all Income Taxes reflected on such Income Tax
Returns. Melville shall also prepare or cause to be prepared and file or cause
to be filed all Miscellaneous Tax Returns due on or before the Closing Date
(taking into account extensions) and shall be responsible for remitting all
Miscellaneous Taxes reflected on such Miscellaneous Tax Returns.
(f) With respect to Income Tax Returns for the Tax period ending on
the Closing Date, Newco shall cause the Company and the Subsidiaries to prepare
and provide to Melville one or more packages of information materials as are
reasonably necessary for the purpose of preparing each such Income Tax Return
(the "Tax Packages"). Each Tax Package shall be completed in all material
respects in accordance with the standards that Melville has established for its
other subsidiaries. Newco shall use commercially reasonable efforts to deliver
the Tax Packages to Melville as soon as practicable after the Closing Date, but
in no event later than the date that is five months after the Closing Date.
Within 30 days after the filing of such Income Tax Returns, Melville shall
provide Newco with copies of each separate company pro forma Income Tax Return
and any other Income Tax Return pertaining exclusively to the Company and the
Subsidiaries.
(g) Newco shall prepare and file, or cause to be prepared and filed,
on a timely basis all Income Tax Returns required to be filed by the Company and
each Subsidiary for any Tax period of the Company or any Subsidiary that
includes (but does not end on) the Closing Date and all Miscellaneous Tax
Returns due after the Closing Date (taking into account extensions) and shall be
responsible for remitting all Taxes reflected on such Returns. Any such Return
shall be prepared in a manner consistent with past practice and without a change
of any election or any accounting method and shall be submitted by Newco to
Melville (together with schedules, statements and, to the extent requested by
Melville, supporting documentation) at least 40 days prior to the due date
(including extensions) of such Return. Melville shall have the right to review
all work papers and procedures used to prepare any such Return. If Melville,
within 15 business days after delivery of any such Return, notifies Newco in
writing that it objects to any items in such Return, the parties shall proceed
in good faith to resolve the disputed items and, if they are unable to do so
within 10 business days, the disputed items shall be resolved (within a
reasonable time, taking into account the deadline for filing such Return) by the
Tax Accountants; provided that if the Tax
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Accountants shall determine that two or more alternative positions with respect
to the matter in question are equally supported by applicable law, the party
that is liable for such item under Section 10.5(a) shall determine which
position shall be taken on the relevant Return. Upon resolution of all disputed
items, the relevant Return shall be adjusted to reflect such resolution and
shall be binding upon the parties without further adjustment. The costs, fees
and expenses of the Tax Accountants shall be borne equally by Newco and
Melville.
10.3 Termination of Existing Tax Sharing Agreements. Any and all
existing Tax sharing agreements (written or unwritten, formal or informal)
between the Company or any Subsidiary, on the one hand, and Melville or any of
its Affiliates, on the other hand, shall terminate as of the Closing Date.
After such date neither the Company, any Subsidiary, Melville nor any Affiliate
of Melville shall have any further rights or liabilities thereunder.
10.4 Cooperation on Tax Matters. Newco and Melville agree to furnish
or cause to be furnished to each other, upon request, as promptly as
practicable, such information (including access to the relevant portions of any
books and records) and assistance relating to the Company and the Subsidiaries
as is reasonably necessary for the filing of any Return, for the preparation for
any audit, and for the prosecution or defense of any claim, suit or proceeding
relating to any proposed adjustment. Newco and Melville agree to retain or
cause to be retained all books and records pertinent to the Company and the
Subsidiaries until the applicable period for assessment under applicable law
(giving effect to any and all extensions or waivers) has expired, and to abide
by or cause the abidance with all record retention agreements entered into with
any Taxing Authority. The Company agrees to give Melville reasonable notice
prior to transferring possession of, discarding or destroying any such books and
records relating to tax matters and, if Melville so requests within 30 days
after receiving such notice, the Company shall allow Melville to take possession
of such books and records. Newco and Melville shall cooperate with each other
in the conduct of any audit or other proceedings involving the Company for any
tax purposes and each shall execute and deliver such powers of attorney and
other documents as are necessary to carry out the intent of this subsection.
10.5 Indemnification by Melville. (a) Melville hereby indemnifies
Newco against and agrees to hold it harmless from any (i) Income Tax of the
Company or any Subsidiary with respect to any Pre-Closing Tax Period, including
as transferee or successor, (ii) liability of the Company, any Subsidiary or
Newco under Treasury Regulation Section 1.1502-6 (or any similar provisions of
state, local or foreign law) for Income Taxes with respect to any Pre-Closing
Tax Period, (iii) Tax attributable to the Section 338(h)(10) Election, other
than any Tax on Newco, the Company or the Subsidiaries for a Post-Closing Tax
Period which results from the Price Allocation, (iv) Transfer Taxes, (v) Tax
other than Income Taxes and Transfer Taxes ("Miscellaneous Taxes") with respect
to any Pre-Closing Tax Period, but only to the extent the amount payable exceeds
the amount reflected on the Closing Balance Sheet for Miscellaneous Taxes, (vi)
Damages (as defined in Article 13) arising out of any misrepresentation or
breach of warranty made by Melville pursuant to this Article 10 or any breach of
covenant or agreement to be performed by Melville pursuant to
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this Article 10, or (vii) Loss, arising out of or incident to the imposition,
assessment or assertion of any Tax specified in clause (i), (ii), (iii), (iv),
(v) or (vi) above, including those incurred in the contest in good faith in
appropriate proceedings relating to the imposition, assessment or assertion of
such tax, in each case incurred or suffered by Newco, any of its Affiliates or,
effective upon the Closing, the Company or any Subsidiary (the sum of (i), (ii),
(iii), (iv), (v) or (vi) being referred to as a "Tax Loss"); provided, that
Melville shall have no liability for the payment of any loss attributable to or
resulting from any action described in Section 10.2(b) hereof and provided
further that, notwithstanding anything to the contrary in this Section 10.5(a),
Newco shall not be entitled to recover more than once for any Tax indemnified
under this Section 10.5(a).
(b) For purposes of this Section 10.5, in the case of any Taxes that
are imposed on a periodic basis and are payable for a Tax period that includes
(but does not end on) the Closing Date, the portion of such Tax related to the
Pre-Closing Tax Period shall (i) in the case of Taxes other than Taxes based
upon or related to income, sales, gross receipts, wages, capital expenditures,
expenses or any similar Tax base, be deemed to be the amount of such Tax for the
entire period multiplied by a fraction the numerator of which is the number of
days in the Tax period ending on the Closing Date and the denominator of which
is the number of days in the entire Tax period, and (ii) in the case of any Tax
based upon or related to income, sales, gross receipts, wages, capital
expenditures, expenses or any similar Tax base, be deemed equal to the amount
which would be payable if the relevant Tax period ended on the Closing Date.
Any credits relating to a tax period that begins before and ends after the
Closing Date shall be taken into account as though the relevant tax period ended
on the Closing Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with prior practice
of the Company and the Subsidiaries.
(c) Melville shall pay Newco the amount of any Tax Loss for which
Melville is responsible pursuant to this Section 10.5 not later than 30 days
after receipt by Melville of written notice from Newco stating that any Tax Loss
has been paid by Newco, any of its Affiliates or, effective upon the Closing,
the Company or any Subsidiary and the amount thereof and of the indemnity
payment requested; provided, that Melville's share of Taxes payable with respect
to Income Tax Returns governed by Section 10.2(g) shall be paid five days prior
to the time the Company is required by law to remit such Taxes and Melville's
share of Taxes payable with respect to Miscellaneous Tax Returns governed by
Section 10.2(g) shall be paid at any time prior to the time the Company is
required by law to remit such Taxes.
(d) If any claim or demand for Taxes in respect of which indemnity may
be sought pursuant to this Section 10.5 is asserted in writing against Newco,
any of its Affiliates or, effective upon the Closing, the Company or any
Subsidiary, Newco shall notify Melville of such claim or demand within 10 days
of receipt thereof, or such earlier time that would allow Melville to timely
respond to such claim or demand, and shall give Melville such information with
respect thereto as Melville may request; provided, however, that failure to give
a timely notice under this Section 10.5 shall not limit the indemnification
obligations of Melville
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hereunder except to the extent that delay in giving, or failure to give, such
notice prejudices Melville's ability to defend against any Tax claim or demand.
Melville may, at its own expense, participate in and, upon notice to Newco,
assume the defense of any such claim, suit, action, litigation or proceeding
(including any Tax audit); provided, however, that Melville will not settle or
compromise any such controversy without Newco's consent if the settlement or
compromise would have a Material Adverse Effect on any Tax Return of Newco, the
Company or any Subsidiary. Notwithstanding the foregoing, Melville may
discharge, at any time, its indemnification obligation under this Section 10.5
by paying to Newco the amount of the applicable Tax Loss, calculated on the date
of such payment. Notwithstanding the foregoing, Melville shall not permit any
Lien that materially interferes with the operations of Newco, the Company or any
Subsidiary to be created or continued upon any property or any of the assets of
Newco, the Company or any Subsidiary in relation to such a controversy or
otherwise act so as to materially interfere with the operations of Newco, the
Company or any Subsidiary in connection with such a controversy. Whether or not
Melville chooses to defend or prosecute any claim, all of the parties hereto
shall cooperate in the defense or prosecution thereof.
(e) Melville shall not be liable under this Section 10.5 for (i) any
Tax the payment of which was made without Melville's prior written consent,
provided that such consent is not unreasonably withheld, or (ii) any settlements
effected without the consent of Melville, provided that such consent is not
unreasonably withheld, or resulting from any claim, suit, action, litigation or
proceeding in which Melville was not permitted an opportunity to participate.
10.6 Indemnification by Newco. Newco hereby indemnifies Melville
against and agrees to hold it harmless from (i) any Taxes and Loss for which
Newco is responsible and (ii) Damages (as defined in Article 13) arising out of
any misrepresentation or breach of warranty made by Newco pursuant to this
Article 10 or any breach of covenant or agreement to be performed by Newco
pursuant to this Article 10.
10.7 Survival. Notwithstanding anything in this Agreement to the
contrary, the provisions of this Article 10 shall survive for the full period of
all statutes of limitations (giving effect to any waiver, mitigation or
extension thereof).
10.8 Employee Plans and Benefit Arrangements Notwithstanding anything
in this Article 10 to the contrary, Article 11 (and not Article 10) shall govern
matters concerning Employee Plans and Benefit Arrangements.
ARTICLE 11
EMPLOYEES AND EMPLOYEE BENEFITS
11.1 Employees. With respect to each individual who, as of the
Closing Date, is employed (including persons absent from active service by
reason of Short Term
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Disability, as hereinafter defined, or absence not relating to disability,
whether paid or unpaid) by the Company or any Subsidiaries ("Transferred
Employees"), Newco shall cause the Company to continue the employment of each
Transferred Employee on the Closing Date, provided that nothing stated herein
shall limit the right of the Company or any Subsidiary to terminate the
employment of any Transferred Employee following the Closing Date or to reduce
or otherwise modify the position, responsibilities, compensation or benefits of
any Transferred Employee at any time, and provided further that an individual
who is employed as of the Closing Date by the Company or any Subsidiaries, but
on such date is absent from active service and is receiving Long Term Disability
Benefits (as hereinafter defined) shall not be considered a Transferred
Employee. The employee benefit plans and arrangements maintained by Newco shall
give full service credit for purposes of eligibility and vesting (and in
connection with any such severance or vacation plan or policy, for purposes of
determining the level of benefit) for any service on or prior to the Closing
Date of a Transferred Employee with Melville, the Company and the Subsidiaries.
For purposes of this Agreement, (i) "Short Term Disability" shall mean a
condition with respect to which an employee is receiving benefits, as of the
Closing Date, under either the Melville Short Term Disability Plan or the
Melville Salary Continuation Plan, and (ii) "Long Term Disability Benefits"
shall mean benefits under the Melville Long Term Disability Plan.
11.2 Qualified Plans. (a) Melville shall retain all liabilities and
obligations in respect to benefits accrued by Transferred Employees under
Melville's ESOP. Melville shall cause each Transferred Employee to become 100%
vested in the employee's account in Melville's ESOP as of the Closing Date. As
soon as practicable after the Closing Date, Melville shall take such action as
may be necessary, if any, to permit each Transferred Employee to exercise his
rights under Melville's ESOP to effect an immediate distribution of such
Transferred Employee's full account balances under Melville's ESOP or to effect
a tax-free rollover of the taxable portion of the account balances into an
eligible retirement plan (within the meaning of Section 401(a)(31) of the Code,
a "Direct Rollover") maintained by Newco or a Subsidiary of Newco (the "Newco
Plan") or to an individual retirement account. Melville and Newco shall work
together in order to facilitate any such distribution or rollover and to effect
a Direct Rollover for those participants who elect to roll over their account
balances directly into the Newco Plan; provided that nothing contained herein
shall obligate the Newco Plan to accept a Direct Rollover in a form other than
cash.
(b) On the Closing Date, or as soon as practicable thereafter, Newco
shall establish or designate the Newco Plan in order to accommodate the Direct
Rollovers described above and shall take all action necessary, if any, to
qualify the Newco Plan under the applicable provisions of the Code and shall
make any and all filings and submissions to the appropriate governmental
authorities required to be made by it in connection with any Direct Rollover.
(c) As soon as practicable after the Closing Date, Newco shall
establish or designate an individual account plan (the "Successor Individual
Account Plan") for the benefit of Transferred Employees, shall take all
necessary action, if any, to qualify such plan
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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. Melville shall
cause each Transferred Employee to be 100% vested in the employee's account
balance under Melville's 401(k) Profit Sharing Plan as of the Closing Date. No
later than the date of the transfer described herein, Melville shall make all
applicable 401(k), profit sharing, matching contributions and qualified non-
elective contributions payable under Melville's 401(k) Profit Sharing Plan with
respect to Transferred Employees for periods on or prior to the Closing Date. As
soon as practicable following the Closing Date, Melville shall cause the trustee
of Melville's 401(k) Profit Sharing Plan to transfer in the form of cash or, to
the extent applicable, notes representing outstanding loans made to Transferred
Employees under Melville's 401(k) Profit Sharing Plan (or such other form as may
be agreed to by Melville and Newco) the full account balances of Transferred
Employees (and beneficiaries thereof) under Melville's 401(k) Profit Sharing
Plan (which account balances will have been credited with appropriate earnings
attributable to the period from the Closing Date to the date of transfer
described herein), reduced by any necessary benefit or withdrawal payments to or
in respect of Transferred Employees occurring during the period from the Closing
Date to the date of transfer described herein, to the appropriate trustee as
designed by Newco under the trust agreement forming a part of the Successor
Individual Account Plan, it being understood that Melville is under no
obligation to effect a distribution, payment or loan under Melville's 401(k)
Profit Sharing Plan in respect of a Transferred Employee who either requests a
loan or terminates employment after the Closing Date but prior to the date of
transfer described herein if the required distribution, payment or loan, as the
case may be, forms have not been received by Melville prior to the last day of
the month preceding the month in which the transfer described herein occurs.
Melville and Newco agree to take such actions and enter into such agreements, if
any, that may be necessary to effect the transfer described herein. In
consideration for the transfer of assets described herein, Newco shall,
effective as of the date of transfer described herein, assume all of the
obligations of Melville in respect of the account balances accumulated by
Transferred Employees under Melville's 401(k) Profit Sharing Plan (exclusive of
any portion of such account balances which are paid or otherwise withdrawn prior
to the date of transfer described herein) with respect to the account balances
transferred to the Successor Individual Account Plan. Melville hereby
indemnifies Newco, the Company and the Subsidiaries against and agrees to hold
them harmless from any liabilities or claims (including claims for benefits or
for breach of fiduciary duties, but excluding claims for benefits to the extent
of the assets transferred hereunder) relating to Melville's 401(k) Profit
Sharing Plan (or the qualified status of that Plan) which arose prior to the
transfer of assets described herein or which relate to the operation or
administration of that Plan prior to the transfer of assets. Newco hereby
indemnifies Melville against and agrees to hold it harmless from any liabilities
or claims relating to the qualified status of the Successor Individual Account
Plan or the operation or administration of that Plan following the transfer of
assets described herein.
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11.3 Other Employee Plans and Benefit Arrangements.
(a) Melville shall retain all obligations and liabilities under the
Employee Plans and Benefit Arrangements in respect of any employee or prior
employee (including any beneficiary or dependent thereof) who is not a
Transferred Employee. In addition, Melville shall retain all obligations and
liabilities for continuation coverage under the Employee Plans or Benefits
Arrangements arising under the Consolidated Omnibus Budget Reconciliation Act of
1985 or any similar federal, state or local law or regulation with respect to
any employee, former employee or dependent thereof (including any dependent of a
Transferred Employee but not including any Transferred Employee) which relates
to any "qualifying event" as defined in Code Section 4980B that occurred on or
prior to the Closing Date.
(b) Subject to the provisions of Sections 11.3(e) and 11.3(f)(ii) and
the last sentence of this Section 11.3(b), with respect to Transferred
Employees, Melville shall retain all obligations and liabilities relating to or
arising under the Employee Plans or Benefit Arrangements which are attributable
to claims incurred or benefits accrued or otherwise payable on or prior to the
Closing Date, except that with respect to any Transferred Employee who, on the
Closing Date, is absent by reason of Short Term Disability, Newco shall assume
and be liable for any payments attributable to the period beginning on the
Closing Date and ending on the date such Transferred Employee becomes eligible
for Long Term Disability Benefits; provided that any liabilities of Melville
pursuant to Section 11.3(a) and this Section 11.3(b) shall not be considered in
preparing the Closing Balance Sheet. The liabilities retained by Melville under
this subsection include, but are not limited to, (i) in the case of medical or
dental plans, liabilities incurred with respect to services performed for
Transferred Employees or their dependents on or prior to the Closing Date, (ii)
in the case of life insurance plans, liabilities payable with respect to any
person who dies on or prior to the Closing Date, (iii) in the case of workers
compensation, liabilities relating to claims asserted on or prior to the Closing
Date or for which Melville has agreed to indemnify the Company and its
Subsidiaries under Section 7.12 and (iv) in the case of a Transferred Employee
who, on the Closing Date, is absent by reason of Short Term Disability and after
the Closing Date becomes eligible for Long Term Disability Benefits, liabilities
under the Melville Long Term Disability Plan and liabilities under other
Employee Plans and Benefit Arrangements attributable to claims incurred or
benefits accrued after such Transferred Employee has become eligible for Long
Term Disability Benefits.
(c) Newco shall be responsible for all claims for severance benefits
or wrongful termination claims made by Transferred Employees who are discharged
by Newco, the Company or any Subsidiary after the Closing Date. In addition,
Melville shall have no obligations with respect to any act or omissions of
Newco, the Company or any Subsidiary and their respective officers, agents and
employees relating to Transferred Employees which occur after the Closing Date.
Newco shall indemnify and hold Melville harmless from any Damages with respect
to, arising from or pursuant to any complaint, charge or grievance made by any
such Transferred Employee with respect to any action or activities of Newco, the
Company or any Subsidiary after the Closing Date. Melville shall indemnify and
hold Newco,
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the Company and the Subsidiaries harmless from any Damages with respect to,
arising from or pursuant to any complaint, charge or grievance made prior to the
Closing Date by any such Transferred Employee with respect to any action or
activities of Melville or any Affiliate (or with respect to claims pending as of
the Closing Date that are set forth on Schedules 3.10 or 3.12, the Company or
any Subsidiary) or made by any employee or former employee who is not a
Transferred Employee, regardless of whether the complaint, charge or grievance
or the action or activities resulting in the complaint, charge or grievance
arose prior to, on or after the Closing Date.
(d) Except as otherwise provided in Section 11.2 or Sections 11.3(a),
11.3(b), 11.3(c), and 11.3(f)(ii), Melville shall have no liability or
responsibility under the Employee Plans or Benefit Arrangements after the
Closing Date with respect to Transferred Employees (and dependents and
beneficiaries thereof). Except as provided in Section 11.3(e), Melville hereby
indemnifies Newco, the Company and the Subsidiaries against and agrees to hold
them harmless from any liabilities or claims under the Employee Plans or
Benefits Arrangements (i) arising on or prior to the Closing Date with respect
to Transferred Employees (and dependents and beneficiaries thereof) and (ii)
with respect to any individual who is not a Transferred Employee or a dependent
or beneficiary of a Transferred Employee, whether (in the case of clause ii of
this sentence) the liability or claim arose before, on or after the Closing
Date; provided, however, this sentence is subject to the provisions of Section
13.5 other than clause (ii) thereof. Melville also indemnifies Newco, the
Company and the Subsidiaries against and agrees to hold them harmless from any
liabilities or claims related to any plan or arrangement maintained by Melville
or any Affiliate of Melville which is subject to ERISA but which is not an
Employee Plan or Benefit Arrangement, whether such liability or claim arose
before, on or after the Closing Date.
(e) Subject to Section 11.3(f)(iii), Newco shall cause the Company to
retain all obligations relating to bonuses, vacation and personal holidays to
which each Transferred Employee is entitled as of the Closing Date under the
applicable Employee Plans and Benefit Arrangements in effect on the Closing
Date; provided that, except as provided in Section 11.3(f)(iii), if any amounts
for bonuses in respect of employees of the Company and the Subsidiaries other
than Store employees are accrued by the Company prior to Closing, such amounts
shall be excluded from the calculation of Estimated Working Capital and Closing
Working Capital pursuant to Article 2. Subject to the foregoing, Newco's bonus,
vacation and holiday policies and practices may be made applicable to
Transferred Employees for all periods after the Closing Date.
(f) (i) The restrictions on all Melville restricted stock previously
granted to the Persons listed on Schedule 11.3(f)(i) will lapse on the
Closing Date and all performance goals with respect to performance-based
restricted stock will be deemed to have been met on the Closing Date. The
number of shares of restricted stock of Melville previously granted to each
Person that has not previously vested is set forth beside such Person's
name on Schedule 11.3(f)(i) and Melville will deliver to each
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such Person at the Closing unlegended stock certificates registered in such
Person's name representing such shares.
(ii) On the first business day of the month after the Closing
Date, Melville shall pay to ▇▇▇▇ ▇▇▇▇▇▇ a lump sum amount of $2,149,282
(less applicable withholding taxes) in full settlement of his benefit
entitlements under the July 1, 1995 Supplemental Retirement Plan I for
Select Senior Management of Melville Corporation.
(iii) With respect to the persons listed on Schedule
11.3(f)(iii), Melville will cause the Company to pay on the Closing Date
the amounts shown for each such person, subject to appropriate tax
withholding obligations. Such payments shall be reflected as paid
immediately prior to Closing for purposes of calculating Estimated Working
Capital and Closing Working Capital pursuant to Article 2.
11.4 Third Party Beneficiaries. No provision of this Article 11
shall create any third party beneficiary rights in any employee or former
employee of the Company (including any beneficiary or dependent thereof) in
respect of continued employment or resumed employment, and no provision of this
Article 11 except Section 11.3(f) shall create any rights in any such persons in
respect of any benefits that may be provided, directly or indirectly, under any
employee benefit plan or arrangement.
ARTICLE 12
CONDITIONS TO CLOSING
12.1 Conditions to Obligations of Newco and Melville. The
obligations of Newco and Melville to consummate the Closing are subject to the
satisfaction of the following conditions:
(i) No provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation of
the Closing.
(ii) Any applicable waiting period under the HSR Act relating to
the transactions contemplated hereby shall have expired or been terminated.
(iii) All actions by or in respect of or filings with any
governmental body, agency, official or authority required to permit the
consummation of the Closing shall have been taken, made or obtained.
12.2 Conditions to Obligation of Newco. The obligation of Newco to
consummate the Closing is subject to the satisfaction of the following further
conditions:
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(i) (A) Melville and the Company shall have performed in all
material respects all of their covenants, agreements and obligations
hereunder required to be performed by them on or prior to the Closing Date
and (B) the representations and warranties of Melville and the Company
contained in this Agreement and in any certificate or other writing
delivered by Melville and/or the Company pursuant hereto shall be true in
all material respects at and as of the Closing Date as if made at and as of
such date.
(ii) If the Closing Date is a Business Day, Newco shall have
received certificates for the Company Shares duly endorsed or accompanied
by stock powers duly endorsed in blank, with any required transfer stamps
affixed thereto and, if the Closing Date is not a Business Day, Melville
shall have deposited certificates representing the Company Shares duly
endorsed or accompanied by stock powers duly endorsed in blank, with any
required transfer stamps affixed thereto with the Escrow Agent pursuant to
the terms of the Escrow Agreement.
(iii) Newco shall have received all documents it may reasonably
request relating to the existence and foreign qualification of Melville (as
to existence only), the Company and the Subsidiaries and the authority of
Melville for this Agreement, all in form and substance reasonably
satisfactory to Newco.
(iv) Newco shall have received at the Closing an opinion dated
the Closing Date from ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇, counsel to Melville, in
substantially the form set as forth in Exhibit H.
(v) The proceeds of the revolving credit necessary to provide
working capital, including the expenses of consummating the transactions
contemplated by this Agreement, shall be available to Newco at the Closing.
(vi) Melville shall have delivered to Newco an affidavit (a so-
called "FIRPTA affidavit") in form and substance reasonably satisfactory to
Newco duly executed and acknowledged, certifying facts that would exempt
the transactions contemplated hereby from the provisions of the Foreign
Investors Real Property Act.
(vii) Newco shall be reasonably satisfied that the Investors
will immediately thereafter purchase the Common Shares and Preferred Shares
of Newco pursuant to the Investor Stock Purchase Agreement.
(viii) The Company shall have transferred all Designated Closed
Store Leases and all Excluded Subsidiaries to Melville or an Affiliate of
Melville and Melville or such Affiliate shall have assumed or guaranteed
all liabilities and obligations of any nature (whether accrued, absolute,
contingent, known, unknown, asserted, unasserted or otherwise and including
Tax liabilities) relating to the Company's conduct of the business at the
stores subject to such Closed Store Leases,
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pursuant to documents executed and delivered by Melville to the Company at
Closing in form and substance reasonably satisfactory to Newco.
(ix) Melville shall have executed the Registration Rights
Agreement in substantially the form as set forth in Exhibit E.
(x) Melville shall have executed the Warrant and the
Management Warrant in substantially the form as set forth in Exhibits B and
C, respectively.
(xi) Melville shall have executed the Security Agreement and
each Pledge Agreement.
(xii) The Investors and Melville shall have executed the
Investor Stock Purchase Agreement in substantially the form as set forth in
Exhibit G.
(xiii) Newco shall have received certificates for all
outstanding shares of capital stock of all of the Subsidiaries ("Subsidiary
Shares") all of which shall be registered in the name of the Company or any
Subsidiary.
12.3 Conditions to Obligation of Melville. The obligation of
Melville to consummate the Closing is subject to the satisfaction of the
following further conditions:
(i) (A) Newco shall have performed in all material respects all
of its covenants, agreements and obligations hereunder required to be
performed by it at or prior to the Closing Date and (B) the representations
and warranties of Newco contained in this Agreement and in any certificate
or other writing delivered by Newco pursuant hereto shall be true in all
material respects at and as of the Closing Date as if made at and as of
such date.
(ii) If the Closing Date is a Business Day, Melville shall have
received the Cash Consideration, the Note, the Warrant, the Management
Warrant, the Common Shares and the Preferred Shares and, if the Closing
Date is not a Business Day, Newco, or its designee, shall have deposited
the Cash Consideration, the Note, the Warrant, the Management Warrant, the
Common Shares and the Preferred Shares with the Escrow Agent pursuant to
the terms of the Escrow Agreement.
(iii) Newco shall have executed and delivered the Registration
Rights Agreement, the Security Agreement and each Pledge Agreement.
(iv) Melville shall have received all documents it may
reasonably request relating to the existence of Newco and the authority of
Newco for this Agreement, all in form and substance reasonably satisfactory
to Melville.
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(v) Melville shall have received at the Closing an opinion
dated the Closing Date from Faegre & ▇▇▇▇▇▇, counsel to Newco, in
substantially the form as set forth in Exhibit I.
(vi) ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇ shall have executed the
Employment Agreements.
(vii) The Managers and Newco shall have executed the Manager
Stock Purchase Agreement in substantially the form as set forth in Exhibit
F.
(viii) The Investors and Melville shall have executed the
Investor Stock Purchase Agreement in substantially the form as set forth in
Exhibit G.
ARTICLE 13
SURVIVAL; INDEMNIFICATION
13.1 Survival. The covenants, agreements, 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
(and the indemnification therefor) shall survive the Closing until the day which
is 15 months from the Closing Date; provided that (i) the covenants and
agreements contained in Articles 2, 6, 7, 8, 9 and Section 15.13 (and the
indemnification therefor) shall survive indefinitely unless reduced by the
respective periods set forth therein, (ii) the covenants, agreements,
representations and warranties contained in Articles 10 and 11 (and the
indemnification therefor) shall survive until expiration of the statute of
limitations applicable to the matters covered thereby (giving effect to any
waiver, mitigation or extension thereof), (iii) the representations and
warranties set forth in Sections 3.5, 3.6(b), 4.5, 4.8 and 5.7 (and the
indemnification therefor) shall survive indefinitely, (iv) the indemnification
obligations of Newco, Melville and the Company in Section 13.2 other than for
breaches of representations, warranties, covenants and agreements and in Section
7.12 shall survive until the expiration of the applicable statute of
limitations, (v) the obligations of Newco in Section 13.3 shall survive until
there are no more Leases outstanding which are guaranteed by MRC and (vi) the
representations and warranties contained in Sections 3.8, 3.14 and 3.19 will not
survive the Closing; provided further that no representation or warranty shall
survive the Closing if (i) the party making it does not have knowledge as of the
date hereof of the fact that such representation or warranty is untrue and (ii)
the party to whom such representation or warranty is made has knowledge of facts
prior to the Closing Date that would cause such representation or warranty not
to be true in any material respect on such date. No covenant, agreement,
representation or warranty contained in this Agreement shall survive after the
time at which it would otherwise terminate pursuant to the preceding sentence
unless notice of the inaccuracy or breach thereof shall have been given to the
party against whom such indemnity may be sought prior to such time.
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13.2 Indemnification. (a) Melville hereby indemnifies Newco and its
Affiliates and, effective after the Closing, without duplication, the Company or
any Subsidiary and the respective directors and officers of Newco and its
Affiliates, the Company or any Subsidiary against and agrees to hold them
harmless from any and all damage, loss, liability and expense (including without
limitation reasonable expenses of investigation and reasonable attorneys' fees
and expenses in connection with any action, suit or proceeding) ("Damages")
incurred or suffered by such indemnified party arising out of (i) any
misrepresentation or breach of warranty made by Melville pursuant to this
Agreement or any breach of covenant or agreement to be performed by Melville
pursuant to this Agreement, (ii) any misrepresentation or breach of warranty
made by the Company pursuant to this Agreement or any breach of covenant or
agreement to be performed by the Company pursuant to this Agreement with respect
to any matter related to or covered in any Specified Indemnity Provision or any
breach of covenant or agreement to be performed by the Company prior to Closing
pursuant to this Agreement, (iii) the matters listed on Schedule 3.12 or
Schedule 3.16, (iv) any claim, action, suit, arbitration, investigation,
proceeding or enforcement action, which relates in any manner to the leather
protector sprays which were recalled in December 1992 and which exists as of the
Closing Date and is not disclosed on Schedule 3.12 or arises on or after the
Closing Date (the "Spray Litigation"), (v) any claim, action, suit, arbitration,
investigation, proceeding or enforcement action which relates in any manner to
service by a member of the Management Disclosure Group on the boards of
directors or as officers of Melville or any Affiliates of Melville other than
any actions which constitute wilful misconduct amounting to fraud (and Melville
hereby releases effective at Closing and shall cause each such Melville
Affiliate as to which a member of the Management Disclosure Group has served as
an officer or director to release effective at Closing each such member of the
Management Disclosure Group from any liability or obligation to Melville or such
Melville Affiliate arising out of such service except to the extent such
obligation or liability arises from wilful misconduct by such Person amounting
to fraud) ("Director and Officer Claims"), (vi) any claim, action, suit,
arbitration, investigation, proceeding or enforcement action which relates in
any manner to any transaction, commitment, contract or agreement outside the
ordinary course of business of the Company and the Subsidiaries which Melville
caused the Company or any Subsidiary to enter into or make ("Melville
Commitments") or (vii) any claim, action, suit, arbitration, investigation,
proceeding or enforcement action which relates in any manner to any Closed Store
Lease (including any guaranty thereof) or Excluded Subsidiary ("Closed Store
Liabilities") (provided that for purposes of this Agreement, Article 10, and not
Article 13 (other than where expressly provided), shall be the sole remedy for
claims relating to Taxes and Article 11 shall be the sole remedy for claims
relating to representations, warranties, covenants or agreements contained in
Article 11); provided that (A) Melville shall have no liability for any
misrepresentation or breach of warranty by the Company or Melville (and no
damage, loss, liability or expense arising from such misrepresentation or breach
of warranty shall constitute Damages for purposes of this Section 13.2 or
Article 10) if at any time prior to the Closing Date the Management Disclosure
Group had knowledge of the facts and circumstances giving rise to such
misrepresentation or breach of warranty unless, as of the date hereof, Melville
had knowledge as described in clause (IV)
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of the next succeeding sentence in which case this clause (A) shall not apply
and the provisions of the next succeeding sentence shall apply, (B) except as
provided below, Melville shall not be liable under this Section 13.2(a) unless
the aggregate amount of Damages with respect to all matters referred to in this
Section 13.2(a) exceeds $1,200,000 and then only to the extent of such excess,
(C) except as provided below, Melville's maximum liability under this Section
13.2(a) and claims for Miscellaneous Taxes under Article 10 shall not exceed
$12,000,000 and (D) Melville's liability under this Section 13.2 shall be
subject to the limitations set forth in Section 13.5 (other than clause (ii) of
Section 13.5 with regard to matters relating to Income Taxes). Notwithstanding
the foregoing, any Damages incurred or suffered by Newco and its Affiliates and
their respective directors and officers arising out of (I) any misrepresentation
or breach of warranty contained in Sections 7.7, 9.4 or 9.5, (II) the matters
listed on Schedule 3.12 or Schedule 3.16, (III) the Spray Litigation, Director
and Officer Claims, Melville Commitments or the Closed Store Liabilities, (IV)
any misrepresentation or breach of warranty by Melville or the Company (as to
the Company with respect to any matter related to or covered in any Specified
Indemnity Provision) pursuant to this Agreement, if as of the date hereof
Melville had knowledge of the fact that such representation or warranty was
untrue, (V) any misrepresentation or breach of warranty contained in Sections
3.5, 3.6(b), 4.5 or 4.8, or (VI) any breach of covenant or agreement to be
performed by Melville pursuant to this Agreement (including those contained in
Article 10) or any breach of covenant or agreement to be performed by the
Company pursuant to this Agreement (including those contained in Article 10)
prior to Closing shall not be subject to the limitation on Damages set forth in
clauses (C) and (D) of the proviso above.
As used herein, "Specified Indemnity Provision" means each of Sections
3.1 through and including 3.7, 3.9 (to the extent that Melville has knowledge of
the misrepresentation), 3.10 through and including 3.13, 3.15 through and
including 3.18 and 3.20 through and including 3.23 of this Agreement.
(b) Newco and, after the Closing, the Company hereby indemnify
Melville and its Affiliates and the respective directors and officers of
Melville and its Affiliates against and agree to hold them harmless from any and
all Damages incurred or suffered by such indemnified party arising out of (i)
any misrepresentation or breach of warranty, covenant or agreement made or to be
performed by Newco pursuant to this Agreement or (ii) any breach of any covenant
or agreement required to be performed by the Company or its Subsidiaries after
the Closing Date pursuant to this Agreement (provided that Article 10, and not
Article 13 (other than where expressly provided) shall be the sole remedy for
claims relating to Taxes); provided that (A) neither Newco nor the Company shall
have any liability for any misrepresentation or breach of warranty by Newco (and
no damage, loss, liability or expense arising from such misrepresentation or
breach of warranty shall constitute Damages for purposes of this Section 13.2 or
Article 10) if at any time on or prior to the Closing Date Melville had
knowledge of the facts and circumstances giving rise to such misrepresentation
or breach of warranty (including those made in Article 10) unless, as of the
date hereof, the Management Disclosure Group had knowledge as described in
clause (II) of the next
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succeeding sentence in which case this clause (A) shall not apply and the
provisions of the next succeeding sentence shall apply, (B) except as provided
below, Newco shall not be liable under this Section 13.2(b) unless the aggregate
amount of Damages with respect to all matters referred to in Section 13.2(b)
exceeds $1,200,000 and then only to the extent of such excess, (C) except as
provided below, Newco's maximum liability under Section 13.2(b) and claims for
Miscellaneous Taxes under Article 10 shall not exceed $12,000,000, and (D)
Newco's liability under this Section 13.2 shall be subject to the limitations
set forth in Section 13.5 other than clause (ii) of Section 13.5 with regard to
matters relating to Income Taxes. Notwithstanding the foregoing, any Damages
incurred or suffered by Melville and its Affiliates and their respective
directors and officers arising out of (I) any misrepresentation or breach of
warranty contained in Section 9.5 or any indemnification under Section 13.3,
(II) any misrepresentation or breach of warranty by Newco pursuant to this
Agreement, if as of the date hereof the Management Disclosure Group had
knowledge of the fact that such representation or warranty was untrue, (III) any
misrepresentation or breach of warranty contained in Sections 5.7 and 5.9 or
(IV) any breach of covenant or agreement to be performed by Newco pursuant to
this Agreement (including those contained in Article 10) or any breach of
covenant or agreement to be performed by the Company pursuant to this Agreement
(including those contained in Article 10) after Closing shall not be subject to
the limitations on Damages set forth in clauses (B) and (C) of the proviso
above.
(c) Any payments under this Section 13 or Article 10 shall be treated
as adjustments to the purchase and sale pursuant to Section 2.2 of this
Agreement.
(d) For purposes of this Agreement (including Article 10), in no case
will knowledge of the Managers be imputed to Melville as the owner of the
Company.
13.3 Lease Indemnity. Notwithstanding anything to the contrary in
this Agreement (including without limitation Section 12.2), Newco and the
Company hereby indemnify each of Melville and MRC and all directors and officers
of Melville and MRC against and agrees to hold each of Melville and MRC and all
directors and officers of Melville and MRC harmless from any and all Damages
incurred or suffered by such indemnified party arising out of Newco's, the
Company's or any Subsidiary's failure to pay all monies due and owing pursuant
to the provisions of any Lease after the Closing Date that were not due and
owing on or prior to the Closing Date (except that if a default resulting in the
obligation to pay such monies accrued on or prior to the Closing Date, Newco
shall not be liable for any Damages arising from such default), or by reason of
Newco's, the Company's or any Subsidiary's breach of any of the other terms,
covenants and conditions of any Lease occurring after the Closing Date that were
not breached on or prior to the Closing Date (except that if such breach
occurred prior to the Closing Date, Newco shall not be liable for any Damages
arising from such breach).
13.4 Claims. (a) If any third party shall notify the Person seeking
indemnification under Section 13.2 (the "Indemnified Party") with respect to any
claim of such third party (a "Third Party Claim") which may give rise to a claim
for indemnification by
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the Indemnified Party against any other party hereto (the "Indemnifying Party")
under Section 13.2, then the Indemnified Party shall notify the Indemnifying
Party thereof in writing within ten business days after receiving such
notification from the third party, provided that failure to give timely notice
under this Section 13.4(a) shall not limit the indemnification obligations of
the Indemnifying Party hereunder except to the extent that the delay in giving,
or failure to give, such notice prejudices the ability of the Indemnifying Party
to defend against the Third Party Claim. The Indemnifying Party, except as
otherwise provided in Section 13.4(b), shall have the right to elect to, by
written notice delivered to the Indemnified Party within ten days of receipt by
the Indemnifying Party of the notice from the Indemnified Party in respect of
the Third Party Claim, and shall if so requested by the Indemnified Party, at
the sole expense of the Indemnifying Party, assume control of the defense of the
Third Party Claim with counsel selected by the Indemnifying Party and reasonably
satisfactory to the Indemnified Party.
If the Indemnifying Party elects to assume such control within such
ten-day period or is requested by the Indemnified Party to assume control, the
Indemnifying Party will pursue such defense in a diligent and bona fide manner,
and the Indemnified Party shall cooperate with the Indemnifying Party and its
counsel and shall have the right to participate in the negotiation, settlement
or defense of such Third Party Claim, at its own expense (except for settlement
payments and except that the Indemnifying Party will be responsible for the fees
and expenses of the Indemnified Party's counsel if in the reasonable opinion of
counsel to the Indemnifying Party such counsel has a conflict of interest). If
the Indemnifying Party elects to assume such control, the Indemnified Party
agrees to (i) give the Indemnifying Party, its counsel and other authorized
representatives reasonable access during normal business hours to the employees,
offices, properties, books and records of the Indemnified Party reasonably
related to the investigation or defense of any such matters and (ii) instruct
the employees of the Indemnified Party to reasonably cooperate with and assist
the Indemnifying Party, its counsel and other authorized representatives in the
investigation and defense, in depositions or appearing as witnesses. The
Indemnifying Party shall reimburse the Indemnified Party or any of their
respective employees for the reasonable out-of-pocket expenses incurred by any
such Person in connection therewith. If the Indemnifying Party does not elect
to assume control of the defense within such ten-day period and is not requested
by the Indemnified Party to assume control of the defense or, having elected or
having been so requested to assume such control, thereafter fails to proceed
with the settlement or defense of any such Third Party Claim in a diligent and
bona fide manner, the Indemnified Party shall be entitled to assume such control
at the expense of the Indemnifying Party. In such case, the Indemnifying Party
shall cooperate where necessary with the Indemnified Party and its counsel in
connection with such Third Party Claim and the Indemnifying Party shall be bound
by the results obtained by the Indemnified Party with respect to such Third
Party Claim.
(b) Notwithstanding any provision of Section 13.4(a), if Melville is
the Indemnifying Party, it may not assume control of the defense of the Third
Party Claim if the Third Party Claim could reasonably result in an equitable
remedy which would materially impair the ability of Newco, the Company or any
Subsidiary to operate its business.
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(c) The Indemnified Party shall not settle any Third Party Claim
without the prior written consent of the Indemnifying Party, which shall not be
unreasonably withheld. The Indemnifying Party shall not settle any Third Party
Claim unless the Indemnified Party is relieved of all obligations thereunder
pursuant to the terms of the written settlement and, if the Indemnified Party is
Newco, the Company or any Subsidiary, is not impaired in any material respect
pursuant to the settlement from operating its business in the manner in which it
was operated in accordance with past practice.
(d) The Indemnified Party agrees to give prompt notice to the
Indemnifying Party of the assertion of any claim, or the commencement of any
suit, action or proceeding in respect of which indemnity may be sought under
this Agreement that does not constitute a Third Party Claim, provided that a
failure to give a timely notice under this Section 13.4(d) shall not limit the
indemnification obligation of the Indemnifying Party except to the extent that
the delay in giving, or the failure to give, such notice prejudices the ability
of the Indemnifying Party to defend against such claim, suit, action or
proceeding;
(e) After the Closing, Article 10 (and not Article 13 other than where
expressly provided) for Tax matters, Article 11 for the representations,
warranties, covenants and agreements and indemnification contained in Article
11, Section 7.12 with respect to matters covered thereby and Sections 13.2,
13.3, 13.4 and 13.5 will provide the exclusive remedies for any
misrepresentation or breach of warranty, covenant or other agreement (other than
those contained in Sections 2.2, 2.3, 2.4, 2.5, 7.8 and 8.1), or other claim
arising out of this Agreement or the transactions contemplated hereby. Without
limiting the generality of the foregoing, Newco and, effective at the Closing,
the Company and its Subsidiaries, to the extent permitted by law, hereby waive
all rights for contribution or any other rights of recovery (except as otherwise
provided in Section 13.2) with respect to any Damages arising under or relating
to Environmental Laws that it might have by statute or otherwise against
Melville or any of its Affiliates.
(f) Except for items 2 through 12 and item 33 on Schedule 3.12, Newco
shall be responsible for defending all matters disclosed in Schedules 3.10 and
3.12 and Melville shall indemnify Newco against and hold it harmless from any
and all Damages incurred or suffered by the Company, any Subsidiary or Newco
arising out of such matters. On the Closing Date, Melville shall deliver to
Newco a schedule updating the information disclosed in Schedules 3.10 and 3.12
as of the Closing Date. Newco and Melville hereby agree that, from and after
the Closing Date, Melville shall have the right to assume and take control of,
in the name and on behalf of the Company and the Subsidiaries, at Melville's
sole cost and expense, the actions disclosed in items 1 and 22 of Schedule 3.12.
Newco hereby agrees to cause the Company or any Subsidiary to promptly execute
and deliver any document, certificate, agreement or other writing and to take
such other actions as may be necessary or desirable in connection therewith as
are reasonably acceptable to Newco. Newco agrees to (i) give, and to cause the
Company and the Subsidiaries to give, Melville, its counsel and other authorized
representatives reasonable access during normal business hours to the employees,
offices, properties, books and records of the Company and the Subsidiaries
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reasonably related to the investigation, pursuit or defense of any such matters
and (ii) instruct the employees of the Company and the Subsidiaries to
reasonably cooperate with and assist Melville, its counsel and other authorized
representatives in the investigation, pursuit or defense, in depositions or
appearing as witnesses. Melville shall reimburse Newco, the Company or any
Subsidiary or any of their respective employees for the reasonable out-of-pocket
expenses incurred by any such Person in connection therewith. Notwithstanding
any other provision of this Agreement, with respect to items 1 and 22 on
Schedule 3.12, Newco and, after the Closing, the Company and its Subsidiaries
acknowledge that they have no right to receive any part of any recovery by
Melville in such matter and agree that Melville and its Affiliates shall have
the sole and exclusive right to receive any recovery in such matters.
13.5 Limitation of Indemnification. Notwithstanding the foregoing
provisions of this Article 13, Article 10 or Article 11, an Indemnifying Party's
obligation to indemnify an Indemnified Party shall be subject to the following
limitations:
(i) No indemnification shall be required to be made by Newco or
Melville to the extent that the Damages incurred or suffered by the
Indemnified Party have been taken into account in connection with the
preparation of the Closing Balance Sheet and the calculation of Final
Working Capital.
(ii) No indemnification shall be required (except for Income
Taxes or pursuant to Section 7.12 or Article 11) to be made by Newco or
Melville with respect to any claim for indemnity which individually is less
than $750.
(iii) Except as provided in Section 7.12 regarding Melville's
indemnification obligations for deductibles, the Damages required to be
paid by the Indemnifying Party shall be reduced to the extent of any
amounts actually received by the Indemnified Party after the Closing Date
pursuant to the terms of any insurance policies with third party insurers
covering such Damages.
(iv) Each of the parties agrees that to the extent the other
party indemnifies it from any claim for Damages and the Indemnified Party
is made whole as the result of such indemnification, the Indemnified Party
shall assign its rights to counter claim to the Indemnifying Party to the
extent of any amounts actually received by the Indemnified Party from the
Indemnifying Party.
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ARTICLE 14
TERMINATION
14.1 Grounds for Termination. This Agreement may be terminated at
any time prior to the Closing:
(i) by mutual written agreement of Melville and Newco;
(ii) by either Melville or Newco if the Closing shall not have
been consummated on or before June 30, 1996;
(iii) by either Melville or Newco if there shall be any law or
regulation that makes consummation of the transactions contemplated hereby
illegal or otherwise prohibited or 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;
or
(iv) by Melville, if any representation or warranty of Newco
contained in this Agreement shall prove to be inaccurate in any material
respect at the time when made and Newco shall refuse or fail after written
notice to correct such representation or warranty within 30 days of such
written notice; provided that Melville may not terminate this Agreement
pursuant to this subsection (iv) if Newco continues in good faith to use
its best efforts to correct any such representation or warranty, and such
correction is capable of being performed prior to June 30, 1996; or
(v) by Newco, if any representation or warranty of Melville or
the Company contained in this Agreement shall prove to be inaccurate in any
material respect at the time when made and Melville shall refuse or fail
after written notice to correct such representation or warranty within 30
days of such written notice; provided that Newco may not terminate this
Agreement pursuant to this subsection (v) if Melville continues in good
faith to use its best efforts to correct any such representation or
warranty, and such correction is capable of being performed prior to June
30, 1996.
The party desiring to terminate this Agreement shall give notice of
such termination to the other party.
14.2 Effect of Termination. If this Agreement is terminated as
permitted by Section 14.1, termination shall be without liability of any party
(or any 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 wilful failure of Newco or
Melville to fulfill a condition to the performance of the obligations of the
other party, failure to perform a covenant of this Agreement or breach by such
party of any representation or warranty or agreement contained herein, such
party shall be fully liable for any and all
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Damages incurred or suffered by the other party as a result of such failure or
breach. The provisions of Sections 7.8, 8.1, 14.1, 14.2, 15.1, 15.2, 15.3, 15.5,
15.6, 15.9, 15.10 and 15.12 shall survive any termination hereof pursuant to
Section 14.1.
ARTICLE 15
MISCELLANEOUS
15.1 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile transmission) and shall
be given at the party's address (or telecopier number) set forth below, or such
other address (or telecopier number) as shall have been furnished to the party
giving or making such notice, request or other communication:
If to Newco or the Company, to:
Wilsons The Leather Experts Inc.
c/o Wilsons Center Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇
▇▇. ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇
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with copies to:
Faegre & ▇▇▇▇▇▇
2200 Norwest Center
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Brand
3300 Norwest Center
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. Sell, Esq.
If to Melville, to:
Melville Corporation
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Chief Executive Officer,
Chief Financial Officer and
General Counsel
with a copy to:
▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
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.
15.2 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
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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.
15.3 Expenses. Except as otherwise expressly provided herein or in
the letter from ▇▇▇▇ ▇▇▇▇▇▇ to ▇▇▇▇▇▇▇▇ dated February 20, 1996 or in either of
the letters from ▇▇▇▇ ▇▇▇▇▇ to Melville dated March 15, 1996 or April 29, 1996
(together, the "Expense Letters"), all costs and expenses incurred in connection
with this Agreement shall be paid by the party incurring such cost or expense.
Newco and Melville agree that the costs of searches undertaken by GE Capital in
connection with the Financing, filing fees of GE Capital in connection with the
Financing and filing fees of Melville in connection with the Note and the
Security Agreement shall be borne equally by Newco and Melville.
15.4 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 permitted assigns; provided that 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. Notwithstanding the
foregoing, Newco may assign its rights hereunder to one or more wholly owned
Subsidiaries of Newco and may collaterally assign its rights hereunder to one or
more institutions providing financing to Newco, the Company or any Subsidiary,
but neither such assignment nor collateral assignment shall relieve Newco of its
obligations hereunder.
15.5 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.
15.6 Waiver of Jury Trial. With respect to any suit, action or
proceeding seeking to enforce any provision of, or based on any matter arising
out of or in connection with, this Agreement or the transactions contemplated
hereby, THE PARTIES HERETO WAIVE ANY RIGHTS THEY MAY HAVE TO A JURY TRIAL.
15.7 Counterparts; Effectiveness. 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.
This Agreement shall become effective when each party hereto shall have received
a counterpart hereof signed by the other parties hereto.
15.8 Third Party Beneficiaries. Except as provided in Sections
11.3(f), 13.2 and 13.3, no provision of this Agreement is intended to confer
upon any Person other than the parties hereto any rights or remedies hereunder.
15.9 Entire Agreement. This Agreement, the Note, the Warrant, the
Management Warrant, the Expense Letters, the Registration Rights Agreement and
the Security Agreement constitute the entire agreement among the parties with
respect to the
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subject matter thereof and supersede all prior agreements and understandings,
both oral and written, between the parties with respect to the subject matter
thereof. No representation, inducement, promise, understanding, condition or
warranty not set forth herein has been made or relied upon by either party
hereto. Except as provided in Section 13.2, neither this Agreement nor any
provision hereof is intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
15.10 Validity of Provisions. Should any provision of this Agreement
be declared by any court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions shall not be affected thereby. If any
provision of this Agreement shall be held to be partially invalid and
unenforceable, then that portion which is not held to be invalid or
unenforceable shall be deemed enforceable to the maximum extent permitted by
law.
15.11 Section Headings. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
15.12 Force Majeure. In the event that Newco or Melville shall be
delayed or hindered in or prevented from doing or performing any act or thing
required by this Agreement by reason of strikes, lock-outs, casualties, acts of
God, labor troubles, inability to procure materials, governmental laws or
regulations, riots, insurrection, war or other causes beyond its reasonable
control (except for a lack of funds or an inability to obtain financing), then
the delayed party shall not be liable or responsible for any such delay, and the
doing or performing of such act or thing shall be excused for the period of the
delay, and the period for performance of any such act shall be extended for a
period equivalent to the period of such delay, provided that nothing contained
in this paragraph will extend the date set forth in Section 14.1(ii).
15.13 Further Assurances. At any time and from time to time, each
party hereto, without further consideration, shall cooperate, take such further
action and execute and deliver such further instruments and documents as may be
reasonably requested by any other party in order to carry out the provisions and
purposes of this Agreement; provided that nothing contained in this paragraph
will extend the date set forth in Section 14.1(ii).
15.14 Pronouns. Use of either the singular or the plural should not
be deemed a limitation, and the use of the singular should be construed to
include, where appropriate, the plural. Use of masculine, feminine or neuter
pronouns should not be deemed a limitation, and the use of any such pronouns
should be construed to include, where appropriate, the other pronouns.
15.15 Interpretations. In this Agreement and the Schedules and
Exhibits thereto:
(a) the word "including" shall mean "including without limitation";
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(b) when calculating the period of time within which or following
which any act is to be done or step taken, the date which is the reference day
in calculating such period shall be excluded and, if the last day of such period
is not a Business Day, the period shall end on the next day which is a Business
Day;
(c) all dollar amounts are expressed in United States funds;
(d) unless otherwise expressly provided herein, money shall be
tendered by wire transfer of immediately available federal funds;
(e) the Schedules and all Exhibits attached hereto are hereby
incorporated in and made a part of this Agreement as if set forth in full
herein. A disclosure made in any Schedule that is sufficient to reasonably
inform Newco of information required to be disclosed in another Schedule to
avoid a misrepresentation under such other Section of this Agreement shall be
deemed, for all purposes of this Agreement, to have been made under such other
Schedule.
15.16 Remedies Cumulative. Except as otherwise provided herein, the
remedies provided herein shall be cumulative and shall not preclude (i) the
assertion by Newco or the Company of any other rights hereunder or the seeking
by Newco or the Company of any other remedies against Melville provided herein,
or (ii) the assertion by Melville of any rights hereunder or the seeking by
Melville of any other remedies against Newco or the Company provided herein.
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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.
MELVILLE CORPORATION
By: /s/▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------
Title: President
WILSONS THE LEATHER EXPERTS INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------
Title:
WILSONS CENTER, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------
Title: President
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