Exhibit 10.2
MODIFICATION AGREEMENT
This Modification Agreement (this "Agreement") is entered into as of
August 31, 1999 by and among ▇▇▇▇▇▇'▇ Trading Company, Inc., an Indiana
corporation (the "Company"), FS Equity Partners IV, L.P., a Delaware limited
partnership (the "FS Stockholder") and The Limited, Inc., a Delaware corporation
("The Limited") and is made with reference to that certain Transaction Agreement
dated as of May 3, 1999 (the "Transaction Agreement") by and among the Company,
the FS Stockholder and The Limited. All capitalized terms used herein without
definition shall have the meanings assigned to such terms in the Transaction
Agreement.
WHEREAS, certain conditions to Closing set forth in the Transaction
Agreement will not be satisfied on or before the Closing Date; and
WHEREAS, the parties to the Transaction Agreement wish to waive certain
conditions to Closing, amend certain provisions of the Transaction Agreement and
to set forth their agreements with respect to certain other matters.
The parties agree as follows:
Section 1. Certain Real Estate Transactions.
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1.1 Certain Definitions. In order to accurately describe
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certain transactions which are not sale-leaseback transactions but rather the
sale of a property subject to a lease, the parties agree that the terms
"Property Sale Agreements," "Specified Properties" and "Specified Property
Leases" shall be substituted for the terms "Sale-Leaseback Agreements,"
"Sale-Leaseback Properties" and "Sale-Leaseback Leases" which are defined in the
Transaction Agreement. It is understood that the underlying definitions set
forth in the Transaction Agreement shall not change.
1.2 Real Estate Equity. It is understood that if a third
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party does not provide approximately $15,000,000 of real estate equity (the
"Third Party Equity") on or prior to August 31, 1999 then the FS Stockholder
will contribute approximately $10,000,000 of real estate equity and The Limited
will contribute approximately $5,000,000 of real estate equity, such aggregate
amount to be allocated to six newly formed limited liability companies; provided
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that, until August 30, 1999 the FS Stockholder's obligation to provide real
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estate equity is subject to its satisfactory completion of diligence with
respect to the relevant real estate. The parties agree that if the FS
Stockholder and The Limited provide such real estate equity, the consummation of
the transactions contemplated by the Property Sale Agreements (related to
properties 1-6 listed in Schedule 8.03 to the Transaction Agreement) will occur
immediately following the Closing under the Transaction Agreement; provided
that, prior to the Closing under the Transaction Agreement, all of the parties
to the Property Sale Agreements have unconditionally agreed to consummate such
transactions at such time without the necessity of any further action by any
party. Neither of the FS Stockholder nor The Limited shall have an obligation to
contribute real estate equity other than in connection with the Closing under
the Transaction Agreement as contemplated by this Section 1.2.
1.3 Real Estate Proceeds/Working Capital Adjustment. In
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addition to the conditions to closing listed in the Transaction Agreement, if
the Third Party Equity is not in place on or prior to August 31, 1999, then the
obligation of The Limited to consummate the Closing is subject to it having, as
of the Closing Date, the unconditional right to receive proceeds under the
Property Sale Agreements (related to properties 1-6 listed in Schedule 8.03 to
the Transaction Agreement) of not less than $57,500,000 (the "Real Estate
Proceeds") immediately following the consummation of the Closing. The parties
agree that, for purposes of determining the payment due under Section 2.02(g) of
the Transaction Agreement, (i) if the Real Estate Proceeds are equal to or less
than $60,500,000, the Base Adjusted Net Assets shall be deemed to be reduced by
$500,000, (ii) if the Real Estate Proceeds are greater than $60,500,000 but less
than or equal to $561,000,000, the Base Adjusted Net Assets shall be deemed to
be reduced by an amount equal to $61,000,000 minus the amount of the Real Estate
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Proceeds, and (iii) if the Real Estate Proceeds are greater than $61,000,000, no
adjustment shall be made to the Base Adjusted Net Assets and any such amount in
excess of $61,000,000 shall be paid by The Limited to the Company. In the event
any subsequent payment is made to The Limited in the nature of an adjustment to
Real Estate Proceeds, the calculations described in the preceding sentence shall
be recomputed and The Limited shall pay to the Company the amount, if any, by
which the original reduction to Base Adjusted Net Assets is greater than the
recomputed reduction.
From and after the Closing, the parties agree that the borrower
shall pay to The Limited any payments that the borrower receives from GMAC as a
result of any decrease in the 10-year CMBS spread reported by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
pursuant to the loan agreement between the borrower and GMAC which shall be
treated as "Real Estate Proceeds" for purposes of the preceding paragraph. For
avoidance of doubt, any payments to The Limited following the Closing Date in
connection with the sale or transfer of equity in the LLC shall not be
considered Real Estate Proceeds. The definitions of "Property Sale Agreements"
and "Specified Properties" shall exclude the Lenox (Atlanta (Buckhead), GA)
store for all purposes of the Transaction Agreement except in 8.03(b)(i).
1.4 Letter of Credit. The Company agrees to obtain and
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maintain a letter of credit for the benefit of the lender under the Property
Sale Agreements which currently is contemplated to be GMAC in amounts sufficient
to satisfy certain reserve requirements under the loan documents between GMAC
and the LLC.
1.5 Forms of Lease. FS Stockholder and The Limited agree that
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Attachment F of the Transaction Agreement is deleted in its entirety and
replaced with the lease which is attached hereto as Exhibit F-1. FS Stockholder
and The Limited agree that the lease for the Lenox (Atlanta (Buckhead), GA) and
Sawmill Road (Columbus, OH) stores shall not be substantially in the form of
Exhibit F-1 but rather in substantially the form of attached Exhibit F-2 and
Exhibit F-3, respectively.
Section 2. Mezzanine Securities. Subject to the satisfaction of the
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other conditions to closing listed in the Transaction Agreement, including,
without limitation, the condition set forth in Section 2.1 of this Agreement,
the parties have decided to proceed with the closing under the Transaction
Agreement notwithstanding the absence of a third party purchaser of the
Mezzanine Securities. Accordingly, the FS Stockholder and The Limited expect to
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execute a Securities Purchase Agreement, which shall be substantially in the
form attached hereto as Exhibit 3 pursuant to which The Limited will purchase an
aggregate of $15,000,000 of the Mezzanine Securities and the FS Stockholder will
purchase an aggregate of $35,000,000 of the Mezzanine Securities therein
described and will receive the Facility Fee therein provided. FS Stockholder
agrees to use its reasonable best efforts to sell, and The Limited agrees to
cooperate in connection with a sale, to a third party the Mezzanine Securities
(or of mezzanine securities issued by the Company in a refinancing thereof). If
The Limited does not contribute $5,000,000 to the real estate equity as
contemplated by Section 1, The Limited will purchase an additional amount of
Mezzanine Securities equal to the amount not so funded and FS Stockholder will
purchase less Mezzanine Securities in a like amount. The parties further agree
that any such third party purchaser will be made a party to the Registration
Rights Agreement, which shall be amended to provide to such party pro rata
"piggy back" registration rights and two demand registration rights in each case
with respect to the shares issuable upon exercise of the warrants only. The
parties further agree that so long as The Limited holds more than $10,000,000 of
the Mezzanine Securities, the Company will not agree to any modification or
waiver of the Securities Purchase Agreement without the consent of The Limited.
Additionally, the FS Stockholder will not be permitted to sell any Mezzanine
Securities in a particular series unless The Limited has previously sold or is
concurrently selling (or, in connection with the specific opportunity to sell,
has elected not to sell) its Mezzanine Securities in the same series.
Section 3. Equity Issuances. The parties hereby agree that,
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notwithstanding anything to the contrary in the Transaction Agreement, at
Closing, (1) the Company will issue live million shares of Class A Common Stock
to the FS Stockholder and the FS Stockholder will pay, as the purchase price for
such shares of Class A Common Stock, $50 million in immediately available funds
and (2) the FS Stockholder will make a loan to the Company in the aggregate
principal amount of $4,000,000 (the "FS Loan") which shall be evidenced by a
promissory note (the "FS Note"), which shall be substantially in the form
attached hereto as Exhibit 3. Each time during the 60 days following the Closing
that the Company issues Class A Common Stock to employees or directors in
exchange for any combination of cash and notes, the Company shall repay an
amount of principal of the FS Loan equal to the amount of the cash and the
principal amount of the notes received by the Company for such stock. Each such
payment shall be accompanied by a payment of accrued interest on the principal
being paid. On the next Business Day following the 60th day following the
Closing, the Company shall satisfy the balance, if any, of the FS Loan then
outstanding by issuing to the FS Stockholder additional shares of Class A Common
Stock, each of which shares shall satisfy $10 of principal of the FS Loan
together with all accrued interest thereon. If the Company issues more than
400,000 shares of Class A Common Stock to employees and directors during such
60-day period, any such additional shares up to a maximum of 125,000 will dilute
all shareholders ratably; provided, however, The Limited shall have the right to
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purchase a number of shares at $10.00 per share which will enable The Limited to
maintain its ownership percentage.
Section 4. Buffalo Store.
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4.1 Construction of Buffalo Store. Although the parties to the
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Transaction Agreement originally contemplated that the Closing would occur prior
to the commencement of the construction of the Buffalo Store (the "Commencement
Date"), the
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Closing will not take place until after the Commencement Date. In light of such
circumstance, the parties acknowledge that The Limited has caused the Company to
begin construction of the Buffalo Store, and the parties agree that any actions
taken by The Limited or the Company in connection with such construction,
including actions taken prior to the date hereof, shall be deemed not to breach
any provision of the Transaction Agreement, including, without limitation, the
representations, warranties, covenants any provisions of and agreements therein.
4.2 Construction Financing. The parties to the Transaction
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Agreement originally contemplated that prior to the Commencement Date the
Company and a third party would enter into an agreement whereby the third party
would provide the Company with Third Party Construction Financing. However, The
Limited has caused its store planning division to proceed with the construction
on the Buffalo Store prior to the Closing. In the event that proceeds from Third
Party Construction Financing are not available at Closing to reimburse The
Limited for Construction Costs (as defined below), the Company agrees to
diligently pursue and use reasonable best efforts to enter into Third Party
Construction Financing.
4.3 Reimbursement by Company. The parties agree that any
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reasonable out-of-pocket costs incurred by The Limited or any of its Affiliates
attributable to construction of the Buffalo Store that could have been financed
by a third party construction loan (i.e., such costs are of a nature which are
customarily financed by a third party construction lender) had such a loan been
in place at the time the relevant costs were incurred ("Construction Costs")
shall be reimbursed by the Company (together with the interest referred to in
the immediately following sentence) on the earlier of(a) the execution of
documentation for Third Party Construction Financing, which shall be on terms
mutually acceptable to the FS Stockholder and The Limited, and(b) October 31,
1999. The Limited's estimate of such costs incurred as of August 24, 1999 was
$594,000 with which the Company and the FS Stockholder agree. The Construction
Costs shall bear interest at the Reference Rate from the Commencement Date to
the date of the reimbursement. All other reasonable out-of-pocket costs incurred
by the store planning division of The Limited attributable to the construction
of the Buffalo Store shall be included in the calculation of "Adjusted Net
Assets" pursuant to the Transaction Agreement notwithstanding any other
provision or understanding under the Transaction Agreement. It is understood and
agreed that after October 31, 1999, none of The Limited and its Affiliates will
pay for any Construction Costs related to the Buffalo Store.
4.4 Amendment of Section 2.04. The parties agree that the
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third sentence of Section 2.04(a) of the Transaction Agreement is hereby amended
by inserting after "such remaining obligations" and before "shall be deemed
contributed" the following clause:
(except for those obligations of Company to
The Limited and its affiliates that are
expressly contemplated by the Transaction
Documents to survive the closing of the
Transaction Agreement)
Section 5. G Trademark, Inc. Prior to Closing, The Limited contributed
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all of its outstanding shares of common stock of the Company to G Trademark,
Inc. ("G Trademark"), a wholly owned subsidiary. As a result, G Trademark will
enter into the
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Stockholders Agreement and the Registration Rights Agreement pursuant to ss.
2.02(1) of the Transaction Agreement. The parties agree that the condition set
forth in ss. 11.02(c) of the Transaction Agreement will be satisfied if G
Trademark enters into the Stockholders Agreement in addition to The Limited.
Section 6. Inventory Count. The parties wish to clarify that
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the "customary physical inventory count" referred to in clause 2.03(b) of the
Transaction Agreement shall mean a customary physical inventory count as of June
30, 1999 with a customary "roll-forward" of that physical inventory to the
Closing Date.
Section 7. Amendment to Section 2.02. The parties agree that
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(A) the reference to "$7,127,000" in the fifth line of clause (c) of Section
2.02 of the Transaction Agreement shall be replaced with a reference to
"$8,344,000" and (B) the reference to "$61,873,000" in the third line of clause
(f) of Section 2.02 of the Transaction Agreement shall be replaced with a
reference to "$60,656,000."
Section 8. Closing Balance Sheet and Income Statement. The
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Closing will be effective at the close of business on Tuesday, August 31, 1999.
The Company will roll forward the August 28, 1999 consolidated balance sheet and
profit and loss statement account balances from August 28, 1999 to the close
of business on Tuesday, August 31, 1999 (the "Interim Period").
The Company's balance sheet roll forward for the Interim Period shall be
based on, among other things, (1) actual cash on hand as of August 31, 1999;
(2) accounts receivable as of August 28, 1999 plus any applicable trade sales
less cash receipts collected on the outstanding balances during the Interim
Period; (3) inventory balance per the Company's inventory stock ledger as of
August 31, 1999 less normal and recurring adjustments for markdowns, shrinkage
and other inventory adjustments applicable to the Interim Period; (4) prepaid
and other current assets as of August 28, 1999 plus any applicable additions
less amortization during the Interim period; (5) accounts payable as of August
28, 1999 plus all receipts recorded in the inventory stock ledger and any other
applicable additions less any payment made in relation to the balances during
the Interim Period; and (6) accrued expenses as of August 28, 1999 plus three
days or three twenty-eighths of August 1999 monthly operating expenses less any
applicable adjustments during the Interim Period.
The profit and loss statement roll forward for the Interim Period shall
be based on, among other things, (1) the actual net sales generated by the
Company during the Interim Period; (2) the actual gross profit for each product
class from the gross margin stock ledger for the Interim Period before shrink
reserve; (3) applying the current shrink percentage against sales for the
Interim Period and (4) by applying three twenty-eighths (28 days in the monthly
period ended August 28, 1999) of August's monthly operating expenses to the
Interim Period, with the exception of expenses relating to the Mall of Georgia,
which will be allocated based on seventeen days of operation for the period
ended August 28, 1999.
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Section 9. Guarantees. It is agreed that Section 8.03(c) of
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the Transaction Agreement shall be deleted in its entirety. The Limited hereby
agrees to provide a customary completion guarantee to the construction lender
for the store to be constructed in Buffalo, New York. The Company hereby agrees
to reimburse The Limited for any amounts paid by The Limited under any
guarantees (together with interest at the Reference Rate from the date of any
such payment by The Limited until reimbursement by the Company), including the
construction guaranty and any lease guarantees, promptly after receipt from The
Limited of notice thereof accompanied by written evidence of the underlying
payment obligation and that The Limited shall have customary subrogation rights
with respect thereto.
Section 10. Letters of Credit. With respect to the letters of
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credit described on Schedule I hereto, The Limited agrees that its reimbursement
obligations thereunder (as in effect on the Closing Date) shall remain in place
until October 31, 1999. The Company hereby agrees to reimburse The Limited for
any amounts paid on such letters of credit by The Limited (together with
interest at the Reference Rate from the date of any such payment by The Limited
until reimbursement by the Company) promptly after receipt from The Limited of
notice thereof accompanied by written evidence of the underlying payment
obligation.
Section 11. Calculation of Adjusted Net Assets. The parties
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hereby acknowledge that the Estimated Closing Date Adjusted Net Assets reflects
only The Limited's good faith estimate (determined as of August 24, 1999) of
such amount and will not affect in any respect the calculation of Closing Date
Adjusted Net Assets or Final Closing Date Adjusted Net Assets.
Section 12. Miscellaneous Real Estate.
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12.1 Sawmill Property. For avoidance of doubt, the parties
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agree to add the following language to the end of Section 8.03(a)(iii) of the
Transaction Agreement: Company and ▇▇▇▇▇▇'▇ Property Holding Co. ("Property
Holding"), a wholly-owned subsidiary of The Limited, agree to enter into an
assignment and assumption agreement at the closing of the sale of the Sawmill
Property, pursuant to which Company agrees to transfer the exercised purchase
option for the Sawmill Property to Property Holding on the condition that either
(a) Property Holding amend and restate the existing lease of the Sawmill
Property so that the existing lease will be substantially in the form of the
attached Exhibit F-3 immediately upon its purchase of the Sawmill Property, or
(b) in the event Property Holding does not itself purchase the Sawmill Property,
but transfers such right to a third party, Property Holding transfers such right
to purchase the Sawmill Property subject to such amended and restated lease with
Company in the form attached as Exhibit F-3. For avoidance of doubt, FS
Stockholder and The Limited agree that any and all closing costs, including,
without limitation, any transfer taxes, relating to the purchase by Property
Holding, The Limited or any of its Affiliates of the Sawmill Property from the
current fee owner shall be paid for by Property Holding, The Limited, or such
Affiliate and such fee owner, and will not in any event be or become the
obligation of Company. Company and Property Holding agree to execute and
deliver such documents and take such actions as are reasonably necessary to
effectuate the foregoing.
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12.2 Buckhead Lease. The parties hereby waive the covenant of
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The Limited in Section 6.01(j) of the Transaction Agreement to the extent
necessary to permit the Company to enter into a subground lease and a store
lease, substantially in the form of Exhibit F-2, with Property Holding for the
▇▇▇▇▇▇'▇ store located in Buckhead, Georgia. Such lease will provide for the
payment of rent as set forth on Exhibit 14 by the Company to Property Holding
for the period from August 1, 1999 until the consummation of a sale-leaseback
transaction with respect to that property at which time such leases will be
assigned by Property Holding to the ultimate purchaser. It is understood that,
upon the consummation of such transaction, the subground lease and the store
lease will be assigned by Property Holding to such ultimate purchaser, except
that the Company shall agree to modify such leases or execute new leases with
identical provisions (other than the initial term) as necessary to ensure that
the remaining term of such leases is 20 years after such consummation; provided
that such consummation occurs within one year from the date hereof.
12.3 Leawood Store. For avoidance of doubt, the parties agree
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that title to the real estate underlying the Leawood, KS store shall be
transferred from the Company to ▇▇▇▇▇▇'▇ Property Holding Company or its
designee prior to or at the Closing; provided, that all closing costs,
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including, without limitation, any transfer taxes relating to such transfer
shall be paid by The Limited.
Section 13. Schedule 2.02. It is understood that the legal fees of
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇ described on Schedule 2.02 are legal fees relating to the
negotiation and execution of the Transaction Agreement.
Section 14. Schedule 8.03. Schedule 8.03 to the Transaction
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Agreement is hereby deleted in its entirety and the schedule attached hereto as
Exhibit 14 shall be substituted therefore.
Section 15. Distribution Center. If(i) the Company elects to expand
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the Company's Plainfield, Indiana distribution center to a size not to
exceed 360,000 square feet in an easterly direction, (ii) the Company has used
all reasonable efforts to obtain all required zoning approvals (including
reasonable consultation with The Limited with respect to the zoning approval
process) and (iii) there is a final determination by the applicable governmental
authority that, in order to ensure compliance with applicable zoning
requirements, the Company requires additional land to effect such expansion,
then The Limited will convey or cause to be conveyed by one of its affiliates to
the Company, at no cost to the Company, such additional land, up to a maximum of
three acres, as is necessary to permit the Company to address the zoning issues
raised in the final determination referred to above. In the event The Limited or
one of its affiliates conveys land to the Company in accordance with the
preceding sentence, the land to be conveyed shall be immediately to the south of
the Company's lot in Plainfield, Indiana and shall be conveyed in a manner such
that the new line dividing the lots of the Company, on the one hand, and The
Limited and its affiliates, on the other hand, shall be parallel to the existing
lot line. It is understood that, regardless of applicable zoning requirements,
in no event shall The Limited be obligated to convey or cause to be conveyed
more than three acres of land to the Company or to convey such land in a manner
other than as set forth in the immediately preceding sentence.
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Section 16. Miscellaneous.
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16.1 Limited Waiver. Nothing in this Agreement shall be deemed
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to constitute a waiver by any party of compliance by any other party with
respect to any other term, provision or condition of any of the Transaction
Agreement not specifically addressed herein. Except as expressly set forth
herein, the terms, provisions and conditions of the Transaction Agreement shall
remain in full force and effect and in all other respects are hereby ratified
and confirmed.
16.2 Transaction Document. This Agreement and the FS Note shall
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be deemed to be "Transaction Documents" as defined in the Transaction Agreement.
16.3 Amendments. This Agreement may be amended or waived, if
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and only if, such amendment or waiver is in writing and signed, in the case of
an amendment, by all of the parties hereto, or in the case of a waiver, by the
party against whom the waiver is to be effective.
16.4 Governing Law. This Agreement shall be construed in
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accordance with and governed by the laws of the State of New York (without
regard to the choice of law provisions thereof).
16.5 Captions. The captions herein are included for convenience
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of reference only and shall be ignored in the construction or interpretation
hereof.
16.6 Severability. Any term or provision of this Agreement
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which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdictions, it
being intended that all rights and obligations of the parties hereunder shall be
enforceable to the fullest extent permitted by law.
16.7 Counterparts. This Agreement may be signed in any number
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of counterparts, each of which shall be an original, with the same effect as if
the signature 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.
16.8 Jurisdiction. Any suit, action or proceeding seeking to
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enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby may be
brought against any of the parties in the United States District Court of the
Southern District of New York or any state court sitting in the City of New
York, Borough of Manhattan, and each of the parties hereby consents to the
exclusive jurisdiction of such court (and of the appropriate appellate courts)
in any such suit, action or proceeding and waives any objection to venue laid
therein. Process in any such suit, action or proceeding may be served on any
party anywhere in the world, whether within or without the State of New York.
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16.9 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
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IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.
▇▇▇▇▇▇'▇ TRADING COMPANY, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: President and CEO
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FS EQUITY PARTNERS IV, L.P.
By: FS CAPITAL PARTNERS, LLC
Its: General Partner
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Managing Member
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THE LIMITED, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President, Controller
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