EXHIBIT 10
----------
STOCK PURCHASE AGREEMENT
dated as of
July 9, 2001
among
CHARMING SHOPPES, INC.,
VENICE ACQUISITION CORPORATION,
LFAS, INC.
and
THE LIMITED, INC.
relating to the purchase and sale
of
100% of the Common Stock
of
LBH, INC.
Table of Contents
Page
Article 1
Definitions
Section 1.01. Definitions.............................................. 1
Article 2
Purchase and Sale
Section 2.01. Purchase and Sale........................................ 8
Section 2.02. Closing.................................................. 8
Section 2.03. Closing Net Tangible Assets.............................. 9
Section 2.04. Adjustment To Purchase Price............................. 10
Section 2.05. Additional Understanding................................. 12
Section 2.06. No Fractional Shares..................................... 12
Article 3
Representations and Warranties of The Limited and Seller
Section 3.01. Corporate Existence and Power............................ 12
Section 3.02. Corporate Authorization.................................. 12
Section 3.03. Governmental Authorization............................... 13
Section 3.04. Noncontravention......................................... 13
Section 3.05. Capitalization........................................... 13
Section 3.06. Ownership and Transfer of Shares......................... 14
Section 3.07. Subsidiaries............................................. 14
Section 3.08. Financial Statements..................................... 15
Section 3.09. Accounts Receivable...................................... 15
Section 3.10. Inventory................................................ 15
Section 3.11. Absence of Certain Changes............................... 16
Section 3.12. Material Contracts....................................... 17
Section 3.13. Certain Related Party Contracts.......................... 19
Section 3.14. Litigation............................................... 20
Section 3.15. Properties............................................... 20
Section 3.16. Licenses and Permits..................................... 21
Section 3.17. Environmental Matters.................................... 21
Section 3.18. Compliance with Laws and Court Orders.................... 22
Section 3.19. Intellectual Property.................................... 22
Section 3.20. Personal Property; Bank Accounts......................... 24
Section 3.21. Suppliers................................................ 24
Section 3.22. Labor Matters............................................ 25
Section 3.23. Books and Records........................................ 25
Section 3.24. Finders' Fees............................................ 26
Section 3.25. Securities Matters....................................... 26
Section 3.26. Guarantees............................................... 27
Table of Contents
(continued)
Page
Article 4
Representations and Warranties of Parent and Buyer
Section 4.01. Corporate Existence and Power............................. 27
Section 4.02. Corporate Authorization................................... 28
Section 4.03. Governmental Authorization................................ 28
Section 4.04. Noncontravention.......................................... 28
Section 4.05. Financing................................................. 29
Section 4.06. Purchase and Investment................................... 29
Section 4.07. Litigation; Compliance with Laws.......................... 29
Section 4.08. Finders' Fees............................................. 30
Section 4.09. Inspections; No Other Representations..................... 30
Section 4.10. Commission Reports; Financial Information................. 30
Section 4.11. Capitalization............................................ 31
Section 4.12. Valid Issuance of Stock Consideration..................... 31
Article 5
Covenants of Seller and the Limited
Section 5.01. Conduct of The Company.................................... 32
Section 5.02. Cooperation On Certain Matters............................ 33
Section 5.03. Maintenance of Insurance Policies......................... 35
Section 5.04. Non-solicitation; Non-competition......................... 36
Section 5.05. Lease Consents; Commitment Letter......................... 38
Section 5.06. No Shop................................................... 38
Section 5.07. Future Auditor Consent.................................... 38
Section 5.08. Mast Purchase Orders...................................... 38
Section 5.09. Trademarks, etc........................................... 39
Section 5.10. Restricted Securities..................................... 39
Section 5.11. Standstill................................................ 39
Section 5.12. Purchase Order Information................................ 40
Section 5.13. Confidentiality........................................... 40
Section 5.14. Litigation Update......................................... 40
Article 6
Covenants of Parent and Buyer
Section 6.01. Conduct of the Parent and Buyer........................... 40
Section 6.02. Confidentiality........................................... 41
Section 6.03. Cooperation on Certain Matters............................ 41
Section 6.04. Insurance................................................. 44
Section 6.05. Guarantees................................................ 44
Section 6.06. Outstanding Checks; Reimbursement of Payments by
The Limited............................................... 44
Section 6.07. Non-solicitation.......................................... 45
Section 6.08. Proceeds from Credit Card Litigation...................... 45
Section 6.09. Reverse Break-up Fee...................................... 45
ii
Table of Contents
(continued)
Page
Section 6.10. Shelf Registration Statement............................... 46
Section 6.11. Litigation Update.......................................... 46
Article 7
Covenants of Parent, Buyer, The Limited and Seller
Section 7.01. Further Assurances......................................... 46
Section 7.02. Certain Filings............................................ 47
Section 7.03. Public Announcements....................................... 47
Section 7.04. HSR Filings................................................ 47
Section 7.05. Transition Services........................................ 47
Section 7.06. Store Leases Agreement..................................... 47
Section 7.07. Intentionally Omitted...................................... 47
Section 7.08. Headquarters and Distribution Center Lease................. 47
Section 7.09. Registration Agreement..................................... 48
Section 7.10. Access and Waiver Agreement................................ 48
Section 7.11. Covenant Agreement......................................... 48
Section 7.12. Master Sublease............................................ 48
Section 7.13. Cancellation of Related Party Contracts.................... 48
Section 7.14. Intercompany Accounts...................................... 48
Section 7.15. Mutual Release............................................. 48
Section 7.16. Certain Contracts.......................................... 49
Section 7.17. Financing Statements....................................... 50
Section 7.18 Store No. 2.................................................. 50
Article 8
Tax Matters
Section 8.01. Tax Representations........................................ 51
Section 8.02. Tax Covenants.............................................. 52
Section 8.03. Tax Sharing................................................ 56
Section 8.04. Indemnification by The Limited............................. 56
Article 9
Employee Benefits
Section 9.01. Employee Benefits.......................................... 59
Section 9.02. ERISA Representations...................................... 60
Section 9.03. Welfare Plans Following the Closing........................ 62
Section 9.04. Savings and Retirement Plan................................ 64
Section 9.05. Other Employee Plans And Benefit Arrangements.............. 65
Section 9.06. Necessary Action........................................... 65
Section 9.07. Stock Options.............................................. 66
Section 9.08. Indemnification............................................ 66
Section 9.09. Third Party Beneficiaries.................................. 67
iii
Table of Contents
(continued)
Page
Article 10
Conditions to Closing
Section 10.01. Conditions to Obligations of Parent, Buyer, The Limited
and Seller................................................ 67
Section 10.02. Conditions to Obligation of Parent and Buyer.............. 67
Section 10.03. Conditions to Obligation of The Limited and Seller........ 68
Article 11
Survival; Indemnification
Section 11.01. Survival.................................................. 69
Section 11.02. Indemnification........................................... 70
Section 11.03. Procedures................................................ 71
Section 11.04. Limitation on Damages..................................... 72
Section 11.05. Assignment of Claims...................................... 72
Section 11.06. Exclusivity............................................... 72
Article 12
Termination
Section 12.01. Grounds for Termination................................... 73
Section 12.02. Effect of Termination..................................... 74
Article 13
Miscellaneous
Section 13.01. Notices................................................... 74
Section 13.02. Amendments and Waivers.................................... 75
Section 13.03. Expenses.................................................. 76
Section 13.04. Successors and Assigns.................................... 76
Section 13.05. Governing Law............................................. 76
Section 13.06. Jurisdiction.............................................. 76
Section 13.07. WAIVER OF JURY TRIAL...................................... 77
Section 13.08. Counterparts; Third Party Beneficiaries................... 77
Section 13.09. Entire Agreement.......................................... 77
Section 13.10. Captions; Certain Terms................................... 77
Section 13.11. Disclosure Schedule....................................... 77
Appendices, Attachments and Exhibits
------------------------------------
Appendix 2.03(a) Base Statement of Net Tangible Assets
Appendix 4.05 Commitment Letter
Appendix 6.05 Guarantees
Appendix 6.08 Credit Card Litigation
Appendix 11.02 Retained Litigation
iv
Table of Contents
(continued)
Page
Attachment A Disclosure Schedule
Exhibit A Transition Services Agreement
Exhibit B Store Leases Agreement
Exhibit C Intentionally omitted
Exhibit D HQ Lease Agreement
Exhibit E Registration Agreement
Exhibit F Access and Waiver Agreement
Exhibit G Covenant Agreement
Exhibit H Master Sublease
Exhibit I Opinion of ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇
Exhibit J Opinion of Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
v
STOCK PURCHASE AGREEMENT
AGREEMENT dated as of July 9, 2001 among CHARMING SHOPPES, INC., a
Pennsylvania corporation ("Parent"), VENICE ACQUISITION CORPORATION, a Delaware
corporation ("Buyer"), LFAS, INC., a Delaware corporation ("Seller"), and THE
LIMITED, INC., a Delaware corporation ("The Limited").
W I T N E S S E T H:
WHEREAS, Seller is the record and beneficial owner of the Shares (as herein
defined); and
WHEREAS, each of The Limited and Seller desires that Seller sell the Shares
to Buyer, and Buyer desires to purchase the Shares from Seller, in each case,
upon the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.01. Definitions. (a) The following terms, as used herein, have
the following meanings:
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such other
Person. For purposes of this definition, "control" when used with respect to
any Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. Notwithstanding the foregoing, for
purposes of this Agreement, neither the Company nor any Subsidiary shall be
considered an Affiliate of Seller or The Limited.
"Audited Financial Statements" means the audited consolidated balance
sheets of the Company and the Subsidiaries as of February 3, 2001 and January
29, 2000 (including the notes thereto), and the related consolidated statements
of income and cash flows for the three fiscal years ended February 3, 2001,
January 29, 2000 and January 30, 1999, together with the reports thereon by
PriceWaterhouseCoopers, LLP, independent accountants ("PriceWaterhouseCoopers").
"Balance Sheet" means the audited consolidated balance sheet of the Company
and the Subsidiaries as of February 3, 2001, including all notes thereto,
included in Section 3.08 of the Disclosure Schedule.
"Balance Sheet Date" means February 3, 2001.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in New York, New York or Columbus, Ohio are authorized or
required by law to close.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"Combined Tax" means any state, local or foreign income or franchise Tax
with respect to which The Limited or any of its Affiliates files Returns on a
consolidated, combined or unitary basis with the Company or any Subsidiary.
"Common Stock" means the common stock, no par value per share, of the
Company.
"Company" means LBH, Inc., a Nevada corporation.
"Disclosure Schedule" means the Disclosure Schedule attached as Attachment
A to this Agreement.
"Environmental Laws" means any and all Laws concerning or relating to the
protection of the environment.
"Federal Tax" means any Tax imposed under Subtitle A of the Code with
respect to which the Company or any Subsidiary has filed or will file a Return
with a member of the Limited Tax Group on a consolidated basis.
"GAAP" means United States generally accepted accounting principles.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
"Indemnified Tax" means (i) Federal Tax, (ii) Combined Tax, (iii) with
respect to each state, local or foreign taxing jurisdiction, any income,
franchise or similar tax payable to such state, local or foreign taxing
jurisdiction in which the Company or any Subsidiary files a separate tax return,
(iv) personal property tax, and (v) sales and use tax other than sales tax
collected by the Company or any Subsidiary from its customers.
2
"Intellectual Property" means each material (1) fictitious business name,
tradename, registered and unregistered trademark, service ▇▇▇▇ and related
application, logo, brand name, slogan, trade dress, packaging, product design or
configuration and the goodwill associated therewith, (2) patent, patent right
and patent application, (3) copyright and copyright application in works, (4)
internet domain name registration and related applications, (5) trade secret and
(6) computer software, in each case owned, used or held for use by or licensed
or granted to the Company or any Subsidiary.
"Knowledge of The Limited and Seller" or any other similar knowledge
qualification in this Agreement means that (1) any director or officer of the
Company or any Subsidiary, (2) any officer of The Limited or Seller who is
reported to directly by any officer or employee of the Company or any
Subsidiary, or (3) the Chief Financial Officer, the General Counsel or the Vice
President Treasury, Mergers and Acquisitions of The Limited is actually aware of
a fact or other matter.
"Laws" means any law, statute, regulation, rule, permit, license,
certificate, judgment, order, award or other legally binding decision or
requirement of any arbitrator, court, government or governmental agency or
instrumentality (domestic or foreign).
"Lien" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, claim, option, security interest, encumbrance or restriction of
any kind in respect of, binding upon or applicable to such property or asset.
"Limited Tax Group" means, with respect to federal income Taxes, the
affiliated group of corporations (as defined in Section 1504(a) of the Code) of
which The Limited is the common parent and, with respect to any Combined Tax,
the applicable consolidated, combined or unitary group of which The Limited or
any of its Affiliates is a member.
"Material Adverse Effect" means a material adverse effect on the business,
properties, assets, results of operations, prospects or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as whole, except any such
effect resulting from (1) this Agreement or the transactions specifically
contemplated hereby, (2) changes or conditions in either the women's apparel
sector or retail sector generally or (3) changes or conditions in economic,
market, regulatory or political conditions generally.
"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.
3
"Permits" means all governmental licenses, permits, certificates, consents,
approvals, or other governmental authorizations owned or held by, granted to, or
held for the benefit of, any Person.
"Permitted Liens and Exceptions" means (1) Liens disclosed in the
Disclosure Schedule; (2) Liens disclosed on the Balance Sheet or notes thereto
or securing liabilities reflected on the Balance Sheet or notes thereto; (3)
Liens for Taxes, assessments and similar charges that are not yet due and
payable; (4) mechanic's, materialman's, carrier's, repairer's and other similar
Liens arising or incurred in the ordinary course of business or that are not yet
due and payable; (5) Liens incurred in the ordinary course of business
consistent with past practice since the Balance Sheet Date; or (6) other Liens
that do not secure payment of indebtedness for borrowed money, capitalized
leases or the deferred purchase price of property or services (other than
accounts payable in the ordinary course) and that are not material.
"Person" means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Pre-Closing Tax Period" means (1) any Tax period ending on or before the
Closing Date; and (2) with respect to a Straddle Period, the portion of such
period ending on the Closing Date.
"Reference Rate" means the rate per annum equal to the "Prime Rate" as
published in The Wall Street Journal, Eastern Edition.
"Shares" means 100 shares of Common Stock.
"Straddle Period" means any Tax period that begins on or before the Closing
Date and ends after the Closing Date.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by the Company.
"Tax" means (1) any tax, governmental fee or other like assessment or
charge of any kind whatsoever; including, but not limited to, withholding on
amounts paid to or by any Person, federal and state income taxes, real property
gains taxes, sales and use taxes, ad valorem taxes, excise taxes, franchise
taxes, gross receipts taxes, business license taxes, capital stock taxes, real
and personal property taxes, environmental taxes, transfer taxes, severance
taxes, alternative or add-on minimum taxes, and custom duties, together with any
interest, penalty, addition to tax or additional amount imposed by any
governmental authority (whether federal, state, local, municipal, foreign or
otherwise) responsible for the
4
imposition of any such tax (a "Taxing Authority") and (2) any liability for the
payment of any amount of the type described in the immediately preceding clause
(1) as a result of the Company or any Subsidiary being a member of an
affiliated, consolidated or combined group with any other corporation at any
time on or prior to the Closing Date. For the avoidance of doubt, it is
confirmed that the term "Tax" does not include any escheat liabilities or
similar items under state unclaimed property laws.
"Tax Asset" means any net operating loss, net capital loss, investment tax
credit, foreign tax credit, charitable deduction or any other credit or tax
attribute that could be carried forward or back to reduce income or franchise
Taxes (including, without limitation, deductions and credits related to
alternative minimum Taxes) and losses or deductions deferred by the Code or
other applicable law.
"Transaction Documents" means this Agreement and any and all other
agreements and documents required to be delivered by any party hereto prior to
or at the Closing pursuant to this Agreement.
Each of the following terms is defined in the Section set forth opposite such
term:
Term Section
Access and Waiver Agreement 7.10
Accounting Referee 8.02
Adjustment Closing Date 2.04
Adjustment Price 2.04
Adjustment Stock Consideration 2.04
Allocation Statement 8.02
Banks 5.02
Base Net Tangible Assets 2.04
Base Price 2.01
Buyer Preamble
Calculation Date 2.04
Cash Payment 2.01
Claim 11.03
Closing 2.02
Closing Net Tangible Assets 2.03
Closing Price 2.01
Closing Statement of Net Tangible Assets 2.03
Commission 4.10
Commission Reports 4.10
Commitment Letter 4.05
Company Account 3.20
Company Proprietary Information 7.16
Company Securities 3.05
Confidentiality Agreement 6.02
5
Term Section
Covenant Agreement 7.11
Credit Card Litigation 6.08
Damages 11.02
Database Services Agreement 3.19
Delinquent Payments 7.16
Domain Names 3.19
Facilities 5.04
Final Net Tangible Assets 2.04
Financial Support Arrangements 6.05
HQ Lease 7.08
Indemnified Party 11.03
Indemnifying Party 11.03
Key Trademark 3.19
Large Size Women's Clothing 5.04
Lease 3.15
Limited Confidentiality Agreement 5.13
Marks 3.19
Mast 5.08
Master Sublease 7.12
Other Taxes 8.02
Parent Preamble
Parent Commission Reports 4.10
Parent Common Stock 2.01
Parent Material Adverse Effect 4.01
Parent Shares 3.25
Payment Date 6.06
Post-Closing Invoices 6.06
Potential Contributor 11.05
Price Allocation 8.02
Purchase Price 2.01
Real Property 3.15
Registration Agreement 7.09
Related Party Agreements 3.13
Renewal Leases 3.15
Retained Landlord Claims 7.16
Retained Litigation 11.02
Returns 8.01
Section 338(h)(10) Election 8.02
Seller Preamble
Services Agreement 7.05
Shelf Registration Statement 6.10
Stock Consideration 2.01
Store Leases Agreement 7.06
Subsidiary Securities 3.07
6
Term Section
Survival Period 11.01
Target Group 8.01
Tax Allowance 8.04
Tax Loss 8.04
Termination Date 12.01
The Limited Preamble
Third Party Claim 11.03
Transfer Taxes 8.02
Warranty Breach 11.02
7
ARTICLE 2
Purchase and Sale
Section 2.01. Purchase and Sale. (a) Upon the terms and subject to the
conditions of this Agreement, Seller shall sell, transfer and deliver to Buyer
and Buyer shall purchase from Seller, the Shares at the Closing. The purchase
price for the Shares (the "Purchase Price") is (1) $280,000,000 in cash (the
"Cash Payment") and (2) the Stock Consideration. The Purchase Price shall be
paid as provided in Section 2.02 and shall be subject to adjustment as provided
in this Section 2.01 and Section 2.04.
(b) "Stock Consideration" means that number of shares of the common stock,
par value $0.10 per share, of Parent (including the associated preferred stock
purchase rights, the "Parent Common Stock") determined by dividing $55,000,000
by the Closing Price. "Closing Price" means the average closing price per share
of the Parent Common Stock on the Nasdaq National Market for the five trading
days ending on and including the second trading day prior to the Closing Date;
provided that if such average closing price (1) exceeds 115% of the Base Price,
the Closing Price will be deemed to be 115% of the Base Price or (2) is less
than 85% of the Base Price, then the Closing Price will be deemed to be 85% of
the Base Price. The "Base Price" means $6.168 per share.
(c) Adjustments. If, during the period between the date of this Agreement
and the Closing, any change in the outstanding shares of Parent Common Stock
shall occur by reason of any reclassification, recapitalization, stock split or
combination, exchange or readjustments of shares, any stock dividend or similar
transaction with a record or effective date during such period, the Stock
Consideration or Base Price, as applicable, shall be appropriately adjusted.
Section 2.02. Closing. The closing (the "Closing") of the purchase and sale
of the Shares hereunder shall take place at the offices of ▇▇▇▇▇ ▇▇▇▇ &
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, as soon as possible, but in
no event later than two Business Days, after satisfaction (or, to the extent
permitted under law, waiver) of the conditions set forth in Article 10, or at
such other time or place as Buyer and The Limited may agree. The Closing shall
be deemed to occur at the closing of business on the Closing Date. At the
Closing:
(a) Buyer shall deliver to Seller the Cash Payment in immediately
available funds by wire transfer to an account of Seller designated by The
Limited, by notice to Buyer, which notice shall be delivered not later than two
Business Days prior to the Closing Date (or if not so designated, then by
certified or official bank check payable in immediately available funds to the
order of Seller in such amount).
8
(b) Buyer shall deliver to Seller a certificate representing the Stock
Consideration.
(c) Seller shall deliver to Buyer certificates for the Shares duly
endorsed or accompanied by stock powers duly endorsed in blank, with any
required transfer stamps affixed thereto.
(d) The Limited, Seller, Parent and Buyer shall each deliver such other
documents, instruments and agreements as are required to be delivered by such
party at the Closing pursuant to this Agreement.
Section 2.03. Closing Net Tangible Assets. (a) As promptly as practicable,
but no later than 60 days, after the Closing Date, The Limited will cause to be
prepared and delivered to Buyer the Closing Statement of Net Tangible Assets
(the "Closing Statement of Net Tangible Assets"). The Closing Statement of Net
Tangible Assets will be accompanied by a certificate of the Chief Financial
Officer of The Limited specifying that the Closing Statement of Net Tangible
Assets was prepared in accordance with the provisions of this Section 2.03(a).
The Closing Statement of Net Tangible Assets shall include only those categories
of assets and liabilities and line items included in, and be in form consistent
with, the Base Statement of Net Tangible Assets set forth in Appendix 2.03(a).
The determination of the Closing Net Tangible Assets shall be made by applying
the principles, policies and practices used in connection with the preparation
of the relevant portions of the Balance Sheet, but shall be subject to the
adjustments and clarifications set forth in Appendix 2.03(a). Except for those
matters that, on their face, are not relevant to the Balance Sheet, The Limited
and Seller hereby represent that the accounting principles, policies and
practices set forth in Appendix 2.03(a) were used in connection with the
preparation of the relevant portions of the Balance Sheet, except for gift
certificates (as to which differences in accounting principles, policies and
practices are set forth in Appendix 2.03(a)). "Closing Net Tangible Assets"
means total tangible assets minus total liabilities of the Company and the
Subsidiaries as shown on the Closing Statement of Net Tangible Assets,
determined as set forth in this Section 2.03(a).
(b) If Buyer disagrees with The Limited's calculation of the Closing Net
Tangible Assets delivered pursuant to Section 2.03(a), Buyer may, within 20 days
after delivery of the certificate referred to in Section 2.03(a), deliver a
notice to The Limited disagreeing with such calculation and setting forth
Buyer's calculation of such amount. Any such notice of disagreement shall
specify those items or amounts as to which Buyer disagrees, and Buyer shall be
deemed to have agreed with all other items and amounts contained in the Closing
Statement of Net Tangible Assets delivered pursuant to Section 2.03(a).
Notwithstanding anything in this Section 2.03 to the contrary, Buyer shall not
contest any item for which the amount in disagreement is less than $50,000.
9
(c) If a notice of disagreement shall be duly delivered pursuant to
Section 2.03(b), Buyer and The Limited shall, during the 30 days following such
delivery, use their reasonable best efforts to reach agreement on the disputed
items or amounts of Closing Net Tangible Assets, which amount shall not be more
than the amount thereof shown in The Limited's calculations delivered pursuant
to Section 2.03(a) nor less than the amount thereof shown in Buyer's calculation
delivered pursuant to Section 2.03(b). If, during such period, Buyer and The
Limited are unable to reach such agreement, they shall promptly thereafter cause
independent accountants of nationally recognized standing reasonably
satisfactory to Buyer and The Limited (who shall not have any material
relationship with Buyer or The Limited), promptly to review this Agreement and
the disputed items or amounts for the purpose of calculating the Closing Net
Tangible Assets. In making such calculation, such independent accountants shall
consider only those items or amounts in the Closing Net Tangible Assets as to
which Buyer has disagreed. Such independent accountants shall deliver to Buyer
and The Limited, as promptly as practicable, a report setting forth such
calculation. Such report shall be final and binding upon the parties hereto. The
cost of such review and report shall be borne by The Limited if the difference
between the Final Net Tangible Assets and The Limited's calculation of the
Closing Net Tangible Assets delivered pursuant to Section 2.03(a) is greater
than the difference between the Final Net Tangible Assets and Buyer's
calculation of the Closing Net Tangible Assets delivered pursuant to Section
2.03(b), by Buyer if the first such difference is less than the second such
difference and otherwise equally by Buyer and The Limited.
(d) Buyer and The Limited agree that they will, and agree to cause their
respective independent accountants and the Company and each Subsidiary to,
cooperate and assist in the preparation of the Closing Statement of Net Tangible
Assets and the calculation of the Closing Net Tangible Assets and in the conduct
of the audits or reviews referred to in Section 2.03(c), including without
limitation, the making available to the extent necessary of books, records, work
papers and personnel.
Section 2.04. Adjustment To Purchase Price. (a) If Base Net Tangible
Assets exceeds Final Net Tangible Assets, The Limited shall pay to Buyer, as an
adjustment to the Purchase Price, in the manner and with interest as provided in
Section 2.04(b), the amount of such excess. If Final Net Tangible Assets exceeds
Base Net Tangible Assets, Buyer shall pay to The Limited, in the manner and with
interest as provided in Section 2.04(b), the amount of such excess. "Base Net
Tangible Assets" means $141,000,000. "Final Net Tangible Assets" means Closing
Net Tangible Assets as shown in The Limited's calculation delivered pursuant to
Section 2.03(a), if no notice of disagreement with respect thereto is duly
delivered pursuant to Section 2.03(b); or if such a notice of disagreement is
delivered, as agreed by Buyer and The Limited pursuant to Section 2.03(c) or in
the absence of such agreement, as shown in the independent accountant's
calculation delivered pursuant to Section 2.03(c); provided that, in no event
shall
10
Final Net Tangible Assets be more than The Limited's calculation of Closing Net
Tangible Assets delivered pursuant to Section 2.03(a) or less than Buyer's
calculation of Closing Net Tangible Assets delivered pursuant to Section
2.03(b).
(b) Any payment made by The Limited pursuant to Section 2.04(a) shall be
made at a mutually convenient time and place within five days after such
calculation has been determined (the "Calculation Date") by delivery by The
Limited in immediately available funds by wire transfer to an account of Buyer
or by causing such payment to be credited to such account of Buyer as may be
designated by Buyer. Any payment made by Buyer pursuant to Section 2.04(a) shall
be paid in the form of Adjustment Stock Consideration, with such other documents
as set forth in Section 2.04(d), delivered to The Limited at a mutually
convenient time and place within five days (the "Adjustment Closing Date") after
the Calculation Date. Any amount payable shall bear interest from and including
the Closing Date to but excluding the actual date of payment at the Reference
Rate. Such interest shall be payable at the same time as the payment to which it
relates and shall be calculated daily on the basis of a year of 365 days and the
actual number of days elapsed.
(c) "Adjustment Stock Consideration" means the number of shares of Parent
Common Stock determined by dividing (1) the amount of the payment to be made by
Buyer to The Limited pursuant to this Section 2.04 by (2) the Adjustment Price.
"Adjustment Price" means the average closing price per share of the Parent
Common Stock on the Nasdaq National Market for the five trading days ending on
and including the second trading day prior to the Adjustment Closing Date. If,
after the date hereof but prior to such date, any change in the outstanding
shares of Parent Common Stock shall occur by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, stock dividend or similar transaction with a record or effective date
prior to the Adjustment Closing Date, the Adjustment Stock Consideration or
Adjustment Price, as applicable, shall be appropriately adjusted.
(d) To the extent that any payment pursuant to Section 2.04 is required to
be made in Parent Common Stock, on the Adjustment Closing Date, (i) Buyer shall
deliver to The Limited (1) a certificate representing the shares of Parent
Common Stock constituting the Adjustment Stock Consideration, (2) a certificate
signed by an executive officer of Parent stating that the representations
contained in Section 4.12 hereof are accurate as of the Adjustment Closing Date,
substituting the words "Adjustment Stock Consideration" for "Stock
Consideration", and (3) evidence that the shares of Parent Common Stock
constituting the Adjustment Stock Consideration have been approved for listing
on the Nasdaq Stock Market, subject to official notice of issuance and (ii) from
and after such date, for all purposes of this Agreement the term "Stock
Consideration" shall automatically be deemed amended to include the Adjustment
Stock Consideration.
11
Section 2.05. Additional Understanding. It is understood and agreed that
the establishment of $141,000,000 as the amount of Base Net Tangible Assets (i)
was a negotiated result to establish the base from which any adjustment to the
Purchase Price is to be calculated, (ii) differs from the amount that would be
calculated simply by adding the amounts shown on the Base Statement of Net
Tangible Assets included in Appendix 2.03(a) and, therefore, (iii) will not
influence or affect in any respect the calculation of Closing Net Tangible
Assets.
Section 2.06. No Fractional Shares. Parent shall not be obligated to issue
fractional shares of Parent Common Stock pursuant to this Article 2. Instead,
all fractional shares of Parent Common Stock that Seller would otherwise be
entitled to receive pursuant to this Article 2 shall be rounded up or down, as
appropriate, to the nearest whole number of shares.
ARTICLE 3
Representations and Warranties of The Limited and Seller
The Limited and Seller represent and warrant to Buyer and Parent, as of the
date hereof and as of the Closing, that, except as set forth on the Disclosure
Schedule attached hereto:
Section 3.01. Corporate Existence and Power. Each of The Limited, Seller
and the Company is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
necessary corporate power and authority, and all material Permits, required to
carry on its business as now conducted, to own and lease the assets which it
owns and leases and to perform all of its obligations under each agreement to
which it is a party or by which it is bound. The Company is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
identified in Section 3.01 of the Disclosure Schedule, which includes each
jurisdiction in which its ownership or leasing of assets or properties or the
nature of its activities requires such qualification, except for those
jurisdictions where the failure to be so qualified would not, individually or in
the aggregate, have, or be reasonably likely to have, a Material Adverse Effect.
Section 3.02. Corporate Authorization. The execution, delivery and
performance by each of The Limited and Seller of the Transaction Documents to
which it is a party and the consummation of the transactions contemplated
thereby are within the corporate powers and authority of each of The Limited and
Seller and have been duly authorized by all necessary corporate action on the
part of The Limited and Seller. To the extent a party thereto, each of the
Transaction Documents constitutes the legal, valid and binding obligation of The
Limited and Seller, as applicable, and is enforceable against each of The
Limited and Seller, as applicable, in accordance with its respective terms, (1)
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or
12
similar laws now or hereafter in effect relating to or affecting creditors'
rights generally, including the effect of statutory and other laws concerning
fraudulent conveyances and preferential transfers, and (2) subject to the
limitations imposed by general equitable principles (regardless of whether such
enforceability is considered in proceeding at law or in equity).
Section 3.03. Governmental Authorization. To the extent a party thereto,
the execution, delivery and performance by The Limited and Seller, as
applicable, of each of the Transaction Documents and the consummation of the
transactions contemplated thereby require no material action, consent or
approval by or in respect of, material filing with or material notice to, any
governmental body, agency or official other than: (1) compliance with any
applicable requirements of the HSR Act; and (2) compliance with any applicable
requirements of the 1933 Act and the 1934 Act.
Section 3.04. Noncontravention. The execution, delivery and performance by
The Limited and Seller, as applicable, of any of the Transaction Documents to
which it is a party, and the consummation of the transactions contemplated
thereby do not and will not (1) violate or conflict with the certificate of
incorporation or bylaws (or other organizational documents) of The Limited or
Seller, or the Company or any Subsidiary, (2) assuming compliance with the
matters referred to in Section 3.03, contravene or conflict with or constitute a
violation of any provision of any Law binding upon or applicable to The Limited
or Seller, or the Company or any Subsidiary, (3) with or without the giving of
notice or the lapse of time, or both, constitute a default under or give rise to
any right of termination, cancellation or acceleration of any right or
obligation of The Limited or Seller, or the Company or any Subsidiary, or to a
loss of any benefit to which The Limited or Seller, or the Company or any
Subsidiary is entitled, under any provision of any agreement, contract or other
instrument to which The Limited or Seller, or the Company or any Subsidiary is a
party or by which any of them or their respective properties or assets is bound,
or give to others any rights (including rights of termination, foreclosure,
cancellation or acceleration) in or with respect to the Company, any Subsidiary
or any of their respective properties or assets, except for any such default,
termination, cancellation, acceleration or loss that would not be material, or
(4) result in, require or permit the creation or imposition of any Lien (other
than Permitted Liens and Exceptions) upon or with respect to the Company, any
Subsidiary, any of their respective properties or assets or the Shares.
Section 3.05. Capitalization. (a) The authorized capital stock of the
Company consists of 2,500 shares of Common Stock, of which 100 shares are issued
and outstanding (which 100 issued and outstanding shares constitute all of the
Shares).
(b) The Shares have been duly authorized and validly issued and are fully
paid and non-assessable, and have been issued in compliance with all
13
securities and other Laws. Except for the Shares, there are no (1) outstanding
shares of capital stock or voting securities of the Company, (2) securities of
the Company convertible into or exchangeable for shares of capital stock or
other securities of the Company, (3) options or other rights to acquire from the
Company, or other obligation of the Company to issue, any capital stock, other
securities or securities convertible into or exchangeable for capital stock or
other securities of the Company, or (4) stock appreciation rights or similar
rights or securities of the Company (the items in clauses (1), (2), (3) and (4)
being referred to collectively as the "Company Securities"). There are no
outstanding obligations of The Limited, Seller, the Company, any Subsidiary or
any other Person to repurchase, redeem or otherwise acquire any Company
Securities. Except for this Agreement, there are no agreements or other
instruments relating to the issuance, sale or transfer of the Shares or any
Company Securities.
Section 3.06. Ownership and Transfer of Shares. Seller is the record and
beneficial owner of the Shares, free and clear of any Lien. Subject to
compliance with the matters referred to in Section 3.03, Seller has the absolute
right, authority and power to sell, assign and transfer the Shares to Buyer free
and clear of any Lien. Upon delivery to Buyer of the certificate for the Shares
at the Closing, Buyer will acquire good, valid and marketable title to the
Shares, free and clear of any Lien, other than as a result of any action by
Parent or any of its Affiliates.
Section 3.07. Subsidiaries. (a) The Company has four Subsidiaries. Each
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
necessary corporate power and authority, and all material Permits required to
carry on its business as now conducted, to own and lease the assets which it
owns and leases and to perform all of its obligations under each agreement to
which it is a party or by which it is bound. The name and jurisdiction of
incorporation of each Subsidiary is identified in Section 3.07 of the Disclosure
Schedule. Each subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction identified in Section
3.07 of the Disclosure Schedule, which includes each jurisdiction in which its
ownership or leasing of assets or properties or the nature of its activities
requires such qualification, except for those jurisdictions where the failure to
be so qualified would not, individually or in the aggregate, have, or be
reasonably likely to have, a Material Adverse Effect.
(b) All of the outstanding capital stock and other securities of each
Subsidiary, and the record and beneficial owners thereof, is set forth in
Section 3.07 of the Disclosure Schedule. All such shares of capital stock or
voting securities are owned free and clear of any Lien. Except for the
outstanding shares of capital stock of each Subsidiary identified in Section
3.07 of the Disclosure Schedule, there are no (1) outstanding shares of capital
stock or other securities of any Subsidiary, (2) securities of the Company or
any Subsidiary convertible into or exchangeable for shares of capital stock or
other securities of any Subsidiary, (3) options or other rights to acquire from
the Company or any
14
Subsidiary, or other obligation of the Company or any Subsidiary to issue, any
capital stock, other securities or securities convertible into or exchangeable
for capital stock or other securities of any Subsidiary or (4) stock
appreciation rights or similar rights or securities of any Subsidiary (the items
in clauses (1), (2), (3) and (4) being referred to collectively as the
"Subsidiary Securities"). There are no outstanding obligations of the Company or
any Subsidiary or any other Person to repurchase, redeem or otherwise acquire
any Subsidiary Securities. There are no agreements or other instruments relating
to the issuance, sale or transfer of any Subsidiary Securities. All of the
issued and outstanding shares of capital stock of each Subsidiary have been duly
authorized and are validly issued and outstanding, fully paid and nonassessable,
and have been issued in compliance with applicable securities and other Laws.
(c) Neither the Company nor any Subsidiary directly or indirectly owns,
controls or has any investment or other interest in any corporation,
partnership, joint venture, business trust or other Person (or has any
obligation or express contractual right to acquire any such investment or other
interest) and neither the Company nor any Subsidiary has agreed, contingently or
otherwise, (1) to share any of its profits with any Person, (2) other than in
ordinary course commercial transactions, to share any losses, costs or
liabilities of any Person or (3) to guaranty the obligations of any Person other
than the Company or any Subsidiary.
Section 3.08. Financial Statements. The Audited Financial Statements fairly
present in all material respects the consolidated financial condition, cash
flows and results of operations of the Company and the Subsidiaries as at the
respective dates thereof and for the periods therein referred to, all in
accordance with GAAP, as consistently applied by the Company. The Balance Sheet
reflects in all material respects all liabilities of the Company and its
Subsidiaries, whether absolute, accrued or contingent, as of the date thereof
which are required to be accrued or disclosed in a balance sheet (or the notes
thereto) prepared in accordance with GAAP, as consistently applied by the
Company.
Section 3.09. Accounts Receivable. All accounts and notes receivable of the
Company and each Subsidiary represent valid obligations from sales made or
services rendered in the ordinary course of business and are not subject to any
right of set-off or any agreements or understandings (oral or written) that
would permit any payor to reduce or satisfy any portion of an obligation by
return of goods or any means other than the payment of cash in the face amount
thereof.
Section 3.10. Inventory. Subject to any reserve therefor included in the
Balance Sheet, at the Balance Sheet Date, all inventories of the Company and its
Subsidiaries (including inventory ordered but not yet received) consisted of
items of a quality usable or saleable in the normal course of the business of
the Company consistent with past practices and were in quantities sufficient for
the normal operation of the business of the Company in accordance with past
practices. The values at which inventories are shown on the Balance Sheet have
15
been determined in accordance with the customary valuation policy of the Company
(which is the lower of average cost or market) and in accordance with GAAP, as
consistently applied by the Company. Since the Balance Sheet Date, the Company
has continued to replenish its inventory and to dispose of out-of-season and
slow-moving inventory in a normal and customary manner consistent with past
practices prevailing in the business of the Company.
Section 3.11. Absence of Certain Changes. Except as set forth in Section
3.11 of the Disclosure Schedule and except as expressly contemplated by the
Transaction Documents, since the Balance Sheet Date, the business of the Company
and its Subsidiaries has been conducted in the ordinary course consistent with
past practices and there has not been:
(i) any event, occurrence or development which has had or is
reasonably likely to have a Material Adverse Effect;
(ii) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of the
Company or by any Subsidiary to any Person other than a Subsidiary or the
Company, or any repurchase, redemption or other acquisition by the Company
or any Subsidiary of any outstanding shares of capital stock or other
securities of the Company, any Subsidiary or any other entity;
(iii) any amendment of any term of any outstanding security of the
Company or any Subsidiary;
(iv) any incurrence, assumption or guarantee by the Company or any
Subsidiary of any indebtedness for borrowed money other than in the
ordinary course of business consistent with past practice;
(v) any making of any loan, advance or capital contributions to or
investment in any Person by the Company or any Subsidiary other than loans,
advances or capital contributions to a Subsidiary or investments made in a
Subsidiary in the ordinary course of business consistent with past practice
and other than travel, relocation and similar advances to employees in the
ordinary course of business and in an amount less than $25,000 for any
employee;
(vi) any change in any method of accounting or accounting practice by
the Company or any Subsidiary (except for any such change required by
reason of a concurrent change in required GAAP), or any change in any of
the principles underlying, or methods of calculating, any bad debt,
contingency or other reserve;
(vii) any (1) employment, deferred compensation, severance, retirement
or other similar agreement entered into with any director,
16
officer or employee of the Company or any Subsidiary (or any amendment to
any such existing agreement), (2) grant of any severance or termination pay
to any director, officer or employee of the Company or any Subsidiary, or
(3) change in compensation or other benefits payable to any director,
officer or employee of the Company or any Subsidiary;
(viii) any adoption of or change in any Employee Plan or Benefit
Arrangement maintained by the Company or any Subsidiary or any compensation
or labor policy;
(ix) any entry into, material amendment, termination or receipt of
notice of termination of any Lease of Real Property or any other agreement
or commitment required to be disclosed in Section 3.12 of the Disclosure
Schedule;
(x) any sale (other than sales of inventory in the ordinary course
of business), assignment, conveyance, lease or other disposition of any
material asset or property of the Company or any Subsidiary or imposition
of any Lien on any material asset or property of the Company or any
Subsidiary;
(xi) any write-down or write-off of the value of any material asset
except for write-downs or write-offs of accounts receivable and inventory
in the ordinary course of business consistent with past practice;
(xii) any other material transaction or commitment made, or any
material contract or agreement entered into, by the Company or any
Subsidiary relating to its assets or business, other than transactions and
commitments in the ordinary course of business and those contemplated by
any of the Transaction Documents; or
(xiii) any agreement, whether or not in writing, to do any of the
foregoing by the Company or any Subsidiary.
Section 3.12. Material Contracts. (a) Except as expressly provided by any
of the Transaction Documents, none of the Company nor any Subsidiary has or is
bound by:
(i) any agreement, indenture or other instrument relating to the
borrowing of money (other than any such agreement with The Limited or any
of its Affiliates), other than in connection with the issuance of letters
of credit in the ordinary course of business;
(ii) any agreement, license, contract or commitment pursuant to
which any trade secret, confidential or other proprietary information, or
17
any customer information of the Company or any Subsidiary may be
transferred, disclosed to or used by any third party;
(iii) any agreement, contract or commitment, or group of related
agreements, contracts or commitments, relating to a single capital
expenditure of greater than $250,000;
(iv) any loan or advance to, or investment in, any Person or any
agreement, contract or commitment relating to the making of any such loan,
advance or investment, other than travel, relocation and similar advances
to employees in the ordinary course of business and in an amount less than
$25,000 for any employee;
(v) any guarantee or other contingent liability in respect of any
indebtedness or obligations of any Person (other than in connection with
relocation of employees in the ordinary course of business and in an amount
less than $25,000 for any employee or the endorsement of negotiable
instruments for collection in the ordinary course of business);
(vi) any management service, sales agency, sales representative,
distributorship or any other similar type contract, except for any such
agreements with The Limited or any of its Affiliates;
(vii) any agreement, contract or commitment limiting the freedom of
the Company or any Subsidiary to engage in any line of business or to
compete with any Person except for customary exclusives and restrictions as
may be contained in leases or other occupancy contracts that relate to a
certain shopping center and not the business generally;
(viii) except for contracts, agreements, purchase orders or other
commitments of a type referred to in any of the other clauses of this
Section 3.12, any contract, agreement, purchase order or other commitment,
or related group of contracts, agreements, purchase orders or other
commitments involving the performance of services or delivery of goods or
materials, other than inventory, by or to the Company or any Subsidiary of
an aggregate amount in excess of $250,000;
(ix) any contract, agreement or commitment to which the Company or
any Subsidiary is a party or is otherwise bound (other than customary
"percentage rent" provisions contained in Leases for Real Property)
providing for payments to or by any person or entity based on sales,
purchases or profits, other than direct payments for goods;
(x) any contract, agreement or commitment to which Seller, the
Company or any Subsidiary is a party or is otherwise bound providing for
18
change in control, severance, retention or related payments and/or benefits
to directors, officers or employees of the Company or any Subsidiary; or
(xi) any other material contract, agreement or commitment, to which
the Company or any Subsidiary is a party or by which any of them or their
assets are otherwise bound which is entered into outside the ordinary
course of business of a type that is not referred to in any of the other
clauses of this Section 3.12.
The Limited has furnished or made available to Buyer true and complete
copies of each agreement, lease, plan or other document required to be disclosed
in Section 3.12 of the Disclosure Schedule.
(b) Each material contract, agreement or commitment to which the Company
or any Subsidiary is a party or by which they or their assets are bound
(including each agreement or contract required to be disclosed pursuant to this
Agreement) was made in the ordinary course of business, is in full force and
effect and is valid, binding and enforceable against the parties thereto in
accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to the enforcement of creditors' rights generally
or by principles governing the availability of equitable remedies, and to the
Knowledge of The Limited and Seller, there exists no default or event of default
or event, occurrence, condition or act which, with the giving of notice, the
lapse of time or the happening of any other event or condition, would become a
default or event of default thereunder which would singly or in the aggregate
constitute (or be reasonably likely to constitute) a Material Adverse Effect.
None of the Company or any Subsidiary is now in violation of any of the terms or
conditions of any material contract or agreement to which it is a party that
would give the other party thereto the right to terminate, or charge any penalty
or increased payment under, such contract or agreement, subject to all rights to
cure under such contract or agreement, and, to the Knowledge of The Limited and
Seller, all of the covenants to be performed by any other party thereto have
been fully performed.
Section 3.13. Certain Related Party Contracts. Except as contemplated by
any Transaction Document, there are no agreements, contracts, commitments or
understandings (whether written or oral) by and between The Limited or its
Affiliates, on the one hand, and the Company or any Subsidiary, on the other
hand, including, without limitation, any such agreements, contracts, commitments
or understandings pursuant to which The Limited or such Affiliate provides or
receives any information, assets, properties, support or other services to or
from the Company or any Subsidiary (including, but not limited to accounting,
tax, data processing, information technology and legal services) (collectively,
"Related Party Agreements").
19
Section 3.14. Litigation. Except for the Retained Litigation, there are no
claims, actions, suits, investigations or proceedings (arbitration or otherwise)
pending against, or to the Knowledge of The Limited and Seller, threatened
against or affecting, the Company or any Subsidiary, or any of their respective
properties or assets, or, to the extent relating to the Company or any
Subsidiary or any of their respective properties or assets or to the
transactions contemplated by the Transaction Documents, The Limited or any of
its Affiliates, before any court or arbitrator or any governmental body, agency
or official where there is a reasonable possibility of a judgment adverse to the
Company or any Subsidiary which would result in the Company or any Subsidiary
suffering damages in excess of $25,000 or in any material injunctive or
equitable relief. As of the date hereof, there are no claims, actions, suits,
investigations (arbitration or otherwise) pending against, or to the Knowledge
of The Limited and Seller, threatened, against the Company or any Subsidiary,
The Limited or Seller, or any of their Affiliates, before any court or
arbitrator or any governmental body or agency which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay the transactions
contemplated by this Agreement. To the Knowledge of The Limited and Seller,
there are no facts which could reasonably serve as a basis for any claim,
action, suit, investigation or proceeding which could be reasonably likely to
cause a Material Adverse Effect, or which could in any manner challenge or seek
to prevent, enjoin, alter or materially delay the transactions contemplated by
this Agreement. There are no material unsatisfied judgments, penalties or awards
against or affecting the Company or any Subsidiary or any of their businesses,
properties or assets.
Section 3.15. Properties. (a) Section 3.15 of the Disclosure Schedule
correctly lists each parcel of real property leased or subleased (including the
real property to be subleased under the Master Sublease) by the Company or any
Subsidiary (the "Real Property"). The Company and its Subsidiaries do not own
any Real Property in fee simple.
(b) Section 3.15 of the Disclosure Schedule contains (1) as of the date
hereof, a complete and accurate list of every lease of Real Property, together
with all amendments and modifications thereto and each agreement (written or
oral) that affects the rights of any party to such leases (each, a "Lease"), and
(2) as of the date hereof, a complete and accurate list of each Lease which by
its terms expires on or before January 31, 2002 (the "Renewal Leases"). Each
Lease is in full force and effect and, as of the date hereof, has not been
modified by any agreement (written or oral); has not been assigned, transferred
or hypothecated by the tenant thereunder; all material amounts due and payable
as rent or additional rent (including any percentage rents) due under each such
Lease have been paid in full (except that routine reconciliations of typical
lease charges such as taxes, common area maintenance payments, insurance and the
like may still be owed for prior years if such amounts have not been billed by
landlords or are in the routine process of payment on the date hereof); in each
case the lessee has been in peaceable possession since the commencement of the
original term of such Lease
20
and no material waiver, indulgence or postponement of the lessee's obligations
thereunder has been granted by the lessor; and there exists no default or event,
occurrence, condition or act which, with the giving of notice or the lapse of
time or both, would become a default under such Lease which would give the
lessor the right to terminate the Lease, charge any increased rent or require
any penalty or similar payment, subject to all rights to cure under such Lease.
Neither the Company, any Subsidiary nor any party leasing Real Property for the
benefit of the Company or any Subsidiary has violated any of the terms or
conditions under any such Lease in any material respect, and, to the Knowledge
of The Limited and Seller, all of the covenants to be performed by any other
party under any such Lease have been fully performed. The Company and its
Subsidiaries have adequate rights of ingress and egress and adequate electric,
light, telephone and water utilities with respect to all Real Property for
operation of the business of the Company and its Subsidiaries in the ordinary
course and consistent in all material respects with past practice and with the
business plans of the Company and its Subsidiaries as in effect on the date
hereof. No condemnation proceeding or other litigation is pending or, to the
Knowledge of The Limited and Seller, threatened which would preclude or impair
the use of any such Real Property by the Company and its Subsidiaries for the
purposes for which it is currently used or proposed to be used. To the Knowledge
of The Limited and Seller, the buildings and structures in which the premises
leased pursuant to a Lease are situated are structurally sound with no known
material defects that are not being addressed in the ordinary course by the
Company or its Subsidiaries (either directly or through The Limited and its
Affiliates or the relevant landlord) and are in good operating condition and
repair (except for repairs being undertaken in the ordinary course by the
Company or its Subsidiaries (either directly or through The Limited and its
Affiliates) or the relevant landlord) in each case to the extent necessary for
the continued operation of the business of the Company and its Subsidiaries, in
all material respects consistent with past practice. The Company and its
Subsidiaries (directly or through The Limited and its Affiliates) maintain store
maintenance programs that are consistent with sound business practices.
Section 3.16. Licenses and Permits. Section 3.16 of the Disclosure
Schedule correctly sets forth all material Permits necessary for the operation
of the business of the Company and its Subsidiaries in the same manner in all
material respects as such business is being conducted as of the date hereof.
Neither the Company nor any Subsidiary is in default in any material respect or
material noncompliance under any of such Permits.
Section 3.17. Environmental Matters. (a) No written notice, request for
information, order, complaint or penalty has been received by The Limited or any
of its Affiliates, the Company or any Subsidiary within the two years preceding
the date hereof or as to matters that have not been resolved, and there are no
judicial, administrative or other actions, suits or proceedings pending or, to
the Knowledge of The Limited and Seller, threatened which allege a violation of
any Environmental Law, in each case relating to the Company or any Subsidiary or
21
any property formerly or currently owned, leased or operated by the Company or
any Subsidiary and arising out of any Environmental Law;
(b) The Company and each Subsidiary, any property currently owned or
operated by the Company or any Subsidiary and, to the Knowledge of The Limited
and Seller, any property currently leased by the Company or any Subsidiary, have
in full force and effect all material Permits necessary for their operations to
comply with all applicable Environmental Laws and are, and during the last five
years have been, in material compliance with the terms of such Permits and with
all other applicable Environmental Laws; and
(c) There has been no environmental audit, investigation, report, sampling
report, remediation report or other related report conducted within the past ten
years by or on behalf of The Limited, Seller, the Company or any Subsidiary or,
to the Knowledge of The Limited and Seller, by any governmental agency or other
third party of or related to the environmental condition of any property
formerly or currently owned, leased or operated by the Company or any Subsidiary
which has not been delivered or made available to Buyer prior to the date hereof
and listed on Section 3.17 of the Disclosure Schedule.
Section 3.18. Compliance with Laws and Court Orders. The Company and each
Subsidiary are, and at all times since January 1, 2000 have been, in compliance
in all material respects with all applicable Laws, and neither the Company nor
any Subsidiary has any basis to expect any notice, order or other written
communication from any governmental agency or instrumentality thereof alleging
any actual or potential material violation of or failure to comply with any Law.
Section 3.19. Intellectual Property. (a) Section 3.19 of the Disclosure
Schedule sets forth each material (1) registered trademark, service ▇▇▇▇ and
related application (the "Marks"), (2) internet domain name registration and
related application (the "Domain Names") and (3) license and permit issued or
granted by any Person relating to any of the foregoing; in each case owned,
leased, used or held by, granted to or licensed by the Company or any Subsidiary
as either licensor or licensee, together with all other interests therein
granted by the Company or any Subsidiary to any other Person and all agreements,
including but not limited to Liens, consents and coexistence or settlement
agreements, with respect to any of the foregoing to which the Company or any
Subsidiary is a party. The Company or one of its Subsidiaries are the sole
owners of or have the exclusive perpetual right to use without consideration,
all Intellectual Property, free and clear of any Lien. None of the Marks are
abandoned and all Marks are subsisting. The Intellectual Property is sufficient
for the continued conduct of the respective businesses of the Company and the
Subsidiaries after the Closing in the same manner as such businesses were
conducted prior to the Closing in all material respects. Neither the Company nor
any Subsidiary has granted or licensed to any Person any rights with respect to
any Intellectual Property or other
22
proprietary information of the Company or its Subsidiaries and no other Person
has any material rights in or to any Intellectual Property or other proprietary
information of the Company or its Subsidiaries (including, without limitation,
any rights to exploit in any manner any of such Intellectual Property, including
but not limited to, through marketing or distributing goods or services under
any of the Marks). The rights of the Company and the Subsidiaries in and to any
of the Intellectual Property will not be limited or otherwise affected by reason
of any of the transactions contemplated hereby.
(b) The list of Marks set forth in Section 3.19 of the Disclosure Schedule
sets forth: (1) the name of the owner of the ▇▇▇▇; (2) the jurisdictions by or
in which such ▇▇▇▇ has been issued or registered or in which an application for
such issuance or registration has been filed, (3) the registration or
application numbers, (4) the next action deadline and (5) a list of all
licenses, sublicenses and other agreements as to which the Company or any
Subsidiary is a party and pursuant to which any other Person is authorized to
use any ▇▇▇▇. None of the Intellectual Property is the subject of any
outstanding judgment, legal action, proceeding, injunction, order, decree or
agreement restricting the use thereof by the Company or any Subsidiary or
restricting the licensing thereof by the Company or any Subsidiary to any
Person. To the Knowledge of The Limited and Seller, no Intellectual Property has
been infringed, or challenged, or made the subject of an adverse claim or
threatened in any way. None of the Intellectual Property nor any services or
products manufactured, rendered or sold by the Company or any Subsidiary under
or incorporating the Intellectual Property infringe or violate, or, to the
Knowledge of The Limited and Seller, are alleged to materially infringe or
violate any trademark, patent, copyright, or other proprietary right of any
Person, including but not limited to any domain registrations, and neither the
Company nor any Subsidiary has received any notice of such infringement or
alleged infringement, violation or proceeding of any nature, whether judicial,
arbitral or otherwise, relating to any of the Intellectual Property. Under any
license, sublicense or other agreement as to which the Company or any Subsidiary
is a party and pursuant to which any other Person is authorized to use any Key
Trademark, each such Person authorized under any such license, sublicense or
agreement is a "related company" (as such term is defined under Sections 5 and
45 of the Trademark Act of 1946, as amended), and the Company and its
Subsidiaries, to the extent a party to such license, sublicense or agreement,
have at all times overseen such Person's use of the Key Trademark and the nature
and quality of the goods and services offered under such Key Trademark and no
such Key Trademark has been used in a manner that is "deceptive" (as such term
is used under Section 5 of the Trademark Act of 1946, as amended). As used
herein, "Key Trademark" means "Lane ▇▇▇▇▇▇," "▇▇▇▇▇▇▇" and "Cacique" and any
logos with respect to the foregoing.
(c) Except as would not be material, all personnel, including employees,
agents, consultants, and contractors, who have contributed to or participated in
the conception and development of Intellectual Property on behalf of the Company
or
23
any of its Subsidiaries either (1) have been part of a "work-for-hire"
arrangement or agreement with the Company or any of its Subsidiaries, in
accordance with applicable federal and state law, that has accorded to the
Company or any of its Subsidiaries, full, effective, exclusive, and original
ownership of all tangible and intangible property thereby arising, or (2) have
executed appropriate instruments of assignment in favor of the Company or any of
its Subsidiaries as assignee(s) that have conveyed to the Company or any of its
Subsidiaries full, effective, and exclusive ownership of all tangible and
intangible property thereby arising.
(d) Neither The Limited or any of its Affiliates, nor the Company or any
of its Subsidiaries, has, by agreement (written or oral), course of conduct or
otherwise, waived, modified or terminated any material rights in favor of the
Company or any of its Subsidiaries set forth in the Trademark License Agreement
dated August 20, 1993, as amended on December 9, 1996, February 18, 1998 and
July 9, 2001, among Lanco, Inc., Lernco, Inc., Limited Stores, Inc., Lane
▇▇▇▇▇▇, Inc., Lane ▇▇▇▇▇▇ Direct, Inc. and ▇▇▇▇▇▇ Direct, Inc., the Electronic
Media Trademark License Agreement dated August 20, 1993 among Lanco, Inc.,
Lernco, Inc., Limited Stores, Inc., Lane ▇▇▇▇▇▇, Inc., Lane ▇▇▇▇▇▇ Direct, Inc.
and ▇▇▇▇▇▇ Direct, Inc. or the Consumer Marketing Database Services Agreement
among ADS Alliance Data Systems, Inc., Intimate Brands, Inc. and The Limited,
Inc. dated September 1, 2000 (the "Database Services Agreement").
Section 3.20. Personal Property; Bank Accounts. (a) The Company and each
Subsidiary have good and marketable title to all of the material properties and
assets used by Company and each Subsidiary in the conduct of their respective
businesses (not including real property) free and clear of any Lien other than
Permitted Liens and Exceptions, and all material properties and assets owned or
leased by the Company or any Subsidiary are in the possession or under the
control of the Company or a Subsidiary and are, in the aggregate, in good
condition and repair, ordinary wear and tear excepted, are suitable for the
purposes for which they are being used and are of a condition, nature and
quantity sufficient for the conduct of the business of such entity. Together
with the services to be provided under the Services Agreement, the properties
and assets of the Company and the Subsidiaries are sufficient for the continued
conduct of their respective businesses after the Closing in substantially the
same manner as conducted prior to the Closing.
(b) Section 3.20 of the Disclosure Schedule contains a complete and
accurate list of each bank, checking, money market, investment or similar
account, excluding individual store deposit accounts (each, a "Company
Account"), owned by or used for the business and operations of the Company and
its Subsidiaries and each individual authorized to have access to and make
transactions under each Company Account.
Section 3.21. Suppliers. Section 3.21 of the Disclosure Schedule lists (a)
the names of the twenty suppliers and vendors from whom the Company and the
24
Subsidiaries made the most purchases during the most recently completed fiscal
year and the aggregate expenditures attributable to each in such year and (b)
each outstanding purchase order commitment to purchase inventory with any
supplier or vendor that is outstanding as of the second Business Day prior to
the date hereof, the products subject to such purchase order and the applicable
supplier or vendor. To the Knowledge of The Limited and Seller, the Company
and each Subsidiary enjoys good working relationships under all arrangements and
agreements with their current suppliers (including each of the suppliers listed
in clause (a) of this Section) sufficient to the normal operation of their
businesses.
Section 3.22. Labor Matters. (a) No application or petition for
certification of a collective bargaining agent is pending and none of the
employees of the Company or any Subsidiary is represented by any union or other
bargaining representative; (b) since January 1, 2000, no union has attempted to
organize any group of the Company's or any Subsidiary's employees, and, to the
Knowledge of The Limited and Seller, no group of the Company's or any
Subsidiary's employees has sought to organize themselves into a union or similar
organization for the purpose of collective bargaining; (c) since January 1,
2000, there has not been and there is not currently pending any material labor
arbitration or proceeding in respect of the grievance of any employee, any
application, charge or complaint filed by any employee or union with the
National Labor Relations Board or any comparable state or local agency, any
strike, slowdown, picketing or material work stoppage by any employees at any
facility of the Company or any Subsidiary, any lockout of any such employees or
any labor trouble or other labor-related controversy, occurrence or condition.
Section 3.23. Books and Records. True, complete and correct copies of the
certificates or articles of incorporation and bylaws of the Company and each
Subsidiary (or other comparable organizational documents) have been delivered or
made available to Buyer and such documents, in the form delivered to Buyer, are
in full force and effect as of the date hereof. The minute books of the Company
and each Subsidiary contain complete and accurate records of all meetings held
of, and corporate action taken by, the shareholders, the boards of directors and
each committee of the boards of directors of the Company and the Subsidiaries
and no meetings or actions of such shareholders or of any such board of
directors or committee have been held for which minutes or other appropriate
records have not been prepared and included in such minute books. Complete and
accurate copies, as of the date hereof, of all such minute books and stock
records have been made available to Buyer. The books and records of the Company
and each Subsidiary have been maintained in accordance with sound business
practices. The Company and each Subsidiary maintains internal accounting
controls which, in its reasonable judgment, provide reasonable assurance that:
(a) transactions are executed in accordance with management's authorization; and
(b) transactions are recorded as necessary to permit preparation of reliable
financial statements and to maintain accountability for earnings and assets.
25
Section 3.24. Finders' Fees. Except for Lazard Freres & Co., LLC, whose
fees will be paid by The Limited, there is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of Seller, The Limited, the Company or any Subsidiary which might be
entitled to any fee or commission in connection with the transactions
contemplated by this Agreement.
Section 3.25. Securities Matters. (a) The Limited and Seller acknowledge
that the shares of Stock Consideration and the shares of Adjustment Stock
Consideration if any (the "Parent Shares") have not been registered under the
1933 Act, on the grounds that the issuance thereof to Seller in connection with
the transactions contemplated in this Agreement is exempt from registration
pursuant to Section 4(2) of the 1933 Act, and that the reliance of Parent on
such exemption is predicated in part on the acknowledgements, representations
and warranties set forth in this Section 3.25. Any references to the Adjustment
Stock Consideration in this Section 3.25 are included for the convenience of the
parties and are not intended to limit the general applicability of Section
2.04(d)(ii).
(b) The Parent Shares will be acquired by Seller for investment for its
own account and not with a view to, or for sale in connection with, any
distribution thereof in violation of the 1933 Act.
(c) The Limited and Seller: (1) acknowledge that the Parent Shares to be
issued to Seller are not registered under the 1933 Act and may not be
transferred unless the Parent Shares are subsequently registered under the 1933
Act or an exemption from registration is available, and (2) are aware that
Parent is not obligated to register any sale, transfer or other disposition of
the Parent Shares except as contemplated by this Agreement.
(d) Seller (either alone or together with its advisors) has sufficient
knowledge and experience in financial and business matters so as to be capable
of evaluating the merits and risks of its investment in Parent Shares and is
capable of bearing the economic risks of such investment.
(e) The Limited and Seller acknowledge that the certificates representing
the Parent Shares will contain restrictive legends noting the restrictions on
transfer described in this Section 3.25 and in Section 5.10 and under federal
and applicable state securities laws, and that appropriate "stop-transfer"
instructions will be given to Parent's stock transfer agent. It is understood
that such legends and "stop-transfer" instructions will be removed at the time
and to the extent the Parent Shares are registered under the 1933 Act.
(f) The Limited and Seller are informed and sophisticated purchasers, and
have engaged expert advisors, experienced in the evaluation and purchase of
securities such as the Parent Shares as contemplated hereunder. The Limited and
Seller have undertaken such investigation as they have deemed necessary to
26
enable them to make an informed and intelligent decision with respect to the
execution, delivery and performance of the Transaction Documents. The Limited
and Seller acknowledge that Parent and its Affiliates have given The Limited and
Seller access to key employees, documents and facilities of Parent and its
subsidiaries. The Limited and Seller will undertake prior to Closing such
further investigation and request such additional documents and information as
they deem necessary. The Limited and Seller agree to accept the Stock
Consideration in the condition it is in on the Closing Date, and the Adjustment
Stock Consideration in the condition it is in on the Adjustment Closing Date,
based upon their own inspection, examination and determination with respect
thereto as to all matters, and without reliance upon any express or implied
representations or warranties of any nature, whether in writing, oral or
otherwise, made by or on behalf of or imputed to Parent or any of its
Affiliates, except as expressly set forth in this Agreement. Without limiting
the generality of the foregoing, The Limited and Seller acknowledge that Parent
and its Affiliates make no representation or warranty with respect to any
projections, estimates or budgets delivered to or made available to The Limited
and Seller of future revenues, future results of operations (or any component
thereof), future cash flows or future financial condition (or any component
thereof) of Parent and its subsidiaries or the future business and operations of
Parent and its subsidiaries or any other information or documents made available
to The Limited, Seller or their counsel, accountants or advisors with respect to
Parent and its subsidiaries or any of the foregoing business, assets,
liabilities or operations, except as expressly set forth in this Agreement.
Section 3.26. Guarantees. Appendix 6.05 sets forth a complete and accurate
list of each Financial Support Arrangement. The Limited has furnished Parent and
Buyer with true and correct copies of each such Financial Support Arrangement.
ARTICLE 4
Representations and Warranties of Parent and Buyer
Parent and Buyer each represent and warrant to The Limited and Seller, as
of the date hereof and as of the Closing, that:
Section 4.01. Corporate Existence and Power. Parent is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all necessary corporate power and
authority, and all material Permits, required to carry on its business as now
conducted, to own and lease assets which it owns and leases and to perform all
of its obligations under each agreement to which it is a party or by which it is
bound. Parent is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which its ownership of or leasing of
assets or properties or the
27
nature of its activities requires such qualification, except for those
jurisdictions in which the failure to be so qualified would not, individually or
in the aggregate, have, or be reasonably likely to have a material adverse
effect on the business, properties, assets, results of operations, prospects or
condition (financial or otherwise) of Parent and its subsidiaries, taken as a
whole, except any such effect resulting from (1) this Agreement or the
transactions specifically contemplated hereby, (2) changes or conditions in
either the women's apparel sector or retail sector generally or (3) changes or
conditions arising from economic, market, regulatory or political conditions
generally (a "Parent Material Adverse Effect"). Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Buyer is a wholly-owned subsidiary of Parent and
was formed solely for the purposes of engaging in the transactions contemplated
by this Agreement, and has engaged in no other business activities and has
conducted its operations only as contemplated hereby. As used in this Article 4
the term "subsidiary" shall mean any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at the time
directly or indirectly owned by the Parent.
Section 4.02. Corporate Authorization. The execution, delivery and
performance by each of Parent and Buyer of the Transaction Documents to which it
is a party and the consummation of the transactions contemplated thereby are
within the corporate powers and authority of each of Parent and Buyer and have
been duly authorized by all necessary corporate action on the part of Parent and
Buyer. To the extent a party thereto, each of the Transaction Documents
constitutes the legal, valid and binding obligation of Parent and Buyer, as
applicable, and is enforceable against each of Parent and Buyer, as applicable,
in accordance with its respective terms, (1) except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to or affecting creditors'
rights generally, including the effect of statutory and other laws concerning
fraudulent conveyances and preferential transfers, and (2) subject to the
limitations imposed by general equitable principles (regardless of whether such
enforceability is considered in a proceeding at law or in equity).
Section 4.03. Governmental Authorization. To the extent a party thereto,
the execution, delivery and performance by Parent and Buyer, as applicable, of
each of the Transaction Documents and the consummation of the transactions
contemplated thereby require no material action, consent or approval by or in
respect of, material filing with or material notice to, any governmental body,
agency or official other than (1) compliance with any applicable requirements of
the HSR Act; (2) compliance with any applicable requirements of the 1933 Act and
the 1934 Act; and (3) any required filings with or approvals from The Nasdaq
National Market.
28
Section 4.04. Noncontravention. The execution, delivery and performance by
Parent and Buyer, as applicable, of any of the Transaction Documents to which it
is a party and the consummation of the transactions contemplated thereby do not
and will not (1) violate or conflict with the certificate of incorporation or
bylaws (or other organizational documents) of Parent or Buyer, (2) assuming
compliance with the matters referred to in Section 4.03, contravene or conflict
with or constitute a violation of any provision of any Law binding upon or
applicable to Parent or Buyer, or (3) with or without the giving of notice or
the lapse of time, or both, constitute a default under or give rise to any right
of termination, cancellation or acceleration of any right or obligation of
Parent or Buyer, or to a loss of any benefit to which Parent or Buyer is
entitled under any provision of any agreement, contract or other instrument to
which Parent or Buyer is a party or by which either of them or their respective
properties or assets is bound, or give to others any rights (including rights of
termination, foreclosure, cancellation or acceleration) in or with respect to
any of their respective properties or assets except for any such default,
termination, cancellation, acceleration or loss that would not be material.
Section 4.05. Financing. Parent has received the commitment letter dated
May 31, 2001 from the signatories thereto, a true and correct copy of which is
set forth in Appendix 4.05 (the "Commitment Letter"). Upon satisfaction of the
conditions precedent set forth in the Commitment Letter, Buyer will have prior
to the Closing sufficient cash, available lines of credit or other sources of
immediately available funds necessary to enable it to make the Cash Payment at
Closing. Parent has no reason to believe that any of the conditions precedent
set forth in the Commitment Letter will not be satisfied prior to Closing.
Section 4.06. Purchase and Investment. Buyer is purchasing the Shares for
investment for its own account and not with a view to, or for sale in connection
with, any distribution thereof. Buyer (either alone or together with its
advisors) has sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its investment
in the Shares and is capable of bearing the economic risks of such investment.
Section 4.07. Litigation; Compliance with Laws. Except as disclosed in the
Parent Commission Reports, there are no claims, actions, suits, investigations
or proceedings (arbitration or otherwise) pending against, or to the knowledge
of Parent, threatened against or affecting, Parent or any subsidiary of Parent,
any of their respective properties or assets, or the transactions contemplated
by the Transaction Documents before any court or arbitrator or any governmental
body, agency or official where there is a reasonable possibility of a judgment
adverse to Parent or its subsidiaries which would result in a Parent Material
Adverse Effect or which in any manner challenges or seeks to prevent, enjoin,
alter or materially delay the transactions contemplated by this Agreement. To
the knowledge of Parent, there are no facts which could reasonably serve as a
basis for any such claim, action, suit, investigation or proceeding. There are
no material unsatisfied
29
judgments, penalties or awards against or affecting Parent or any subsidiary or
any of their businesses, properties or assets. Parent and its subsidiaries are
in compliance in all material respects with all applicable Laws, and neither
Parent nor any subsidiary of Parent has any basis to expect any notice, order or
other written communication from any governmental agency or instrumentality
thereof alleging any actual or potential material violation of or failure to
comply with any Law.
Section 4.08. Finders' Fees. Except for ▇.▇. ▇▇▇▇▇▇ Securities Inc., whose
fees will be paid by Parent, there is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of Parent or Buyer who might be entitled to any fee or commission from The
Limited or any of its Affiliates upon consummation of the transactions
contemplated by this Agreement.
Section 4.09. Inspections; No Other Representations. Parent and Buyer are
informed and sophisticated purchasers, and have engaged expert advisors,
experienced in the evaluation and purchase of companies such as the Company and
its Subsidiaries as contemplated hereunder. Parent and Buyer have undertaken
such investigation as they have deemed necessary to enable them to make an
informed and intelligent decision with respect to the execution, delivery and
performance of the Transaction Documents. Buyer and Parent acknowledge that The
Limited and its Affiliates have given Parent and Buyer access to key employees,
documents and facilities of the Company and its Subsidiaries and, to the extent
related to the Company or any Subsidiary, The Limited and its Affiliates. Parent
and Buyer will undertake prior to Closing such further investigation and request
such additional documents and information as they deem necessary. Buyer and
Parent agree to accept the Shares and the Company in the condition they are in
on the Closing Date based upon their own inspection, examination and
determination with respect thereto as to all matters, and without reliance upon
any express or implied representations or warranties of any nature, whether in
writing, oral or otherwise, made by or on behalf of or imputed to The Limited or
any of its Affiliates, except as expressly set forth in this Agreement. Without
limiting the generality of the foregoing, Parent and Buyer acknowledge that The
Limited and its Affiliates make no representation or warranty with respect to
any projections, estimates or budgets delivered to or made available to Parent
or Buyer of future revenues, future results of operations (or any component
thereof), future cash flows or future financial condition (or any component
thereof) of the Company and its Subsidiaries or the future business and
operations of the Company and its Subsidiaries or any other information or
documents made available to Buyer, Parent or their counsel, accountants or
advisors with respect to the Company, its Subsidiaries, The Limited, any of The
Limited's Affiliates or any of the foregoing business, assets, liabilities or
operations, except as expressly set forth in this Agreement.
30
Section 4.10. Commission Reports; Financial Information. (a) Since January
1, 2000, Parent has filed with the Securities and Exchange Commission (the
"Commission") all forms, statements, reports and documents required to be filed
by it under each of the 1933 Act and the 1934 Act (collectively, the "Parent
Commission Reports"). The Parent Commission Reports have been made available to
The Limited and Seller. The Parent Commission Reports (i) at the time filed,
complied in all material respects with the applicable requirements of the 1933
Act and the 1934 Act, as applicable, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such amending or superseding filing) contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b) Each of the financial statements (including, in each case, any related
notes) contained in the Parent Commission Reports complied as to form in all
material respects with the applicable published rules and regulations of the
Commission with respect thereto, was prepared in accordance with GAAP applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes to such financial statements or, in the case of unaudited
statements, as permitted by Regulation S-X promulgated by the Commission) and
include all adjustments, consisting only of normal accounting adjustments, that
the Parent reasonably considers necessary for a fair presentation of its
financial position at the respective dates and the results of its operations and
cash flows for the periods indicated. Except as disclosed in the Parent
Commission Reports filed with the Commission prior to the date hereof, since
February 3, 2001, taking into account the cumulative effect of all developments
and events since such date, there has not been any development or event that has
had a Parent Material Adverse Effect.
Section 4.11. Capitalization. The authorized capital stock of the Parent
as of the date hereof consists of 300,000,000 shares of common stock, $0.10 par
value per share, of which 102,042,492 shares were outstanding on April 27, 2001,
and 1,000,000 shares of preferred stock, $1.00 par value per share, of which
500,000 shares have been designated as Series A Junior Participating Preferred
Shares, none of which are outstanding. All issued and outstanding shares of
capital stock of Parent have been duly authorized and validly issued, are fully
paid and non-assessable and were issued in compliance with all applicable Laws
concerning the issuance of securities.
Section 4.12. Valid Issuance of Stock Consideration. The shares of Stock
Consideration, when issued in accordance with this Agreement, (a) will be duly
authorized, validly issued, fully paid and non-assessable, and (b) will be free
of any Liens other than as a result of any action by The Limited or its
Affiliates; provided, however, that the shares of Stock Consideration may be
subject to restrictions on transfer under applicable securities laws, under this
Agreement or under other Transaction Documents. The issuance of the shares of
Stock
31
Consideration is not and will not be subject to any preemptive rights or rights
of first refusal applicable to the Parent that have not been properly waived or
complied with.
ARTICLE 5
Covenants of Seller and the Limited
The Limited and Seller agree that:
Section 5.01. Conduct of The Company. From the date hereof until the
Closing Date, except as set forth in the Disclosure Schedule or as expressly
contemplated by any of the Transaction Documents, The Limited and Seller shall
cause the Company and its Subsidiaries to (1) conduct their respective
businesses solely in the ordinary course in a manner consistent with past
practice and in material compliance with all applicable Laws, Permits,
agreements and commitments, (2) use their reasonable efforts to preserve intact
their business relationships and goodwill with third parties and to keep
available the services of their present employees, (3) maintain their facilities
and assets in the same state of repair, order and condition as they were on the
date hereof, ordinary wear and tear excepted, and (4) maintain their corporate
existence and pay and discharge all debts, liabilities and obligations of the
Company and its Subsidiaries as they become due, other than debts that are
disputed in good faith. Without limiting the generality of the foregoing, from
the date hereof until the Closing Date, except as expressly contemplated by the
Transaction Documents, The Limited and Seller will not, and will cause the
Company and its Subsidiaries not to:
(a) knowingly take any action that would make any representation or
warranty of The Limited or Seller untrue as of the Closing;
(b) adopt or propose any change in its certificate of incorporation or
bylaws;
(c) merge or consolidate with any other Person or acquire a material
amount of assets from any other Person other than (1) pursuant to existing
contracts, agreements or commitments that are disclosed herein or in the
Disclosure Schedule and (2) the acquisition of inventory in the ordinary course
of business;
(d) sell, lease, license or otherwise dispose of any material assets or
property except (1) pursuant to existing contracts or commitments, or (2) for
the sale of inventory in the ordinary course of business or (3) for the sale,
lease, disposition or encumbrance of amounts of assets no longer used in the
ordinary course of business in amounts that are not material;
32
(e) make any material change in inventory policies or procedures,
operating policies or procedures, or advertising and promotion policies or
procedures;
(f) increase the rates of compensation or vacation or other benefits of
employees earning less than $75,000 per year, except (1) as required by any Law,
(2) in the ordinary course of business consistent with past practice or (3) as
required by any contract in effect on the date hereof;
(g) increase the rates of compensation or vacation or other benefits of
employees earning $75,000 per year or more, except (1) as required by any Law or
(2) as required by any contract in effect on the date hereof and identified in
the Disclosure Schedule;
(h) make any loan, advance or capital contribution to or investment in any
Person, except for travel, relocation and similar advances in the ordinary
course of business and in an amount less than $25,000 for any employee;
(i) incur, assume or guarantee any debt for borrowed money, other than
letters of credit incurred or entered into in the ordinary course of business;
(j) adopt any change in method of accounting or accounting practice except
as required by Law or GAAP;
(k) enter into any new lease or sublease of Real Property or terminate,
amend or cause or permit the extension of the term of any Lease, without first
consulting with and obtaining the consent of Buyer (which consent shall not
unreasonably be withheld, conditioned or delayed);
(l) enter into any contract with The Limited or any Affiliate of The
Limited; or
(m) enter into a binding agreement to do any of the foregoing.
Section 5.02. Cooperation On Certain Matters.
(a) Access to Information Prior to Closing. From the date hereof until the
Closing Date, The Limited and Seller will (1) give, and will cause the Company
and its Subsidiaries to give, Buyer and its counsel, financial advisors,
auditors and other authorized representatives, and Buyer's sources of funding
under the Commitment Letter (the "Banks"), reasonable access to the offices,
properties, books and records of the Company and its Subsidiaries and, to the
extent related primarily to the Company and its Subsidiaries, to the books and
records of The Limited and Seller, during normal business hours and upon
reasonable prior notice, (2) furnish, and will cause the Company and its
Subsidiaries to furnish, to Buyer and its counsel, financial advisors, auditors
and other authorized representatives, and to the Banks, such financial and
operating
33
data and other information relating to the Company and its Subsidiaries as such
Persons may reasonably request and (3) instruct the employees, counsel and
financial advisors of The Limited, Seller, the Company and the Subsidiaries to
cooperate with Buyer in its investigation of the Company and its Subsidiaries.
Any investigation pursuant to this Section 5.02(a) shall be conducted in such a
manner as not to interfere unreasonably with the conduct of the business of The
Limited or any of its Affiliates, the Company or any Subsidiary. Notwithstanding
the foregoing, Buyer shall not have access to personnel records relating to
individual performance or evaluation records, medical histories or other
information which in The Limited's good faith opinion the disclosure of which
could subject The Limited or any of its Affiliates, the Company or any
Subsidiary to risk of liability.
(b) Access to Information Following Closing. From and after the Closing
Date, The Limited and Seller will afford promptly to Parent and its Affiliates
and their counsel, auditors and other authorized representatives reasonable
access to their books of account, financial and other records, employees and
auditors to the extent they relate to the Company or its Subsidiaries and to the
extent necessary to permit Parent and its Affiliates to determine any matter
relating to their rights and obligations in connection with any audit,
investigation, dispute or litigation or any other reasonable business purpose
relating to the Company or its Subsidiaries or Parent's or any of its
Affiliate's rights or obligations under any of the Transaction Documents;
provided that any such access by Parent and its Affiliates and their counsel,
auditors and other authorized representatives shall not unreasonably interfere
with the conduct of the business of The Limited or any of its Affiliates.
(c) Litigation Cooperation. The Limited shall, and shall cause its
Affiliates to, use reasonable efforts to make available to Parent and its
Affiliates and their accountants, counsel, and other designated representatives,
upon written request, the officers, employees and representatives of The Limited
and its Affiliates as witnesses, and shall otherwise cooperate with Parent and
its Affiliates, and furnish or cause to be furnished such records, information
and testimony, and attend such conferences, discovery proceedings, hearings,
trials or appeals, in each case to the extent reasonably required in connection
with any legal, administrative or other proceeding arising out of the Company's
or any of its Subsidiaries' business and operations prior to the Closing Date in
which Parent or its Affiliates may from time to time be involved or otherwise
related to any of the Transaction Documents (other than with respect to
proceedings involving disputes between Parent and its Affiliates, on the one
hand, and The Limited and its Affiliates, on the other hand); provided that any
such cooperation shall not unreasonably interfere with the conduct of the
business of The Limited or any of its Affiliates.
(d) Cooperation on Tax Matters. The Limited shall furnish or cause to be
furnished to Parent, upon request, as promptly as practicable, such information
34
(including access to books and records) and assistance as is reasonably
necessary for the filing of any Return (including without limitation the Returns
specified in Sections 8.02(c), 8.02(d) and 8.02(e)), for the preparation for any
audit, and for the prosecution or defense of any claim, suit or proceeding
relating to any proposed Tax adjustment; provided that any such cooperation
shall not unreasonably interfere with the conduct of the business of The Limited
or any of its Affiliates. The Limited shall cooperate with Parent in the conduct
of any audit or other proceeding involving the Company or any Subsidiary for any
Tax purposes and shall execute and deliver such powers of attorney and other
documents as are necessary to carry out the intent of this subsection.
(e) Retention of Records. From and after the Closing Date, except as
otherwise required by law or agreed to in writing, The Limited and its
Affiliates shall retain all information and records relating to the businesses
of the Company and its Subsidiaries. In addition, The Limited and its Affiliates
shall retain all information and records relating to any matter as to which
Parent seeks or may seek indemnification from The Limited hereunder until final
resolution of the matter to which such information and records relate.
Notwithstanding the prior two sentences of this Section 5.02(e), The Limited and
its Affiliates may destroy or otherwise dispose of any such information and
records at any time, provided that, prior to such destruction or disposal, (1)
The Limited shall provide not less than 90 days' prior written notice to Parent,
specifying the information and records proposed to be destroyed or disposed of,
and (2) if Parent shall request in writing prior to the scheduled date for such
destruction or disposal that any of the information and records proposed to be
destroyed or disposed of be delivered to Parent, The Limited shall promptly
arrange for the delivery of such of the information and records as was
requested.
(f) Reimbursement. Parent and Buyer shall bear all reasonable out-of-
pocket costs and expenses of The Limited and its Affiliates (excluding general
overhead, salaries and employee benefits), upon presentation of invoices
therefor, which are reasonably incurred by The Limited and its Affiliates in
connection with the provision of information, witnesses or cooperation pursuant
to Sections 5.02(b)-(e).
Section 5.03. Maintenance of Insurance Policies. Prior to the Closing,
The Limited and its Affiliates will use reasonable efforts to maintain insurance
policies for the Company and its Subsidiaries and their assets, properties and
employees in an amount and scope consistent with any such insurance policies in
effect as of the date hereof. The Company and its Subsidiaries shall after the
Closing continue to have coverage under any such insurance policies in effect at
the Closing with respect to, but only with respect to, events occurring prior to
the Closing, and it is understood that the Company and its Subsidiaries shall
continue to be responsible for amounts (including deductibles) not covered by
such insurance policies, it being further understood that the provisions of this
Section
35
5.03 shall not obligate The Limited or any of its Affiliates to pay any money
with respect to any insurance policies after the Closing.
Section 5.04. Non-solicitation; Non-competition. (a) From, and until the
expiration of 18 months from the date of this Agreement, The Limited shall not,
and shall cause its Affiliates not to, without the prior written approval of
Buyer, directly or indirectly: (1) hire any person who, at any time on or after
the date of this Agreement, provides service as an employee of the Company or
any of its Subsidiaries and who during such time (x) is or was a store manager
or is or was employed at or above the level of district manager or (y) works or
worked in the home office of the Company and its Subsidiaries in Columbus, Ohio
and earns or earned an annual salary in excess of $70,000, (2) solicit for
employment any employee of Parent or any of its Affiliates with whom The
Limited, its Affiliates or its representatives had contact at any time during
the process of Parent considering, investigating, negotiating and consummating
the transactions contemplated by this Agreement, or (3) solicit for employment
any person who, at any time on or after the date of this Agreement, provides
service as an employee of the Company or any of its Subsidiaries; provided that
the foregoing restrictions on solicitation shall not prohibit solicitation
conducted through an independent employment or recruitment firm (so long as the
firm was not directed to solicit such person or the personnel of the Company or
its Subsidiaries generally) or as a result of the use of a general solicitation
(such as an advertisement) not specifically directed to employees of the Company
or its Subsidiaries.
(b) From, and until the fifth anniversary of, the Closing, The Limited
shall not, and shall cause its Affiliates not to, directly or indirectly: (1)
own, control, lease, operate or manage any retail store (including any "niche"
store, "store within a store" or outlet store) anywhere in the United States
(including, without limitation, internet web-sites accessible to persons in the
United States) which are focused primarily on the sale of Large Size Women's
Clothing (such stores and web-sites are referred to herein as "Facilities"), (2)
distribute anywhere in the world any mail order catalogue focused primarily on
the sale of Large Size Women's Clothing, or (3) be or become a stockholder,
partner, member or owner of, or give financial or other assistance to, any
Person owning, controlling, leasing, operating or managing any Facility or
engaging in any activity referred to in clause (2) of this Section 5.04(b),
except that The Limited may maintain, at or below its current level, its equity
investment in United Retail Group, Inc. (as such investment may be modified as a
result of a reclassification, recapitalization, stock split or combination,
exchange or adjustment of shares, stock dividend, merger, business combination
or similar transaction), it being understood that in no event shall The Limited
be obligated to dispose of any interests if The Limited's ownership interest
increases other than as a result of The Limited's acquisition of any equity
interests or other actions taken to implement the relevant transaction (for
example, no such disposition shall be required if The Limited's percentage
ownership interest increases as a result of a United Retail Group, Inc. share
repurchase effected without The Limited's assistance). "Large Size
36
Women's Clothing" means (1) apparel (including intimate apparel) of sizes 14 and
above and any other extra large size (which, as of the date hereof, generally is
designated by an "X," "XX" or larger size) and (2) brassieres of sizes 42 and
above. It is understood that the restrictions set forth in the immediately
preceding sentence will not apply to any Person that acquires (by acquisition,
merger or otherwise) an interest in The Limited or any of its Affiliates so long
as such Person was not an Affiliate of The Limited at any time prior to the
entry into an agreement for such an acquisition, merger or other acquisitive
transaction (it being further understood that, following the aforementioned
acquisition, merger or other acquisitive transaction, such restrictions will
continue to apply to The Limited and any Person who was an Affiliate of The
Limited at any time prior to such acquisition, merger or other transaction).
(c) Notwithstanding the foregoing provisions of Section 5.04(b), nothing
herein shall prohibit The Limited or any of its Affiliates from: (i) owning up
to 5% of the outstanding shares entitled to vote generally in the election of
directors or similar persons of any Person engaged in the activities described
in clauses (1), (2) or (3) of Section 5.04(b) above; (ii) acquiring any business
that includes operations the conduct of which by The Limited or its Affiliates
would otherwise violate clauses (1), (2) or (3) of Section 5.04(b) above,
provided that (x) such operations do not, in the aggregate, represent more than
15% of the consolidated assets or contribute more than 15% of the consolidated
revenues of the overall business so acquired, measured at the time of acquiring
such business (based on the most recent financial statements of the business so
acquired) and (y) the revenues of such operations after their acquisition by The
Limited or any of its Affiliates do not increase by more than 5% per annum;
(iii) acquiring any business that includes operations the conduct of which by
The Limited or its Affiliates would otherwise violate clauses (1), (2) or (3) of
Section 5.04(b) above, provided that (x) such operations, in the aggregate,
represent more than 15% but less than 40% of the consolidated assets or
contribute more than 15% but less than 40% of the consolidated revenues of the
overall business so acquired, measured at the time of acquiring such business
(based on the most recent financial statements of the business so acquired), and
(y) The Limited or its Affiliate, as applicable, promptly following such
acquisition announces publicly its intention to dispose of such operations
within 24 months of such acquisition (and completes such disposition within such
time period); or (iv) owning, controlling, leasing, operating or managing any
department store or similar general merchandise store.
(d) The Limited and Seller acknowledge that in the event of a breach of
any of the noncompetition or nonsolicitation covenants contained in this Section
5.04, the damage or imminent damage to the value and the goodwill of the Company
and its Subsidiaries shall be inestimable and that therefore any remedy at law
or in damages would be inadequate. Accordingly, following at least 30 days prior
written notice to The Limited and a reasonable opportunity to cure, Parent and
Buyer shall, in addition to damages incurred by reason of any such breach, be
entitled to injunctive relief, including specific performance, with
37
respect to any such breach in any court of competent jurisdiction against The
Limited or any Affiliate of The Limited, without proof of actual damages and
without the requirement of posting a bond or other security. The invalidity or
unenforceability of any provision of this Section 5.04 shall not affect the
validity or enforceability of any other provision of this Section 5.04, which
shall remain in full force and effect, and in the event that any provision of
this Section 5.04 shall be determined to be invalid or unenforceable for any
reason, such provision shall be construed by limiting it so as to be valid and
enforceable to the fullest extent compatible with and possible under applicable
law. The Limited shall be liable for any breach of this Section 5.04 by its
Affiliates.
Section 5.05. Lease Consents; Commitment Letter. (a) From and after the
date hereof (including after the Closing Date), The Limited and Seller shall use
their reasonable best efforts to obtain (and cooperate with Parent and Buyer in
obtaining) any consents, approvals and authorizations required under each Lease
as a result of the transactions contemplated in this Agreement, in each case
without payment of any penalty, premium or other amounts to any other party to
such Lease. It is understood and agreed that in no event shall The Limited or
any Affiliate or the Company or a Subsidiary or Seller be obligated to pay any
money to any Person to obtain any such consent, approval or authorization.
(b) From and after the date hereof, The Limited and Seller shall cooperate
with Parent and Buyer in satisfying the conditions precedent set forth in the
Commitment Letter.
Section 5.06. No Shop. Until such time, if any, as this Agreement is
terminated pursuant to Article 12, The Limited and Seller will not, and will
cause their Affiliates, the Company and each Subsidiary not to, directly or
indirectly, solicit, initiate or encourage any inquiries or proposals from,
discuss or negotiate with, or provide any non-public information to, any Person
(other than Parent and Buyer) relating to any transaction involving the sale of
the business or assets of the Company or any Subsidiary (other than sales of
assets in the ordinary course of business as permitted by Section 5.01 hereof),
or any of the capital stock of the Company or any Subsidiary, or any merger,
consolidation, business combination or similar transaction involving the Company
or any Subsidiary. To the extent applicable, The Limited and Seller shall
immediately cease any such discussions or negotiations currently in progress and
the provision of any information regarding any such transaction.
Section 5.07. Future Auditor Consent. The Limited shall cooperate
reasonably with Parent in connection with (a) Parent's effort to obtain any
required consent from PriceWaterhouseCoopers in connection with the inclusion of
the Audited Financial Statements in any filings by Parent under the 1933 Act or
1934 Act and (b) Parent's effort to prepare financial statements for any period
commencing on or after the date of the Balance Sheet for inclusion by Parent in
any filing under the 1933 Act or the 1934 Act.
38
Section 5.08. Mast Purchase Orders. (a) From and after the Closing, The
Limited shall cause Mast Industries, Inc. ("Mast") to fulfill its obligations to
the Company and any Subsidiary for any purchase orders in effect on the Closing
Date.
(b) From and after the Closing, The Limited shall cause Mast to continue
to supply the Company and its Subsidiaries with merchandise and supplies through
the Spring 2002 retail season in a manner consistent with the past practices
between Mast on the one hand, and the Company and its Subsidiaries, on the other
hand, prior to the date of this Agreement.
Section 5.09. Trademarks, etc. Prior to the Closing, The Limited shall
cause (a) its Affiliates to execute an assignment agreement in form and
substance reasonably satisfactory to Buyer transferring to the Company or any
Subsidiary identified by Buyer all such Affiliate's rights in and to the Domain
Names and Marks identified on Section 3.19 to the Disclosure Schedule (and the
goodwill associated therewith) owned by, or held in the name of, such Affiliate
(b) its Affiliates to take such further action as Buyer may reasonably request
in connection with such Affiliate's performance under such assignment agreement
and (c) Caciqueco, Inc. to execute and file with all necessary governmental
entities any and all forms, notices or other filings required to change the name
of Caciqueco, Inc. to a name that does not use the word "Cacique" or any
derivation thereof.
Section 5.10. Restricted Securities. Seller shall not sell, assign,
transfer or otherwise dispose of any of the shares of Stock Consideration or any
interest therein unless such sale, transfer or disposition has been registered
under the 1933 Act or unless an exemption from registration is available. In
addition, for a period of one year after the Closing, Seller shall not, directly
or indirectly, sell, assign, pledge, hypothecate or otherwise dispose of or
encumber any or all of the shares of Stock Consideration issued to Seller
pursuant to the terms of this Agreement or any interest therein without Parent's
prior written consent.
Section 5.11. Standstill. For a period of two years from the Closing,
neither The Limited nor any of its Affiliates shall, directly or indirectly,
without the prior written consent of Parent: (a) in any manner acquire, agree to
acquire, or make any proposal to acquire any voting securities of Parent, or any
rights or options to acquire that ownership, except pursuant to a stock split,
stock dividend, rights offering, recapitalization, reclassification or similar
transaction, (b) propose to enter into any merger or business combination
involving Parent or to purchase a material portion of the assets of Parent, (c)
make, or in any way participate in, any solicitation of "proxies" (as such term
is used in Regulation 14A under the 1934 Act), to vote or seek to advise or
influence any person with respect to the voting of any securities of Parent, (d)
form, join, or in any way participate in a group (within the meaning of Section
13(d) of the ▇▇▇▇ ▇▇▇) with respect to any voting securities of Parent, except
any such arrangement solely among The
39
Limited and its Affiliates, (e) otherwise act, alone or in concert with others,
to seek to control the management, Board of Directors, or policies of Parent,
except as insofar as the enforcement of rights arising under any of the
Transaction Documents (which The Limited and its Affiliates are free to do) may
be deemed to effect the management or policies of Parent or its Board of
Directors, or (f) publicly disclose any intention, plan or arrangement
inconsistent with any of the foregoing. Notwithstanding anything to the contrary
contained in this Section, nothing shall prohibit The Limited and its Affiliates
from maintaining its ownership of the shares of Stock Consideration.
Section 5.12. Purchase Order Information. At the Closing, The Limited
shall provide the Buyer with a list setting forth (1) each outstanding purchase
order commitment for inventory with any supplier or vendor that is outstanding
as of the second Business Day prior to the Closing and (2) the products subject
to such purchase order and the applicable supplier or vendor.
Section 5.13. Confidentiality. All information provided or made available
to The Limited, Seller or any of their Representatives (as such term is defined
in the Confidentiality Agreement dated as of June 18, 2001 between Parent and
The Limited (the "Limited Confidentiality Agreement")) will be subject to the
Limited Confidentiality Agreement, which agreement shall remain in full force
and effect until and following the Closing.
Section 5.14. Litigation Update. From the date hereof until the Closing
Date, The Limited agrees to promptly notify Parent of any claims, actions, suits
or investigations (arbitration or otherwise) commenced against, or to the
Knowledge of The Limited and Seller, threatened, against the Company or any
Subsidiary, The Limited or Seller, or any of their Affiliates, before any court
or arbitrator or any governmental body or agency which in any manner challenges
or seeks to prevent, enjoin, alter or materially delay the transactions
contemplated by this Agreement.
ARTICLE 6
Covenants of Parent and Buyer
Parent and Buyer agree that:
Section 6.01. Conduct of the Parent and Buyer. From the date hereof until
the Closing Date, except as expressly contemplated by the Transaction Documents,
Parent and Buyer shall (1) conduct their respective businesses in the ordinary
course in a manner consistent with past practice and in material compliance with
all applicable Laws, Permits, agreements and commitments, (2) use their
reasonable best efforts to preserve intact their business relationships and
goodwill with third parties and to keep available the services of their present
employees, (3) maintain their facilities and assets in the same state of repair,
order
40
and condition as they were on the date hereof, ordinary wear and tear excepted,
and (4) maintain their corporate existence and pay and discharge all of their
debts, liabilities and obligations as they become due, other than debts that are
disputed in good faith. Without limiting the generality of the foregoing, from
the date hereof until the Closing Date, Parent and Buyer will not:
(a) knowingly take any action that would make any representation or
warranty of Parent or Buyer untrue as of the Closing;
(b) adopt or propose any change in their certificate of incorporations or
bylaws;
(c) merge or consolidate with any other Person (other than an Affiliate) or
acquire a material amount of assets from any other Person (other than an
Affiliate) other than the acquisition of inventory and other assets in the
ordinary course of business;
(d) adopt any change in method of accounting or accounting practice except
as required by Law or GAAP; or
(e) enter into any binding agreement to do any of the foregoing.
Section 6.02. Confidentiality. All information provided or made available
to Parent, Buyer or any of their Representatives (as such term is defined in the
Confidentiality Agreement) will be subject to the Confidentiality Agreement
dated February 14, 2001 between Parent and The Limited (the "Confidentiality
Agreement"), which agreement shall remain in full force and effect until the
Closing and shall thereupon terminate except that the disclosure, but not the
use (to the extent necessary to operate the Company and the Subsidiaries in the
ordinary course) of any Confidential Information (as defined in the
Confidentiality Agreement) to the extent related solely to The Limited or its
Affiliates shall continue to be governed by the terms of the Confidentiality
Agreement.
Section 6.03. Cooperation on Certain Matters.
(a) Access to Information Prior to Closing. From the date hereof until the
Closing Date, Parent and Buyer will (1) give The Limited and its Affiliates and
their counsel, financial advisors, auditors and other authorized representatives
reasonable access to their offices, properties, books and records, during normal
business hours and upon reasonable prior notice, (2) furnish to The Limited and
its Affiliates and their counsel, financial advisors, auditors and other
authorized representatives, such financial and operating data and other
information relating the Parent and its Affiliates as such Persons may
reasonably request and (3) instruct their employees, counsel and financial
advisors to cooperate with The Limited and its Affiliates in their investigation
of Parent and Buyer. Any
41
investigation pursuant to this Section 6.03(a) shall be conducted in such a
manner as not to interfere unreasonably with the conduct of the business of
Parent or its Affiliates. Notwithstanding the foregoing, The Limited and its
Affiliates shall not have access to personnel records.
(b) Access to Information Following Closing. From and after the Closing
Date, Parent and Buyer will afford, and will cause the Company and each
Subsidiary to afford, promptly to The Limited and its Affiliates and their
counsel, auditors and other authorized representatives reasonable access to
their books of account, financial and other records, employees and auditors to
the extent they relate to the Company or its Subsidiaries and to the extent
necessary to permit The Limited and its Affiliates to determine any matter
relating to their rights and obligations in connection with any audit,
investigation, dispute or litigation or any other reasonable business purpose
relating to the Company or its Subsidiaries or The Limited's or any of its
Affiliate's rights or obligations under any of the Transaction Documents;
provided that any such access by The Limited and its Affiliates and their
counsel, auditors and other authorized representatives shall not unreasonably
interfere with the conduct of the business of Parent, its Affiliates, the
Company or any of its Subsidiaries.
(c) Litigation Cooperation. Parent shall, and shall cause its Affiliates
to, use reasonable efforts to make available to The Limited and its Affiliates
and their accountants, counsel, and other designated representatives, upon
written request, the officers, employees and representatives of Parent and its
Affiliates as witnesses, and shall otherwise cooperate with The Limited and its
Affiliates, and furnish or cause to be furnished such records, information and
testimony, and attend such conferences, discovery proceedings, hearings, trials
or appeals, in each case to the extent reasonably required in connection with
any legal, administrative or other proceeding arising out of the Company's or
any of its Subsidiaries' business and operations prior to the Closing Date in
which The Limited or any of its Affiliates may from time to time be involved or
otherwise related to any of the Transaction Documents (other than with respect
to proceedings involving disputes between Parent and its Affiliates, on the one
hand, and The Limited and its Affiliates, on the other hand); provided, however,
that The Limited shall use its reasonable best efforts to pursue the Retained
Landlord Claims in a manner that does not involve Parent, the Company or any of
their Affiliates, or their respective directors, officers, employees or
representatives (including, without limitation, to the extent feasible, pursuing
litigation or similar proceedings in the name of The Limited or one of its
Affiliates); and provided further that any such cooperation by Parent and its
Affiliates shall not unreasonably interfere with the conduct of the business of
Parent or any of its Affiliates. Without limiting the generality of the
foregoing, it is understood that, notwithstanding use of its best efforts as
contemplated above, if The Limited is unable to pursue the Retained Landlord
Claims without involving Parent or its Affiliates, Parent and its Affiliates
will execute all complaints and other court or
42
similar papers reasonably requested in order to assist The Limited and its
Affiliates in their efforts to pursue the Retained Landlord Claims.
(d) Cooperation on Tax Matters. Parent shall furnish or cause to be
furnished to The Limited, upon request, as promptly as practicable, such
information (including access to books and records) and assistance as is
reasonably necessary for the filing of any Return (including without limitation
the Returns specified in Section 8.02(c), 8.02(d) and 8.02(e)), for the
preparation for any audit, and for the prosecution or defense of any claim, suit
or proceeding relating to any proposed Tax adjustment; provided that any such
cooperation by Parent and its Affiliates shall not unreasonably interfere with
the conduct of the business of Parent or any of its Affiliates. Parent shall
cooperate with The Limited in the conduct of any audit or other proceeding
involving the Company or any Subsidiary for any Tax purposes and shall execute
and deliver such powers of attorney and other documents as are necessary to
carry out the intent of this subsection.
(e) Retention of Records. From and after the Closing Date, except as
otherwise required by law or agreed to in writing, Parent and its Affiliates
shall, and shall cause the Company and its Subsidiaries to, retain all
information and records (including, without limitation, records relating to
Taxes) relating to the businesses of the Company and its Subsidiaries that were
in the possession of the Company or any Subsidiary as of the Closing Date and,
with respect to Taxes, all records related to Returns for Straddle Periods. In
addition, Parent and its Affiliates shall retain all information and records
relating to the Retained Litigation, the Retained Landlord Claims, the Credit
Card Litigation or any matter as to which The Limited seeks or may seek
indemnification from Parent hereunder, in each case until final resolution of
the matter to which such information and records relate. Notwithstanding the
prior two sentences of this Section 6.03(e), Parent and its Affiliates may
destroy or otherwise dispose of any such information and records at any time,
provided that, prior to such destruction or disposal, (1) Parent shall provide
not less than 90 days' prior written notice to The Limited, specifying the
information and records proposed to be destroyed or disposed of, and (2) if The
Limited shall request in writing prior to the scheduled date for such
destruction or disposal that any of the information and records proposed to be
destroyed or disposed of be delivered to The Limited, Parent shall promptly
arrange for the delivery of such of the information and records as was
requested.
(f) Reimbursement. The Limited shall bear all reasonable out-of-pocket
costs and expenses of Parent and its Affiliates (excluding general overhead,
salaries and employee benefits), upon presentation of invoices therefor, which
are reasonably incurred by Parent and its Affiliates in connection with the
provision of information, witnesses or cooperation pursuant to Sections
6.03(b)-(e).
43
Section 6.04. Insurance. Buyer agrees that, subject to Section 5.03, all
insurance policies covering the Company or any Subsidiary maintained by or on
behalf of The Limited or its Affiliates shall be terminated following the
Closing and that, after the Closing, The Limited and its Affiliates shall have
no obligation of any kind to maintain any form of insurance covering the Company
or any Subsidiary.
Section 6.05. Guarantees. (a) From and after the date hereof (including
after the Closing Date), Parent and Buyer shall use their reasonable best
efforts to cause the unconditional release with effect at the Closing Date of
The Limited and its Affiliates from their obligations under any guarantees
(including, without limitation, guarantees of lease obligations), letters of
credit, surety bonds and other financial support arrangements maintained by The
Limited or any of its Affiliates in connection with the business or operations
of the Company or any of its Subsidiaries and listed on Appendix 6.05 hereto
(collectively, the "Financial Support Arrangements"). It is understood and
agreed that in no event shall Parent, Buyer, the Company or any Subsidiary be
obligated to pay any money to any Person to obtain any such unconditional
release.
(b) If, from and after the Closing, (1) any amounts are drawn or required
to be paid under any Financial Support Arrangement by The Limited or any of its
Affiliates in connection with events or other matters occurring after the
Closing Date or (2) The Limited or any of its Affiliates is required to pay any
fees, costs or expenses under the terms of any Financial Support Arrangement,
then The Limited shall promptly provide Buyer with written evidence of the
underlying payment obligation. Upon receipt of such notice, Parent shall
promptly satisfy such payment obligation on behalf of The Limited or its
Affiliates, or, if The Limited or any of its Affiliates has made such payments
itself, Parent shall reimburse The Limited for such amounts promptly after
receipt from The Limited of proof of payment.
Section 6.06. Outstanding Checks; Reimbursement of Payments by The Limited.
(a) The Limited shall ensure that checks written but not cashed before the
Closing in respect of obligations of the Company or any of its Subsidiaries
shall be paid.
(b) It is the intent of the parties that, except as contemplated by any of
the Transaction Documents, all invoices relating to the Company or any of its
Subsidiaries received after the Closing be paid by the Company or a Subsidiary
(as opposed to The Limited or any of its Affiliates) and, in furtherance of such
intent, The Limited will use its reasonable commercial efforts to promptly
forward to the Company all invoices relating to the Company or any of its
Subsidiaries which are received by The Limited or any of its Affiliates after
the Closing ("Post-Closing Invoices"). It is understood, however, that there may
be circumstances in which, notwithstanding the use of such reasonable commercial
efforts, The Limited or one of its Affiliates will pay a Post-Closing Invoice on
44
behalf of the Company or one of its Subsidiaries. It is agreed that Parent shall
reimburse The Limited, or an Affiliate of The Limited, as The Limited may
designate, for all amounts paid by The Limited or any of its Affiliates in
respect of Post-Closing Invoices within ten (10) days after receipt from The
Limited of a notice thereof accompanied by written evidence of the underlying
payment (each, a "Payment Date"). If the Parent fails to pay any payment within
thirty (30) days of the relevant Payment Date, Parent shall be obligated to pay,
in addition to the amount due on such Payment Date, interest on such amount at
the Reference Rate, plus 3% per annum compounded monthly from the relevant
Payment Date through the date of payment. Notwithstanding the foregoing, Parent
shall have no obligation to reimburse The Limited or any of its Affiliates for
any payment made by The Limited or any of its Affiliates in respect of any Post-
Closing Invoice if Parent or any of its Affiliates paid the same Post-Closing
Invoice.
Section 6.07. Non-solicitation. From, and until the expiration of 18 months
from the date of this Agreement, Parent shall not, and shall cause its
Affiliates not to, without the prior written approval of The Limited, directly
or indirectly solicit for employment any person who is an employee of The
Limited or any of its Affiliates with whom the Parent, its Affiliates or its
representatives had contact at any time during the process of Parent
considering, investigating, negotiating and consummating the transactions
contemplated by this Agreement; provided that the foregoing shall not prohibit
solicitation conducted through an independent employment or recruitment firm (so
long as the firm was not directed to solicit such person or the personnel of The
Limited or its Affiliates generally) or as a result of the use of a general
solicitation (such as an advertisement) not specifically directed to employees
of The Limited or its Affiliates.
Section 6.08. Proceeds from Credit Card Litigation. Parent and Buyer agree
that The Limited shall be entitled to all proceeds, awards, judgments and
settlements which are attributable to The Limited, any of its Affiliates, the
Company or any of its Subsidiaries in connection with the matters described in
Appendix 6.08 (the "Credit Card Litigation"). The Limited, at its expense, shall
control the prosecution of the Credit Card Litigation.
Section 6.09. Reverse Break-up Fee. If on or prior to the Termination Date
(A) the condition in Section 10.02(c) hereof shall not have been satisfied, (B)
all other conditions to Parent's and Buyer's obligation to consummate the
Closing have been satisfied or are then capable of being satisfied (other than
any failure of a condition to be satisfied or capable of being satisfied for
reasons that are directly or indirectly a consequence of the failure to be
satisfied of the condition set forth in Section 10.02(c)) and (C) Parent and
Buyer do not proceed with the Closing, then Parent shall promptly pay to the
Seller as a non-refundable fee an aggregate of $8,500,000 in immediately
available funds by wire transfer to an account designated by Seller, such
payment to be made not more than two Business Days following any termination of
this Agreement. The $8,500,000 fee referred to in the preceding sentence shall
be payable as liquidated damages, and
45
neither The Limited, Seller nor any of their Affiliates shall be entitled to any
further remedy for the failure of the condition in Section 10.02(c) to be
satisfied.
Section 6.10. Shelf Registration Statement. (a) Parent shall prepare and
file with the Commission a shelf registration statement (as amended and
supplemented from time to time, the "Shelf Registration Statement") with respect
to the Registrable Securities (as such term is defined in the Registration
Agreement) in accordance with Rule 415 under the 1933 Act and will use its
reasonable best efforts to cause such Shelf Registration Statement to be
declared effective no later than 11 months from the Closing Date and to keep
such Shelf Registration Statement continuously effective and in compliance with
the 1933 Act and usable for resale or hedging of the Registrable Securities in
accordance with the terms of the Registration Agreement. If the Shelf
Registration Statement has been declared effective prior to the issuance of
shares of Parent Common Stock constituting the Adjustment Stock Consideration,
Parent shall prepare and file with the Commission a post-effective amendment to
such Shelf Registration, and use its reasonable best efforts to have such post-
effective amendment declared effective as promptly as possible, to include such
shares of Parent Common Stock within the scope of the Shelf Registration
Statement.
(b) Listing. Parent shall use its reasonable best efforts to cause the
Stock Consideration to be listed on the Nasdaq National Market at the Closing,
subject to official notice of issuance.
Section 6.11. Litigation Update. From the date hereof until the Closing
Date, Parent agrees to promptly notify The Limited of any claims, actions, suits
or investigations (arbitration or otherwise) commenced against, or to the
knowledge of Parent or Buyer, threatened, against, Parent or Buyer or any of
their Affiliates, before any court or arbitrator or any governmental body or
agency which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated by this Agreement.
ARTICLE 7
Covenants of Parent, Buyer, The Limited and Seller
Parent, Buyer, The Limited and Seller agree that:
Section 7.01. Further Assurances. Subject to the terms and conditions of
this Agreement, Parent, Buyer, The Limited and Seller will use their reasonable
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary or desirable to consummate the transactions
contemplated by any of the Transaction Documents. The Limited, Seller, Parent
and Buyer shall execute and deliver, and The Limited and Seller, prior to the
Closing, and Parent and Buyer, after the Closing, shall cause the Company and
each Subsidiary to execute and deliver, such other documents, certificates,
agreements and other
46
writings and to take such other actions as may be necessary or appropriate in
order to consummate or implement expeditiously the transactions contemplated by
any of the Transaction Documents.
Section 7.02. Certain Filings. The Limited, Seller, Parent and Buyer shall
cooperate with one another (1) in determining whether any action by or in
respect of, or filing with, any governmental body, agency, official or authority
is required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material contracts, in connection with the
consummation of the transactions contemplated by any of the Transaction
Documents and (2) subject to the terms and conditions of this Agreement, in
taking such actions or making any such filings, furnishing information required
in connection therewith and seeking timely to obtain any such actions, consents,
approvals or waivers.
Section 7.03. Public Announcements. The parties shall consult with each
other before issuing any press release or making any public statement with
respect to any Transaction Document or the transactions contemplated thereby and
will not issue any such press release or make any such public statement prior to
such consultation. Notwithstanding the foregoing, except as provided by Section
6.02, no provision of this Agreement shall relieve Parent or any of its
Representatives (as such term is defined in the Confidentiality Agreement) from
any of its obligations under the Confidentiality Agreement.
Section 7.04. HSR Filings. The parties shall promptly make the filing
required by the HSR Act.
Section 7.05. Transition Services. At the Closing, the parties will enter
into a Transition Services Agreement (the "Services Agreement"), the form of
which is attached as Exhibit A.
Section 7.06. Store Leases Agreement. At the Closing, the parties will
enter into a Store Leases Agreement (the "Store Leases Agreement"), the form of
which is attached as Exhibit B.
Section 7.07. Intentionally Omitted.
Section 7.08. Headquarters and Distribution Center Lease. At the Closing,
the parties thereto will enter into a lease with respect to the headquarters and
distribution facilities of the Company (the "HQ Lease"), the form of which is
attached as Exhibit D.
Section 7.09. Registration Agreement. At the Closing, the parties will
enter into a Registration Agreement (the "Registration Agreement"), the form of
which is attached as Exhibit E.
47
Section 7.10. Access and Waiver Agreement. At the Closing, the parties
thereto will enter into an Access and Waiver Agreement (the "Access and Waiver
Agreement"), the form of which is attached as Exhibit F.
Section 7.11. Covenant Agreement. At the Closing, the parties thereto will
enter into a Covenant Agreement (the "Covenant Agreement"), the form of which is
attached as Exhibit G.
Section 7.12. Master Sublease. At the Closing, the parties thereto will
enter into a Master Sublease (the "Master Sublease"), the form of which is
attached as Exhibit H.
Section 7.13. Cancellation of Related Party Contracts. Except as
contemplated by any of the Transaction Documents, all Related Party Agreements
shall be cancelled as of the Closing Date.
Section 7.14. Intercompany Accounts. Except as contemplated by any of
the Transaction Documents, (1) all intercompany accounts payable by The Limited
or any of its Affiliates, on the one hand, to the Company or any of its
Subsidiaries, on the other hand, shall, immediately prior to the Closing, be
distributed by the Company to The Limited as a dividend, and (2) all
intercompany accounts payable by the Company or any of its Subsidiaries, on the
one hand, to The Limited or any of its Affiliates, on the other hand, shall,
immediately prior to Closing, be contributed by The Limited to the capital of
the Company.
Section 7.15. Mutual Release. (a) Effective immediately prior to the
Closing, The Limited hereby irrevocably waives, releases and discharges the
Company and its Subsidiaries from any and all liabilities and obligations to The
Limited and its Affiliates of any kind or nature whatsoever (including, without
limitation, in respect of rights of contribution or indemnification), in each
case whether absolute or contingent, liquidated or unliquidated, and whether
arising under any agreement or understanding, or the articles, bylaws, or other
constitutive documents of the Company or any of its Subsidiaries or otherwise at
law or equity. The foregoing waiver, release and discharge shall not apply in
respect of any liability or obligation arising under (1) any of the Transaction
Documents (including, without limitation, indemnification obligations arising
under Article 8 or Article 11 of this Agreement) or (2) any agreement entered
into on or after the Closing Date.
(b) At the Closing, Buyer shall cause the Company to irrevocably waive,
release and discharge The Limited and its Affiliates from any and all
liabilities and obligations to the Company and its Subsidiaries of any kind or
nature whatsoever (including, without limitation, in respect of rights of
contribution or indemnification), in each case whether absolute or contingent,
liquidated or unliquidated, and whether arising under any agreement or
48
understanding, or the articles, bylaws, or other constitutive documents of the
Company or any of its Subsidiaries or otherwise at law or equity. The foregoing
waiver, release and discharge shall not apply in respect of any liability or
obligation arising under (1) any of the Transaction Documents (including,
without limitation, indemnification obligations arising under Article 8 or
Article 11 of this Agreement) or (2) any agreement entered into on or after the
Closing Date.
Section 7.16. Certain Contracts. (a) On behalf of itself and its
Affiliates, effective as of the Closing, The Limited forever releases, and
irrevocably assigns to Buyer, any and all rights that The Limited or any of its
Affiliates have (whether as a third party beneficiary or otherwise) in, to and
under any agreement, contract or commitment to which the Company or any
Subsidiary is a party or is otherwise bound to the extent that such rights
relate solely to (1) the Company or any Subsidiary or (2) the properties,
assets, rights or business of the Company or any Subsidiary. If the assignment
to the Company or any Subsidiary of such rights is not permitted under any such
agreement, contract or commitment, The Limited shall, and shall cause its
Affiliates to, use its reasonable best efforts to pass through to the Company
and its Subsidiaries the benefits associated with such rights, and exercise such
rights pursuant to the reasonable instructions of the Company or its
Subsidiaries. Parent and Buyer shall cause the Company and its Subsidiaries, to
assume, satisfy and discharge all of the obligations of The Limited and its
Affiliates and the Company and the Subsidiaries (1) arising under or in
connection with any agreement, contract or commitment assigned to the Company or
any Subsidiary pursuant to this Section 7.16 or (2) in connection with any
rights or benefits passed through to the Company or any Subsidiary pursuant to
this Section 7.16, in each case to the extent that such obligations relate to
the rights assigned or benefits passed through to the Company or any Subsidiary
pursuant to this Section 7.16.
(b) Notwithstanding the provisions of clause (a) of this Section 7.16,
with respect to the Database Marketing Agreement, the parties agree as follows:
(1) upon the request of Parent, and subject to the written approval of ADS
Alliance Data Systems, Inc., The Limited shall enter into an amendment to the
Database Marketing Agreement such that the Company shall no longer be involved
in any manner in the matters addressed by that Agreement and all proprietary
information of the Company utilized in connection with the Database Marketing
Agreement ("Company Proprietary Information") shall be delivered to the Company
and (2) until the Database Marketing Agreement is amended as contemplated by
clause (1), (x) The Limited shall pass through the benefits of the Database
Marketing Agreement (insofar relating to the Company Proprietary Information) to
the Company to the extent reasonably requested by the Company, (y) the Company
shall make to ADS Alliance Data Systems, Inc. all payments allocated under that
Agreement to the Company or any of its Subsidiaries and (z) no Company
Proprietary Information shall be used by The Limited or any of its Affiliates in
any manner in connection with any business or operation of The
49
Limited or any of its Affiliates and all such information shall be deemed to be
subject to the provisions of the Limited Confidentiality Agreement.
(c) It is further understood and agreed that (i) effective at Closing, the
Company and its Subsidiaries shall assign to The Limited all of their rights to
pursue claims for overpayments in respect of any of the Leases to the extent,
but only to the extent, such overpayments relate to payments made prior to the
Closing in respect of periods prior to the Closing (the "Retained Landlord
Claims") and (ii) at and after the Closing, the Company and its Subsidiaries
shall execute such additional written assignments or other agreements as The
Limited shall reasonably request to implement or evidence the assignment of the
Retained Landlord Claims. Without limiting the generality of the foregoing, it
is understood and agreed that The Limited (i) at its expense, shall control the
pursuit of any and all Retained Landlord Claims and shall be entitled to pursue
and control the prosecution of litigation or similar proceedings in respect of
any such Claim and (ii) shall be entitled to all proceeds, awards, judgments and
settlements in respect of any Retained Landlord Claims; provided that if, in
connection with the pursuit of a Retained Landlord Claim, it is determined that
rent, additional rent or percentage rent (however characterized) due and payable
prior to the Closing in respect of the relevant lease was not paid in full prior
to the Closing (a "Delinquent Payment"), The Limited shall be responsible for
such Delinquent Payment.
Section 7.17. Financing Statements. It is understood that Parent's lenders
under the credit and security arrangements to be entered into by Parent in
connection with the Closing intend to file the UCC-1 financing statements
required by such arrangements prior to the Closing. The Limited agrees to cause
the Company to cooperate in connection with the filing of such financing
statements insofar as they relate to the assets of the Company or any of its
Subsidiaries (including by executing such financing statements or authorizations
therefor); provided that, concurrently with the execution of these financing
statements by the Company or a Subsidiary, Parent's lenders simultaneously
deliver effective termination statements (and hold under escrow arrangements
satisfactory to The Limited) for such UCC-1 financing statements and agree in
writing (in a manner satisfactory to The Limited) that The Limited shall be
entitled to file such termination statements on October 1, 2001 if the Closing
has not been consummated on or prior to September 30, 2001.
Section 7.18 Store No. 2. From and after the date hereof (including
after the Closing if the construction referred to in this Section 7.18 is not
completed by such time), The Limited will continue to work in good faith to
complete any construction necessary to ensure that the Store No. 2 building
satisfies all applicable legal requirements (determined in light of the current
use of the Store No. 2 building), with respect to structural, health and safety
and similar matters (as such legal requirements are in effect as of the Closing
Date, and taking into account all "grandfather" and similar provisions) and
during such construction
50
shall provide reasonable access thereto to Parent's engineers and other
representatives. The Limited will be entitled to control the administration of
the construction process and, in doing so, will act in a manner intended to
complete the construction as promptly as possible at the same standards of
workmanship and quality as it employs for its own stores while attempting to
minimize disruption and cost, all as if The Limited were the owner of, and
responsible for, Store No. 2. The Company shall be responsible for all such
construction costs up to $998,000, and The Limited shall be responsible for any
such costs in excess of such budgeted costs. It is understood that any such
costs for which the Company is responsible that are capitalized on the Closing
Statement of Net Tangible Assets shall reduce the Company's obligations to make
payments after the Closing pursuant to this Section 7.18 on a dollar-for-dollar
basis. It is understood and agreed that the agreements set forth in this Section
7.18 are agreements between Parent and The Limited only and should be considered
agreements independent of, and not as modifying or increasing in any respect any
obligation of any Person under, the lease of the Store No. 2 building.
ARTICLE 8
Tax Matters
Section 8.01. Tax Representations. (a) The Limited and Seller represent and
warrant to Parent and Buyer as of the date hereof that, except as set forth in
the Balance Sheet (including the notes thereto) or in Section 8.01 of the
Disclosure Schedule, (1) all Tax returns, statements, reports and forms
(collectively, "Returns") that are material and have been or are required to be
filed with any Taxing Authority by, or with respect to, the Company or any
Subsidiary (including Returns of any Limited Tax Group of which the Company or
any Subsidiary is a member (a "Target Group")) on or before the Closing Date
(taking into account any duly obtained extensions) have been, or will be, timely
filed, (2) the Company and the Subsidiaries (or, in the case of a Return of a
Target Group, each member of such group) have timely paid in all material
respects all Taxes shown as due and payable on the Returns that have been filed,
or on subsequent assessments and no other material Taxes are payable by the
Target Group with respect to items or periods covered by such Returns (whether
or not shown or reportable on such Returns), (3) the Returns that have been
filed are true, correct and complete in all material respects, (4) there are no
current extensions of time within which to file any material Returns required to
be filed by or on behalf of members of any Target Group, (5) there are no Liens
with respect to Taxes existing, threatened or pending on any of the assets of
the Company or any Subsidiary, except Permitted Liens and Exceptions and (6)
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 Tax. The Limited and Seller further represent that neither the Company
nor any Subsidiary is a party to any agreement, contract, arrangement or plan
that has
51
resulted, or could result separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the Code or
any similar provision of applicable foreign, state or local law.
(b) As of February 3, 2001, no member of any Target Group has participated
in an international boycott as defined in Code Section 999. None of the assets
of the Company or any of its Subsidiaries are "tax-exempt use property" within
the meaning of Section 168(h) of the Code, and neither the Company nor any of
its Subsidiaries has benefited from the issuance of bonds, the interest of which
is tax-exempt pursuant to Section 103(a) of the Code. Except as otherwise set
forth in Section 8.01 of the Disclosure Schedule, the books and records of the
Company and the Subsidiaries are sufficient to prove the correctness in all
material respects of all Returns for open tax years.
(c) The Limited represents that it has filed a consolidated federal income
tax return with the Company and the Subsidiaries for the taxable year
immediately preceding the current taxable year (provided, however, that the
Company and LBH, Inc. both were formed after the close of the taxable year
immediately preceding the current taxable year, and thus were not included in
The Limited's consolidated federal income tax return for such year, but will be
included (for the period ending on the Closing Date) in The Limited's
consolidated federal income tax return for the current taxable year) and that
The Limited is eligible to make an election under Section 338(h)(10) of the Code
(and any comparable election under state, local or foreign tax law) with respect
to the Company.
(d) Except as set forth on Section 8.01 of the Disclosure Schedule, there
are no outstanding rulings of, or requests for rulings with, any Tax Authority
addressed to the Company that are, or if issued would be, binding on the
Company.
Section 8.02. Tax Covenants. (a) Parent and The Limited agree to make a
timely, effective and irrevocable election under Section 338(h)(10) of the Code
and under any comparable statutes in any other jurisdiction with respect to the
Company and each of its Subsidiaries (the "Section 338(h)(10) Election"), and to
file such election in accordance with applicable regulations. The Section
338(h)(10) Election shall properly reflect the Price Allocation (as hereinafter
defined). Within 90 days after the Closing Date, Parent shall deliver to The
Limited a statement (the "Allocation Statement") allocating the ADSP (as such
term is defined in Treasury Regulations Section 1.338-4) of the assets of the
Company and its Subsidiaries in accordance with the Treasury regulations
promulgated under Section 338(h)(10). If within 30 days after receipt of the
Allocation Statement The Limited notifies Parent in writing that in The
Limited's judgment, the allocation of one or more items reflected in the
Allocation Statement is not a reasonable allocation, Parent and The Limited will
use their reasonable best efforts to resolve such dispute. If Parent and The
Limited fail to
52
resolve such dispute within 30 days, then: (1) Parent and The Limited within 5
days after such 30-day period expires shall select a nationally recognized
accounting firm which is reasonably acceptable to Parent and The Limited and
which has no material relationship with Parent or The Limited (the "Accounting
Referee"); (2) the Accounting Referee shall determine whether the allocation was
reasonable and, if not reasonable, shall appropriately revise the Allocation
Statement; and (3) the costs, fees and expenses of the Accounting Referee shall
be borne equally by Parent and The Limited. If The Limited does not respond
within 30 days, or upon resolution of the disputed items, the allocation
reflected on the Allocation Statement (as such may have been adjusted) shall be
the "Price Allocation" and shall be binding on the parties hereto. The Limited
and Parent agree to act, and cause their Affiliates to act, in accordance with
the Price Allocation in the preparation, filing and audit of any Return.
(b) Parent and Buyer covenant that they will not and will not cause or
permit the Company, any Subsidiary or any Affiliate of Buyer to (1) take any
action on the Closing Date other than in the ordinary course of business,
including but not limited to the distribution of any dividend or the
effectuation of any redemption, that could give rise to any Tax liability or
reduce any Tax Asset of The Limited, Seller or any Limited Tax Group or give
rise to any loss of The Limited, Seller or any Limited Tax Group, or (2) make
any election or deemed election under Section 338 of the Code other than the
Section 338(h)(10) Election, or (3) make (other than the Section 338(h)(10)
Election) or change any Tax election, amend any Return or take any Tax position
on any Return, take any action, omit to take any action or enter into any
transaction, merger or restructuring that ipso facto results in any increase in
any Tax liability or any reduction of any Tax Asset of The Limited, Seller or
any Limited Tax Group. Notwithstanding Section 8.04(a), Buyer and Parent agree
that The Limited and its Affiliates are to have no liability for any Tax
resulting from any action referred to in the preceding sentence of the Company,
any Subsidiary, Buyer, Parent or any Affiliate of Parent, and agree to indemnify
and hold harmless The Limited and its Affiliates against any such Tax and any
liabilities, costs, expenses (including, without limitation, reasonable expenses
of investigation and attorney's fees and expenses), losses, damages assessments,
settlements or judgments arising out of or incident to the imposition,
assessment or assertion of any such Tax. The Limited agrees to give prompt
notice to Buyer of the assertion of any claim, or the commencement of any action
or proceeding, in respect of which indemnity may be sought under this Section
8.02(b).
(c) The Limited shall prepare (in a manner that complies with its
obligations under Section 8.02(a)) and timely file (1) all Returns of any Target
Group and (2) all separate Returns required to be filed by the Company or any
Subsidiary for Pre-Closing Tax Periods (other than Pre-Closing Tax Periods
described in clause (2) of the definition of such term). To the extent such an
election is available under applicable law, The Limited may, at its option,
elect to allocate items of the Company and the Subsidiaries in accordance with
Treasury
53
Regulation Section 1.1502-76(b)(2)(ii) or 1.1502-76(b)(2)(iii) (or any
corresponding provision of state, local or foreign law relating to a Combined
Tax of a Limited Tax Group) for purposes of filing a Limited Tax Group's Return,
and if The Limited so elects, then The Limited shall allocate the items of the
Company and the Subsidiaries in accordance with the applicable election. Parent
shall, and shall cause its Affiliates, the Company and the Subsidiaries to (1)
cooperate in the making of, and take all steps necessary to assure the
effectiveness of, any election described in the preceding sentence (it being
understood that Parent will cause the Company, each Subsidiary and the parent of
the consolidated group (if any) of which the Company and the Subsidiaries are
members following the Closing to sign the statement described in Treasury
Regulation Section 1.1502- 76(b)(2)(ii)(D) and any similar statement required
under state, local or foreign law), (2) provide any information and records
reasonably requested by The Limited for purposes of preparing the Returns of The
Limited Tax Group in accordance with any such election and (3) file the Returns
of Parent, Parent's Affiliates, the Company and the Subsidiaries in accordance
with any allocation of items made by The Limited in connection with any such
election.
(d) The Limited shall (1) prepare (in a manner that complies with its
obligations under Section 8.02(a)) and timely file all Returns with respect to
Indemnified Taxes required to be filed by the Company or any Subsidiary for
Straddle Periods, (2) prepare such Returns in a manner consistent with past
practice and without a change of any election or any accounting method, and (3)
submit to Parent such Returns (together with any accompanying schedules,
statements and, to the extent requested by Parent, supporting documentation) at
least 30 days prior to the due date for such Return (except with respect to
Returns relating to estimated Tax payments, which shall be provided to Parent at
least 7 days prior to the due date for such Return). Parent shall (1) provide
The Limited such information as The Limited may reasonably require in the
preparation of such Returns, (2) pay to The Limited the portion of the Taxes due
with respect to such Returns which is not payable by The Limited pursuant to
Section 8.04, at least 3 days prior to the due date of the payment relating to
such Return and (3) cause the appropriate person or persons to execute such
Returns.
(e) Parent shall (1) prepare (in a manner that complies with its
obligations under Section 8.02(a)) and timely file all separate Returns required
to be filed by the Company or any Subsidiary for Straddle Periods (other than
Returns with respect to Indemnified Taxes covered by Section 8.02(d)), (2)
prepare such Returns in a manner consistent with past practice and without a
change of any election or any accounting method, (3) submit to The Limited such
Returns (together with any accompanying schedules, statements and, to the extent
requested by The Limited, supporting documentation) at least 30 days prior to
the due date for such Return and (4) prior to filing, make any changes to the
Returns requested by The Limited within 15 days following delivery of such
Returns to
54
The Limited if Parent consents to such changes (such consent not to be
unreasonably withheld, conditioned or delayed).
(f) Parent shall promptly pay or cause to be paid to The Limited all
refunds of Indemnified Taxes and interest thereon received by Buyer, Parent, any
Affiliate of Parent, the Company, or any Subsidiary from a Taxing Authority that
are attributable to Indemnified Taxes paid by The Limited, Seller, the Company
or any Subsidiary (or any predecessor or Affiliate of The Limited) with respect
to any Pre-Closing Tax Period. If, in lieu of receiving a refund for Indemnified
Taxes with respect to a Pre-Closing Tax Period, Parent (i) is required by a
Taxing Authority to reduce a Tax liability or increase a Tax Asset, Parent shall
pay or cause to be paid to The Limited the amount of such reduction or increase,
provided that such reduction or increase shall be calculated on the same basis
as Tax benefits related to Tax Allowances pursuant to Section 8.04(e) and, in
the event of a dispute between Parent and The Limited regarding the calculation
of the amount of such reduction or increase, Parent and The Limited shall
resolve such dispute by appointing an Accounting Referee in accordance with the
provisions of Section 8.04(e), and (ii) elects to reduce a Tax liability or
increase a Tax Asset, Parent shall pay or cause to be paid to The Limited the
amount of such reduction or increase.
(g) All transfer, documentary, sales, use, stamp, registration and other
such Taxes and fees (including any penalties and interest) incurred in
connection with transactions contemplated by this Agreement (including any real
property transfer Tax and any similar Tax) (all such Taxes, excluding Other
Taxes (as defined below), "Transfer Taxes") shall be paid by the party having
liability therefor under applicable law (or, if both Parent or one of its
Affiliates, on one hand, and The Limited or one of its Affiliates, on the other
hand, have liability under applicable law, then 50% of such Tax shall be paid by
Parent and the remaining 50% shall be paid by The Limited), and such party (or,
in the case of Taxes paid by both Parent and The Limited, both parties) will
file all necessary Returns and other documentation with respect to all such
Taxes and fees, and, if required by applicable law, the other party will, and
will cause its Affiliates to, join in the execution of any such Returns and
other documentation; provided, that Parent, on one hand, and The Limited, on the
other hand, will each bear 50% of the economic burden of any Transfer Tax and of
the expenses of preparing and filing all necessary Transfer Tax returns and
other documentation, and The Limited and Parent shall make all such payments to
one another as are necessary to achieve such allocation of such economic burden;
and provided further, that a reasonable period of time in advance of paying any
Transfer Tax or filing any related return or other documentation, the parties
will consult with one another in good faith in order to agree whether the
payment of such Transfer Tax or filing of such return or other documentation is
required under applicable law. Notwithstanding any other provision of this
Agreement, Parent and its Affiliates shall be liable for and bear the entire
economic burden of any Taxes or other payments to be made to a governmental
authority as a result of the transactions
55
contemplated by this Agreement for the purpose of having the Parent, any of its
Affiliates, the Company or any Subsidiary qualify to do business in a
jurisdiction, be authorized to collect sales tax, receive applicable vendors' or
other licenses, or receive other, similar authorizations, licenses,
qualifications or permissions ("Other Taxes"). The provisions of this Section
8.02(g), and no other provision (including Section 8.04), will govern the
allocation between the parties of the economic burden of Transfer Taxes and
Other Taxes.
Section 8.03. Tax Sharing. Any and all existing Tax sharing, Tax indemnity,
Tax allocation agreements or arrangements between the Company or any Subsidiary
and any member of any Limited Tax Group shall be terminated as of the Closing
Date. After such date neither the Company, any Subsidiary, The Limited nor any
Affiliate of The Limited shall have any further rights or liabilities
thereunder. This Agreement shall be the sole Tax sharing agreement relating to
the Company or any Subsidiary for all Pre-Closing Tax Periods and Straddle
Periods.
Section 8.04. Indemnification by The Limited. (a) The Limited hereby
indemnifies Parent and Buyer against and agrees to hold them harmless on an
after-Tax basis as provided in Section 8.04(e) from any (1) Indemnified Tax of
the Company or any Subsidiary or any Target Group relating to a Pre-Closing Tax
Period, (2) any Indemnified Tax (other than Transfer Taxes and Other Taxes,
which are governed by Section 8.02(g)) resulting from the Section 338(h)(10)
Election including any state, local or foreign Indemnified Tax attributable to
an election under the state, local, or foreign law similar to the election
available under Section 338(h)(10) (including, for avoidance of doubt, (i) any
Federal Tax or Combined Tax for which the Company or any Subsidiary has
liability under Treasury Regulation Section 1.1502-6 or a corresponding
provision of state, local or foreign law, which Indemnified Tax results from the
Section 338(h)(10) Election and (ii) any liability for an Indemnified Tax which
results from the Section 338(h)(10) Election, to extent such Election is made
under a state, local or foreign law) and (3) liabilities, costs and expenses
(including, without limitation, reasonable expenses of investigation and
attorneys' fees and expenses) arising out of or incident to the imposition,
assessment or assertion of any Indemnified Tax described in (1) or (2),
including those liabilities, costs and expenses incurred in the contest in good
faith in appropriate proceedings relating to the imposition, assessment or
assertion of any such Indemnified Tax, in each case incurred or suffered by
Buyer, Parent any of their Affiliates or, effective upon the Closing, the
Company or any Subsidiary (the sum of (1), (2) and (3) being referred to as a
"Tax Loss"). Notwithstanding any other provision of this Agreement, this Section
8.04 provides the exclusive remedy for Parent's, Buyer's and their Affiliates'
(and, after the Closing, the Company's and its Subsidiaries') recovery of any
Tax Loss from The Limited and its Affiliates.
(b) For purposes of this Section 8.04, in the case of any Indemnified Tax,
that is payable for a Straddle Period, the portion of such Indemnified Tax
56
related to the portion of such Straddle Period ending on the Closing Date shall
(x) in the case of any Indemnified Tax that is based on or related to income, be
deemed equal to the amount which would be payable if the relevant period ended
on the Closing Date, (y) in the case of any Indemnified Tax that is a sales or
use tax, be determined based on a closing of the books, and (z) in the case of
any Indemnified Tax that is a personal property tax, be determined using a pro
rata method based on the number of days in each portion of the Straddle Period.
All determinations necessary to give effect to the foregoing allocations shall
be made in a manner that is consistent with any election described in the second
sentence of Section 8.02(c) and with the prior practice of the Company and the
Subsidiaries.
(c) Any payment by The Limited pursuant to this Section 8.04 shall be made
not later than 30 days after receipt by The Limited of written notice from Buyer
stating that any Tax Loss has been paid by Buyer, any of its Affiliates or
former Affiliates or, effective upon the Closing, the Company or any Subsidiary
and the amount thereof and of the indemnity payment requested.
(d) If any claim or demand for Indemnified Taxes in respect of which
indemnity may be sought pursuant to this Section 8.04 is asserted against
Parent, Buyer, any of their Affiliates or, effective upon the Closing, the
Company or any Subsidiary, Buyer shall notify The Limited of such claim or
demand within 10 days of receipt thereof, or such earlier time that would allow
The Limited to timely respond to such claim or demand, and shall give The
Limited such information with respect thereto as The Limited may reasonably
request. The Limited may discharge, at any time, its indemnification obligation
under this Section 8.04 by paying to Parent the amount of the applicable Tax
Loss, calculated on the date of such payment. The Limited shall assume and
control, and Parent and Buyer shall take all steps reasonably requested by The
Limited in order to fully effectuate The Limited's assumption and control of,
the conduct of any contest or proceeding (including, without limitation, a Tax
audit) relating to Federal Taxes, Combined Taxes or any other Taxes for which
indemnification may be sought from The Limited under this Section 8.04. Parent
shall have the right, but not the duty, to participate in such contest or
proceeding at its own expense. The Limited shall not be liable under this
Section 8.04 for any amount arising out of a contest or proceeding of which The
Limited was not notified as required under this Section 8.04(d) to the extent
that the failure to so notify The Limited materially prejudiced The Limited.
(e) If The Limited's indemnification obligations under this Section 8.04
or Section 11.02 arise in respect of an adjustment that makes allowable to
Parent, Buyer, any of their Affiliates or, effective upon the Closing, the
Company or any Subsidiary any deduction, amortization, exclusion from income or
other allowance (a "Tax Allowance") that would not, but for such adjustment, be
allowable, (x) the party or parties entitled to the Tax Allowance shall claim
such Tax Allowance to the maximum extent possible and (y) Parent shall pay to
The
57
Limited the Tax benefit received by the party or parties entitled to the Tax
Allowance from the use of such Tax Allowance, net of all Tax costs resulting
from the payment of the indemnification obligations. The net Tax benefit
received from the use of the portion of a Tax Allowance that is used in the
taxable year in which the related indemnification payment is made, or in an
earlier taxable year, shall be considered equal to the excess of (i) the amount
of Taxes that would have been payable (or of the Tax refund that would have been
receivable) by the party or parties entitled to the Tax Allowance, in the
absence of such Tax Allowance and any Tax increase or other Tax adjustment that
arises as a result of The Limited's indemnification obligation, the payment
thereof or the events creating such obligation, for such taxable year over (ii)
the amount of Taxes actually payable (or of the Tax refund actually receivable)
by, or taken into account in determining any adjustment arising on audit of, the
party or parties entitled to the Tax Allowance for such taxable year. The net
Tax benefit received shall take into account, among other things, a reasonable
assumption regarding the risk of disallowance of a Tax Allowance on audit and
with respect to the use of the portion of a Tax Allowance that is not used
either in the taxable year in which the related indemnification payment is made
or, in an earlier taxable year, such amount shall be determined by (i)
multiplying such portion of the Tax Allowance by the highest corporate Tax rate
applicable to the party or parties entitled to the Tax Allowance in the absence
of such Tax Allowance or, in the case of a credit 100%, (ii) using a discount
rate equal to the mid-term applicable federal rate in effect at that time, (iii)
using reasonable assumptions regarding the taxable year or years in which the
party or parties entitled to the Tax Allowance will utilize such portion of the
Tax Allowance and (iv) taking into account on a basis consistent with clauses
(i) through (iii) of this sentence any Tax increase or other Tax adjustments
that arise as a result of The Limited's indemnification obligation, the payment
thereof or the events creating such obligation. In the event that The Limited
and Parent are unable to agree on the amount of any Tax benefit attributable to
any Tax Allowance, The Limited and Parent shall engage an Accounting Referee to
determine the amount of the Tax benefit. The Accounting Referee (x) shall be
chosen within 10 days of the date on which the need to choose it arises and (y)
shall determine the amount of the Tax benefit within 30 days of having the item
referred to it. The decision of the Accounting Referee shall be final and
binding upon The Limited and Parent. Parent shall pay the amount of the Tax
benefit so determined by the Accounting Referee to The Limited within 15 days of
the date on which the Accounting Referee has made its determination. The costs,
fees and expenses of the Accounting Referee shall be borne equally by The
Limited and Parent.
58
ARTICLE 9
Employee Benefits
Section 9.01. Employee Benefits. (a) The following terms, as used herein,
having the following meanings:
"Benefit Arrangement" means each material employment, severance,
continuation pay, termination pay, layoff, or other similar written contract,
arrangement or policy and each written plan or arrangement providing for health,
medical, life or other welfare benefit insurance coverage (including any
insured, self-insured or other arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, holiday, dependent care
assistance, education or vacation benefits, retirement benefits or deferred
compensation, profit-sharing, bonuses, stock options, stock purchase, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (1) is not an Employee Plan, (2) is or
has been entered into, maintained, administered or contributed to, as the case
may be, by The Limited, any of its Affiliates, the Company or any Subsidiary and
(3) covers any Company Employee.
"Company Employee" means each individual who is a current or former
employee of the Company or any of its Subsidiaries but shall not include any
individual who, on the Closing Date, is employed, or performing services, at the
Distribution Center (as such term is defined in the Services Agreement).
"Employee Plan" means each material "employee benefit plan," as such term
is defined in Section 3(3) of ERISA, which (1) is subject to any provision of
ERISA, (2) is or has been entered into, maintained, administered or contributed
to, as the case may be, by The Limited, any of its Affiliates or the Company or
any Subsidiary and (3) covers any Company Employee.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" of any entity means any other entity which, together with
such entity, would be treated as a single employer under Section 414 of the
Code.
"Vested Options" means those Company Employee Options that, immediately
prior to the Closing Date, are exercisable by the holder thereof.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
Accelerated Options 9.07
59
Term
Buyer's Welfare Benefit Plans 9.03
Company Employee Options 9.07
Covered Employee 9.03
Defined Benefit Plan 9.02
HIPAA 9.02
Multiemployer Plan 9.02
Savings and Retirement Plan 9.04
SRDCP 9.05
Successor Plan 9.04
Section 9.02. ERISA Representations. The Limited and Seller represent and
warrant to Parent and Buyer that:
(a) Section 9.02(a) of the Disclosure Schedule sets forth each Employee
Plan. With respect to each such Employee Plan, The Limited has furnished or made
available to Buyer and/or Parent a true and complete copy of the plan document
and any associated trust agreement, the most current summary plan description
(and any summary of material modifications thereto), the most recently filed
Form 5500 (and any schedules attached thereto), and the most recent Internal
Revenue Service determination letter, as applicable, of each such Plan. Each
Employee Plan has been maintained in compliance with its terms and with the
requirements prescribed by any and all applicable statutes, orders, rules and
regulations, including but not limited to ERISA and the Code.
(b) Section 9.02(b) of the Disclosure Schedule sets forth each Benefit
Arrangement. The Limited has furnished or made available to Buyer and/or Parent
true and complete copies of each such Benefit Arrangement and the most current
summary (if any) distributed to Company Employees of each such Benefit
Arrangement. Each Benefit Arrangement has been maintained in compliance with its
terms and with the requirements prescribed by any and all applicable Laws.
(c) The Internal Revenue Service has issued a favorable determination
letter with respect to each Employee Plan that is intended to qualify under
Section 401(a) of the Code, and no event has occurred before or after the date
of such letter that would disqualify such Employee Plan.
(d) The Limited, the Company and/or the Subsidiaries have each made full
payment of all amounts each is required, under applicable Law or the terms of
each Employee Plan and Benefit Arrangement, to have contributed thereto before
the Closing Date (including any employee salary reduction contributions
described in Section 125 or Section 401(k) of the Code) for all periods through
and including the close of the last plan year ending prior to the Closing Date,
or proper accruals for such contributions have been made and are reflected on
the Company's Balance Sheet and books and records. The Limited, the Company
60
and/or the Subsidiaries will pay such contributions to the Employee Plans and
the Benefit Arrangements in respect of benefits payable, or otherwise made
available, to the Company Employees for the period beginning immediately after
the close of such last plan year and ending on the Closing Date, or, if any such
contributions will not be due prior to the Closing Date, adequate provision for
reserves therefor shall be made on the Closing Statement of Net Tangible Assets.
(e) Neither The Limited, the Company nor any Subsidiary has within the
past six years made any contributions (or has been obligated to make any
contributions) to a "Multiemployer Plan," as defined in Section 3(37) of ERISA
or to a "Defined Benefit Plan," as defined in Section 3(35) of ERISA. Neither
The Limited, the Company nor any Subsidiary has any outstanding liability with
respect to a Multiemployer Plan or a Defined Benefit Plan.
(f) There are no plans that provide (or will provide) medical, life
insurance or death benefits with respect to former employees (including
retirees) of the Company, other than benefits that are required to be provided
pursuant to Section 4980B of the Code or state Law continuation coverage rights.
(g) There are no inquiries, proceedings, claims, or lawsuits which have
been asserted, instituted, or threatened by the Internal Revenue Service, the
Department of Labor, the Equal Employment Opportunity Commission, or any
participant, beneficiary, or any other person or entity involving any aspect of
any Employee Plan or Benefit Arrangement (other than routine benefit claims).
(h) There is not now, and has never been, any material violation of the
Code or ERISA with respect to the filing of applicable reports, documents, and
notices with the Department of Labor and the Internal Revenue Service regarding
any Employee Plan, or the furnishing of such documents to the participants or
beneficiaries of the Employee Plans.
(i) Any bonding required with respect to the Employee Plans in accordance
with the applicable provisions of ERISA has been obtained and is in full force
and effect.
(j) Neither The Limited, the Company, any Subsidiary nor any "party in
interest" (as defined in Section 3(14) of ERISA) or "disqualified person" (as
defined in Section 4975(e)(2) of the Code) with respect to any Employee Plan has
engaged in a "prohibited transaction" within the meaning of Part 4 of Subtitle B
of Title I of ERISA or Section 4975 of the Code for which a statutory,
administrative, or regulatory exemption is not available.
(k) There has been no material violation of the "continuation coverage
requirements" of "group health plans" as set forth in Section 4980B of the Code
and Part 6 of Subtitle B of Title I of ERISA (sometimes referred to as "COBRA")
with respect to any Employee Plan to which such continuation coverage
61
requirements apply. There has been no material violation of the health insurance
obligations imposed by Section 9801 of the Code and Part 7 of Subtitle B of
Title I of ERISA (sometimes referred to as "HIPAA") with respect to any Employee
Plan which is a "group health plan" (as defined in Section 5000(b)(1) of the
Code and Section 706 of ERISA) to which such insurance obligations apply
(including the requirement that certificates of creditable coverage be provided
to certain employees and their dependents).
(l) The consummation of the transactions contemplated by this Agreement
will not, separately or together, (1) except as set forth on Section 9.02(l) of
the Disclosure Schedule, entitle any Company Employee to receive from the
Company or any Subsidiary severance pay, unemployment compensation, or any other
payment, or (2) except as set forth in Section 9.07, accelerate the time of
payment or vesting of, or increase the amount of, compensation due to any such
Company Employee or director of the Company or any Subsidiary.
Section 9.03. Welfare Plans Following the Closing. (a) Effective January 1,
2002, or such earlier dates as may be agreed upon by the parties to this
Agreement, Parent and Buyer shall provide the Covered Employees (as defined
herein) with coverage under the applicable employee welfare benefit plans (as
defined in Section 3(l) of ERISA) sponsored by Parent and/or Buyer (collectively
called "Buyer's Welfare Benefit Plans"). For purposes of this Agreement, a
"Covered Employee" means each individual who is employed by the Company or its
Subsidiaries on the Closing Date, including any such individual on approved
leave of absence (including maternity and paternity leave, vacation, sick leave,
short-term disability, long-term disability, military leave, jury duty, or death
leave, but shall not include individuals employed or performing services at the
Distribution Center, if any). Covered Employees shall be eligible to participate
in Buyer's Welfare Benefit Plans on such date(s) subject in each case to Parent
and/or Buyer's right to modify or eliminate any employee benefit plan or program
maintained by it at any time.
(b) Parent and Buyer shall credit the Covered Employees for service with
the Company and its Subsidiaries prior to the Closing Date for purposes of
eligibility to participate in, and to receive benefits under, Buyer's Welfare
Benefit Plans; provided, however, that all Company Employees shall be employees
at will of the Company, and nothing contained in this Section 9.03 or elsewhere
in this Agreement shall be construed to prevent the termination of employment of
any Company Employee, any change in the compensation or employee benefits
available to any Company Employee, or the amendment or termination of any
particular employee benefit plan to the extent permitted by its terms.
(c) Parent and Buyer covenant that Buyer's Welfare Benefit Plans shall
credit each Covered Employee for any coinsurance or deductibles paid prior to
the date the Covered Employee becomes a participant in Buyer's Welfare Benefit
62
Plans, if any, with respect to the calendar year in which such participation
commences. Such credit shall be given for the purpose of satisfying any
applicable coinsurance or deductible requirements under any of Buyer's Welfare
Benefit Plans in which the Covered Employee is eligible to participate after the
Closing Date.
(d) Parent and Buyer covenant that Buyer's Welfare Benefit Plans shall not
treat any transaction contemplated hereby as an event which, in and of itself,
would cause the Company Employees to be subject to any preexisting condition
limitation and shall otherwise satisfy the requirements of Section 4980B(f) of
the Code (solely with respect to the Company Employees).
(e) Effective as of the Closing Date and except as provided in Section
9.03(f) below, Parent and Buyer shall cause the Company to assume all
obligations and liabilities of The Limited and its ERISA Affiliates with respect
to the following welfare benefit plans or programs maintained by The Limited and
its ERISA Affiliates, but only to the extent such liabilities and obligations
relate to benefits for Covered Employees: (1) life insurance benefits; (2)
short- and long-term disability benefits, including disability benefits payable
after the Closing Date with respect to disabilities incurred on or prior to the
Closing Date; (3) medical benefits; (4) dental benefits; (5) COBRA health care
continuation coverage benefits; and (6) any health insurance obligation imposed
by HIPAA and/or applicable state Law (other than benefit claims incurred prior
to the Closing Date with respect to the benefits listed in (3) and (4)). A
medical or dental claim shall be "incurred" when the relevant service is
provided or item is purchased. All life insurance and long-term disability
benefits are fully insured and all premiums due and payable therefore have been
paid by The Limited and/or its ERISA Affiliates, or will have been paid by The
Limited and/or its ERISA Affiliates in the ordinary course, prior to the Closing
Date. Accruals for long-term disability benefits in respect of Company Employees
are reflected on the books and records of the Company.
(f) The Limited and its ERISA Affiliates shall be responsible for all
obligations and liabilities created or owing as a consequence of the employment
of any Covered Employee by The Limited and its ERISA Affiliates prior to the
Closing Date with respect to, but only with respect to, the following: (1) all
liabilities, costs, claims and other obligations under any Employee Plan or
Benefit Arrangement resulting from any deficiency in the administration or
funding of any such Employee Plan or Benefit Arrangement; (2) all medical and
dental benefit claims; (3) any workers' compensation claims; (4) any severance
pay benefits arising out of employment terminations prior to the Closing Date;
(5) COBRA health care continuation coverage with respect to qualifying events
occurring on or prior to the Closing Date, including COBRA continuation coverage
for any "M&A qualified beneficiary" as defined in Treas. Reg. (S) 54.4980B-9, A-
4(b); and (6) any health insurance obligation imposed by HIPAA (including the
requirement that certificates of creditable coverage be
63
provided to certain employees and their dependents) and/or applicable state law.
A workers compensation claim shall be deemed to relate to the period prior to
the Closing Date if the event giving rise to the claim occurs prior to the
Closing Date.
(g) The Company's obligations under this Section 9.03 are in addition to
the Company's obligations under Section 9.04 and Section 9.05.
Section 9.04. Savings and Retirement Plan. (a) On or prior to the Closing
Date or as soon as practicable thereafter, The Limited shall cause the trustee
of The Limited Savings and Retirement Plan (the "Savings and Retirement Plan")
to segregate the assets of such Savings and Retirement Plan representing the
full account balances of the Company Employees as of the Closing Date, make any
and all filings and submissions to the appropriate governmental agencies arising
in connection with such segregation of assets and make all necessary amendments
to such Savings and Retirement Plan and related trust agreement to provide for
such segregation of assets and the transfer of assets as described below. The
manner in which the account balances of the Company Employees under the Savings
and Retirement Plan are transferred shall not be affected by such segregation of
assets. The Limited shall cause each Company Employee who is a participant in
the Savings and Retirement Plan to be 100% vested in his or her account balances
thereunder effective as of the Closing Date.
(b) Parent and Buyer hereby designate the Charming Shoppes, Inc.
Employees' Retirement and Savings Plan (the "Successor Plan") to accept the
transfer of assets as described herein and agree to take all necessary action,
if any, to qualify such plan under the applicable provisions of the Code and
shall make any and all filings and submissions to the appropriate governmental
agencies required to be made by it in connection with the transfer of assets
described below. The transfer shall not occur until (1) Buyer shall have
provided The Limited with a certification from Buyer, with appropriate
indemnities, as to such qualified status satisfactory to The Limited and (2) The
Limited shall have issued comparable indemnities as to the qualified status of
the Savings and Retirement Plan satisfactory to Buyer. The Limited and Buyer
shall act expeditiously and in good faith in satisfying, and shall satisfy, the
above conditions prior to January 1, 2002. As soon as practicable following the
satisfaction of the conditions set forth above and in any event prior to January
1, 2002, The Limited shall cause the trustee of the Savings and Retirement Plan
to transfer (in the form of cash, marketable securities, including shares of The
Limited and Intimate Brands, Inc., and, to the extent practicable, in the same
relative proportions as the account balances of the Company Employees are
invested as of the date of the special valuation conducted in connection with
such transfer) the full account balances of Company Employees under the Savings
and Retirement Plan, as well as actual earnings (including, but not limited to,
any losses or expenses related thereto) 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 the Company Employees
occurring during the period from the Closing Date to
64
the date of transfer described herein, to the appropriate trustee as designated
by Buyer under the trust agreement forming a part of the Successor Plan.
(c) In consideration for the transfer of assets described herein, Buyer
shall, and shall cause the Company to, effective as of the date of transfer
described herein, assume all of the obligations of The Limited and its ERISA
Affiliates in respect of the account balances accumulated by the Company
Employees under the Savings and Retirement Plan (exclusive of any portion of
such account balances which are paid or otherwise withdrawn prior to the date of
transfer described herein) on or prior to the Closing Date. Buyer shall not
assume any other obligations or liabilities arising under or attributable to the
Savings and Retirement Plan.
Section 9.05. Other Employee Plans And Benefit Arrangements. (a) On or
prior to the Closing Date, Parent shall, or shall cause the Company to,
establish a nonqualified deferred compensation plan that mirrors The Limited
Supplemental Retirement and Deferred Compensation Plan (the "SRDCP"). Effective
as of the Closing Date, and except as provided in Section 9.05(b) below, Parent
shall cause the Company to (1) accept the transfer of participant account
balances from the SRDCP to the mirror plan with respect to benefits payable to
Covered Employees who are participants in the SRDCP as of the Closing Date, and
(2) assume all obligations and liabilities attributable to the period prior to
the Closing date in respect of the Covered Employees who were participants in
the SRDCP as of the Closing Date. The account of each Covered Employee under the
mirror plan shall be 100% vested and shall be paid to him/her by the Company
and/or its Subsidiaries following the Covered Employee's termination of
employment with the Company and its Subsidiaries pursuant to the terms of the
mirror plan. On the Closing Date, The Limited shall provide Parent with a true
and correct schedule setting forth the following information regarding each
Covered Employee who is a participant in the SRDCP on the Closing Date: the name
of the Covered Employee, his/her job title, and the total amount credited to
his/her SRDCP account as of the Closing Date.
(b) Effective as of the Closing Date, The Limited shall assume and retain
all obligations and liabilities under the SRDCP including, without limitation,
all obligations and liabilities attributable to the period prior to the Closing
Date, with respect to benefits payable to (1) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and (2) all
Company Employees who are not offered post-Closing employment by Parent, the
Company or any of its Subsidiaries on or prior to the Closing Date. The SRDCP
account maintained on behalf of ▇▇. ▇▇▇▇▇▇ and such Company Employees shall be
paid to them by The Limited, pursuant to the terms of the SRDCP. The Limited
shall take any action that may be necessary and/or desirable in its sole
discretion to reflect that no Termination of Employment (as defined in the
SRDCP) will occur with respect to any Covered Employee as a result of
consummating the transaction contemplated by this Agreement.
65
(c) Prior to the Closing Date, neither The Limited, the Company nor any
Subsidiary will establish any new employee benefit plan for the Company
Employees, except with the written consent of Buyer (which consent may be
withheld in Buyer's sole discretion), nor will The Limited, the Company or any
Subsidiary amend or modify in any material way any existing Employee Plan or
Benefit Arrangement with respect to the Company, any Subsidiary or any Company
Employee as to any benefit or in any other material way, except with the written
consent of Buyer (which consent may be withheld in Buyer's sole discretion).
Section 9.06. Necessary Action. The Limited, Seller, Parent and Buyer
agree to take all action, or cause such action to be taken, which may be
necessary in order to effectuate the transactions contemplated by this Article,
including, without limitation, adopting any necessary amendments to the Employee
Plans and Benefit Arrangements and making all filings and submissions to the
appropriate governmental agencies required to be made in connection with the
events contemplated by Section 9.04.
Section 9.07. Stock Options. Except as set forth on Section 9.07 to the
Disclosure Schedule:
(a) The Limited shall make an offer to the Company Employees such that
options held by the Company Employees ("Company Employee Options") to purchase
shares of The Limited's common stock under any of The Limited's Benefit
Arrangements that, immediately prior to the Closing Date are not exercisable and
that would, in the ordinary course and but for the consummation of the
transactions contemplated under this Agreement, become exercisable on or prior
to December 31, 2002, shall become exercisable on the Closing Date ("Accelerated
Options"). The expiration of each Accelerated Option and Vested Option shall be
determined in accordance with the terms thereof and the Benefit Arrangement
pursuant to which such option was granted.
(b) The foregoing obligation is subject to approval of the Compensation
Committee of The Limited's Board of Directors. The Chief Operating Officer of
The Limited will recommend that such Compensation Committee approve the
foregoing.
(c) For the avoidance of doubt, the parties agree that The Limited will be
entitled to any tax deductions resulting from the exercise of the Vested Options
or Accelerated Options.
Section 9.08. Indemnification. Parent hereby indemnifies, and shall cause
the Company after the Closing to indemnify, The Limited and each of its ERISA
Affiliates against and agrees, and shall cause the Company to agree after the
Closing, to hold The Limited and each of its ERISA Affiliates harmless from any
and all Damages that The Limited and each of its ERISA Affiliates may incur or
66
suffer as a result of any failure by Parent and the Company to satisfy and
discharge their obligations under this Article. The Limited and each of its
ERISA Affiliates hereby indemnifies the Company against and agrees to hold the
Company harmless from any and all Damages that the Company may incur as a result
of any failure by The Limited to satisfy and discharge its obligations under
this Article.
Section 9.09. Third Party Beneficiaries. No provision of this Article
shall create any third party beneficiary rights in any Company Employee
(including any beneficiary or dependent thereof).
ARTICLE 10
Conditions to Closing
Section 10.01. Conditions to Obligations of Parent, Buyer, The Limited and
Seller. The obligations of Parent, Buyer, The Limited and Seller to consummate
the Closing are subject to the satisfaction (or, to the extent permitted by Law,
waiver by the relevant party) of the following conditions:
(a) Any applicable waiting period under the HSR Act relating to the
transactions contemplated by the Transaction Documents shall have expired or
been terminated.
(b) No provision of any applicable Law and no judgment, injunction, order
or decree shall prohibit the consummation of the Closing.
(c) No suit, action, proceeding or investigation shall have been brought
or threatened by any Person which is reasonably likely to result in (i) an
injunction preventing the consummation of the Closing or (ii) an order requiring
that the Closing, if consummated, be rescinded.
Section 10.02. Conditions to Obligation of Parent and Buyer. The
obligation of Parent and Buyer to consummate the Closing is subject to the
satisfaction (or, to the extent permitted by Law, waiver by Buyer) of the
following further conditions:
(a) (1) The Limited and Seller shall have performed or complied in all
material respects with all of the agreements and covenants required by the
Transaction Documents to be performed or complied with by them at or prior to
the Closing Date, (2) the representations and warranties of The Limited and
Seller contained in this Agreement and in any certificate or other writing
delivered by The Limited or Seller pursuant hereto shall be accurate at and as
of the Closing Date, as if made at and as of such time, except for any
inaccuracies which, individually or in the aggregate, would not constitute or,
would not reasonably be expected to constitute, a Material Adverse Effect and
(3) Buyer shall have
67
received a certificate signed by an executive officer of The Limited to the
foregoing effect.
(b) The Limited and Seller shall have caused the following documents to be
delivered to Parent and Buyer:
(i) an opinion of ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇, dated the Closing Date,
the form of which is attached as Exhibit I;
(ii) letters of resignation from the directors of the Company and
each Subsidiary;
(iii) such other documents regarding the corporate organization,
existence, authorization and similar matters relating to The Limited,
Seller, the Company or any Subsidiary as Buyer may reasonably request;
(iv) the Services Agreement;
(v) the Store Leases Agreement;
(vi) the HQ Lease;
(vii) the Registration Agreement;
(viii) the Access and Waiver Agreement;
(ix) the Covenant Agreement; and
(x) the Master Sublease.
(c) The conditions to the Banks' obligation to lend at least $285 million
set forth in the Commitment Letter shall have been satisfied or waived.
Section 10.03. Conditions to Obligation of The Limited and Seller. The
obligation of The Limited and Seller to consummate the Closing is subject to the
satisfaction (or, to the extent permitted by Law, waiver by Seller) of the
following further conditions:
(a) (1) Parent and Buyer shall have performed or complied in all material
respects with all of the agreements, covenants and conditions required by this
Agreement to be performed or complied with by them on or prior to the Closing
Date, (2) the representations and warranties of Parent and Buyer contained in
this Agreement and in any certificate or other writing delivered by Parent or
Buyer pursuant hereto shall be accurate at and as of the Closing Date, as if
made at and as of such time, except for any inaccuracies which, individually or
in the aggregate, would not have, or would not reasonably be expected to have, a
68
Parent Material Adverse Effect and (3) The Limited shall have received a
certificate signed by an executive officer of Parent to the foregoing effect.
(b) Parent and Buyer shall have caused the following documents to be
delivered to The Limited and Seller:
(i) an opinion of Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP, dated the Closing
Date, the form of which is attached as Exhibit J;
(ii) such other documents regarding the corporate organization,
existence, authorization and similar matters relating to Parent or Buyer as
The Limited may reasonably request;
(iii) the Services Agreement;
(iv) the Store Leases Agreement;
(v) the HQ Lease;
(vi) the Registration Agreement;
(vii) the Access and Waiver Agreement;
(viii) the Covenant Agreement; and
(ix) the Master Sublease.
(c) the Stock Consideration shall have been approved for listing on the
Nasdaq Stock Market, subject to official notice of issuance.
ARTICLE 11
Survival; Indemnification
Section 11.01. Survival. All of the representations and warranties of The
Limited, Seller, Parent and Buyer contained in this Agreement shall survive the
Closing Date for a period of 12 months from the Closing Date, except that the
representations and warranties in Section 3.17 and Articles 8 (other than
representations and warranties with respect to Indemnified Taxes) and 9 shall
survive until the expiration of the statute of limitations applicable to the
matters covered thereby (giving effect to any waiver, mitigation or extension
thereof) and the representations and warranties contained in Sections 3.01 (as
to corporate existence and power and authority), 3.02, 3.05, 3.06, 3.07, 3.13,
3.24 3.25, 4.01 (as to corporate existence and power and authority), 4.02, 4.08,
4.09, 4.11 and 4.12 shall survive indefinitely. The period of survival of the
representations and warranties prescribed by this Section 11.01 is referred to
as the "Survival Period." The liabilities of Parent, Buyer, The Limited and
Seller under their
69
respective representations and warranties will expire as of the expiration of
the Survival Period; provided, however, that such expiration will not include,
extend or apply to any representation or warranty, the breach of which is the
subject of a written claim for indemnification made pursuant to the provisions
of this Article 11 prior to the expiration of the applicable Survival Period for
such representation or warranty. Except for the covenants set forth in Section
5.01(a) and Section 6.01(a) (which will survive for a period of 12 months from
the Closing Date) and as otherwise provided in this Agreement, the covenants and
agreements of Parent, Buyer, The Limited and Seller contained in this Agreement
shall survive Closing and shall continue in full force and effect indefinitely.
The representations and warranties contained in Article 8 related to Indemnified
Taxes shall not survive the Closing Date.
Section 11.02. Indemnification. (a) The Limited hereby indemnifies Parent
and its Affiliates against and agrees to hold each of 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 Parent or any of its Affiliates arising out of or related in any way
to (1) any inaccuracy or breach of any representation or warranty (each such
inaccuracy and breach, a "Warranty Breach") or breach of a covenant, in each
case of The Limited or Seller contained in this Agreement, (2) the litigation
matters identified in Appendix 11.02 (the "Retained Litigation"), (3) the Credit
Card Litigation, (4) any escheat liabilities or similar items under state
unclaimed property laws, in each case in respect of matters arising prior to the
Closing (including, without limitation, sales of gift certificates, issuances of
checks and other transactions occurring prior to Closing, regardless of when the
obligation to file an unclaimed property report arises) and (5) the manner in
which The Limited or any of its Affiliates prosecutes any Retained Landlord
Claim (for example, sanctions imposed as a result of inappropriate litigation
activities) (as opposed to the fact that the Retained Landlord Claim was
pursued); provided that with respect to indemnification by The Limited and
Seller for any Warranty Breaches pursuant to this Section 11.02(a), in the
absence of fraud or a willful and knowing misrepresentation, (1) The Limited and
Seller shall not be liable unless the aggregate amount of Damages with respect
to all such Warranty Breaches exceeds $8,350,000 and then only to the extent of
such excess, (2) The Limited and Seller shall have no liability for any
individual claim for Damages that is less than $25,000 and (3) The Limited's and
Seller's maximum liability shall not exceed $135,000,000; provided, however,
that such limitations in clauses (1), (2) and (3) shall not be applicable to any
Warranty Breach arising under Sections 3.01 (as to corporate existence and power
and authority), 3.02, 3.05, 3.06, 3.07, 3.24 or 3.25.
(b) Parent hereby indemnifies The Limited and its Affiliates against and
agrees to hold each of them harmless from any and all Damages incurred or
suffered by The Limited or any of its Affiliates arising out of or related in
any
70
way to (1) any Warranty Breach or breach of a covenant, in each case of Parent
or Buyer contained in this Agreement, (2) to the extent contemplated by Section
6.05(b), any Financial Support Arrangements in connection with the business
liabilities, obligations or operations of the Company or any of its Subsidiaries
for which Parent or Buyer has not been able to secure the unconditional release
of The Limited and its Affiliates from their obligations thereunder, and (3)
except as expressly provided herein, the assets, business or operations of the
Company or any of its Subsidiaries, whether before, at or after the Closing;
provided that with respect to indemnification by Parent and Buyer for any
Warranty Breaches pursuant to this Section 11.02(b), in the absence of fraud or
a willful and knowing misrepresentation, (1) Parent and Buyer shall not be
liable unless the aggregate amount of Damages with respect to all such Warranty
Breaches exceeds $8,350,000 and then only to the extent of such excess, (2)
Parent and Buyer shall have no liability for any individual claim for Damages
that is less than $25,000 and (3) Parent's and Buyer's maximum liability shall
not exceed $135,000,000; provided, however, that such limitations in clauses
(1), (2) and (3) shall not be applicable to any Warranty Breach arising under
Sections 4.01 (as to corporate existence and power and authority), 4.02, 4.06,
4.08, 4.11 or 4.12.
(c) Notwithstanding any of the provisions of this Article 11, Section 8.04
shall provide the exclusive remedy for Parent's and its Affiliates' (and, after
the Closing, the Company's and its Subsidiaries') recovery of any Tax Loss from
The Limited and its Affiliates, and the procedures set forth in Section 8.04
shall govern any claim for indemnification under such provision.
(d) It is understood and agreed that neither the $25,000 amount nor the
$8,350,000 amount referred to in this Article 11 shall influence or affect, for
any purpose under this Agreement, any determination as to whether an occurrence,
event or matter is "material," whether a "Material Adverse Effect" has occurred
or any similar matter.
Section 11.03. Procedures. (a) The party seeking indemnification under
Sections 9.08 or 11.02 (the "Indemnified Party") agrees to give prompt notice to
the party against whom indemnity is sought (the "Indemnifying Party") of the
assertion of any claim, or the commencement of any suit, action or proceeding
("Claim") in respect of which indemnity may be sought under such Section and
will provide the Indemnifying Party such information with respect thereto that
the Indemnifying Party may reasonably request. The failure to so notify the
Indemnifying Party shall not relieve the Indemnifying Party of its obligations
hereunder, except to the extent such failure shall have adversely prejudiced the
Indemnifying Party.
(b) The Indemnifying Party shall be entitled to participate in the defense
of any Claim asserted by any third party ("Third Party Claim") and, subject to
the limitations set forth in this Section, shall be entitled to control the
defense of such Third Party Claim and appoint lead counsel for such defense, in
each case at
71
its expense; provided that it has acknowledged responsibility for the defense of
such Claim; and provided further that The Limited shall control the defense of,
and appoint the lead counsel in connection with, the Retained Litigation.
(c) If the Indemnifying Party shall assume the control of the defense of
any Third Party Claim in accordance with the provisions of this Section 11.03,
(1) the Indemnifying Party shall obtain the prior written consent of the
Indemnified Party (which shall not be unreasonably withheld, conditioned or
delayed) before entering into any settlement of such Third Party Claim and (2)
the Indemnified Party shall be entitled to participate in the defense of such
Third Party Claim and to employ separate counsel of its choice for such purpose.
The fees and expenses of such separate counsel shall be paid by the Indemnified
Party.
Section 11.04. Limitation on Damages. (a) The amount of any Damages payable
under Section 11.02 by the Indemnifying Party shall be net of any amounts
recovered by the Indemnified Party under applicable insurance policies.
(b) The Indemnifying Party shall not be liable under Section 11.02 for any
(1) Damages relating to any matter to the extent that (A) there is included in
the Closing Statement of Net Tangible Assets an identifiable liability or
reserve (including liabilities or reserves that are not individual line items,
but are identifiable components of a line item) specifically relating to such
matter (it being understood that the Indemnifying Party shall be liable for the
excess of the Damages over such identifiable liability or reserve) or (B) the
Indemnified Party had otherwise been compensated for such matter pursuant to the
purchase price adjustment mechanism contemplated by Sections 2.03 and 2.04 (it
being understood that the Indemnifying Party shall be liable only for the excess
of the Damages over such purchase price adjustment compensation) or (2) punitive
Damages.
(c) Notwithstanding anything in this Agreement to the contrary, except for
Damages arising out of a breach of the representation set forth in the first
sentence of Section 3.08, no Damages shall be determined or increased based on
any multiple of any financial measure (including earnings, sales or other
benchmarks) that might have been used by Parent or Buyer in the valuation of the
Company and its Subsidiaries or their businesses and operations (it being
understood that the foregoing exception for Damages arising out of a breach of
the representation set forth in the first sentence of Section 3.08 shall not
constitute an admission or acknowledgement that Damages in respect of such a
breach should be determined or increased based on any such multiple, but instead
is simply an exception to the prohibition on making such a claim in the case of
such a breach).
Section 11.05. Assignment of Claims. If the Indemnified Party receives any
payment from an Indemnifying Party in respect of any Damages pursuant to Section
11.02 and the Indemnified Party could have recovered all or a part of such
72
Damages from a third party (other than from the Company, any Subsidiary, any
Affiliate of the Company or any current or former employee or agent of any such
Persons) (a "Potential Contributor") based on the underlying Claim asserted
against the Indemnifying Party, the Indemnified Party shall assign such of its
rights to proceed against the Potential Contributor as are necessary to permit
the Indemnifying Party to recover from the Potential Contributor the amount of
such payment.
Section 11.06. Exclusivity. Except as specifically set forth in this
Agreement, Parent waives any rights and claims Parent and its Affiliates may
have against The Limited and its Affiliates, whether in law or in equity,
relating to the Company or any of its Subsidiaries or any of their respective
assets, business or operations, the Shares or the transactions contemplated
hereby, and The Limited waives any such rights and claims The Limited and its
Affiliates may have against Parent and its Affiliates, the Company or any of its
Subsidiaries. The rights and claims waived hereby include, without limitation,
claims for contribution or other rights of recovery arising out of or relating
to any Environmental Law, claims for breach of contract, breach of
representation or warranty, negligent misrepresentation and all other claims for
breach of duty. Notwithstanding the foregoing, it is understood that nothing
herein shall prohibit any party hereto from exercising its rights to seek
equitable relief with respect to a breach of covenant or agreement under any
Transaction Document.
ARTICLE 12
Termination
Section 12.01. Grounds for Termination. This Agreement may be terminated
and the transactions contemplated herein may be abandoned at any time prior to
the Closing:
(a) by mutual written agreement of Seller and Buyer;
(b) by either Seller or Buyer if the Closing shall not have been
consummated on or before September 30, 2001 (the "Termination Date"); provided,
however, that neither of the parties may terminate this Agreement pursuant to
this clause if the Closing shall not have been consummated by the Termination
Date by reason of the failure of such party or any of its Affiliates to perform
in all material respects any of its or their respective covenants or agreements
contained in this Agreement;
(c) by either Buyer, on the one hand, or Seller, on the other hand, if a
material breach of any provision of this Agreement has been committed by the
other party or any of its Affiliates and such breach is not capable of being
satisfied or cured by the Termination Date; or
73
(d) by either Seller or Buyer if consummation of the transactions
contemplated hereby would violate any nonappealable final order, decree or
judgment of any court or governmental body having competent jurisdiction.
The party desiring to terminate this Agreement pursuant to clauses
12.01(b)-(d) shall give notice of such termination to the other party.
Section 12.02. Effect of Termination. If this Agreement is terminated as
permitted by Section 12.01, such termination shall be without liability of any
party (or any Affiliate, stockholder, director, officer, employee, agent,
consultant or representative of such party) to any other party to this
Agreement; provided that if such termination shall result from the (1) failure
of any party to fulfill a condition to the performance of the obligations of the
other parties that is within the control of such party, (2) failure of any party
to this Agreement to perform a covenant or agreement contained in any
Transaction Document, (3) breach by any party hereto of any representation or
warranty contained herein made as of the date of this Agreement or (4) willful
or negligent breach by any party to this Agreement of any representation or
warranty (other than a breach of any representation or warranty specified in
clause (3)) contained in any Transaction Document, such party shall be fully
liable for any and all Damages incurred or suffered by any other party as a
result of such failure or breach. The provisions of Sections 5.04(a)(2), 5.13,
6.02 (it being understood that all provisions of the Confidentiality Agreement
will remain in full force and effect), 6.07, 6.09, 12.02 and Article 13 shall
survive any termination hereof pursuant to Section 12.01.
ARTICLE 13
Miscellaneous
Section 13.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given,
if to Parent or Buyer, to:
Charming Shoppes, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
74
with a copy (which shall not constitute notice) to:
Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
One ▇▇▇▇▇ Square
▇▇/▇▇/ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
if to The Limited or to Seller, to:
The Limited, Inc.
Three Limited Parkway
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice) to:
▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or telecopy number and with such other copies, as such
party may hereafter specify for the purpose by notice to the other parties. All
such notices, requests and other communications shall be deemed received on the
date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a Business Day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding Business Day in the place of receipt.
Each such notice, request or other communication shall be effective (1) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
in this Section and evidence of receipt is received or (2) if given by any other
means, upon delivery or refusal of delivery at the address specified in this
Section 13.01.
Section 13.02. Amendments and Waivers. (a) Any provision of this Agreement
may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed, in the case of an amendment, by each party to this Agreement, or
in the case of a waiver, by the party against whom the waiver is to be
effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of
75
any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
Section 13.03. Expenses. Except to the extent otherwise expressly provided
in any of the Transaction Documents: (1) all costs and expenses incurred in
connection with this Agreement shall be paid by the party incurring such cost or
expense and (2) The Limited shall be responsible for all out-of-pocket costs and
expenses incurred by the Company and its Subsidiaries prior to the Closing Date
in connection with the preparation, execution and delivery of the Transaction
Documents and the consummation of the Closing.
Section 13.04. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; 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; provided, further, that Parent
may assign its rights to indemnification under Article 8 and 11 of this
Agreement to Parent's lenders under the credit and security arrangements to be
entered into by Parent in connection with the Closing.
Section 13.05. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York, without regard to
the conflicts of law rules of such state.
Section 13.06. Jurisdiction. Except as otherwise expressly provided in this
Agreement, the parties hereto agree that any suit, action or proceeding seeking
to enforce any provision of, or based on any matter arising out of or in
connection with, any of the Transaction Documents or the transactions
contemplated thereby shall be brought in the United States District Court for
the Southern District of New York or any New York State court sitting in New
York City, Borough of Manhattan, so long as one of such courts shall have
subject matter jurisdiction over such suit, action or proceeding, and that any
cause of action arising out of any of the Transaction Documents shall be deemed
to have arisen from a transaction of business in the State of New York, and each
of the parties hereby irrevocably consents to the jurisdiction of such courts
(and of the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection that it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 13.01 shall be deemed
effective service of process on such party.
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Section 13.07. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
Section 13.08. Counterparts; Third Party Beneficiaries. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. Each Transaction Document shall become effective when each party
thereto shall have received a counterpart thereof signed by the other party
thereto. No Transaction Document is intended to confer upon any Person other
than the parties thereto any rights or remedies hereunder.
Section 13.09. Entire Agreement. The Transaction Documents, together with
the Confidentiality Agreement and The Limited Confidentiality Agreement,
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and supersedes all prior agreements and understandings,
both oral and written, between the parties with respect to the subject matter of
this Agreement. No representation, inducement, promise, understanding, condition
or warranty not set forth herein has been made or relied upon by any party
hereto.
Section 13.10. Captions; Certain Terms. The captions herein are included
for convenience of reference only and shall be ignored in the construction or
interpretation hereof. All references to "$" or "dollars" shall be to United
States dollars and all references to "days" shall be to calendar days unless
otherwise specified. Whenever the words "include," "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words,
"without limitation."
Section 13.11. Disclosure Schedule. The parties acknowledge and agree that
(1) the Disclosure Schedule to this Agreement may include certain items and
information solely for informational purposes for the convenience of Buyer and
(2) the disclosure by The Limited or Seller of any matter in the Disclosure
Schedule shall not be deemed to constitute an acknowledgment by The Limited or
Seller that the matter is required to be disclosed by the terms of this
Agreement or that the matter is material. If any section of the Disclosure
Schedule discloses an item or information in such a way as to make its relevance
to the disclosure required by another section of the Disclosure Schedule readily
apparent, the matter shall be deemed to have been disclosed in such other
section of the Disclosure Schedule, notwithstanding the omission of an
appropriate cross-reference to such other section of the Disclosure Schedule.
[Remainder of page intentionally left blank; next page is signature page]
77
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.
CHARMING SHOPPES, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Executive Vice President
VENICE ACQUISITION CORPORATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
LFAS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Vice President, Senior
Counsel
THE LIMITED, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President-Treasury,
Mergers and
Acquisitions
78
