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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report:
April 24, 1995
DESIGNS, INC.
-------------
(Exact Name of registrant as specified in its charter)
Delaware 0-15898 04-2623104
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1244 Boylston Street, Chestnut Hill, Massachusetts 02167
(Address of principal executive offices) (Zip Code)
(617) 739-6722
(Registrant's telephone number, including area code)
Item 5. Other Events
As previously announced, on January 27, 1995, Designs, Inc. (the
`Company'') announced that subsidiaries of Levi Strauss & Co. and the Company
entered into agreements, dated as of January 28, 1995, establishing a joint
venture to operate up to 35 to 50 `Original Levi's(R) Stores'' and ``Levi's(R)
Outlet''stores selling Levi's(R) brand jeans and jeans-related products. The
`Levi's(R) Outlet'' stores will principally service the close-out products of
the joint venture `Original Levi's(R) Stores.'' The joint venture stores are
expected to be opened throughout 11 northeastern states and the District of
Columbia over the next three to five years. In conjunction with the formation
of the joint venture, the Company's `Original Levi's(R) Store'' located in
Minneapolis, Minnesota and its `Dockers(R) Shop'' stores located in
Minneapolis, Minnesota and Cambridge, Massachusetts were transferred to Levi's
Only Stores, Inc., a subsidiary of Levi Strauss & Co.
Accompanying this Report as Exhibits 10.1 through 10.8 are certain
agreements (each without disclosure exhibits except as otherwise indicated)
related to the formation of the joint venture. Also accompanying this Report as
Exhibits 10.9 and 10.10 are certain agreements (each without disclosure
exhibits) related to the transfer of the Company's `Original Levi's(R) Store''
located in Minneapolis, Minnesota and its `Dockers(R) Shop'' stores located in
Minneapolis, Minnesota and Cambridge, Massachusetts to LOS.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DESIGNS, INC.
Date: April 24, 1995 By: /s/Scott N. Semel
Scott N. Semel, Senior
Vice President
Index to Exhibits
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Exhibit No. Description
- ----------- -----------
10.1. Participation Agreement among Designs JV Corp. (the `Designs
Partner'), the Company, LDJV Inc. (the ``LOS Partner''), Levi's
Only Stores, Inc. (`LOS''), Levi Strauss & Co. (``LS&CO'') and
Levi Strauss Associates Inc. (`LSAI'')
10.2. Partnership Agreement of The Designs/OLS Partnership (the
`Partnership'') between the LOS Partner and the Designs Partner
10.3. Glossary executed by the Designs Partner, the Company, the LOS
Partner, LOS, LS&CO, LSAI and the Partnership
10.4. Sublicense Agreement between LOS and the LOS Partner with
exhibits A and B
10.5. Sublicense Agreement between the LOS Partner and the Partnership
with exhibits B and C
10.6. License Agreement between the Company and the Partnership
10.7. Administrative Services Agreement between the Company and the
Partnership
10.8. Agreement between the Company and LOS covering the payment to the
Company of a $875,000 fee from LOS
10.9. Asset Purchase Agreement between LOS and the Company relating to
the stores located in Minneapolis, Minnesota
10.10. Asset Purchase Agreement between LOS and the Company relating to
PARTICIPATION AGREEMENT
THIS IS A PARTICIPATION AGREEMENT (the "Agreement")
dated as of January 28, 1995, by and among Designs JV Corp., a
Delaware corporation (the "Designs Partner"), Designs, Inc., a
Delaware Corporation ("Designs"), LDJV Inc., a Delaware
corporation (the "LOS Partner"), Levi's Only Stores, Inc., a
Delaware corporation ("LOS Inc."), Levi Strauss & Co., a Delaware
corporation ("LS&CO."), and Levi Strauss Associates Inc., a
Delaware corporation ("LSAI"). The Designs Partner and the LOS
Partner are sometimes referred to individually as a "Partner" and
together as the "Partners". The Designs Partner and Designs are
sometimes referred to individually as a "Designs Party" and
together as the "Designs Parties". The LOS Partner, LOS Inc.,
LS&CO. and LSAI are sometimes referred to individually as an "LOS
Party" and together as the "LOS Parties". The Designs Parties
and the LOS Parties are sometimes referred to individually as a
"Party" and together as the "Parties".
B A C K G R O U N D
The Partners are forming a general partnership that
will own and operate retail stores. Those stores will sell
Levi's(R) branded adult jeans and jeans-related products. This Agreement,
together with a Partnership Agreement and other
agreements referred to in this Agreement, address the
capitalization of the Partnership and other matters relating to
the Partnership.
ACCORDINGLY, THE PARTIES HEREBY AGREE AS FOLLOWS:
ARTICLE 1
DEFINITIONS
The capitalized terms used in this Agreement that are not
defined in this Agreement have the meanings given them in the
Glossary that the Parties signed as of the same date they signed
this Agreement, as that Glossary may be amended from time to
time.
ARTICLE 2
CONTRIBUTIONS TO THE PARTNERSHIP
2.1 Contribution by the Designs Partner. At the Closing,
the Designs Partner is transferring to the Partnership (or
causing to be transferred to the Partnership) all right, title
and interest in and to the Contributed Assets held by any Designs
Party. The "Contributed Assets" consist of:
(a) the eleven leases identified on Schedule 2.1 to
this Agreement (the "Leases"), consisting of the Leases for the
eight OLSs identified in Part 1 of Schedule 2.1 and the three
Leases for future OLSs identified in Part 2 of Schedule 2.1 (such
eleven present and future OLSs being referred to in this
Agreement as the "Original Stores");
(b) all real property, fixtures and tangible personal
property owned by any Designs Party and either located at an
Original Store at the Closing or in any event normally located at
an Original Store (including, for example, furniture, equipment,
inventory and copies, but not originals, of records) and
(c) except as explained in Subsection 2.1(d), all
rights that accrue after the Closing under all leases for
fixtures and tangible personal property either located at an
Original Store at the Closing or in any event normally located at
any Original Store, and all rights that accrue after the Closing
under all other contracts and understandings to which any Designs
Party is a party respecting any goods or services (for example,
utilities) that are used or consumed at any Original Store (the
Leases and such contracts and understandings being referred to
collectively as the "Contracts").
Schedule 2.1 to this Agreement is a list of the Contributed
Assets segregated by Original Store. However, Schedule 2.1 does
not include items of owned tangible property and leases
respecting tangible property that in either case had an original
cost of less than $1,000. Because the Designs Parties prepared
Schedule 2.1, any failure to identify any Contributed Assets on
Schedule 2.1 shall not prejudice the Partnership's right to those
assets.
(d) Notwithstanding Subsection 2.1(c), certain
Contracts relate also to tangible personal property, other items
or services that are used at stores owned or operated by Designs
which are not Original Stores. An example is the Contract or
Contracts under which Designs purchases fire protection and HVAC
maintenance services. Those Contracts shall not be assigned and
assumed, as such. However, unless and until the Partnership
enters into a separate agreement with the relevant vendor or a
substitute vendor, the Parties shall cooperate in order to do
what they can to enable the Partnership to realize the benefits
of those Contracts, subject to the burdens of those Contracts,
but with respect to the Original Stores only, and the Partnership
shall reimburse Designs for its costs related to such benefits
and burdens. The Parties shall cooperate to cause the
Partnership to obtain such separate agreements as soon as is
reasonably practicable.
2.2 Excluded Assets. Despite Section 2.1, the Contributed
Assets do not include:
(a) cash, cash equivalents, accounts receivable,
deposits, claims, rights to refunds;
(b) close-out, irregular and end-of-season product
identified on Schedule 2.2;
(c) the intellectual property covered by the Designs
License Agreement; and
(d) personnel records.
2.3 Contribution by the LOS Partner.
(a) The LOS Partner is contributing cash to the
Partnership, as explained in this Section 2.3. The amount of
that cash shall equal three-sevenths of the value which the
Partners attribute to the Contributed Assets under this
Agreement. However, that value and therefore the amount of that
cash will not be known at the Closing. Accordingly, the LOS
Partner is contributing cash to the Partnership at the Closing
based on an estimate of that value, namely $5,400,000. The LOS
Partner and the Partnership will "settle up" after the Closing,
as explained in Subsections 2.3(c), (d) and (e).
(b) The value the Partners attribute to the
Contributed Assets shall equal:
CPE + GFA + I - P + L
where
CPE = the capitalized pre-opening expenses of
the Original Stores
GFA = the gross fixed assets of the Original
Stores as of the opening of business on
the Closing Date
I = the inventories included among the
Contributed Assets that are located at
or already ordered for the Original
Stores as of the opening of business on
the Closing Date that, as of that time,
have not been sold by any Designs Party
but have been (or later are) paid for by
a Designs Party
P = the cumulative profit (if any) of the
Original Stores from the date each was
opened to the opening of business on the
Closing Date
L = the cumulative losses (if any) of the
Original Stores from the date each was
opened to the Closing Date
Schedule 2.3 to this Agreement explains the manner in which the
elements of this formula will be determined.
(c) Within 60 days after the Closing, the Designs
Partner shall deliver a statement to the LOS Partner setting
forth, by Original Store, all the values needed to apply the
formula in Subsection 2.3(b) (the "Contributed Asset Statement").
The Contributed Asset Statement shall be certified by Designs'
Chief Financial Officer as having been prepared in accordance
with generally accepted accounting principles but subject to the
rules set forth on Schedule 2.3. Within 30 days after the
Designs Partner delivers the Contributed Asset Statement, the LOS
Partner shall (i) accept that statement or (ii) furnish the
Designs Partner with a statement objecting to one or more of the
figures in the Contributed Asset Statement and the basis for its
objections and/or requiring that one or more of the figures in
the Contributed Asset Statement be audited. If the LOS Partner
does not respond within those 30 days, the LOS Partner shall be
considered to have accepted the Contributed Asset Statement. The
Designs Parties shall furnish the LOS Partner and its
representatives with all information reasonably requested by the
LOS Partner or its representatives to enable them to assess the
Contributed Asset Statement both during and after that 30-day
period. Use of that information shall be governed by Article 12
of this Agreement.
(d) If the LOS Partner timely objects to any aspect of
the Contributed Asset Statement or, in any event, if the LOS
Partner requests that one or more figures in the Contributed
Asset Statement be audited, the open issues shall be resolved or
the audit performed by an accounting firm jointly selected by the
accounting firms normally used by LOS and Designs. The firm
selected shall be instructed to resolve the matters in
controversy within 30 days after it is selected or as soon
thereafter as is reasonable. The Designs Parties shall furnish
that firm with all non-confidential information it reasonably
requests in order to perform its task and meet that schedule.
That firm's resolution of the open issues shall bind all Parties.
The LOS Partner shall pay the cost of that audit.
(e) Within three days after the final Contributed
Asset Statement and any related audit report have been delivered
to the LOS Partner, the LOS Partner shall contribute additional
cash to the Partnership or the Partnership shall refund cash to
the LOS Partner (whichever is appropriate) equal to the amount by
which three-sevenths of the value of the Contributed Assets shown
on the Contributed Asset Statement differs from the amount of
cash the LOS Partner contributed to the Partnership at the
Closing.
2.4 Assumption of Certain Obligations. Subject to the
accuracy of the Designs Parties' representations and warranties
set forth in the first two sentences of Section 4.8 of this
Agreement and except as set forth in Subsection 2.1(d) of this
Agreement, at the Closing the Partnership is assuming Designs'
obligations under the Contracts, as those obligations were
delegated to the Designs Partner just before the Closing, to the
extent (but only to the extent) that those obligations accrue
after the Closing.
2.5 Gift Certificates and Credits. Before the Closing,
Designs issued gift certificates and merchandise credits that are
redeemable at the Original Stores. A number of those
certificates and credits are still outstanding. The Partnership
shall honor those certificates and credits after the Closing.
The Partnership shall periodically submit copies of those gift
certificates and merchandise credits redeemed after the Closing
to Designs or, instead, a statement listing the serial numbers
and face amounts of those redeemed certificates and credits.
Within ten days after each such submission, Designs shall pay the
Partnership an amount equal to the total face amount of the
redeemed certificates and credits that were the subject of that
submission.
2.6 No Other Assumptions. The Partnership shall not
assume any obligations or liabilities of any Designs Party,
except as is expressly provided in Sections 2.4 and 2.5 of this
Agreement. For example, the Designs Parties shall retain and
discharge all obligations and liabilities associated with their
employees, including all of their employees who are hired by the
Partnership, for the period they were or are employed by any
Designs Party, including, without limitation, any and all
obligations and liabilities for severance and vacation and sick
benefits.
2.7 Prorations. In order to implement this Article 2, the
Designs Partner and the Partnership shall prorate, as between
them, all expenses associated with the Contributed Assets and the
operation of the Original Stores. They shall do that as of the
opening of business on the Closing Date. Examples are utilities,
rent (including, for example, common area maintenance charges),
insurance premiums (unless and to the extent the Partnership
displaces existing coverage with other coverage), HVAC
maintenance charges and security service charges. The prorations
shall be based on the number of days elapsed during the relevant
period that includes the Closing Date, unless such proration
would be manifestly unfair. An example of such "unfairness"
would be a waterpipe break at an Original Store, two days after
the Closing Date, that results in charges for one million gallons
of water on the water bill for that Original Store for the period
that includes the Closing Date. Under that circumstance, the
Partnership would pay those incremental charges.
2.8 LOS Support for Leases. As a condition to their
consenting to Designs' assigning the Leases to the Partnership,
the landlords under the Leases required that Designs remain
obligated under the Leases. Because that "100 percent" credit
support by Designs would be unfair to Designs in light of the
fact that Designs will have a 70 percent, rather than a
100 percent, equity interest in the Partnership, an LOS Party
shall reimburse Designs for 30 percent of the total amount, if
any, that Designs is required to pay under any of the Leases
respecting the premises covered by the Leases after the Closing.
2.9 Sales Taxes. The Designs Partner shall pay 70 percent
and the LOS Partner shall pay 30 percent of any sales or lease
transfer taxes resulting from the contribution of the Contributed
Assets by the Designs Partner to the Partnership.
2.10 Further Assurances. After the Closing, the Parties
shall sign and deliver all documents and take all other actions
reasonably requested by any Party (but subject to approval by
counsel to the Party being asked to act, who shall not withhold
that approval unreasonably), in order to memorialize or better
effectuate the contribution of the Contributed Assets to the
Partnership and the Partnership's assumption of the obligations
required by Section 2.4. If the Parties complete the Closing
even though they have not obtained one or more third party
consents required in order effectively to assign any Leases or
Contracts to the Partnership, the Parties shall exercise their
best efforts to obtain those consents promptly after the Closing
and, in the meantime, shall cooperate in order to do what they
can to enable the Partnership to realize the benefits of those
Contracts and Leases and assume their burdens.
ARTICLE 3
REPRESENTATIONS BY THE LOS PARTIES
Each of the LOS Parties jointly and severally represents to
each of the Designs Parties that, except as shown on Schedule 3,
as of the Closing:
3.1 Organization and Authority. Each LOS Party is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each LOS Party has all
requisite power and authority to own, lease and operate its
properties, to carry on its present business (if any) and to
enter into and perform each of the Transaction Documents it is
signing. The signing, delivery and performance by each LOS Party
of each such Transaction Document have been duly and validly
authorized by all necessary corporate action on the part of that
LOS Party. Each Transaction Document constitutes a valid and
binding obligation of each LOS Party that is signing that
Transaction Document and is enforceable against that LOS Party in
accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium and other
laws that generally affect creditors and except as may be limited
by general principles of equity. The signing, delivery and
performance of the Transaction Documents by any or all of the LOS
Parties will not, as to any of them: (a) violate or conflict
with any provision of its Certificate of Incorporation or Bylaws,
(b) violate, conflict with, result in a breach or termination of,
or result in the loss of any benefit under, any contract or other
instrument to which that LOS Party is a party or by which any of
its assets is bound, (c) result in the creation of any Lien on
any assets of that LOS Party other than the restrictions imposed
by the Transaction Documents, (d) violate any judgment, order,
injunction, decree or award that binds any LOS Party or any of
its assets or (e) constitute a violation of law.
3.2 Consents and Approvals. Schedule 3.2 to this
Agreement lists all consents and approvals of, and filings and
registrations with, all Persons required in order for each LOS
Party to sign, deliver and perform the Transaction Documents it
is signing. An example is consents from LS&CO.'s lenders. Each
LOS Party has obtained all of those consents and approvals and
made all of those filings and registrations.
3.3 Litigation and Claims. Subject to Schedule 3.3, there
is no suit, action, investigation or other proceeding pending or,
to the best knowledge of any LOS Party, threatened against any
LOS Party relating to the Partnership or any of the transactions
contemplated by any Transaction Document.
3.4 Stock Ownership. LSAI owns all the issued and
outstanding capital stock of LS&CO. LS&CO. owns all the issued
and outstanding capital stock of LOS Inc. LOS Inc. owns all the
issued and outstanding capital stock of the LOS Partner. There
are no puts, calls, warrants or other rights to acquire or
dispose of any capital stock of LS&CO., LOS Inc. or the LOS
Partner or any commitments to grant or issue any such rights,
whether with respect to capital stock that is now outstanding or
capital stock that has not yet been issued. None of the issued
and outstanding capital stock of LS&CO., LOS Inc. or the LOS
Partner is subject to any Lien.
3.5 No Restrictions on Partnership. Subject to Schedule
3.5, no provision of any loan or other agreement that binds any
LOS Party restricts or purports to restrict any activity of the
Partnership.
3.6 Sole Purpose Status. The LOS Partner's sole activities
are to hold its Partnership Interest and to exercise its rights
and perform its obligations under the Transaction Documents. Its
sole assets are its Partnership Interest, its rights under the
Transaction Documents, cash and cash equivalents. Its sole
obligations and liabilities are those arising under the
Transaction Documents and liabilities for expenses incident to
its permitted activities under the Transaction Documents.
3.7 Brokers and Finders. Except as shown on Schedule 3.7,
no broker, finder or other Person acting on behalf of any LOS
Party is or will be entitled to any commission, fee or
reimbursement in connection with any of the transactions
contemplated by the Transaction Document, it being understood
that LS&CO. or another LOS Party shall pay the fee of Morgan
Stanley & Co. Incorporated. Neither of the Designs Parties or
the Partnership shall have any liability for that firm's fee.
ARTICLE 4
REPRESENTATIONS BY THE DESIGNS PARTIES
Each of the Designs Parties jointly and severally represents
to each of the LOS Parties that, except as shown on Schedule 4,
as of the Closing:
4.1 Organization and Authority. Each Designs Party is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each Designs Party has
all requisite power and authority to own, lease and operate its
properties, to carry on its present business (if any) and to
enter into and perform each of the Transaction Documents it is
signing. The signing, delivery and performance by each Designs
Party of each such Transaction Document have been duly and
validly authorized by all necessary corporate action on the part
of that Designs Party. Each Transaction Document constitutes a
valid and binding obligation of each Designs Party that is
signing that Transaction Document and is enforceable against that
Designs Party in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws that generally affect creditors and
except as may be limited by general principles of equity. The
signing, delivery and performance of the Transaction Documents by
either or both of the Designs Parties will not, as to either of
them: (a) violate or conflict with any provision of its
Certificate of Incorporation or Bylaws, (b) violate, conflict
with, result in a breach or termination of, or result in the loss
of any benefit under, any contract or other instrument to which
that Designs Party is a party or by which it or any of its assets
is bound, (c) result in the creation of any Lien on any assets of
that Designs Party other than the restrictions imposed by the
Transaction Documents, (d) violate any judgment, order,
injunction, decree or award that binds that Designs Party or any
of its assets or (e) constitute a violation of law. Designs is
duly qualified to conduct business and is in good standing in the
State of New York, the Commonwealth of Massachusetts and the
District of Columbia.
4.2 Consents, Permits and Approvals. Schedule 4.2 to this
Agreement lists all consents, permits and approvals of, and
filings and registrations with, all Persons required in order for
each Designs Party to sign, deliver and perform the Transaction
Documents it is signing and to enable the Partnership to continue
to conduct, at each Original Store after the Closing, the
business that Designs conducted at that Original Store before the
Closing. Examples are consents from landlords under Leases,
consents from Designs' lenders, and transferred or reissued
operating permits. Each Designs Party has obtained all of those
consents, permits and approvals and made all of those filings and
registrations.
4.3 Litigation and Claims. There is no suit, action,
investigation or other proceeding pending or, to the best
knowledge of any Designs Party, threatened against any Designs
Party relating to the Partnership, any of the transactions
contemplated by any Transaction Document, any of the Contributed
Assets (whether a Contract or another asset), any Original Store
or any aspect of the business conducted at any Original Store.
Nor is there any outstanding judgment, order, injunction, decree
or award that binds any Designs Party with respect to, or
otherwise affects, any of the Contributed Assets (whether a
Contract or another asset), any Original Store or any aspect of
the business conducted at any Original Store.
4.4 Stock Ownership. Designs owns all the issued and
outstanding capital stock of the Designs Partner. There are no
puts, calls, warrants or other rights to acquire or dispose of
any capital stock of the Designs Partner or any commitments to
grant or issue any such rights, whether with respect to capital
stock that is now outstanding or capital stock that has not yet
been issued. None of the issued and outstanding capital stock of
the Designs Partner is subject to any Lien.
4.5 No Restriction on Partnership. No provision of any
loan or other agreement that binds any Designs Party restricts or
purports to restrict any activity of the Partnership.
4.6 Compliance with Laws. Before the Closing, Designs was
conducting the business of the Original Stores in substantial
compliance with all laws applicable to Designs or that business
including, for example, all laws relating to employees, the
environment, consumer protection and land use.
4.7 Title and Condition. At the Closing, the Designs
Partner is conveying to the Partnership good title in and to all
the Contributed Assets free and clear of all Liens. Immediately
after the Closing, the Partnership will have good title to all
the Contributed Assets free and clear of all Liens, except the
restrictions imposed by the Partnership Agreement. To the best
knowledge of the Designs Parties (it being understood that
construction is underway at the premises covered by up to three
of the Leases and that the premises covered by all three of those
Leases are not yet ready for occupancy): (i) there are no
material defects in the premises covered by any of the Leases or
the real estate on which any of those premises are located;
(ii) the utilities and other systems that serve those premises
and that real estate are in normal working order and condition,
ordinary wear and tear excepted and (iii) all the material
fixtures, equipment and furniture that are included among the
Contributed Assets, as well as all the material fixtures,
equipment and furniture leased or otherwise used at any Original
Store, are in normal working order and condition, ordinary wear
and tear excepted.
4.8 Contracts. The Contracts identified on Schedule 2.1
are all the Contracts relating to any Original Store or the
business conducted at any Original Store. The Designs Parties
have given the LOS Partner correct and complete copies of all the
Contracts, including copies of all written amendments to all
Contracts and all material written waivers of rights under all
Contracts. All the Contracts are legal, valid and binding
obligations of Designs and have been properly assigned to the
Designs Partner with the consent of all other parties required to
consent to the assignment. To the knowledge of the Designs
Parties, all the Contracts are also legal, valid and binding
obligations of all the other parties to the Contracts. No
Designs Party and, to the knowledge of the Designs Parties, no
other party to any Contract is in material default under any
Contract. To the knowledge of the Designs Parties, no Designs
Party and no other such party has repudiated or purported to
repudiate any Contract. No party to any Contract is an
Affiliate, director or officer of Designs or a director or
officer of the Designs Partner.
4.9 Financial Statements. Schedule 4.9 contains an income
statement and a balance sheet for the Original Stores for the
periods and as of the dates indicated on Schedule 4.9. That
income statement and balance sheet were prepared in accordance
with generally accepted accounting principles except to the
extent indicated on Schedule 4.9.
4.10 Employees. No Designs Party is party to any
collective bargaining agreement that covers any of the employees
who presently work at, or at any time during the 12 months before
the Closing worked at, any of the Original Stores (in either
case, "Covered Employees"). To the Designs Parties' best
knowledge, no union or other labor organization is attempting or
has attempted to organize any of the Covered Employees. Except
as shown on Schedule 4.10, no Designs Party maintains or
contributes to, nor has maintained or contributed to, any
"employee pension benefit plan" (including any "multiemployer
plan") or any "employee welfare benefit plan" (in each such case
within the meaning of the Employee Retirement Income Security Act
of 1974, as amended, or any rule or regulation adopted under that
act) in which any Covered Employees participate or have
participated.
4.11 Brokers and Finders. Except for Financo, no broker,
finder or other Person acting on behalf of any Designs Party is
or will be entitled to any commission, fee or reimbursement in
connection with any of the transactions contemplated by the
Transaction Documents, it being understood that Designs or the
Designs Partner shall pay the fee of Financo. Neither any LOS
Party nor the Partnership shall have any liability for that
firm's fee.
ARTICLE 5
PRODUCT SUPPLY
5.1 By LS&CO. During the entire term of the Partnership:
(a) LS&CO. shall sell jeans and jeans-related products to the
Partnership for sale at the Partnership's OLSs (except for
products furnished only by LS&CO. licensees) and (b) the
Partnership shall buy all such products from LS&CO. The
Partnership shall be a "Tier 0" (or its equivalent) account of
LS&CO. As such, product purchases shall be governed by the terms
and conditions applicable to, and be accompanied by the services
that LS&CO. makes available from time to time to, other accounts
of that same tier and account segment including, for example,
those relating to priority allocation and shipment, product floor
readiness, and logo and trademark usage. The Partnership shall
place orders for Levi's(R) branded products through an account
representative at LOS Inc. LOS Inc. shall be the Partnership's
exclusive agent for such purchases, but shall not be entitled to
any sales commission or other compensation from the Partnership
for those agency activities. The Partnership shall be subject to
the same distribution policies that apply to LS&CO.'s other
accounts including, for example, those relating to wholesaling,
diversion and retail accumulation.
5.2 By Licensees. In order to achieve consistency with
OLS image criteria, the LOS Partner shall provide merchandise
assistance to the Partnership regarding products supplied by
LS&CO. licensees. During the entire term of the Partnership, the
Partnership shall purchase those products directly from the
licensees. The LOS Partner shall not be entitled to any sales
commission or other compensation for those services. Neither the
LOS Partner nor any Affiliate of the LOS Partner shall be
required to guaranty or shall otherwise be considered responsible
for the conduct or performance of any of LS&CO.'s licensees.
ARTICLE 6
INTELLECTUAL PROPERTY
The Partnership will use certain intellectual property that
belongs to one or the other Partner. Accordingly, at the
Closing, the LOS Partner is sublicensing intellectual property to
the Partnership under the LOS Sublicense Agreement and the
Designs Partner is licensing intellectual property to the
Partnership under the Designs License Agreement. Neither LOS
Inc. nor the LOS Partner shall terminate the LOS Sublicense
Agreement, other than in accordance with its original terms,
without the consent of the Designs Partner. Neither Designs nor
the Designs Partner shall terminate the Designs License
Agreement, other than in accordance with its original terms,
without the consent of the LOS Partner.
ARTICLE 7
OWNERSHIP AND ACTIVITIES
This Article 7 contains certain promises. The Parties
required to perform those promises shall do so beginning on the
Closing Date. A Partner and the other Parties that are
Affiliates of that Partner shall continue to perform those
promises until neither that Partner nor any of its Affiliates is
a partner of the Partnership or a partner of a partnership
reconstituted in accordance with Section 18.4 of the Partnership
Agreement.
7.1 Ownership of LOS Inc. and the LOS Partner. Subject to
their right to Transfer that stock under Section 12.4 of the
Partnership Agreement, LS&CO. shall continue to own 100 percent
of the capital stock of LOS Inc. and LOS Inc. shall continue to
own 100 percent of the capital stock of the LOS Partner. LS&CO.
and LOS Inc. shall hold that stock free and clear of all Liens.
7.2 Ownership of the Designs Partner. Subject to its
right to Transfer that stock under Section 12.4 and Article 13 of
the Partnership Agreement, Designs shall continue to own 100
percent of the capital stock of the Designs Partner. Designs
shall hold that stock free and clear of all Liens.
7.3 Sole Purpose of the LOS Partner. The LOS Partner's
sole assets shall be its Partnership Interest, its rights under
the Transaction Documents, cash and cash equivalents. The LOS
Partner's sole obligations and liabilities shall be those arising
under the Transaction Documents and liabilities for expenses
incident to its permitted activities. The LOS Partner's sole
activities shall be to hold its Partnership Interest and to
exercise its rights and perform its obligations under the
Transaction Documents. However, nothing in this Section 7.3
shall prohibit the LOS Partner from owning and operating any
Stores which the LOS Partner purchases in accordance with the
Partnership Agreement.
7.4 Sole Purpose of the Designs Partner. The Designs
Partner's sole assets shall be its Partnership Interest, its
rights under the Transaction Documents, cash and cash
equivalents. The Designs Partner's sole obligations and
liabilities shall be those arising under the Transaction
Documents and liabilities for expenses incident to its permitted
activities. The Designs Partner's sole activities shall be to
hold its Partnership Interest and to exercise its rights and
perform its obligations under the Transaction Documents.
However, nothing in this Section 7.4 shall prohibit the Designs
Partner from owning and operating any stores which had been
Stores and which the Designs Partner purchases and operates in
accordance with the Partnership Agreement, including its Section
18.6.
7.5 No Future Restrictions. No Party shall enter into any
loan or other agreement or arrangement that imposes any
restrictions or prohibitions on the Partnership or any activity
of the Partnership.
7.6 Same Rules for Affiliates. Section 12.4 of the
Partnership Agreement permits certain Affiliates of the Partners
to acquire or hold Partnership Interests under the circumstances
explained in that Section. If and after a Partner's Affiliate so
acquires or holds any Partnership Interest, all the rules in this
Article 7 that apply to that Partner and to LS&CO. and LOS Inc.
or Designs (whichever is appropriate) with respect to that
Partner shall then apply to that Affiliate and to LS&CO. or
Designs (whichever is appropriate) and every other entity in the
intervening chain of ownership (that is, entities "between"
LS&CO. and Designs, on one hand, and that Affiliate, on the other
hand).
ARTICLE 8
PROMISES IN THE PARTNERSHIP AGREEMENT
The Partnership Agreement requires that LSAI, LS&CO., LOS
Inc. and Designs take certain actions and refrain from taking
certain actions. However, LSAI, LS&CO., LOS Inc. and Designs are
not parties to the Partnership Agreement. Instead, they are
agreeing to take those actions and refrain from taking those
actions by means of this Article 8. Accordingly: (a) LS&CO. and
LOS Inc. shall perform the obligations attributed to them in
Articles 10 through 18 of the Partnership Agreement, (b) LSAI
shall perform the obligations attributed to it in Article 10 of
the Partnership Agreement and (c) LSAI shall cause all the
Affiliates of LSAI that are not Parties to perform the
obligations attributed to them in Articles 10 through 18 of the
Partnership Agreement. The LOS Parties shall have joint and
several liability for any failure by any of them or any of their
Affiliates to perform any of those obligations. In addition:
(d) Designs and the Designs Partner shall perform the obligations
attributed to them in Articles 10 through 18 of the Partnership
Agreement and (e) Designs shall cause all the Affiliates of
Designs that are not Parties to perform the obligations
attributed to them in Articles 10 through 18 of the Partnership
Agreement. The Designs Parties shall have joint and several
liability for any failure by either of them or any of their
Affiliates to perform any of those obligations. Notwithstanding
the foregoing, the Designs Parties and all of their respective
Affiliates shall be entitled to the benefits of, but be subject
to, Section 16.6 of the Partnership Agreement. LSAI, LS&CO., LOS
Inc. and Designs shall each be entitled to enforce Articles 10
through 18 of the Partnership Agreement as express third party
beneficiaries of those Articles.
ARTICLE 9
EMPLOYEES
At the Closing, Designs shall make available to the
Partnership, for hiring by the Partnership, all the employees who
work at the Original Stores except for the employees identified
on Schedule 9.
ARTICLE 10
CUSTOM FIT PROGRAM
LS&CO. and certain of its Affiliates are in the process
of making available to certain accounts a program that will
enable those accounts to provide consumers with custom-fitted
Levi's(R) jeans bottoms. The program is currently being tested in
several Original Stores. LS&CO. expects to "roll" that program
out to accounts during 1995 and in future years. Consistent with
the scheduling for that rollout, LS&CO. shall make this custom
fit program available to the Partnership on terms and conditions
similar to the terms and conditions that LS&CO. makes the program
available to other accounts.
ARTICLE 11
INDEMNIFICATION
11.1 By the LOS Parties. Each of the LOS Parties shall
indemnify the Partnership and each of the Designs Parties and
hold the Partnership and each of Designs Parties harmless from
and against any and all Damages arising from any breach of any
covenant, representation or warranty of any LOS Party set forth
in this Agreement. All decisions by the Partnership regarding
such indemnification shall be made on behalf of the Partnership
by the Designs Partner.
11.2 By the Designs Parties. Each of the Designs Parties
shall indemnify the Partnership and each of the LOS Parties and
hold the Partnership and each of LOS Parties harmless from and
against any and all Damages arising from any breach of any
covenant, representation or warranty of any Designs Party set
forth in this Agreement and from all obligations and liabilities
of any Designs Party that were not expressly assumed by the
Partnership under Section 2.4 or 2.5 of this Agreement. All
decisions by the Partnership regarding such indemnification shall
be made on behalf of the Partnership by the LOS Partner.
11.3 Limitations on Indemnification.
The Parties' indemnification obligations set forth in
this Article 11, together with their liability for any breach of
any representation or warranty set forth in this Participation
Agreement or any "non-contract" remedy arising from their
capitalization of the Partnership (such as negligent
misrepresentation), shall be limited in amount as follows:
(a) The total amount for which the LOS Parties, as a
group, shall be liable shall not exceed the amount contributed by
the LOS Partner to the Partnership under Section 2.3 of this
Agreement (as that amount may be adjusted under that Section).
(b) The total amount for which the Designs Parties, as
a group, shall be liable shall not exceed the total value of the
Contributed Assets (as reflected on the Contributed Asset
Statement).
11.4 Survival. The representations, warranties and
indemnities set forth in this Agreement shall survive the Closing
for two years. Accordingly, in order to be entitled to
indemnification for a breach of a representation or warranty set
forth in this Agreement, an indemnitee must give a written notice
to the indemnitor no later than the second anniversary of the
Closing. The notice must describe the basis for the
indemnification claim and the amount sought.
11.5 Indemnification Rules. Indemnification under this
Article 11 shall be further governed by the rules set forth in
Schedule 11.5 to this Agreement.
11.6 No Punitive Damages. To the full extent permitted by
law, each of the Parties hereby waives any right it might
otherwise have, at any time, to recover punitive, exemplary or
similar damages from any other Party for any breach of any of the
Transaction Documents or otherwise in connection with any of the
transactions or matters addressed in any of the Transaction
Documents.
ARTICLE 12
CONFIDENTIALITY
The Parties anticipate that, by virtue of their
relationships, from time to time each Party will gain access to
trade secrets and other confidential and proprietary information
of the Partnership and the other Parties (collectively
"Confidential Information"). "Confidential Information" does not
include information (a) if and after it becomes publicly known or
otherwise enters the public domain through no wrongful act of the
receiving Party, (b) if it was obtained from a third party and
neither that third party nor any other Person in the "chain"
through which that information passed breached an obligation of
confidentiality to the Party that "owns" the Confidential
Information, (c) which the receiving Party demonstrates it
already knew when it received the information or (d) which the
receiving Party demonstrates it developed independently and
without use of any of the information. Without the prior written
consent of the Party to whom the Confidential Information
belongs, which shall be entitled to withhold its consent in its
absolute discretion, both during and after the Partnership is
terminated no Party shall disclose any Confidential Information
to any non-Party or use any Confidential Information not
belonging to it other than to further the Partnership Purposes or
otherwise implement the Transaction Documents. Each Party shall
communicate the contents of this Article 12 to all of its
employees and agents who shall have access to any Confidential
Information. This Article 12 shall not apply to any Confidential
Information if and after it becomes generally available to the
public for reasons other than a breach of this Article 12,
because Confidential Information was required to be disclosed by
law (including, for example, in a filing with a government
agency), in financial statements or in disclosures to lenders and
insurers and prospective lenders and insurers, or in connection
with its use in resolving a bona fide dispute.
ARTICLE 13
DISPUTE RESOLUTION
Any Controversy under this Agreement or respecting any of
the subjects treated in this Agreement shall be resolved, if
possible, by the good faith efforts of the Parties involved
including, if other efforts fail, a face-to-face meeting between
a senior manager of each adverse Party. If any Controversy is
not settled by such efforts within 30 days after one of the
Parties requests such a meeting, any Party to the Controversy
shall be entitled to cause the Controversy to be resolved by an
arbitrator employed by JAMS/Endispute. If a Designs Party
initiates arbitration, the arbitration shall be conducted in
whichever of Columbus, Ohio or San Francisco, California LOS
chooses. If an LOS Party initiates arbitration, the arbitration
shall be conducted in Boston, Massachusetts. The arbitration
shall be conducted in accordance with JAMS/Endispute's then-
applicable Rules of Practice and Procedure for Arbitration.
Pending the completion of any arbitration proceeding, obligations
not in dispute shall continue to be performed. Except as
provided below, such arbitration shall be the Parties' exclusive
formal means of resolving any such Controversy. The decision of
the arbitrator shall be final and binding on all Parties.
Judgment upon any award rendered by the arbitrator may be entered
by any state or federal court having jurisdiction.
Notwithstanding the foregoing, to preserve rights or prevent or
mitigate Damages and in aid of the arbitration process, any Party
to the arbitration may apply to such a court for temporary or
preliminary injunctive or other equitable relief pending the
results of the arbitration. However, if the final decision of
the arbitrator is inconsistent with any such relief so obtained,
the arbitrator's final decision shall preempt that relief.
ARTICLE 14
MISCELLANEOUS
14.1 Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the permitted successors and
assigns of the Parties. However, the Parties shall not assign
any of their rights or delegate any of their duties under this
Agreement except as expressly provided in this Agreement or
another Transaction Document. Any purported assignment or
delegation in violation of this Agreement or another Transaction
Document shall be void.
14.2 Amendments. All amendments to this Agreement must be
in writing and be signed by all Partners. By written instrument,
the Designs Partner may waive compliance by any LOS Party of any
provision of this Agreement that benefits either Designs Party.
The LOS Partner may do likewise with respect to any provision of
this Agreement that benefits any LOS Party.
14.3 Notices. All notices under this Agreement shall be in
writing and shall be deemed to have been duly given only if and
when delivered by hand, by overnight delivery service or by
telecopier, in all cases with receipt confirmed, to the
appropriate addressees and the addresses or telecopier numbers
set forth below, or to such other addressees, addresses or
telecopier numbers as may be designated by notice given in
accordance with this section:
If to a Designs Party:
Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attention: Chief Executive Officer
Facsimile: (617) 734-3406
with a copy to:
Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attention: General Counsel
Facsimile: (617) 734-3406
If to an LOS Party:
Levi's Only Stores, Inc.
116 East Chestnut Street
Columbus, Ohio 43215
Attention: President
Facsimile: (614) 228-5769
with a copy to:
Levi Strauss & Co.
Levi's Plaza
1155 Battery Street
San Francisco, California 94111
Attention: General Counsel/LOS
Facsimile: (415) 544-7650
If to the Partnership:
The Designs/OLS Partnership
c/o Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attention: General Manager
Facsimile: (617) 734-3406
14.4 Partnership as Signatory. Promptly after the Partners
sign the Partnership Agreement, they shall also sign this
Agreement on behalf of the Partnership. The effect of their
doing so shall be to cause the Partnership to be a Party to this
Agreement (as that term is used in this Agreement), to confer on
the Partnership the right to enforce this Agreement against any
other Party and to confer on those other Parties the right to
enforce this Agreement against the Partnership. Decisions
regarding the exercise of the Partnership's rights shall be made
in accordance with Section 5.11 of the Partnership Agreement.
14.5 Counterparts. This Agreement may be signed in one or
more counterparts. Each counterpart shall be deemed an original
of this Agreement.
14.6 No Third Party Beneficiaries. Only the Parties and
their permitted assigns may enforce this Agreement or obtain any
remedy for any breach of this Agreement. Accordingly, this
Agreement shall have no third party beneficiaries.
14.7 Entire Agreement. This Agreement (including the
Schedules to this Agreement) and the other Transaction Documents
contain all the understandings between and among the Parties with
respect to their subject matter. They supersede all prior and
contemporaneous agreements and understandings between and among
the Parties relating to that subject matter.
14.8 Expenses. Each Party shall pay its own expenses
incurred in negotiating and drafting this Agreement and the other
Transaction Documents and in effecting the Closing.
14.9 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of
Delaware applicable
to contracts entered into and to be performed
within Delaware by Delaware residents.
* * *
The Parties have signed and delivered this Agreement as of the
date that appears in its first paragraph.
DESIGNS JV CORP.
By /s/ Joel Reichman
Joel Reichman,
President
DESIGNS, INC.
By /s/ Joel Reichman
Joel Reichman,
President
LDJV INC.
By /s/ Edward T. Murphy
Edward T. Murphy,
President
LEVI'S ONLY STORES, INC.
By /s/ Edward T. Murphy
Edward T. Murphy,
President
LEVI STRAUSS & CO.
By /s/ Robert D. Rockey, Jr.
Robert D. Rockey, Jr.,
Senior Vice President
LEVI STRAUSS ASSOCIATES INC.
By /s/ Robert D. Rockey, Jr.
Robert D. Rockey, Jr.,
Senior Vice President
The Partnership's signature below has the effects set forth in
Section 14.4 of this Agreement.
THE DESIGNS/OLS PARTNERSHIP
By Designs JV Corp., a Partner
By /s/ Joel Reichman
Joel Reichman,
President
By LDJV Inc., a Partner
By /s/ Edward T. Murphy
Edward T. Murphy,
President
PARTICIPATION AGREEMENT
among
DESIGNS JV CORP.
DESIGNS, INC.
LDJV INC.
LEVI'S ONLY STORES, INC.
LEVI STRAUSS & CO.
and
LEVI STRAUSS ASSOCIATES INC.
dated as of
January 28, 1995
TABLE OF CONTENTS
Page
ARTICLE 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 - CONTRIBUTIONS TO THE PARTNERSHIP. . . . . . . . . 2
2.1 Contribution by the Designs Partner . . . . . . . 2
2.2 Excluded Assets . . . . . . . . . . . . . . . . . 4
2.3 Contribution by the LOS Partner . . . . . . . . . 5
2.4 Assumption of Certain Obligations . . . . . . . . 8
2.5 Gift Certificates and Credits . . . . . . . . . . 8
2.6 No Other Assumptions. . . . . . . . . . . . . . . 9
2.7 Prorations. . . . . . . . . . . . . . . . . . . . 9
2.8 LOS Support for Leases. . . . . . . . . . . . . . 10
2.9 Sales Taxes.. . . . . . . . . . . . . . . . . . . 10
2.10 Further Assurances. . . . . . . . . . . . . . . . 11
ARTICLE 3 - REPRESENTATIONS BY THE LOS PARTIES. . . . . . . . 11
3.1 Organization and Authority. . . . . . . . . . . . 12
3.2 Consents and Approvals. . . . . . . . . . . . . . 13
3.3 Litigation and Claims . . . . . . . . . . . . . . 13
3.4 Stock Ownership . . . . . . . . . . . . . . . . . 13
3.5 No Restrictions on Partnership. . . . . . . . . . 14
3.6 Sole Purpose Status . . . . . . . . . . . . . . . 14
3.7 Brokers and Finders . . . . . . . . . . . . . . . 14
ARTICLE 4 - REPRESENTATIONS BY THE DESIGNS PARTIES. . . . . . 15
4.1 Organization and Authority. . . . . . . . . . . . 15
4.2 Consents, Permits and Approvals . . . . . . . . . 16
4.3 Litigation and Claims . . . . . . . . . . . . . . 16
4.4 Stock Ownership . . . . . . . . . . . . . . . . . 17
4.5 No Restriction on Partnership . . . . . . . . . . 17
4.6 Compliance with Laws. . . . . . . . . . . . . . . 17
4.7 Title and Condition . . . . . . . . . . . . . . . 18
4.8 Contracts . . . . . . . . . . . . . . . . . . . . 18
4.9 Financial Statements. . . . . . . . . . . . . . . 19
4.10 Employees . . . . . . . . . . . . . . . . . . . . 19
4.11 Brokers and Finders . . . . . . . . . . . . . . . 20
ARTICLE 5 - PRODUCT SUPPLY. . . . . . . . . . . . . . . . . . 20
5.1 By LS&CO. . . . . . . . . . . . . . . . . . . . . 20
5.2 By Licensees. . . . . . . . . . . . . . . . . . . 21
ARTICLE 6 - INTELLECTUAL PROPERTY . . . . . . . . . . . . . . 22
ARTICLE 7 - OWNERSHIP AND ACTIVITIES. . . . . . . . . . . . . 22
7.1 Ownership of LOS Inc. and the LOS Partner . . . . 23
7.2 Ownership of the Designs Partner. . . . . . . . . 23
7.3 Sole Purpose of the LOS Partner . . . . . . . . . 23
7.4 Sole Purpose of the Designs Partner . . . . . . . 24
7.5 No Future Restrictions. . . . . . . . . . . . . . 24
7.6 Same Rules for Affiliates . . . . . . . . . . . . 24
ARTICLE 8 - PROMISES IN THE PARTNERSHIP AGREEMENT . . . . . . 25
ARTICLE 9 - EMPLOYEES . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 10 - CUSTOM FIT PROGRAM. . . . . . . . . . . . . . . . 27
ARTICLE 11 - INDEMNIFICATION . . . . . . . . . . . . . . . . . 27
11.1 By the LOS Parties. . . . . . . . . . . . . . . . 27
11.2 By the Designs Parties. . . . . . . . . . . . . . 28
11.3 Limitations on Indemnification. . . . . . . . . . 28
11.4 Survival. . . . . . . . . . . . . . . . . . . . . 29
11.5 Indemnification Rules . . . . . . . . . . . . . . 29
11.6 No Punitive Damages . . . . . . . . . . . . . . . 29
ARTICLE 12 - CONFIDENTIALITY . . . . . . . . . . . . . . . . . 30
ARTICLE 13 - DISPUTE RESOLUTION. . . . . . . . . . . . . . . . 31
ARTICLE 14 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . 32
14.1 Successors and Assigns. . . . . . . . . . . . . . 32
14.2 Amendments. . . . . . . . . . . . . . . . . . . . 33
14.3 Notices . . . . . . . . . . . . . . . . . . . . . 33
14.4 Partnership as Signatory. . . . . . . . . . . . . 34
14.5 Counterparts. . . . . . . . . . . . . . . . . . . 35
14.6 No Third Party Beneficiaries. . . . . . . . . . . 35
14.7 Entire Agreement. . . . . . . . . . . . . . . . . 35
14.8 Expenses. . . . . . . . . . . . . . . . . . . . . 35
14.9 Governing Law. . . . . . . . . . . . . . . . . . . 35
Schedules
2.1 List of Contributed Assets
2.2 Excluded Inventory
2.3 Rules for Applying Asset Valuation Formula
3 Schedule of Exceptions to the LOS Parties'
Representations
3.2 List of LOS Consents and Approvals
3.3 LOS Litigation and Claims
3.5 LOS Restrictions
3.7 LOS Brokers and Finders
4 Schedule of Exceptions to the Designs Parties'
Representations
4.2 List of Designs Consents, Permits and Approvals
4.9 Financial Statements
4.10 Employee Plans
9 Retained Employees
11.5 Indemnification Rules
PARTNERSHIP AGREEMENT
THIS IS A PARTNERSHIP AGREEMENT (the "Agreement") dated
as of January 28, 1995 by and between Designs JV Corp., a
Delaware corporation (the "Designs Partner"), and LDJV Inc., a
Delaware corporation (the "LOS Partner"). The Designs Partner
and the LOS Partner are sometimes referred to individually as a
"Partner" and collectively as the "Partners".
B A C K G R O U N D
The Partners desire to form a general partnership that
will operate retail stores. Those stores will sell Levi's(R)
branded adult jeans and jeans-related products. This Agreement,
together with a Participation Agreement and other agreements referred
to in that Participation Agreement, address how the
partnership will operate and other matters relating to the
partnership.
ACCORDINGLY, THE PARTNERS HEREBY AGREE AS FOLLOWS:
ARTICLE 1
DEFINITIONS
The capitalized terms used in this Agreement that are
not defined in this Agreement have the meanings given them in the
Glossary that the Partners signed as of the same date they signed
this Agreement, as that Glossary may be amended from time to
time.
ARTICLE 2
FORMATION, PURPOSE AND TERM
2.1 Formation. The Partners hereby form a general
partnership (the "Partnership") under the Delaware UPA. The
Partners intend that, to the fullest extent possible, in any and
every respect in which this Agreement departs from the Delaware
UPA or any other applicable law, the provisions of this Agreement
will govern the Partnership and the Partners.
2.2 Name. The name of the Partnership shall be "The
Designs/OLS Partnership".
2.3 Purposes. The purposes of the Partnership are to
operate OLSs and Outlets located and to be located in the
Territory, while at the same time maintaining and enhancing the
image of the Levi's(R) brand and earning acceptable returns for the
Partners. Those purposes are referred to in this Agreement as
the "Partnership Purposes".
2.4 Powers. The Partnership shall have all the powers that
may be exercised by a general partnership formed under the
Delaware UPA. However, the Partnership shall exercise those
powers only in order to pursue Partnership Purposes and to
implement decisions reached by its Management Committee.
2.5 Manner of Conducting Business. The Partnership at all
times shall conduct its business in accordance with the highest
of ethical standards. To that end, through its Management
Committee (see Article 5 of this Agreement), the Partnership
shall adopt a mission statement and a code of ethics.
2.6 Principal Office. The initial principal office of the
Partnership shall be located at 1244 Boylston Street, Chestnut
Hill, Massachusetts 01267. As long as the Designs Partner is a
partner of the Partnership, the principal office of the
Partnership will be located at the principal office of Designs in
the United States. If and after the Designs Partner ceases to be
a partner of the Partnership, the principal office of the
Partnership shall be located at a site selected by the Management
Committee. See Section 5.9(k) of this Agreement.
2.7 Term. Except as provided elsewhere in this Agreement,
the Partnership shall be dissolved on January 29, 2005 (the
"Termination Date"). Neither Partner shall have any obligation
to extend the Partnership's term beyond the Termination Date
other than to the extent necessary to wind up the Partnership in
accordance with the terms of this Agreement.
ARTICLE 3
INITIAL CAPITAL CONTRIBUTIONS
3.1 Initial Contribution by the Designs Partner. In
accordance with the Participation Agreement, at the Closing, the
Designs Partner is transferring to the Partnership (or causing to
be transferred to the Partnership) all of Designs' and the
Designs Partner's right, title and interest in and to the
Contributed Assets.
3.2 Initial Contribution by the LOS Partner. In accordance
with the Participation Agreement, at the Closing the LOS Partner
is transferring $5,400,000 in cash to the Partnership. That
contribution shall be adjusted by means of an additional
contribution by the LOS Partner to the Partnership or a refund by
the Partnership to the LOS Partner if and to the extent required
by Subsection 2.3(e) of the Participation Agreement.
3.3 Partnership Interests. In exchange for its equity
contributions, each Partner shall receive an uncertificated
equity interest in the Partnership (each a "Partnership
Interest"). After the contributions described in Sections 3.1
and 3.2 of this Agreement, the Designs Partner shall have a
70 percent Partnership Interest and the LOS Partner shall have a
30 percent Partnership Interest. (The percentage interest that
each Partnership Interest represents in the Partnership is called
a "Percentage Interest".) The Partnership Interests shall
represent interests in the Partnership as a legal entity, not an
interest in any Partnership Assets as such.
3.4 Assumption of Commitments. At the Closing, the
Partnership is assuming certain obligations of Designs in
accordance with Sections 2.4 and 2.5 of the Participation
Agreement. As explained in Section 2.6 of the Participation
Agreement, the Partnership is not assuming any other obligations
or liabilities.
ARTICLE 4
FUTURE CAPITAL SOURCES
4.1 In General. Generally speaking, the Partners intend
that the Partnership's working capital and funds for its future
expansion will come from Partnership operations and Partnership
borrowings from third parties. The Partners may also decide that
they or their Affiliates should contribute or loan additional
funds to the Partnership or guaranty third-party debt. However,
any and all uses of outside funds or credit support (whether from
a Partner, an Affiliate of a Partner or another Person) must be
approved in accordance with this Agreement.
4.2 Guaranties and Other Contributions and Borrowings.
Neither Partner and no Affiliate of either Partner shall be
required to make any loan to the Partnership, to guaranty any
Debt or obligations of the Partnership or to make any capital
contribution to the Partnership (except as required by Article 3
of this Agreement or Section 2.8 of the Participation Agreement),
unless both Partners agree to the contribution, guaranty or loan,
including all its terms and conditions. In addition, except as
permitted by Section 4.3, neither Partner and no Affiliate of
either Partner shall be permitted to make any loan to the
Partnership, unless both Partners agree to that loan, including
all its terms and conditions. Assent by a Partner to a Business
Plan, whether by means of this Agreement or that Partner's
representatives on the Management Committee, shall not constitute
an undertaking by that Partner to make a capital contribution or
extend a guaranty or loan to or on behalf of the Partnership
unless the Business Plan, as so approved, expressly states
otherwise.
4.3 Consequences of Failure to Fund. If and after a
Partner becomes obligated to make a capital contribution or to
loan funds to the Partnership, then, if that Partner
(a "Defaulting Partner") fails to advance any of the committed
funds when required, the other Partner (the "Non-Defaulting
Partner") shall be entitled to advance all, some or none of those
funds and also all, some or none of the funds, if any, that the
Non-Defaulting Partner had committed to advance. (Any and all
such loans, including any and all loans representing funds that
the Non-Defaulting Partner had committed to advance if, in fact,
it advances them, are referred to as "Cure Loans".) The Non-
Defaulting Partner must extend a Cure Loan, if at all, no later
than 75 days after the Defaulting Partner was required to advance
funds. Subject to the terms imposed by any then-existing Debt of
the Partnership (other than the terms of any such Debt to the
Defaulting Partner or any Affiliate of the Defaulting Partner),
Cure Loans shall be senior obligations of the Partnership and
shall be secured by all the Partnership Assets. Cure Loans shall
bear interest at a rate equal to 300 basis points in excess of
the interest rate that would have applied to the loan that the
Defaulting Partner was required to fund (if the default related
to a loan commitment) or 500 basis points in excess of the Base
Rate (if the default related to a capital commitment). Interest
on Cure Loans shall be paid quarterly and all principal shall be
paid 18 months after the Cure Loan is extended. All Cure Loans,
whether or not payable to the same Partner, shall be pari passu
(that is, on an equal footing) with all other Cure Loans. Cure
Loans shall be recourse both to the Partnership and, severally in
accordance with their respective Percentage Interests, to the
Partners. A Partner shall not be entitled to any distribution
from the Partnership (including, for example, a distribution
under Section 14.4 of this Agreement), unless and until all Cure
Loans arising from that Partner's failure to advance funds to the
Partnership which that Partner was required to advance have been
paid in full. However, a Partner's failure to advance funds to
the Partnership which that Partner was required to advance or a
Partner's failure to discharge its recourse obligations
respecting a Cure Loan shall not be deemed a Material Breach.
Each Partner hereby grants an irrevocable power of attorney to
the other Partner to act on behalf of the granting Partner, if
and after the granting Partner becomes a Defaulting Partner, in
order to sign and deliver all documents and take all other
actions that the Non-Defaulting Partner reasonably concludes are
necessary or useful in order to implement this Section 4.3. That
power of attorney also authorizes the Non-Defaulting Partner to
sign documents and take other actions on behalf of the
Partnership for that same purpose.
ARTICLE 5
MANAGEMENT
5.1 In General. The Partners believe that the Partnership
is most effectively managed through the active participation of
both Partners. The Partners intend to accomplish that in four
principal ways. First, they will appoint representatives to a
Management Committee (the "Management Committee"). The
Management Committee will be a forum for policy formation and
have overall responsibility for management and control of the
business and affairs of the Partnership. Second, the Partners
and the Management Committee will select a General Manager for
the Partnership and work with that General Manager. Third, they
will participate directly in their areas of special expertise
(operations for the Designs Partner and marketing and
merchandising for the LOS Partner). Finally, the Management
Committee will consider and approve an annual Business Plan for
the Partnership. This Article 5 and Articles 6 and 7 elaborate
these principles.
5.2 Membership. The Management Committee shall have six
members. The Designs Partner shall appoint four of those members
and the LOS Partner shall appoint the other two members. The
Partners' initial appointments to the Management Committee are
set forth on Schedule 5.2 to this Agreement. Any member of the
Management Committee may resign from the Management Committee at
any time by giving written notice to both Partners and the
Partnership. Either Partner at any time may replace any one or
more of its representatives on the Management Committee or fill
any vacancies created by the removal, resignation or other
departure of one or more of its representatives by giving written
notice to the Partnership and the other Partner. However, a
Partner may not take any such action with respect to the other
Partner's representatives on the Management Committee or any
vacancy on the Management Committee reserved for the other
Partner's representative. Moreover, the Management Committee may
not take any such action with respect to any of its members or
any vacancies on the Management Committee.
5.3 Chair. One member of the Management Committee shall
serve as its Chair. The Designs Partner shall select the initial
Chair, who shall serve until the end of the 1996 Fiscal Year.
The LOS Partner shall select the next Chair, who shall serve
during the 1997 Fiscal Year. Thereafter, the Designs Partner and
the LOS Partner shall take turns appointing the Chair for each
successive Fiscal Year (the Designs Partner for the 1998 Fiscal
Year, the LOS Partner for the 1999 Fiscal Year, etc.).
5.4 Quorum. A quorum for the conduct of business by the
Management Committee shall consist of two members of the
Management Committee appointed by the Designs Partner and one
member appointed by the LOS Partner. A quorum must be present
when the Management Committee votes on a matter in order for that
vote to be effective. However, members constituting less than a
quorum may adjourn a meeting of the Management Committee at any
time.
5.5 Voting. Each member of the Management Committee shall
be entitled to one vote. In order to be approved, Major Actions
(see Section 5.9 of this Agreement) must be approved by the
affirmative vote of a majority of the members appointed by the
Designs Partner who participate in the meeting and by the
affirmative vote of a majority of the members appointed by the
LOS Partner who participate in the meeting. For example, in
order for a Major Action to be approved at a meeting attended by
three representatives of the Designs Partner and two
representatives of the LOS Partner, at least two of those
representatives of the Designs Partner and both representatives
of the LOS Partner must vote for that action. All decisions by
the Management Committee not constituting Major Actions must be
approved by the affirmative vote of a majority of all the members
who participate in the meeting. In lieu of a meeting, the
Management Committee may take any action by means of a written
consent signed by that number of members (including that number
of representatives of each Partner) necessary to vote in favor of
an action in order for that action to be approved at a meeting of
the Management Committee.
5.6 Meetings. The Management Committee shall meet at
least six times during each Fiscal Year or, after the 1996 Fiscal
Year, as often as may otherwise be determined by the Management
Committee but in no event less than four times during each Fiscal
Year. The Management Committee shall also hold a special meeting
at the request of either Partner at any time, albeit subject to
the notice requirements of Section 5.7. Unless both Partners
agree otherwise, as long as the Management Committee is meeting
at least six times during each Fiscal Year, at least four
meetings shall be held at the Partnership's headquarters and at
least two meetings shall be held at a location selected by the
LOS Partner. However, any member may participate in any meeting
by telephone, video conference or other electronic medium,
provided that all members who participate in the meeting can hear
all other members who participate in the meeting.
5.7 Notices. Meetings of the Management Committee,
whether regular or special, shall be held on at least ten days'
written notice to all members of the Management Committee. Any
member may waive notice of a meeting, in writing, either before
or after a meeting. In addition, if a member participates in a
meeting and does not protest the lack of proper notice at the
beginning of the meeting, that member's participation shall
constitute a waiver of notice for that meeting.
5.8 Subcommittees. In accordance with Section 5.9, the
Management Committee from time to time may delegate any and all
of its powers and functions to one or more committees. If and
when it appoints a committee, the Management Committee shall
specify the procedures and decisionmaking rules (that is, rules
regarding the sorts of matters addressed in Sections 5.3 through
5.7 of this Agreement) that shall govern the committee's
deliberations. In accordance with Section 5.9, the Management
Committee may at any time cause any powers or functions to be
withdrawn from a committee or cause any committee to be
disbanded, and may also modify any procedures or decisionmaking
rules under which an existing committee operates.
5.9 Major Actions. This Section 5.9 contains a list of
matters, actions and decisions (collectively "Major Actions")
which require a special vote of the Management Committee unless
they are already required by this Agreement. (An example of an
action "required by this Agreement" is a sale of one or more OLSs
in accordance with Article 14 of this Agreement.) In the absence
of such a vote or provision in this Agreement, neither the
Partnership nor any Person purporting to act on behalf of the
Partnership shall:
(a) incur any Debt in excess of $50,000 or materially
modify the terms of any existing Debt involving more than that
amount;
(b) make any loans or advances or grant any financial
guaranties except (i) in connection with normal credit
arrangements with vendors, (ii) investments in the ordinary
course of business such as demand deposits, certificates of
deposits and bank repurchase agreements and (iii) endorsements
for collection;
(c) sell or lease to others any Partnership Asset or
group of related Partnership Assets (except for sales of
inventory in the ordinary course of business), if the depreciated
book value of such asset or assets exceeds $100,000;
(d) purchase or lease from others any asset or group
of related assets (except for purchases of inventory in the
ordinary course of business), if the purchase price or total
lease payments for such assets or group of assets are likely to
exceed $100,000;
(e) approve a Business Plan (the subject of Business
Plans is addressed in Article 7 of this Agreement);
(f) enter into, amend or terminate any agreement or
arrangement, not otherwise described in a Business Plan, which is
likely to require total payments by or to the Partnership in
excess of $100,000;
(g) incur operating expenses during any Fiscal Year
that, together with the other operating expenses incurred during
that Fiscal Year, exceed by more than 10 percent the total
operating expenses specified in the Business Plan that was
approved for that Fiscal Year;
(h) make any capital expenditure that exceeds, by the
lesser of 10 percent or $20,000 (prorated for the Partnership's
"short" first Fiscal Year), any capital expenditure line item in
any Business Plan approved for that Fiscal Year, but excluding
unbudgeted capital expenditures during any Fiscal Year not
exceeding $20,000 in total (again, prorated for that first Fiscal
Year);
(i) establish or disband a committee of the Management
Committee or prescribe or modify the membership, powers,
functions, procedures or decisionmaking rules of any such
committee;
(j) change or adopt any material accounting principles
or practices;
(k) select the location of the principal office of the
Partnership if and after the Designs Partner ceases to be a
partner of the Partnership;
(l) dismiss a Consultant or select a new Consultant
for any of the Stores;
(m) make or revoke any tax election or adopt or change
any Tax Accounting Method;
(n) change the Partnership Purposes;
(o) sell, license, sublicense or otherwise transfer
any interest in any material intellectual property to which the
Partnership has rights;
(p) approve: (i) the appointment, reappointment or
removal of the GM (see Section 6.2 of this Agreement) or (ii) any
employment agreement with the GM or with any other senior manager
of the Partnership;
(q) distribute cash or any other Partnership Assets to
one or both of the Partners (other than as required by
Section 9.3 or another provision of this Agreement) or fail to
make a distribution that is required by this Agreement or was
previously approved in accordance with this Subsection 5.9(q)
(except that this Subsection 5.9(q) shall not apply to payments
to a Partner in its capacity as a creditor of the Partnership);
(r) locate, construct, purchase, lease or close any
Store in the Territory;
(s) issue any additional equity interests in the
Partnership, whether to a Partner or any other Person, require
that any Partner or other Person make any equity contribution to
the Partnership or permit any Partner or other Person to make
such a contribution;
(t) except as a result of a Transfer permitted by this
Agreement, admit a new partner to the Partnership;
(u) institute, settle or compromise any lawsuit or
other claim (or group of related lawsuits or claims) against or
by the Partnership or affecting any Partnership Assets, or select
counsel for any such lawsuit, claim or group of lawsuits or
claims (except that this Subsection 5.9(u) shall not apply to any
dispute or claim between the Partners or between a Partner and
the Partnership);
(v) adopt or modify any material marketing or
merchandising strategy regarding product mix, trade dress,
advertising or gross margin objectives; or
(w) commit to proceed with any of the actions or
matters described in this Section 5.9.
If the voting rule set forth in Section 5.5 of this Agreement
results in a deadlock regarding any Major Action, either Partner
may refer the deadlocked matter to non-binding mediation. The
mediator shall be selected by (or in any manner prescribed by)
the Partner that first seeks mediation. In trying to persuade
the Partners that they should reach agreement on the deadlocked
matter, the mediator shall give primary consideration to the
furtherance of the Partnership Purposes. Notwithstanding the
foregoing, a proposal to expand the Partnership beyond the Stores
contemplated by the Partnership's 1996 Business Plan shall not be
submitted to mediation.
5.10 Matters for Management Committee. The Management
Committee shall prescribe, from time to time, what matters,
actions and decisions must be brought to the Management Committee
for approval, as contrasted with those matters, actions and
decisions that may be taken or resolved by the Partnership's
management without specific approval by the Management Committee.
However, all Major Actions shall be brought to the Management
Committee for approval and may only be approved in accordance
with Section 5.5.
5.11 Special Rules for Insider Transactions.
(a) In order to encourage arm's-length decision-making
and irrespective of anything to the contrary set forth in this or
any other Transaction Document, every decision (other than day-
to-day operating decisions) regarding any agreement or
arrangement between, on one hand, the Partnership and, on the
other hand, a Partner or an Affiliate of a Partner may be made on
behalf of the Partnership by the Partner that is neither the
party nor an Affiliate of the party to that agreement or
arrangement if that "disinterested" Partner chooses to make that
decision. Examples include decisions to enter into, modify or
terminate any such agreement or arrangement, waive any material
rights under any such agreement or arrangement, and arbitrate,
litigate or otherwise act in connection with any Controversy
respecting any such agreement or arrangement. Accordingly, the
Designs Partner, alone, will be entitled to negotiate and make
decisions on behalf of the Partnership about any modification to
the LOS Sublicense Agreement. Likewise, the LOS Partner, alone,
will be entitled to negotiate and make decisions on behalf of the
Partnership about any modification to the Designs License
Agreement.
(b) Notwithstanding Subsection 5.11(a), but subject to
LS&CO.'s normal policies and procedures respecting resales of
products, the GM shall make or oversee decisions on behalf of the
Partnership regarding resales of closeout, slow-moving and
irregular products. The GM shall direct those products to the
Partnership's Outlets whenever practical. If product available
from the Partnership's OLSs is insufficient to meet the
Partnership's Outlets' needs, the GM shall cause the
Partnership's Outlets to seek product from other sources,
including Designs and any LOS Party. If, instead, the GM
concludes that the Partnership's Outlets cannot profitably absorb
all of the Partnership's closeout, slow-moving and irregular
merchandise, the GM shall cause the Partnership to offer the
excess merchandise:
(i) during Fiscal Years ending in an even integer
(Fiscal Year 1996, Fiscal Year 1998, etc.): (x) first
to Designs at a price equal to 65 percent of the
Partnership's cost for such merchandise; then (y) if
and to the extent Designs does not purchase at that
price, to outlets located outside the Territory owned
by LOS or another LOS Party at that same price and then
(z) if and to the extent no LOS Party purchases at that
price, to any and all resellers, including LOS Parties
and Designs, at the best price available and
(ii) during Fiscal Years ending in an odd integer
(Fiscal Year 1997, Fiscal Year 1999, etc.): (x) first
to outlets located outside the Territory owned by LOS
or another LOS Party at a price equal to 65 percent of
the Partnership's cost for such merchandise; then
(y) if and to the extent no LOS Party purchases at that
price, to Designs at that same price and then (z) if
and to the extent Designs does not purchase at that
price, to any and all resellers, including LOS Parties
and Designs, at the best price available.
For purposes of applying these rules, merchandise shall be
attributed to a particular Fiscal Year (one ending in an odd
integer or one ending in an even integer) on the basis of the
Fiscal Year during which the Partnership first identifies the
merchandise as being closeout, slow-moving or irregular
merchandise in accordance with its normal procedures for doing
so. Designs may, from time to time, assign any or all of its
rights under this Subsection 5.11(b) to any Affiliate of Designs.
5.12 No Dissolution. A failure by the Management Committee
to approve any proposed Major Action shall not result in a
dissolution of the Partnership. Rather, the Partnership shall
only be dissolved in accordance with the provisions of this
Agreement. For example, a failure by the Management Committee to
approve a Major Action that would have the effect of expanding
the Partnership beyond the Stores included in the Partnership's
1996 Business Plan (see Article 7 of this Agreement) shall not
result in a dissolution of the Partnership. Either Partner is
entitled to evaluate expansion beyond the Stores included in that
Business Plan and decide that the Partnership shall not so
expand. Its doing so shall have no effect on the status of the
Partnership.
5.13 Access. Each Partner and its agents, and every member
of the Management Committee, shall have access, at reasonable
times and upon reasonable notice, to all facilities, operations,
personnel, records, and financial and other information of or
pertaining to the Partnership. However, this right shall not
extend to confidential memos or other confidential documents
generated by or for a Partner or an Affiliate of a Partner.
Examples are plans or strategies regarding the Partnership or its
ownership interest in the Partnership.
5.14 Compensation. Except as provided in Section 19.1 of
this Agreement, each Partner shall be responsible for
compensating its representatives on the Management Committee for
acting in that capacity and also reimbursing them for their
related expenses.
ARTICLE 6
SENIOR MANAGERS, EMPLOYEES AND OPERATIONS
6.1 In General. As further elaborated in this Article 6,
the Partnership shall employ the Partnership's senior managers
and the store employees. In addition, Designs shall furnish
certain services to the Partnership under the Administrative
Services Agreement and the LOS Partner shall provide the
Partnership with marketing and merchandising assistance.
6.2 Senior Managers in General. The Partnership shall
employ a General Manager (the "GM") and the other senior managers
specified on Schedule 6.2. The Partnership shall also employ
such other senior managers as the Management Committee may
designate from time to time. Those other senior managers, if
any, shall have such powers, titles and duties, not inconsistent
with this Agreement, as the Management Committee shall specify.
All senior managers of the Partnership shall devote their
exclusive full-time efforts to operating and managing the
Partnership. The Partnership's initial senior managers are
identified on Schedule 6.2.
6.3 Duties of the GM. The GM shall manage and oversee the
general business and affairs of the Partnership, subject to the
direction of the Management Committee. The GM shall interact
with the Partners and the Management Committee, all as provided
in a Business Plan approved by the Management Committee.
6.4 Store Employees. The Partnership shall employ the
persons who operate the Stores. In order to achieve that end, at
the Closing Designs will authorize the Partnership to hire
certain of its employees whose principal place of employment is
at an Original Store. See Article 9 of the Participation
Agreement.
6.5 Assistance by the LOS Partner. For so long as the LOS
Partner is a Partner, at its own expense the LOS Partner shall
provide the Partnership with guidance and assistance regarding
store image and presentation, advertising, merchandising and
packaging. Those activities and services will be described in
one or more Business Plans approved by the Management Committee.
6.6 Administrative Services by Designs. Designs shall
provide the Partnership with operational and administrative
services, including lease negotiations, site recommendations,
store construction oversight, accounting, information systems,
implementation of operating policies, product ordering, hiring
and other personnel functions, and preparation of proposed
Business Plans. It shall perform those services pursuant to and
as described in the Administrative Services Agreement and in one
or more Business Plans approved by the Management Committee.
ARTICLE 7
BUSINESS PLAN
The Partnership shall prepare an annual Business Plan. The
Business Plan shall: (a) include an assessment of the economy,
(b) set forth assumptions for the plan year, (c) identify
important risks and opportunities for the plan year, (d) discuss
ways to improve the Partnership's competitiveness in the
marketplace, (e) contain financial projections and a capital
budget for the plan year and (f) include a projection of the
Partnership's cash flow (including from operations and for all
capital expenditures) for the plan year, for the six-month period
after that plan year and for the 18-month period after that six-
month period. Each Business Plan shall include a concise and
focused narrative and be accompanied by supporting schedules.
The Partners have approved the Partnership's initial Business
Plan, the plan for the 1996 Fiscal Year. The Partnership's
senior managers shall endeavor to submit a draft Business Plan to
the Management Committee for its consideration on or about
January 3 of each year for the next Fiscal Year (that is, for the
Fiscal Year that will begin approximately the following
February 1). The Management Committee shall endeavor to approve
a Business Plan by the 15th of that January.
ARTICLE 8
ACCOUNTANTS AND FINANCIAL STATEMENTS
8.1 Accountants. The LOS Partner shall appoint the
Accountants. However, it shall furnish the Designs Partner with
15 days' written notice before it discharges any Accountants or
appoints any new Accountants. The Partnership's initial
Accountants shall be Arthur Andersen LLP.
8.2 Financial Statements. In addition to maintaining books
and records to enable it to file proper tax returns, the
Partnership shall maintain books and records and prepare
financial statements in accordance with GAAP, as applied by
Designs. It shall prepare and deliver to each Partner: (a) an
estimate (consisting of sales, gross margins, major expense items
and net income) for each fiscal month of the Partnership no later
than five business days after each fiscal month; (b) unaudited
financial statements for each fiscal month of the Partnership no
later than the third Monday after each fiscal month and
(c) annual audited financial statements of the Partnership no
later than 60 days after each Fiscal Year but subject to
completion of the audit by the Accountants. All financial
statements, both audited and unaudited, shall include a balance
sheet and statements of income and cash flows. If the
Partnership has any consolidated subsidiaries during the period
or as of a date to which any financial statements relate, the
statements shall be consolidated and shall also include
consolidating statements. All financial statements shall also
include comparisons with the Business Plan for the period
covered. The annual financial statement shall be accompanied by
an audit report of the Accountants. The Partnership shall also
furnish each Partner with such financial information as that
Partner may reasonably request, from time to time, in order to
enable that Partner and its Affiliates to prepare its and their
financial statements or for any other reasonable purpose,
provided that the requesting Partner reimburses the Partnership
or the Designs Partner for any reasonable, incremental out-of-
pocket expenses incurred by it in satisfying that request.
8.3 Store Specific Information. The Partnership shall also
furnish the Partners with additional information intended to help
them make informed decisions about, and implement, the procedures
set forth in Articles 13 through 16 of this Agreement, including
Sections 14.6 and 15.3, and for whatever other purposes either of
the Partners may desire in connection with the Partnership or the
implementation of this Agreement. To that end, within 30 days
after each fiscal quarter during which the Partnership opens a
new Store or adds at least $5,000 of fixed assets to any existing
Store, the Partnership shall furnish each Partner with a
statement showing the capitalized pre-opening expenses and gross
fixed assets (for each newly-opened Store) and the gross amount
of any new fixed assets (for each existing Store). In addition,
with the annual financial statements, the Partnership shall
furnish each Partner with an unaudited statement showing the
cumulative earnings or losses for each Store from the date it was
opened through the end of the Fiscal Year to which those annual
statements relate and also the earnings or losses for each Store
during that Fiscal Year. Schedule 8.3 explains how the
Partnership shall make the calculations necessary to prepare
those statements. Schedule 8.3 also explains the principles that
shall be applied in preparing the "Asset Statement" referred to
in Subsection 14.6(e) and the Outlet Asset Statement referred to
in Section 15.4. The figures set forth in the statements
required by this Section 8.3 shall bind each Partner for purposes
of applying Sections 14.6 and 15.3, unless that Partner
challenges those figures by written notice given within 45 days
after the statements are delivered or unless the Accountants
require that those figures be adjusted as a condition to their
delivering an unqualified audit opinion for the Fiscal Year (in
which case the adjusted figures shall bind the Partners). If a
Partner challenges any of those figures within that 45-day
period, the Partners shall resolve the matter using the
procedures set forth in Section 20.2.
8.4 Access. Upon reasonable notice to the Partnership,
each Partner, whether through outside auditors or other
representatives or its internal audit staff, shall be entitled to
conduct financial and operational audits of the Partnership and
its business and affairs.
ARTICLE 9
CAPITAL ACCOUNTS, DISTRIBUTIONS, ALLOCATIONS AND TAX MATTERS
9.1 Capital Accounts. The Partnership shall maintain a
"Capital Account" for each Partner. Consistent with the Treasury
Regulations under Code Section 704:
(a) Each Partner's Capital Account shall be credited
with (i) the amount of all cash contributed by that Partner to
the Partnership's capital, (ii) the fair market value of any
other property contributed by that Partner to the Partnership's
capital net of any liabilities secured by that property which the
Partnership is considered to assume or take subject to under Code
Section 752, (iii) that Partner's share of the Profits and
(iv) that Partner's share of any items in the nature of income or
gain separately allocated to that Partner.
(b) Each Partner's Capital Account shall be charged
with (i) the amount of all cash distributions by the Partnership
to that Partner, (ii) the fair market value of any other property
distributed to that Partner net of any liabilities secured by
that property which the Partner is considered to assume or take
subject to under Code Section 752, (iii) that Partner's share of
any Losses and (iv) that Partner's share of any items in the
nature of loss or deduction separately allocated to that Partner.
(c) For purposes of Subsections 9.1(a)(i) and (b)(i)
only: (i) money contributed by a Partner to the Partnership
includes the amount of any Partnership liabilities that are
assumed by that Partner (other than liabilities described in
Subsection 9.1(b)(ii) that are assumed by that Partner), but does
not include increases in that Partner's share of Partnership
liabilities and (ii) money distributed to a Partner by the
Partnership includes the amount of that Partner's individual
liabilities that are assumed by the Partnership (other than
liabilities described in Subsection 9.1(a)(ii) that are assumed
by the Partnership), but does not include decreases in that
Partner's share of Partnership liabilities. For purposes of this
Subsection 9.1(c), liabilities are considered assumed only to the
extent that the assuming party is thereby subjected to liability,
the creditor is aware of the assumption and can directly enforce
the liability against the assuming party and, as between the
assuming party and the party from whom the liability is assumed,
the assuming party is ultimately liable.
(d) If the Partnership at any time distributes any
Partnership Assets to a Partner in kind, the Capital Account of
each Partner shall be adjusted to account for that Partner's
distributive share of the Profits or Losses (as determined under
this Article 9) which the Partnership would have realized had it
sold those assets at their fair market values just before they
were distributed.
(e) If any Partnership Interest is transferred in
accordance with this Agreement, the transferee shall succeed to
the transferor's Capital Account.
(f) Subsections 9.1(a) through (e) of this Agreement
are intended to comply with the capital account maintenance rules
under Treasury Regulations Section 1.704. The Capital Accounts
shall in all events be maintained in accordance with Treasury
Regulations Section 1.704.
(g) Upon completion of the contributions described in
Sections 3.1 and 3.2 of this Agreement, the Designs Partner's
Capital Account shall be $12,600,000 (plus or minus any
adjustment effected under Subsection 2.3(e) of the Participation
Agreement) and the LOS Partner's Capital Account shall be
$5,400,000 (minus or plus any adjustment effected under
Subsection 2.3(e) of the Participation Agreement).
9.2 No Interest on Capital. No Partner shall be entitled
to interest on its capital contributions or its Capital Account.
9.3 Cash Distributions.
(a) Once each year, the Partnership shall distribute
its Excess Cash, if any. As reflected in the definition of
"Excess Cash" that appears in the Glossary, the amount of Excess
Cash (if any) shall be based, in general, upon the Partnership's
anticipated cash flow for each 18-month period that ends with the
last day of the second quarter of each Fiscal Year beginning with
the second quarter of the 1998 Fiscal Year. The first cash
distribution (assuming there then is Excess Cash) shall be made
within ten days after Excess Cash is determined for the 18-month
period ending on the last day of the second quarter of the 1998
Fiscal Year. If there is no Excess Cash for that period, the
first cash distribution shall be made within ten days after it is
determined that there is Excess Cash for any succeeding 18-month
period ending on the last day of the second quarter of any Fiscal
Year. Except as provided elsewhere in this Agreement, all
distributions by the Partnership to the Partners shall be made in
accordance with the Partners' respective Percentage Interests.
(b) Notwithstanding anything to the contrary stated or
implied in Subsection 9.3(a) or elsewhere in this Agreement,
during each 12-month period that begins on the last day of the
first quarter of each Fiscal Year and ends on the last day of the
first quarter of the next Fiscal Year, the Partnership shall
distribute sufficient cash to the Partners, in proportion to
their Partnership Interests, to enable them and their Affiliates
to pay their corporate and franchise taxes attributable to the
Partnership's income for the first of those two Fiscal Years. In
order to determine the amount of those "attributed" taxes, the
Partnership shall be assumed to have a combined tax rate for all
such taxes of 41 percent.
9.4 General Allocations.
(a) Except as provided in this Section 9.4 and in
Section 9.5, Profits and Losses and each item thereof shall be
allocated to the Partners in accordance with their respective
Percentage Interests.
(b) If a Partner acquires one or more Stores from the
Partnership in accordance with clause (i) of Subsection 14.4(a),
clause (i) of Subsection 14.4(b) or Subsection 15.2(a), that
transaction shall be treated as a distribution by the Partnership
to that Partner of that portion of that Store or those Stores
which equals that Partner's Percentage Interest and a sale by the
Partnership to that Partner of the remaining portion of that
Store or those Stores. Any gain or loss from such a sale shall
be specially allocated to the non-acquiring Partner.
Notwithstanding Subsection 9.1(d) of this Agreement, any
adjustment to the Partners' Capital Accounts for unrealized
Profits or Losses arising from that distribution shall be
allocated entirely to the acquiring Partner. If a Partner
acquires one or more Stores from the Partnership in accordance
with clause (ii) of Subsection 14.4(a), clause (ii) of
Subsection 14.4(b) or Subsection 15.2(b), that acquisition and
the related distribution of cash shall both be treated as
distributions by the Partnership, with the Partners' Capital
Accounts being adjusted in accordance with Section 9.1.
9.5 Other Allocation Rules.
(a) The Partners and their Affiliates shall be bound
by this Article 9 in reporting their distributive shares of
Partnership income, gain, loss, deduction and credit for federal,
state and local income tax purposes.
(b) In order to allocate them to any period, Profits,
Losses and other items shall be determined on a daily, monthly or
other basis, as determined by the Partnership, using any
permissible method under Code Section 706. For purposes of
Section 5.9(m) of this Agreement, the choice of any such method
shall be deemed to be the adoption of a "Tax Accounting Method".
(c) With respect to any fiscal period during which any
Partner's Percentage Interest changes, allocations of Profits or
Losses shall take into account the varying interests of the
Partners during that period in a manner consistent with Code
Section 706(d).
(d) In accordance with Code Section 704(c), income,
gain, loss and deduction with respect to any property contributed
to the capital of the Partnership shall for income tax purposes
be allocated between the Partners so as to take account of any
variation between the adjusted basis of that property to the
Partnership for such purposes and its initial Carrying Value.
Moreover, in order to correct any distortions created by the
ceiling rule, the Partnership shall make reasonable curative
allocations in accordance with Treasury Regulations
Section 1.704-3(c). If the Carrying Value of any Partnership
Asset is adjusted to equal its gross fair market value after an
election by the Partnership under Treasury Regulations
Section 1.704-1(b)(2)(iv)(f), subsequent allocations of income,
gain, loss and deduction respecting that asset shall take account
of any variation between the adjusted basis of the asset for
federal income tax purposes and its Carrying Value in the same
manner as described in the previous sentence. For purposes of
Section 5.9(m) of this Agreement, the choice of reasonable
curative allocations shall be deemed to be the adoption of a Tax
Accounting Method. Allocations under this Subsection 9.5(d) are
solely for the purpose of federal, state and local income taxes
and shall not affect, or in any way be taken into account, in
computing any Partner's Capital Account or share of Profits,
Losses, other items or distributions under any provision of this
Agreement.
9.6 Tax Returns.
(a) The Partnership shall file its United States
federal, and any state and local, income and any other tax
returns (including any extensions to file returns) in a manner
consistent with the provisions of this Agreement and applicable
law. The Partnership shall furnish a draft of any income tax
return of the Partnership to each Partner no later than five
calendar months after the close of the Partnership's taxable
year. With that draft, the Accountant shall deliver a copy of
its work papers used in preparing that draft. Each Partner shall
provide any comments it may have respecting the draft within 30
days after it receives the draft. The Partners shall cooperate
to resolve any disputes regarding the positions taken in the
draft within 60 days after they receive the draft. If the
Partners do not resolve the dispute within that period, either
Partner may require that the dispute be resolved in accordance
with Section 20.2 of this Agreement. Each Partner shall file its
income and other tax returns in a manner that is consistent with
the returns filed by the Partnership, the provisions of this
Agreement and applicable law.
(b) With respect to Partnership tax items reflected in
the Partners' income tax returns, the Partnership and each
Partner shall provide each other with copies of all
correspondence and summaries of other communications with the
Internal Revenue Service, the Department of the Treasury, and
state and local taxing authorities regarding any items of
Partnership income, gain, loss, deduction or credit. Neither
Partner shall enter into any settlement negotiations with the
Internal Revenue Service, the Department of the Treasury or any
such other authority with respect to the United States federal or
any state or local income tax treatment of any Partnership item
of income, gain, loss, deduction or credit without first giving
reasonable notice of such intended action to the other Partner.
9.7 Tax Matters Partner. The Designs Partner is hereby
designated as the Partnership's initial tax matters partner (the
"Tax Matters Partner") for purposes of Section 6221 and later
Sections of the Code. Subject to the balance of this Article 9,
the Tax Matters Partner shall have all the powers and obligations
of a tax matters partner under the Code. The LOS Partner may
remove the Designs Partner as the Tax Matters Partner if, but
only if, the Designs Partner fails to perform one or more of the
material duties of the Tax Matters Partner. In such case, the
LOS Partner shall become the Tax Matters Partner and shall then
be subject to the same rules (including possible removal as such
by the Designs Partner) as applied to the Designs Partner when it
was the Tax Matters Partner.
9.8 Duties of Tax Matters Partner. With respect to
Partnership tax items reflected in the Partnership's and the
Partners' income tax returns, the Tax Matters Partner shall
promptly provide the other Partner with copies of notices and
other materials from (and inform the other Partner of discussions
with) the Internal Revenue Service, the Department of the
Treasury and state and any local tax authorities and shall
provide the other Partner with notice of all scheduled
proceedings (including meetings with agents, technical advice
conferences and appellate hearings) as soon as possible after
receiving notice of such proceedings. The Tax Matters Partner
shall schedule such proceedings only after consulting the other
Partner, with a view toward accommodating the reasonable
convenience of both the Tax Matters Partner and the other
Partner. The Tax Matters Partner shall not agree to extend the
period of limitations for assessments, file a petition or
complaint in any court, file a request for an administrative
adjustment of Partnership items after any return has been filed
or enter into any settlement agreement with the Internal Revenue
Service, the Department of the Treasury or any state or local tax
authorities, with respect to any Partnership items of income,
gain, loss, deduction or credit, except at the direction of the
Management Committee. The provisions of this Agreement regarding
the Partnership's and the Partners' tax returns shall survive the
dissolution of the Partnership and the Transfer of any Restricted
Interest, and shall remain in effect for the period of time
necessary to resolve any and all matters regarding the United
States federal, state and local income taxation of the
Partnership and the Partners as regards items of Partnership
income, gain, loss, deduction or credit.
9.9 Code Section 754. If requested by the transferee
following a permitted Transfer, the Partnership shall file the
election contemplated by Section 754 of the Code and any
applicable analogous provisions of state or local law.
ARTICLE 10
PARTNERSHIP OPPORTUNITIES
10.1 Within the Territory.
(a) OLSs. During the duration of the Partnership,
neither the LOS Partner nor any Affiliate of the LOS Partner
shall pursue any OLS Opportunity in the Territory. After the
Partnership is dissolved, the LOS Partner and any Affiliate of
the LOS Partner may pursue any OLS Opportunity in the Territory.
During the duration of the Partnership and also after the
Partnership is dissolved, neither the Designs Partner nor any
Affiliate of the Designs Partner shall pursue any OLS Opportunity
within the Territory. Rather (but subject, in the case of the
restrictions placed on the LOS Partner and its Affiliates, to the
second sentence of this Subsection 10.1(a), all OLS Opportunities
in the Territory shall be pursued, if at all, by the Partnership
(and then only if first approved as a Major Action by the
Management Committee in accordance with Section 5.9 of this
Agreement if not already included and approved in the 1996
Business Plan).
(b) Outlets. During the duration of the Partnership,
neither Partner nor any Affiliate of either Partner shall pursue
any Outlet Opportunity in the Territory. Rather, during the
duration of the Partnership, all Outlet Opportunities in the
Territory shall be pursued, if at all, by the Partnership (and
then only if first approved as a Major Action by the Management
Committee in accordance with Section 5.9 of this Agreement if not
already included and approved in the 1996 Business Plan). After
the Partnership is dissolved, the LOS Partner and any Affiliate
of the LOS Partner may pursue any Outlet Opportunity in the
Territory. After the Partnership is dissolved, except with
respect to Outlets acquired by the Designs Partner under Article
14 or 17 of this Agreement which are operated under the name
"Levi's Outlet by Designs", neither the Designs Partner nor any
Affiliate of the Designs Partner may pursue any Outlet
Opportunity in the Territory unless (i) LS&CO. approves its doing
so in accordance with the policies and procedures that LS&CO.
normally uses, from time to time, to authorize new accounts, new
locations, new ownership of existing locations or other
arrangements respecting new or existing accounts and (ii) the
Outlet or Outlets so approved do not use the name "Levi's Outlet"
or any confusingly similar name.
10.2 Outside the Territory.
(a) OLSs. During the duration of the Partnership and
also after the Partnership is dissolved, neither the Designs
Partner nor any Affiliate of the Designs Partner shall pursue any
OLS Opportunity outside the Territory. However, the LOS Partner
and any Affiliate of the LOS Partner may at any time pursue any
OLS Opportunity outside the Territory.
(b) Outlets. During the duration of the Partnership
and also after the Partnership is dissolved, neither the Designs
Partner nor any Affiliate of the Designs Partner shall pursue any
Outlet Opportunity outside the Territory unless (i) LS&CO.
approves its doing so in accordance with the policies and
procedures that LS&CO. normally uses, from time to time, to
authorize new accounts, new locations, new ownership of existing
locations or other arrangements respecting new or existing
accounts and (ii) the Outlet or Outlets so approved do not use
the name "Levi's Outlet" or any confusingly similar name. The
LOS Partner and any Affiliate of the LOS Partner may at any time
pursue any Outlet Opportunity outside the Territory.
10.3 Opportunities Defined.
(a) Subject to Sections 10.4 and 10.5, "OLS
Opportunity" means (i)(x) the construction, purchase, lease or
operation of, (y) the making or acquisition of any direct or
indirect equity investment not constituting more than two percent
of the total outstanding voting or economic interests in or (z)
the licensing or franchising of, any retail establishment or
operation that sells Levi's(R) branded adult jeans or jeans-related
products and (ii) does so using (x) the name "The Original
Levi's(R) Store" or a similar name or (y) any element of the
Designated Trade Dress.
(b) Subject to Sections 10.4 and 10.5, "Outlet
Opportunity" means (i) the construction, purchase, lease or
operation of, (ii) the making or acquisition of any direct or
indirect equity investment not constituting more than two percent
of the total outstanding voting or economic interests in or (iii)
the licensing or franchising of, any Outlet.
10.4 The Designs Partner and Its Affiliates. "OLS
Opportunities" shall not include Designs': (a) continuing to
operate its present, traditional stores, as they presently
appear; (b) operating its "new look" stores, as exemplified by
its store in Saugus, Massachusetts; (c) acquiring, and then
owning and operating, another entity that itself owns one or more
OLSs which were already operating with LS&CO.'s permission at the
time of the acquisition or (d) modifying the appearance of any of
those traditional or new look stores or opening any new stores,
if and to the extent the modified or new stores do not otherwise
fit the definition of "OLS Opportunity". The preceding sentence
shall not be construed as a grant of approval by LS&CO. or by any
other Affiliate of LSAI for Designs or any Affiliate of Designs
to engage in any business or activity described in that sentence.
Rather, except to the extent that such approvals have already
been granted before this Agreement was signed (and even in those
cases, subject to LS&CO.'s continuing right, if any, to withdraw
those approvals), any and all such approvals shall be granted, if
at all, in accordance with the policies and procedures that
LS&CO. normally uses, from time to time, to authorize new
accounts, new locations, new ownership of existing locations or
other arrangements respecting new or existing accounts. In other
words, this Agreement shall not be construed as affecting any of
those policies or procedures or any party's rights or obligations
respecting any of the matters covered by any of those policies or
procedures.
10.5 The LOS Partner and Its Affiliates.
(a) "OLS Opportunities" shall not include the
ownership or operation, by the LOS Partner or any Affiliate of
the LOS Partner, of any OLSs acquired from the Partnership in
accordance with this Agreement. "OLS Opportunities" shall also
not include LS&CO.'s licensing, authorizing or permitting a
retailer that operates an "Ideal Jeans Shop" or a similar "store
within a store" from using any one or more of items 2, 3, 4, 6
and 7 of the "Trade Dress" identified on Exhibit B to the LOS
Sublicense Agreement.
(b) "Outlet Opportunities" shall not include the
ownership or operation, by the LOS Partner, the Designs Partner
or any Affiliate of either Partner, of any Outlets acquired from
the Partnership in accordance with this Agreement.
10.6 Non-Obligation. Nothing in this Agreement shall
obligate the LOS Partner or any Affiliate of the LOS Partner to
take any action or refrain from taking any action vis-a-vis any
retailers or other parties to which LS&CO. now or in the future
sells any products in order to promote or protect the business of
the Partnership. Likewise, but subject to the rules set forth in
this Article 10 regarding OLS Opportunities and Outlet
Opportunities, nothing in this Agreement shall obligate the
Designs Partner or any Affiliate of the Designs Partner to take
any action or refrain from taking any action at any of its
present or future stores in order to promote or protect the
business of the Partnership.
10.7 Other Activities. Nothing in this Agreement or any
other Transaction Document shall prohibit the Designs Partner,
any Affiliate of the Designs Partner, the LOS Partner or any
Affiliate of the LOS Partner from engaging in any business or
other activity that does not constitute an OLS Opportunity or an
Outlet Opportunity, whether within or without the Territory. For
example, the LOS Partner and Affiliates of the LOS Partner shall
be entirely free to own, operate, license, invest in or engage in
any other activity with respect to any Dockers(R) Shop (both within
and without the Territory) and any outlet that sells any Dockers(R)
products (both within and without the Territory).
10.8 Use of Certain Rights. Designs shall be entitled to
use item 4 of the "Trade Dress" identified on Exhibit B to the
LOS Sublicense Agreement (the so-called "video wall") in any
store in which Designs does not sell any LS&CO. products.
However, Designs may not use, with any such video wall, any
visual or audio programming developed for any OLS.
ARTICLE 11
OVERVIEW REGARDING PURCHASES, SALES AND DISSOLUTION
11.1 Subject Matter. Articles 12 through 18 of this
Agreement set out the rules that govern the transfer of
Restricted Interests, the transfer of individual or multiple
Stores, and the dissolution of the Partnership. In implementing
these provisions as well as the other provisions of this
Agreement and the provisions of the other Transaction Documents,
the Partners shall at all times deal with each other in good
faith.
11.2 Function of Each Article. Article 12 sets forth basic
prohibitions. It explains that this Agreement, and particularly
its Articles 13 through 18, sets forth the exclusive means by
which the Partners and their Affiliates may proceed with
transactions of the type described in Section 11.1. Article 13
prescribes rules under which, beginning January 30, 2000, the
Designs Partner or Designs may initiate a process that could
result in the sale of the Designs Partner's Partnership Interest
or the stock of the Designs Partner to an outside party or to the
LOS Partner or an Affiliate of the LOS Partner. Article 14
describes procedures under which a Partner may acquire the other
Partner's Partnership Interest or individual OLSs. The
Article 14 procedures may also result in the "initiating" Partner
selling its Partnership Interest to the other Partner or the
other Partner acquiring certain OLSs from the Partnership. Like
the Article 13 procedures, the Article 14 procedures may not be
initiated until January 30, 2000. Article 15 grants the LOS
Partner and its Affiliates the right to acquire one or more
Outlets beginning January 30, 2000. Article 16 contains rules
under which one Partner may buy the other Partner's Partnership
Interest in response to certain Termination Events. Those rules
may be invoked at any time after the Closing if a Termination
Event occurs. Article 17 explains how the Partnership will be
dissolved at the Termination Date and thereafter wound up if it
has not been dissolved before the Termination Date. Finally,
Article 18 sets forth certain transition rules related to, and
also consequences of, the transfers and dissolutions addressed in
Articles 12 through 17 (for example, the impact of such transfers
on existing and future obligations under this Agreement and the
other Transaction Documents).
11.3 Certain Relationships. A number of the rules in
Articles 12 through 18 treat the same or similar subjects (the
transfer of Partnership Interests, other Restricted Interests and
Partnership Assets). Accordingly, it is important to know how
those rules interrelate and, in particular, which of them
prevails in the event of an apparent conflict. Here, then, are
principles that shall govern in situations that might otherwise
be thought to implicate conflicting rules:
(a) Article 16 (the article that permits a Partner to
buy the other Partner's Partnership Interest after certain
Termination Events) shall have these relationships to Articles 13
and 14:
(i) Assume that one Partner initiates the procedures
set forth in Article 14 (the article under which one
Partner could, for example, acquire individual OLSs).
Assume also that before those procedures result in a
completed transaction, a Partner commits a Material
Breach (see Article 16). Under those circumstances,
the non-breaching Partner could block or pre-empt the
Article 14 transaction by buying the breaching
Partner's Partnership Interest under Article 16. The
same result would pertain for Fundamental Changes,
Reputation Events, Bankruptcy Events and Unauthorized
Terminations (i.e., the Partner entitled to buy a
Partnership Interest under Article 16 in response to
the Fundamental Change or other "Article 16 event"
could block or pre-empt the Article 14 transaction).
(ii) Now, assume that Designs initiates the procedures
under Article 13 to sell the stock of the Designs
Partner to an outside party. Or assume that the
Designs Partner initiates the Article 13 procedures to
sell its Partnership Interest to an outside party. In
either case, before that sale is completed, a
Reputation Event or other "Article 16 event" occurs
with respect to one Partner. If that is the Designs
Partner, then the LOS Partner may stop the Article 13
sale by buying the Design Partner's Partnership
Interest under Article 16. If, instead, the "Article
16 event" occurs with respect to the LOS Partner, then
the Designs Partner may buy the LOS Partner's
Partnership Interest under Article 16 and block the LOS
Partner's exercise of its first refusal right under
Article 13.
(iii) The first purchase of a Designs Restricted
Interest under Article 13 shall not be treated as a
Fundamental Change with respect to the Designs Partner.
For example, if a "third party" buys or proposes to buy
the Designs Partner's stock from Designs, the LOS
Partner cannot treat that transaction as a Fundamental
Change respecting the Designs Partner, thus entitling
the LOS Partner to buy the Designs Partner's
Partnership Interest at the price determined in
accordance with Article 16.
(iv) However, any subsequent purchase of a Designs
Restricted Interest shall be treated as a Fundamental
Change and thus permit the LOS Partner to purchase the
Designs Partner's Partnership Interest under
Article 16. For example if, following the purchase of
the Designs Partner's stock from Designs, the purchaser
then causes the Designs Partner to sell or offer to
sell its Partnership Interest under Article 13 to still
another party, the LOS Partner would be entitled to
invoke either Article 13 or Article 16 to buy that
Partnership Interest. The LOS Partner could also, of
course, choose not to buy that Partnership Interest.
(b) Articles 13 and 14 shall have these relationships:
(i) The LOS Partner shall not be entitled to invoke
Article 14 with respect to individual OLSs while an
Article 13 transaction is pending.
(ii) However, the LOS Partner may use Article 14 to
preempt a pending Article 13 transaction if it uses
Article 14 to propose a transaction to buy or sell the
Designs Partner's Partnership Interest.
(iii) The Designs Partner may not commence an
Article 14 procedure while an Article 13 transaction is
pending.
(iv) Neither the Designs Partner nor Designs may
commence an Article 13 transaction while an Article 14
procedure initiated by the Designs Partner is pending.
(v) If the LOS Partner initiates an Article 14
procedure for at least half of the Partnership's OLSs,
the Designs Partner may not initiate an Article 13
transaction until that Article 14 transaction has been
completed. However, the Designs Partner need not
postpone an Article 13 transaction if that Article 14
transaction involves fewer than half of the
Partnership's OLSs.
(c) As regards Article 14, two or more Article 14
"procedures" may be implemented simultaneously if they involve
different OLSs. For example, if the LOS Partner invokes
Article 14 with respect to certain of the Partnership's OLSs,
then, even before that process is completed, the Designs Partner
may initiate an Article 14 procedure respecting other OLSs.
(d) If one Partner invokes Article 14 with respect to
certain of the Partnership's OLSs, the other Partner may block
that process by initiating an Article 14 procedure to buy or sell
the first Partner's Partnership Interest.
(e) Having determined that, absent earlier
dissolution, the Partnership should be dissolved at the
Termination Date (see Section 2.7), the Partners intend that
implementation of the procedures set forth in Articles 13 or 14
should not extend the duration of the Partnership. Accordingly,
the Article 13 and 14 procedures may not be initiated later than
six months before the Termination Date. However, Articles 15 and
16 may be invoked at any time prior to 60 days before the
Termination Date.
(f) The LOS Partner shall be entitled to exercise its
right to buy one or more Outlets under Article 15 irrespective of
whether any purchase or sale procedure has: (i) begun or been
completed under Article 13; (ii) begun or been completed for
OLSs under Article 14; (iii) begun for Partnership Interests
under Article 14 but only to the extent provided in Article 14;
(iv) begun under Article 16, if the Article 16 procedure involves
the purchase of the Designs Partner's Partnership Interest or
(v) begun under Article 17. However, the LOS Partner may not
first give an Article 15 notice that it is buying Outlets:
(vi) in the case of an Article 14 procedure respecting
Partnership Interests, after the time indicated in Article 14 for
giving such a notice unless, in accordance with Article 14, the
Designs Partner has stopped the Article 14 procedure; (vii) after
the Designs Partner has begun a procedure to buy the LOS
Partner's Partnership Interest under Article 16 or (viii) after
60 days before the Termination Date. Moreover, if the Designs
Partner initiates a procedure to purchase the LOS Partner's
Partnership Interest under Article 16, that shall block any
pending purchase by the LOS Partner of any Outlets.
11.4 Assumption. The various rules stated in Section 11.3
which prohibit or limit one or both Partners from taking certain
actions after one or a certain Partner initiates some other
procedure assume that the other procedure was properly initiated.
For example, the Designs Partner's ability to "cut off" the LOS
Partner's right to purchase Outlets under Article 15 by electing
to purchase the LOS Partner's Partnership Interest under Article
16 assumes that the Designs Partner was entitled to purchase the
LOS Partner's Partnership Interest under Article 16 when it
elected to do so. Accordingly, if the Designs Partner makes such
an election, the LOS Partner may nevertheless "contingently"
elect to purchase one or more Outlets under Article 15 (assuming
that right is otherwise then exercisable), in which case the
Parties shall make whatever arrangements are necessary or
appropriate in order that: (i) the LOS Partner will acquire the
Outlet or Outlets it elected to acquire if it ultimately is
determined that the Designs Partner was not entitled to buy the
LOS Partner's Partnership Interest under Article 16 and (ii) the
Designs Partner will buy the LOS Partner's Partnership Interest
under Article 16 if it is ultimately determined that the Designs
Partner was entitled to do so.
11.5 Timing. Various of the provisions in Articles 13
through 17 explain that certain procedures cannot be initiated
before a certain date or cannot be initiated after a certain
date. Those provisions shall be interpreted to mean, in the case
of no "initiation" before a certain date, that the notice given
by the Partner that initiates the procedure cannot be effective
until that date. However, the notice may be effective as early
as that date. In the case of provisions respecting no
"initiation" after a certain date, those provisions shall be
interpreted to mean that the notice given by the Partner that
initiates the procedure can be effective as late as that date but
not after that date.
ARTICLE 12
EXCLUSIVITY OF RIGHTS
12.1 In General. The Partners intend that the provisions
of this Agreement and in particular this Article 12 and
Articles 13 through 18 shall provide the exclusive means of
dissolving the Partnership or transferring Restricted Interests.
12.2 Waivers. Subject to the other provisions of this
Agreement and in particular its Articles 13 through 18, each
Partner hereby waives its right to withdraw from the Partnership,
to dissolve the Partnership, to partition or sell any Partnership
Assets or to initiate any judicial or other proceeding to achieve
any of the purposes referred to in this sentence.
12.3 Restrictions on Transfers. Subject to Section 12.4
and to Articles 13, 14, 16 and 18, no Partner and no Affiliate of
either Partner shall at any time sell, assign, grant a Lien on,
or otherwise dispose of, any interest in (collectively
"Transfer") all or any portion of a Restricted Interest.
12.4 Transfers to Certain Affiliates. Subject to
satisfaction of the requirements of Section 7.6 of the
Participation Agreement, either Partner or any Affiliate of
either Partner that holds a Restricted Interest shall be entitled
at any time to Transfer all (but not a portion) of any Restricted
Interest to any (or another) Affiliate of that Partner if Designs
(in the case of a Transfer by Designs or the Designs Partner) or
LS&CO. (in the case of a Transfer by LS&CO., LOS Inc. or the LOS
Partner) directly or indirectly owns 100 percent of the equity
interests of the transferee Affiliate at the time of the
Transfer. However, such a Transfer shall not be permitted if it
would cause a termination of the Partnership under Code
Section 708(b)(i)(B) unless the other Partner consents to the
Transfer. That other Partner may not withhold its consent
unreasonably.
ARTICLE 13
CERTAIN TRANSFERS OF DESIGNS RESTRICTED INTEREST
13.1 In General. Subject to Section 11.3, at any time
beginning January 30, 2000 and ending July 25, 2004, Designs or
the Designs Partner (in either case, a "Designs Transferor") may
initiate the procedures set forth in this Article 13 to Transfer
all (but not a portion) of a Designs Restricted Interest (that
is, all but not a portion of the Designs Partner's Partnership
Interest or all but not a portion of the outstanding stock of the
Designs Partner, but not both). In order to effect such a
Transfer, the Designs Transferor must first receive a bona fide
written offer for a Designs Restricted Interest from a Qualified
Transferee accompanied by reasonable evidence of the Qualified
Transferee's ability to finance that offer. The Designs
Transferor must then submit a copy of that offer to the LOS
Partner, together with a notice to the effect that the Designs
Transferor intends in good faith to accept that offer. By doing
so, the Designs Transferor shall have offered to Transfer the
Designs Restricted Interest to the LOS Partner (or to an
Affiliate of the LOS Partner designated by the LOS Partner) on
the same terms and conditions as those offered by the Qualified
Transferee, except to the extent otherwise provided in this or
another Transaction Document. (Such an offer is referred to in
this Agreement as a "Purchase Offer".) The Designs Transferor
shall promptly and in good faith furnish the LOS Partner with all
material non-confidential information which the Designs Partner
or any Affiliate of the Designs Partner has about the Purchase
Offer, the financing that supports the Purchase Offer, the
proposed transferee (the "Transferee") and any Affiliates of the
Transferee, including, for example, information bearing on
whether the Transferee is a Qualified Transferee.
13.2 Qualified Transferee Status. If the LOS Partner in
good faith believes that the Transferee is not a Qualified
Transferee or, again in good faith, believes that it lacks
sufficient information to determine whether the Transferee is a
Qualified Transferee, the LOS Partner shall so notify the Designs
Partner in writing within ten days after the Designs Partner
gives the Purchase Offer. The Partners shall then endeavor to
resolve the status of the Transferee as promptly as possible. If
they fail to resolve that status within ten days after the LOS
Partner gives the Designs Partner its notice questioning the
status of the Transferee, either Partner may cause that status to
be resolved as a "Controversy" in accordance with Section 20.1 of
this Agreement but without resort to the meeting of senior
managers referred to in that section. If the Transferee is found
not to be a Qualified Transferee, the effect shall be as though
the Purchase Offer had never been made. See Section 13.6.
13.3 Elections. If the Transferee is deemed a Qualified
Transferee (either because the LOS Partner acquiesces in that
characterization or as a result of the procedures specified in
Section 13.2), the LOS Partner shall either accept the Purchase
Offer or reject the Purchase Offer. It shall do that in writing.
It must do so no later than: (a) 90 days after the LOS Partner
receives the Purchase Offer, if the LOS Partner does not object
to the Transferee's status as a Qualified Transferee or (b) the
later of that 90th day and ten days after the status of the
Transferee is resolved, if the LOS Partner objects to the
Transferee's status as a Qualified Transferee. If the LOS
Partner fails to make a timely election, the LOS Partner shall be
considered to have rejected the Purchase Offer.
13.4 Acceptance. If the LOS Partner accepts the Purchase
Offer, its acceptance shall specify the place and time (which
shall be no later than 30 days after the acceptance or such later
date, if any, as is specified in the third party's offer) at
which the closing of the Transfer described in the Purchase Offer
shall take place. Unless they jointly decide otherwise, the LOS
Partner (or the Affiliate it designates) and the Designs
Transferor shall proceed to close the Transfer in accordance with
the Purchase Offer and that schedule.
13.5 Rejection. If the LOS Partner rejects the Purchase
Offer or is considered to have done so, then, during the 45 days
after that rejection, the Designs Transferor shall be entitled,
but not obligated, to Transfer the Restricted Interest to which
the Purchase Offer relates to the Transferee on terms and
conditions that are no more favorable to the Transferee than
those specified in the Purchase Offer. However, the Designs
Transferor shall not be permitted to complete that Transfer if,
before it is completed, a Fundamental Change occurs or is pending
with respect to the Transferee.
13.6 Continuance of Restrictions. If a Designs Transferor
invokes the procedures set forth in this Article 13 but they do
not lead to a Transfer, the Restricted Interest that was the
subject of those procedures and all other Restricted Interests
shall continue to be subject to the restrictions imposed by this
Agreement and the Participation Agreement. After a Transfer of a
Restricted Interest to other than the LOS Partner or an Affiliate
of the LOS Partner under this Article 13, that Restricted
Interest shall likewise continue to be subject to the
restrictions of this Agreement including, without limitation, its
Articles 10 through 18.
ARTICLE 14
SPECIAL PURCHASE AND SALE RIGHTS
FOR OLSs AND PARTNERSHIP INTERESTS
14.1 In General.
(a) Subject to Section 11.3, at any time beginning
January 30, 2000 and ending July 25, 2004, either Partner may
initiate a procedure that would (or in the case of such a
procedure initiated under Section 14.4, could) result in one
Partner buying or selling a Partnership Interest or one Partner
acquiring one or more OLSs, all in accordance with this
Article 14. More specifically, by initiating such a procedure, a
Partner may seek to buy the other Partner's Partnership Interest,
to sell its own Partnership Interest to the other Partner or to
acquire or have the other Partner acquire one or more OLSs from
the Partnership. However, through this process a Partner may not
seek to buy or sell a portion of (as opposed to all of) a
Partnership Interest. Nor, in a procedure involving OLSs rather
than Partnership Interests, may a Partner seek to acquire or have
the other Partner acquire Partnership Assets that do not
constitute one or more complete OLSs. But that said, a Partner
may not seek to acquire or have the other Partner acquire all the
OLSs (as such) through this process. Instead, in the case of a
transaction under this Article 14 that could result in a Partner
owning all the OLSs then owned by the Partnership, the initiating
Partner must offer to buy or sell a Partnership Interest rather
than the Partnership's OLSs.
(b) If the procedure initiated under this Article 14
relates to OLSs rather than Partnership Interests, Outlets will
have no role in that procedure, except that the LOS Partner may
initiate (in which case the Partners and the Partnership shall
implement) a procedure to purchase one or more Outlets under
Article 15 although an Article 14 procedure respecting OLSs is
also underway or even after it is completed. If, instead, the
Article 14 procedure relates to Partnership Interests, then the
following rules shall govern the role of Outlets in that
procedure: Early in that procedure (as explained later, with its
initial notice, if the LOS Partner initiates the procedure, and
shortly after the Designs Partner gives its initial notice, if
the Designs Partner initiates the procedure), the LOS Partner
must elect whether or not it will acquire all the Outlets under
Article 15 (at the price determined in accordance with Section
15.3). If the LOS Partner so elects to acquire the Outlets,
then, except under the circumstance explained in Subsection
14.2(a) and Section 14.4, the Partners and the Partnership shall
complete that transaction and shall also proceed with the Article
14 procedure respecting Partnership Interests. As a result,
under those circumstances (but subject to that exception), the
LOS Partner will acquire the Outlets in accordance with Article
15 but as part of a "larger" transaction in which either:
(i) the LOS Partner will acquire the Designs Partner's
Partnership Interest or (ii) the Designs Partner will acquire the
LOS Partner's Partnership Interest but in a Partnership that no
longer includes Outlets. If, instead, the LOS Partner does not
elect to acquire the Outlets under Article 15, the Partners and
the Partnership shall proceed with the Article 14 procedure
respecting Partnership Interests with the consequence that the
Partner that acquires a Partnership Interest will also acquire
the Outlets. In this latter case (i.e., if the LOS Partner does
not elect to acquire the Outlets under Article 15), the pricing
of the Outlets will be determined in accordance with this Article
14.
14.2 Initiating the Process. As explained in greater
detail in Sections 14.3 through 14.8, a Partner initiates the
Article 14 procedure by delivering a written notice to the other
Partner. That notice shall (a) identify the property or
properties that will be the subject of the procedure (that is,
Partnership Interests or specific OLSs, and in either case the
"Subject Property"); (b) specify the nature of the transaction
being proposed; (c) except as explained later in this Section
14.2, designate a proposed value for the Subject Property (the
"Designated Value") and (d) specify any conditions to either
Partner's or the Partnership's obligation to close the proposed
transaction (but no conditions that are inconsistent with this
Agreement). If the Subject Property is one or more OLSs, the
Designated Value shall represent a value for that OLS or those
OLSs. If the Subject Property is Partnership Interests, the
Designated Value shall represent a value for both Partnership
Interests combined. Notwithstanding the foregoing:
(a) If the Designs Partner initiates the Article 14
procedure and that procedure relates to Partnership Interests:
(i) the Designs Partner's initiating notice need not specify a
Designated Value; (ii) within 30 days after the Designs Partner
gives that notice, the LOS Partner by written notice to the
Designs Partner shall elect whether the LOS Partner will purchase
the Outlets (all of them, not just some of them) in accordance
with Article 15; (iii) the LOS Partner's failure to give such a
notice within that 30-day period shall be considered an election
by the LOS Partner not to purchase any of the Outlets under
Article 15; (iv) if the LOS Partner timely elects to acquire the
Outlets under Article 15, the "Subject Property" shall be
considered interests in a Partnership that does not own any
Outlets; (v) if the LOS Partner does not timely elect to acquire
the Outlets under Article 15, the "Subject Property" shall be
considered interests in a Partnership that owns its Outlets;
(vi) within 10 days after the LOS Partner gives its notice (or
within 10 days after the last day of the 30-day period if the LOS
Partner does not give a timely notice), the Designs Partner shall
give the LOS Partner a further notice which either (A) sets forth
the Designated Value for the Subject Property or (B) if, but only
if, the LOS Partner elected to acquire Outlets under Article 15,
rescinds the offer contained in the Designs Partner's initial
notice; (vii) within 10 days after the Designs Partner gives any
such rescission notice, the LOS Partner may give the Designs
Partner a notice rescinding the LOS Partner's election to buy
Outlets under Article 15; (viii) if the LOS Partner timely
elected to acquire the Outlets under Article 15, then, subject to
any timely rescissions, the Article 14 procedure (for Partnership
Interests) and the Article 15 procedure (for the Partnership's
Outlets) shall be implemented simultaneously; (ix) if the LOS
Partner did not timely elect to acquire the Outlets under Article
15, the Article 14 procedure shall be implemented without regard
to Article 15 and (x) if the Designs Partner is permitted to
rescind, and timely rescinds, its initial offer: (A) the OLS
Partner shall acquire the Outlets under Article 15 (if it does
not timely rescind its election to do so) or (B) no transaction
shall be completed (if the LOS Partner does timely rescind that
election). No rescission shall prejudice any Partner's right
later to initiate any other procedure (including another Article
14 procedure or another Article 15 procedure).
(b) If the LOS Partner initiates the Article 14
procedure and that procedure relates to Partnership Interests:
(i) the LOS Partner's initiating notice shall specify whether the
LOS Partner will purchase the Outlets (all of them, not just some
of them) in accordance with Article 15; (ii) if the LOS Partner
so elects to acquire the Outlets, the "Subject Property" shall be
considered interests in a Partnership that does not own any
Outlets, in which case the Article 14 procedure (for such
interests) and the Article 15 procedure (for Outlets) shall be
implemented simultaneously; (iii) if the LOS Partner did not
timely elect to acquire the Outlets, the "Subject Property" shall
be considered interests in a Partnership that owns its Outlets,
in which case the Article 14 procedure shall be implemented
without regard to Article 15 (except if and to the extent
required by Subsection 14.6(c)) and (iv) irrespective of whether
the LOS Partner elected to purchase the Outlets under Article 15,
its initiating notice shall set forth the Designated Value for
the Subject Property.
Whichever notice contains the Designated Value (the Designs
Partner's notice specified in clause (vi) of Subsection 14.2(a),
if the Designs Partner initiated the Article 14 procedure, or the
LOS Partner's initiating notice, if the LOS Partner initiated the
Article 14 procedure) is referred to in the remainder of this
Article 14 as the "Trigger Notice".
14.3 Ownership Assumption. The rules that follow in this
Article 14 assume that the Designs Partner's Percentage Interest
will be 70 percent and the LOS Partner's Percentage Interest will
be 30 percent when the "Article 14 transaction" is completed. If
those percentages are then different, the rules that follow shall
be modified, as appropriate, to reflect the correct percentages.
14.4 Procedure as Initiated by the Designs Partner. If the
Designs Partner initiates the Article 14 procedure, its Trigger
Notice shall constitute both an offer to acquire the Subject
Property and an offer that the LOS Partner acquire the Subject
Property. If the Subject Property consists of one or more OLSs,
the offer shall constitute both an offer that the Designs Partner
acquire (by purchase or distribution, as provided below) those
OLSs from the Partnership and an offer that the LOS Partner
acquire (by purchase or distribution, as provided below) those
OLSs from the Partnership. That offer shall also specify
whether, if the LOS Partner acquires those OLSs, it shall do so
in accordance with clause (i) of Subsection 14.4(a) or clause
(ii) of Subsection 14.4(a). If, instead, the Subject Property is
Partnership Interests, the offer shall constitute both an offer
to buy the LOS Partner's Partnership Interest and an offer to
sell the Designs Partner's Partnership Interest to the LOS
Partner. The LOS Partner must accept one of the offers, either
the offer that it acquire the Subject Property or the offer that
the Designs Partner acquire the Subject Property. It may not do
neither. The LOS Partner must give that acceptance in writing
and must do so within 120 days after the Designs Partner gives
its Trigger Notice. If the transaction involves OLSs rather than
Partnership Interests and the LOS Partner elects that the Designs
Partner will acquire those OLSs, the LOS Partner's acceptance
shall specify whether the Designs Partner will do so in
accordance with clause (i) of Subsection 14.4(b) or clause (ii)
of Subsection 14.4(b). If the LOS Partner does not timely accept
one of those offers, it shall be considered to have accepted the
offer that the Designs Partner acquire the Subject Property and,
if the transaction involves OLSs rather than Partnership
Interests, that the Designs Partner do so in accordance with
clause (i) of Subsection 14.4(b). Once an offer made under this
Subsection 14.4 has been accepted:
(a) if the Subject Property is one or more OLSs, the
LOS Partner is acquiring them and:
(i) the Designs Partner elected that the acquisition
be effected in accordance with this clause (i), then:
(A) the LOS Partner shall pay 70 percent of the
Designated Value to the Partnership in cash, (B) the
Partnership shall distribute that cash to the Designs
Partner and (C) the Partnership shall convey those OLSs
to the LOS Partner or
(ii) if, instead, the Designs Partner elected that the
acquisition be effected in accordance with this clause
(ii), then: (A) notwithstanding the cash distribution
rules set forth in Section 9.3 of this Agreement but
subject to Section 18.12, all subsequent distributions
of Excess Cash by the Partnership shall be made to the
Designs Partner until those distributions equal seven-
thirds of the Designated Value and (B) the Partnership
shall then convey the Subject Property to the LOS
Partner (it being understood that this conveyance shall
not be postponed if and because the Partnership does
not then have sufficient Excess Cash to satisfy the
requirements of part (A) of this clause (ii)) or
(b) if the Subject Property is one or more OLSs, the
Designs Partner is acquiring them and:
(i) the LOS Partner elected that the acquisition be
effected in accordance with this clause (i), then:
(A) the Designs Partner shall pay 30 percent of the
Designated Value to the Partnership in cash, (B) the
Partnership shall distribute that cash to the LOS
Partner and (C) the Partnership shall convey the
Subject Property to the Designs Partner or
(ii) if, instead, the LOS Partner elected that the
acquisition be effected in accordance with this clause
(ii), then: (A) notwithstanding the cash distribution
rules set forth in Section 9.3 of this Agreement but
subject to Section 18.12, all subsequent distributions
of Excess Cash (other than in liquidation of the
Partnership) by the Partnership shall be made to the
LOS Partner until those distributions equal three-
sevenths of the Designated Value and (B) the
Partnership shall then convey the Subject Property to
the Designs Partner (it being understood that this
conveyance shall not be postponed if and because the
Partnership does not then have sufficient Excess Cash
to satisfy the requirements of part (A) of this clause
(ii)) or
(c) if the Subject Property is Partnership Interests
and the LOS Partner is buying the Designs Partner's Partnership
Interest, then the LOS Partner shall pay 70 percent of the
Designated Value to the Designs Partner in cash, the Designs
Partner shall convey its Partnership Interest to the LOS Partner
and, if the LOS Partner timely elected to acquire the Outlets
under Article 15, the LOS Partner shall pay for and acquire the
Outlets in accordance with Article 15 or
(d) if the Subject Property is Partnership Interests
and the Designs Partner is buying the LOS Partner's Partnership
Interest, then the Designs Partner shall pay 30 percent of the
Designated Value to the LOS Partner in cash, the LOS Partner
shall convey its Partnership Interest to the Designs Partner and,
if the LOS Partner timely elected to acquire the Outlets under
Article 15, the LOS Partner shall pay for and acquire the Outlets
in accordance with Article 15.
(e) Anything to the contrary in this Section 14.4
notwithstanding, the rights and obligations of the Partners and
the Partnership set forth in this Section 14.4 are subject to the
rights of the Partners to rescind offers and elections under the
circumstances specified in, and during the periods specified in,
Subsection 14.2(a).
14.5 Procedure as Initiated by the LOS Partner. If the LOS
Partner initiates the Article 14 procedure, it may do so in
either of two ways. One way is to offer to acquire (by purchase
or distribution, as provided below) the Subject Property
specified in its Trigger Notice. In that case, Section 14.6
shall govern the procedure. In the alternative, the LOS Partner
may offer that the Designs Partner acquire (by purchase or
distribution, as provided below) the Subject Property. In that
case, Section 14.7 shall govern the procedure.
14.6 LOS Partner Offer to Acquire.
(a) If the LOS Partner initiates the Article 14
procedure and offers to acquire the Subject Property, its Trigger
Notice shall include a Designated Value that is equal to or
greater than the "Minimum Value". (If the LOS Partner specifies
a Designated Value that is greater than the Minimum Value, it may
express that premium as a dollar figure in excess of the Minimum
Value, as a percentage of the Minimum Value or otherwise.) The
rules for determining the Minimum Value appear in Subsections
14.6(c), (d) and (e). The Designs Partner shall (i) accept that
offer or (ii) based on a Designated Value that is higher than the
Designated Value set forth in the LOS Partner's Trigger Notice
(with that premium expressed as a dollar figure or a percentage
in excess of the Designated Value), offer both to (A) acquire the
Subject Property and to (B) have the LOS Partner acquire the
Subject Property. The Designs Partner must elect (i) or (ii).
It may not do neither. It must make its election in writing and
must do so within 120 days after the LOS Partner gives its
Trigger Notice. If the Designs Partner elects to make the offer
set forth in clause (ii) of this Subsection 14.6(a), its election
shall specify the "higher" figure referred to previously in this
Subsection 14.6(a). In addition, if the transaction involves
OLSs rather than Partnership Interests, the Designs Partner's
election (irrespective of whether it elects (i) or (ii)) shall
specify whether, if the LOS Partner acquires those OLSs, it shall
do so in accordance with clause (i) of Subsection 14.4(a) or
clause (ii) of Subsection 14.4(a). If the Designs Partner does
not make a timely election, it shall be considered to have
accepted the LOS Partner's offer to acquire the Subject Property
as set forth in clause (i) of this Subsection 14.6(a) and, if the
offer involves OLSs, to have elected to effect the acquisition in
accordance with clause (i) of Subsection 14.4(a). If the Designs
Partner elects to make the offers set forth in clause (ii) of
this Subsection 14.6(a), the LOS Partner shall have 120 days
after the Designs Partner gives its notice to elect, in writing,
to accept either (A) or (B) of that clause (ii). It may not do
neither. If the transaction involves OLSs rather than
Partnership Interests and the LOS Partner elects (ii)(A), its
acceptance shall specify whether the Designs Partner will acquire
those OLSs in accordance with clause (i) of Subsection 14.4(b) or
clause (ii) of Subsection 14.4(b). If the LOS Partner does not
make a timely election, it shall be considered to have
accepted (ii)(A) and, if the offer involves OLSs, to have elected
to effect the acquisition in accordance with clause (i) of
Subsection 14.4(b). Following acceptance by the Designs Partner
of the LOS Partner's initiating offer or acceptance by the LOS
Partner of one of the Designs Partner's responsive offers, the
Partners (and the Partnership, as appropriate) shall complete the
transactions described in Subsection 14.4(a) (under its clause
(i) or its clause (ii)), (b) (under its clause (i) or its
clause (ii)), (c) or (d), as appropriate, based on the Designated
Value and the manner of acquisition specified in (or for) the
offer that was accepted. In addition, if the LOS Partner's
Trigger Notice included an election that the LOS Partner acquire
the Outlets in accordance with Article 15, the Partners and the
Partnership shall simultaneously complete that transaction as
well.
(b) By way of example, assume that the LOS Partner
initiates the procedure by identifying three OLSs as the Subject
Property and offering to acquire them for a Designated Value
(meeting the Minimum Value requirements) of $6 million cash.
Assume also that the Designs Partner does not accept that offer
and instead specifies a $7 million Designated Value in a
responsive offer under clause (ii) of Subsection 14.6(a). Assume
further that the LOS Partner then elects to acquire those OLSs in
its second notice. Finally, assume that the Designs Partner had
specified in its notice that, if the LOS Partner acquired the
OLSs, it must do so in accordance with clause (i) of
Subsection 14.4(a). The Partners and the Partnership would then
complete these steps: The LOS Partner would pay the Partnership
$4.9 million in cash (that is, 70 percent of $7 million), the
Partnership would distribute that cash to the Designs Partner and
the Partnership would convey the three OLSs to the LOS Partner.
(c) The Minimum Value shall be the sum of:
CPE + GFA + I + X + Y + Z
where:
CPE = the capitalized pre-opening expenses for the
Profitable OLSs
GFA = the gross fixed assets of the Profitable OLSs
as of the CD
I = the inventories of the Profitable OLSs as of
the opening of business on the CD that, as of
that time, have not been sold by the
Partnership but have been (or later are) paid
for by the Partnership
X = a value (or a "zero" value, but in no event a
negative value) that the LOS Partner, in its
absolute discretion, attributes to the Other
OLSs in its initiating offer
Y = a value for the Outlets determined in
accordance with Section 15.3 of this
Agreement but without applying the 1.5
multiplier set forth in Section 15.3,
provided that "Y" shall not be included in
the formula unless the Article 14 procedure
involves Partnership Interests rather than
OLSs and the LOS Partner does not timely
elect to acquire Outlets in accordance with
Article 14 or 15
Z = the assets of the Partnership as shown on its
balance sheet (exclusive of any value for the
Outlets and exclusive of any value for "I" or
any gross fixed assets) less the balance
sheet liabilities of the Partnership (but not
any obligations to pay for inventory),
provided that "Z" shall not be included in
the formula unless the transaction involves
Partnership Interests rather than OLSs (Note
of explanation: "I" and "GFA" are excluded
from the asset portion of the definition of
"Z" in order that those assets not be "double
counted" for Profitable OLSs and because they
are not included in the Minimum Value for
Other OLSs or Outlets. Obligations to pay
for inventory have been excluded from the
liability portion of the definition of "Z" in
order that those liabilities not be "double
counted".)
"CD" means the date of the closing of the transaction to which
this Section 14.6 relates. That closing shall take place no
later than 60 days after a Partner gives the other Partner the
election that definitively determines which Partner will acquire
the Subject Property. If the transaction is the purchase and
sale of a Partnership Interest, "Profitable OLSs" means every OLS
of the Partnership that (i) has had positive cumulative earnings
since that store opened through the end of the Fiscal Year last
preceding the LOS Partner's initiating notice, (ii) operated
during that entire Fiscal Year and (iii) was profitable for that
Fiscal Year. If the transaction is an acquisition of one or more
OLSs, "Profitable OLSs" means those OLSs being acquired that meet
all three tests set out in the previous sentence. If the
transaction is the purchase and sale of a Partnership Interest,
"Other OLSs" means every OLS of the Partnership that fails at
least one of those three tests. If the transaction is an
acquisition of one or more OLSs, "Other OLSs" means those OLSs
being acquired that fail at least one of those three tests. The
three tests shall be applied by using the figures generated in
accordance with Section 8.3 of this Agreement. As a consequence
of the definitions set out in this Subsection 14.6(c), if the LOS
Partner invokes this Section 14.6, it may include in its Trigger
Notice any value (but not a value less than zero) for any Other
OLS (that is, any store that is not a Profitable OLS).
(d) In most instances, the Minimum Value will not be
known when the LOS Partner initiates the Article 14 procedure.
Likewise, the Minimum Value will not be known at the CD.
Accordingly, in its Trigger Notice the LOS Partner need only
specify that its Designated Value includes the Minimum Value (or,
if it chooses, a value greater than the Minimum Value, whether
that premium is expressed as a dollar figure or a percentage in
excess of the Minimum Value) for each relevant Profitable Store,
whatever that value may turn out to be. The LOS Partner may also
not then know which OLSs are Profitable OLSs and which are Other
OLSs. Accordingly, the LOS Partner may also choose to specify,
in its Trigger Notice, an "X" (see the formula) for some or all
of the relevant OLSs should they turn out to be Other OLSs. To
the extent that any cash is to be paid at the closing of the
transaction, the amount of that cash shall be based on the
Partners' estimate of the Designated Value.
(e) Then, within 45 days after the CD, the acquiring
Partner shall deliver to the other Partner its proposed final
price for the Subject Property and a statement showing the "GFA"
and the "I" for each relevant OLS (and, if relevant, the "Z" for
the Partnership) as of the CD (an "Asset Statement"). In
addition, if the transaction involves a Partnership Interest and
the LOS Partner timely elected to acquire the Outlets in
accordance with Article 15, the Asset Statement shall include the
information necessary to value the Outlets in accordance with
Section 15.3 (in effect, combining this statement with the
"Outlet Asset Statement" called for by Section 15.4). The Asset
Statement shall be prepared in accordance with GAAP and
Schedule 8.3 and shall be accompanied by a certificate to that
effect signed by the chief financial officer of the Partnership.
Within 45 days after the acquiring Partner delivers the Asset
Statement, the other Partner shall either accept the Asset
Statement or furnish the acquiring Partner with a statement
setting forth whatever modifications that other Partner proposes
to the Asset Statement. If that other Partner does not so
respond within those 45 days, it shall be deemed to have accepted
the Asset Statement. If that other Partner timely proposes
modifications, it and the acquiring Partner shall attempt in good
faith to resolve their differences. If the Partners do not
resolve their differences within 30 days after the modifications
are proposed, either Partner may invoke the procedures set forth
in Section 20.2 of this Agreement to resolve those differences.
When the contents of the Asset Statement have been finally
resolved (whether by acquiescence, agreement or a third
accounting firm), the Partners (and, if appropriate, the
Partnership) shall make the appropriate reconciliation payments.
14.7 LOS Partner Offer that the Designs Partner Acquire.
(a) If the LOS Partner initiates the Article 14
procedure and offers to have the Designs Partner acquire the
Subject Property, the Designated Value set forth in the LOS
Partner's Trigger Notice need not meet the Minimum Value
requirements. However, that notice shall specify whether, if the
Designs Partner accepts that offer, it will acquire the Subject
Property in accordance with clause (i) of Subsection 14.4(b) or
clause (ii) of Subsection 14.4(b). The Designs Partner shall
(i) accept that offer or (ii) based on a Designated Value offer
that is lower than the Designated Value set forth in the LOS
Partner's Trigger Notice (with that discount expressed as a
dollar figure or a percentage that is lower than the Designated
Value), offer both to (A) acquire the Subject Property and to
(B) have the LOS Partner acquire the Subject Property. The
Designs Partner must elect (i) or (ii). It may not do neither.
It must make its election in writing and must do so within 120
days after the LOS Partner gives its Trigger Notice. If the
Designs Partner elects to make the offers set forth in clause
(ii) of this Subsection 14.7(a), its notice to the LOS Partner
shall specify the "lower" figure referred to previously in this
Subsection 14.7(a). In addition, if the Designs Partner makes
that election and the transaction involves OLSs rather than
Partnership Interests, the Designs Partner's election shall
specify whether, if the LOS Partner acquires those OLSs, the LOS
Partner shall do so in accordance with clause (i) of
Subsection 14.4(a) or clause (ii) of Subsection 14.4(a). If the
Designs Partner does not make a timely election, it shall be
considered to have accepted the LOS Partner's offer that the
Designs Partner acquire the Subject Property as set forth in
clause (i) of this Subsection 14.7(a) and, if the offer involves
OLSs, to have elected to effect the acquisition in accordance
with clause (i) of Subsection 14.4(b). If the Designs Partner
elects to make the offers set forth in clause (ii) of this
Subsection 14.7(a), the LOS Partner shall have 120 days after the
Designs Partner gives its notice to elect, in writing, to accept
either (A) or (B) of that clause (ii). It may not do neither.
If the transaction involves OLSs rather than Partnership
Interests and the LOS Partner elects (ii)(A), its acceptance
shall specify whether the Designs Partner will acquire those OLSs
in accordance with clause (i) of Subsection 14.4(b) or clause
(ii) of Subsection 14.4(b). If the LOS Partner does not make a
timely election, it shall be considered to have accepted the
Designs Partner's offer to acquire the Subject Property (that is,
(ii)(A) above) and, if the offer involves OLSs, to have elected
that the acquisition be effected in accordance with clause (i) of
Subsection 14.4(b). Following acceptance by the Designs Partner
of the LOS Partner's initiating offer or acceptance by the LOS
Partner of one of the Designs Partner's responsive offers, the
Partners (and the Partnership, as appropriate) shall complete the
steps described in Subsection 14.4(a) (under its clause (i) or
(ii)), (b) (under its clause (i) or its clause (ii)), (c) or (d),
as appropriate, based on the Designated Value and the manner of
acquisition specified in (or for) the offer that was accepted.
In addition, if the LOS Partner's Trigger Notice included an
election that the LOS Partner acquire the Outlets in accordance
with Article 15, the Partners and the Partnership shall
simultaneously complete that transaction as well.
(b) By way of example, assume that the LOS Partner
initiates the Article 14 procedure by offering to sell its
Partnership Interest, specifying $30 million as the Designated
Value and also electing to acquire the Outlets under Article 15.
Assume further that the Designs Partner does not accept the offer
to buy the LOS Partner's Partnership Interest and instead
specifies a $26 million Designated Value in its responsive
buy/sell offer under clause (ii) of Subsection 14.7(a). Finally,
assume the LOS Partner elects to sell in its second notice. The
Partners would then complete these transactions: The LOS Partner
would sell its Partnership Interest to the Designs Partner for
cash equal to $7.8 million (that is, 30 percent of $26 million)
and the LOS Partner would acquire the Outlets for the price
determined in accordance with Section 15.3.
14.8 Special Netting Rules. The pricing rules set forth in
this Article 14 are subject to the special netting rules set
forth in Section 18.12.
14.9 Affiliates as Purchasers. A Partner entitled to
acquire one or more OLSs under this Article 14 may, if it
chooses, elect instead that an Affiliate of that Partner (rather
than that Partner) acquire the OLS or OLSs.
14.10 Stock Alternative. Rather than buy the Designs
Partner's Partnership Interest under this Article 14, the LOS
Partner may elect instead to buy all the shares of the Designs
Partner. If the LOS Partner does buy the shares of the Designs
Partner, then any amounts otherwise payable by the Partnership or
the LOS Partner to the Designs Partner for any transactions
completed under Article 14 or 15 simultaneously with or before
that stock acquisition shall instead be paid to Designs.
ARTICLE 15
SPECIAL PURCHASE RIGHTS FOR OUTLETS
15.1 In General. At any time beginning January 30, 2000
and ending July 25, 2004 (but subjection to Section 15.5), the
LOS Partner may acquire one or more Outlets in accordance with
this Article 15. The LOS Partner may invoke this Article 15 on
more than one occasion.
15.2 Procedure. In order to acquire Outlets under this
Article 15, the LOS Partner shall give the Designs Partner a
written notice specifying the Outlets which the LOS Partner will
acquire. That notice shall specify a closing date for the
transaction. That closing date shall be no later than 120 days
after the LOS Partner gives it notice. However, if a procedure
is then underway which could result in one of the Partners
acquiring the other Partner's Partnership Interest or the notice
initiating this Article 15 also commences an Article 14
procedure, the LOS Partner shall specify in its notice that the
closing shall take place at the same time that a Partnership
Interest is acquired. Within 30 days after the LOS Partner gives
its notice, the Designs Partner shall give the LOS Partner a
written notice in which it elects whether the LOS Partner's
acquisition of Outlets shall be effected in accordance with
clause (a) below or clause (b) below:
(a) Under this clause: (i) the LOS Partner shall pay
70 percent of the Outlet Value (see Section 15.3) for the
relevant Outlets to the Partnership in cash, (ii) the Partnership
shall distribute that cash to the Designs Partner and (iii) the
Partnership shall convey those Outlets to the LOS Partner.
(b) Under this clause: (i) notwithstanding the cash
distribution rules set forth in Section 9.3, all subsequent
distributions of Excess Cash by the Partnership shall be made to
the Designs Partner until those distributions equal seven-thirds
of the Outlet Value for the relevant Outlets and (ii) the
Partnership shall convey those Outlets to the LOS Partner (it
being understood that this conveyance shall not be postponed if
and because the Partnership does not then have sufficient Excess
Cash to satisfy part (i) of this sentence).
If the Designs Partner does not timely make that election, it
shall be considered to have elected that the acquisition be
effected in accordance with clause (a). If the LOS Partner
acquires the shares of the Designs Partner before or at a time
when any cash is otherwise required to be paid to the Designs
Partner under Subsection 15.2(a) or (b), that payment shall
instead be made to Designs by the LOS Partner.
15.3 Pricing. The Outlet Value shall equal:
1.5 (CPE + GFA + I)
where
CPE = the capitalized pre-opening expenses of
the relevant Outlet or Outlets
GFA = the gross fixed assets of the relevant
Outlet or Outlets as of the opening of
business on the date the Outlet
acquisition closes
I = the inventories located at or already
ordered for the relevant Outlet or
Outlets as of the opening of business on
that closing date which, as of that
time, have not been sold by the
Partnership but have been (or later are)
paid for by the Partnership
If the LOS Partner acquires Outlets under this Article 15, it
shall assume the obligations of the Partnership associated with
the acquired Outlets (for example, lease obligations) that are
first required to be performed after the acquisition is
completed. However, notwithstanding anything to the contrary set
forth in Section 15.3, the pricing for any acquisition of Outlets
acquired by a Partner as part of an acquisition of a Partnership
Interest under Article 16 shall be determined in accordance with
Section 16.5.
15.4 Verification of Outlet Value. If the acquisition of
Outlets is effected under Subsection 15.2(a), the LOS Partner
shall pay the Partnership, in cash at closing, 70 percent of the
Partners' estimate of the Outlet Value for the Outlets being
acquired. Irrespective of whether the acquisition of Outlets is
effected under Subsection 15.2(a) or 15.2(b), within 45 days
after the LOS Partner acquires one or more Outlets, the LOS
Partner shall deliver a statement to the Designs Partner setting
forth, for each Outlet acquired, all the values needed to apply
the formula in Section 15.3 (the "Outlet Asset Statement"). The
Outlet Asset Statement shall be certified by the Partnership's
chief financial officer as having been prepared in accordance
with generally accepted accounting principles but subject to the
rules set forth on Schedule 8.3. Within 30 days after the LOS
Partner delivers the Outlet Asset Statement, the Designs Partner
shall (a) accept that statement or (b) furnish the LOS Partner
with a statement objecting to one or more of the figures in the
Outlet Asset Statement and the basis for its objections and/or
requiring that one or more of the figures in the Outlet Asset
Statement be audited. If the Designs Partner does not respond
within those 30 days, the Designs Partner shall be considered to
have accepted the Outlet Asset Statement. If the Designs Partner
timely proposes modifications, the Partners shall attempt in good
faith to resolve their differences. If the Partners do not
resolve their differences within 30 days after the modifications
are proposed, either Partner may invoke the procedures set forth
in Section 20.2 of this Agreement to resolve those differences.
When the contents of the Outlet Asset Statement have been finally
resolved (whether by acquiescence, agreement or in accordance
with Section 20.2), the Partners (and, if appropriate, the
Partnership) shall make the appropriate reconciliation payments.
15.5 Termination of Rights. The LOS Partner may not give
the Designs Partner a notice that the LOS Partner is buying
Outlets under this Article 15: (a) in the case of an Article 14
procedure respecting Partnership Interests, after the time
indicated for giving such a notice in Article 14; (b) after the
Designs Partner has begun a procedure to buy the LOS Partner's
Partnership Interest under Article 16 or (c) after 60 days before
the Termination Date. Moreover, even if the LOS Partner has
given the Designs Partner a notice that the LOS Partner is buying
Outlets under Article 15, that acquisition shall be halted
(assuming it has not been completed) if the Designs Partner
initiates a procedure to buy the LOS Partner's Partnership
Interest under Article 16.
15.6 Special Netting Rules. The pricing rules set forth in
this Article 15 are subject to the special netting rules set
forth in Section 18.12.
15.7 Affiliate as Purchaser. The LOS Partner may, if it
chooses, elect that an Affiliate of the LOS Partner (rather than
the LOS Partner) acquire one or more Outlets under this Article
15.
ARTICLE 16
TERMINATION EVENTS
16.1 In General. Article 14 permits a Partner to initiate
a procedure to buy or sell Partnership Interests (or OLSs)
beginning January 30, 2000. This Article 16 also permits
purchases of Partnership Interests. However, this Article gives
each Partner a right to buy the other Partner's Partnership
Interest, both before and after January 30, 2000, but only after
the occurrence of certain events. Those events are called
"Termination Events".
16.2 Types of Termination Events. There are five types of
Termination Events: "Material Breaches", "Fundamental Changes",
"Reputation Events", "Bankruptcy Events" and "Unauthorized
Terminations". Each of those terms is defined in the Glossary.
16.3 Partner Entitled to Buy. Subject to the other
provisions of this Article 16 and the other Articles of this
Agreement:
(a) If one Partner commits a Material Breach or
effects or attempts to effect an Unauthorized Termination, the
other Partner may buy that Partner's Partnership Interest.
(b) If a Reputation Event occurs with respect to a
Partner or an Affiliate of a Partner, the other Partner may buy
that Partner's Partnership Interest.
(c) If a Fundamental Change occurs with respect to a
Partner (including with respect to certain Affiliates of a
Partner, as explained in the definition of "Fundamental Change"
that appears in the Glossary), the other Partner may buy that
Partner's Partnership Interest.
(d) If a Bankruptcy Event occurs with respect to a
Partner (including with respect to certain Affiliates of the
Partner, as explained in the definition of "Bankruptcy Event"
that appears in the Glossary), the other Partner may buy that
Partner's Partnership Interest.
A Partner entitled to buy the other Partner's Partnership
Interest under this Article 16 is referred to as a "Purchasing
Partner". The other Partner is referred to as a "Selling
Partner". Subject to Section 16.6 of this Agreement, a Partner's
failure to purchase a Partnership Interest under this Article 16
shall not deprive that Partner or any other Person of any remedy
(including, without limitation, a claim for Damages) that
otherwise arises from any Termination Event. Moreover, whether
or not a Partner purchases the other Partner's Partnership
Interest in response to a Material Breach, it and the Partnership
shall have any and all remedies that are otherwise available to
it (both a claim for Damages and for equitable relief) that
result from that Material Breach.
16.4 Purchase Procedures. After a Termination Event and so
long as that Termination Event has not been cured, the Purchasing
Partner may give the Selling Partner a written notice stating
that the Purchasing Partner intends to buy the Selling Partner's
Partnership Interest under this Article 16. That notice shall
describe the Termination Event and specify a closing date for the
transaction. If the Purchasing Partner believes that more than
one Termination Event has occurred, it may specify in its notice
which Termination Event or Termination Events it is responding
to. The closing date specified in the Purchasing Partner's
notice shall be no later than 120 days after the Purchasing
Partner gives its notice. If the Termination Event is not cured
by the 45th day after the Purchasing Partner gives that notice,
the Partners shall complete the sale of the Selling Partner's
Partnership Interest to the Purchasing Partner on the date
specified in the Purchasing Partner's notice. A Termination
Event shall be considered "cured" if its adverse effects and
anticipated adverse effects on the Partnership and its business
and on the Purchasing Partner and the Affiliates of the
Purchasing Partner have been cured or prevented, it being
understood that some Termination Events may not be curable.
16.5 Payment and Price. The Purchasing Partner shall pay
the purchase price for the Selling Partner's Partnership Interest
when the transaction closes. The purchase price shall not be
based upon any of the pricing rules set forth in Article 14 or
Article 15. Rather, the purchase price shall consist of the
assumption, by the Purchasing Partner, of all the liabilities of
the Partnership (but without impact on the existing liabilities
of the Selling Partner to the Partnership and to the Purchasing
Partner, if any, namely, the liabilities of the Selling Partner
to the Partnership and to the Purchasing Partner respecting
actions and inactions that precede the closing under this
Article 16), plus an amount, payable in cash, equal to:
(a) PI x NBV
if the Termination Event is a Fundamental Change, a Bankruptcy
Event or a Material Breach;
(b) .85 x PI x NBV
if the Termination Event is a Reputation Event and
(c) .5 x PI x NBV
if the Termination Event is an Unauthorized Termination.
where:
PI = the Selling Partner's Percentage Interest
NBV = the net book value of the Partnership's
tangible assets plus the Partnership's cash,
cash equivalents and receivables minus the
Partnership's liabilities, all determined in
accordance with GAAP as of the last day of
the fiscal quarter last preceding the date
that the Purchasing Partner gave its notice
under Section 16.4 (except that "NBV" shall
not be less than zero)
"NBV" shall be drawn from the relevant financial statements
furnished by the Partnership under Section 8.2 of this Agreement,
unless a Partner notifies the Partnership and the other Partner
in writing within 45 days after receiving those financial
statements that it objects to the relevant figures in those
statements. The Partners shall attempt in good faith to resolve
any such objections in good faith. If they do not succeed within
30 days after the objecting Partner gives its notice, they shall
resolve their differences in accordance with Section 20.2 of this
Agreement. Any other disagreement regarding the application of
this Section 16.5 or any other matter implicated by this
Article 16 shall be resolved as a "Controversy" under
Section 20.1. A failure to resolve the amount of any Damages
resulting from a Material Breach by the Selling Partner shall not
delay the closing of the purchase and sale of the Selling
Partner's Partnership Interest. Instead, the amount of Damages,
if any, may be determined after that closing, in which case the
Purchasing Partner may elect to deposit, in a third-party escrow
pending resolution of its claim, the portion of the purchase
price which equals the lesser of the amount of the Damages
claimed and 20 percent of the purchase price.
16.6 The Discounts. As explained in Section 12.1, the
Partners intend that this Agreement shall provide the exclusive
means by which a Partner may unilaterally dissolve the
Partnership. If a Partner nevertheless succeeds in taking such
an action in contravention of this Agreement or even attempts to
do so (what the Glossary defines as an "Unauthorized
Termination"), the Purchasing Partner may not be able to prove
the amount of related Damages suffered or likely to be suffered
by the Partnership and its business, the Purchasing Partner or
the Affiliates of the Purchasing Partner. In addition, if a
Reputation Event occurs with respect to a Partner or an Affiliate
of a Partner, the Purchasing Partner may not be able to prove the
amount of related Damages suffered or likely to be suffered by
the Partnership and its business, the Purchasing Partner or the
Affiliates of the Purchasing Partner. Rather than impose those
difficult, uncertain and expensive burdens on the Purchasing
Partner, the Partners believe that the 15 percent discount
reflected in Subsection 16.5(b) represents a reasonable estimate
of the Damages likely to be incurred as a result of a Reputation
Event and that the 50 percent discount reflected in
Subsection 16.5(c) represents a reasonable estimate of the
Damages likely to be incurred as a result of an Unauthorized
Termination. The Partners believe, therefore, that the purchase
option provided by this Article 16 and those discounts represent
reasonable monetary remedies for the Purchasing Partner and all
of its Affiliates under the circumstances indicated.
Accordingly, that option and those discounts shall constitute the
Purchasing Partner's and its Affiliates' sole monetary remedy for
a Reputation Event or an Unauthorized Termination. Moreover,
subject to the next sentence, the purchase option specified in
Section 16.4 shall constitute the Purchasing Partner's and its
Affiliates' sole remedy for a Fundamental Change. However, this
Section 16.6 shall in no manner limit the Purchasing Partner's
right to obtain injunctive or other non-monetary judicial relief
or its arbitral equivalent, whether specific performance to
require the sale of a Partnership Interest in accordance with
Article 16, an injunction to prevent an Unauthorized Termination
or otherwise.
16.7 Special Netting Rules. The pricing rules set forth in
this Article 16 are subject to the special netting rules set
forth in Section 18.12.
16.8 Information. Each Partner shall provide the other
Partner with current information that is not confidential and
which bears on any event or development that constitutes, may
constitute or could become a Bankruptcy Event respecting that
Partner or any Person associated with that Partner identified in
paragraphs (d), (e) or (f) (as appropriate) of the definition of
"Bankruptcy Event" in the Glossary, a Fundamental Change
respecting that Partner (including with respect to certain
Affiliates of that Partner, as explained in the definition of
"Fundamental Change" in the Glossary) or a Reputation Event
respecting that Partner or any Affiliate of that Partner. Each
Partner in all events shall promptly furnish the other Partner
with:
(a) all proxy statements, registration statements,
annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, Schedules 13D, 13G and 14D-1, and
other documents filed with the Securities and Exchange Commission
by or with respect to that Partner or any Person that Controls
that Partner;
(b) all notices under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 filed or received by that Partner or any
Person that Controls that Partner and
(c) all material pleadings in any bankruptcy and other
actions and proceedings respecting that Partner or any Person
associated with that Partner identified in paragraph (d), (e) or
(f) (as appropriate) in the definition of "Bankruptcy Event" that
appears in the Glossary.
ARTICLE 17
TERMINATION DATE PROCEDURES
17.1 In General. This Article 17 addresses what happens if
the Partnership is dissolved because its term expires. That will
happen when the Termination Date occurs, unless the Partnership
has already been dissolved by then. If the Partnership is
dissolved under this Article 17, the Partnership shall sell its
assets and discharge or otherwise provide for its obligations and
liabilities. It shall then distribute any remaining assets to
the Partners.
17.2 Sale of Assets. If the Partnership is dissolved under
this Article 17, it shall proceed as promptly as possible, albeit
prudently, to sell all the Partnership Assets, whether to one
purchaser or more than one purchaser, and ideally for cash, plus
the assumption by the purchaser of the Partnership's and the
Partners' obligations and liabilities. Either Partner may
require that this sale or these sales be organized and conducted
by a reputable and experienced liquidator (a "Liquidator").
However, in order to do so, a Partner must give the other Partner
written notice to that effect before the Termination Date. If
the Partners fail to agree on the identity of a Liquidator within
30 days after one Partner gives such a notice, the Liquidator
shall be appointed in accordance with the procedures set forth in
Section 20.2 of this Agreement, with the firm selected being
experienced in liquidations and not necessarily an accounting
firm. While the Partnership Assets are being sold, the business
of the Partnership shall be continued with the unsold Partnership
Assets in order to maintain their going concern value, to
complete transactions in process and to perform and discharge the
Partnership's obligations. During that period, the business and
affairs of the Partnership shall continue to be governed by this
Agreement.
17.3 Inside Bids. Subject to Section 17.4, either Partner
and any Affiliate of either Partner may bid on and purchase any
and all Partnership Assets offered for sale under this Article
17. However, again subject to Section 17.4, neither Partner and
no Affiliate of either Partner shall have any special advantage
in that process. The price and other features of any bid by a
Partner or Affiliate of a Partner shall be compared with the
price and other features of all other bids as though the Partner
or Affiliate were an "outside" bidder.
17.4 Special Treatment of Outlets. Notwithstanding any
other provision of this Article 17, in connection with the
Partnership's dissolution the LOS Partner shall be entitled to
buy any or all of the Outlets from the Partnership at a price
equal to the Outlet Value (see Section 15.3). In order to do
that, the LOS Partner must give a written notice to the Designs
Partner specifying the Outlet or Outlets it will buy. It must
give that notice at least 60 days before the Termination Date.
17.5 Application of Proceeds. The net proceeds of all
sales of Partnership Assets conducted under this Article 17 shall
be distributed according to these priorities:
(a) first, to discharge or provide for all obligations
and liabilities of the Partnership, including to Persons that are
Affiliates of a Partner, but not to Partners themselves;
(b) then, to discharge or provide for all obligations
and liabilities of the Partnership to the Partners (it being
understood that a Partner may not cause an obligation or
liability owed to it to be accorded the priority of
Subsection 17.5(a) by assigning that obligation or liability to
an Affiliate of that Partner) and
(c) then, to the Partners to the extent of the
positive balances (if any) in their Capital Accounts.
For purposes of determining the amounts of any distributions
under Subsection 17.5(c), if any Partnership assets are to be
distributed in kind they shall be valued by the Liquidator and
the Partners' Capital Accounts shall be adjusted in accordance
with Subsection 9.1(d).
17.6 Restoration of Capital Accounts. This Section 17.6
shall apply after:
(a) in accordance with this Article 17, the
Partnership has sold or distributed all Partnership Assets and
discharged or provided for all Partnership obligations and
liabilities;
(b) in accordance with Article 9, the Partnership has
allocated all items of income, gain, loss and deduction, and made
all required adjustments to Capital Accounts and
(c) all distributions to Partners required by
Section 17.5 have been made.
If, thereafter, a Partner has a negative balance in its Capital
Account, it shall contribute sufficient cash to the capital of
the Partnership to eliminate that deficit. The amounts so
contributed shall then be distributed as provided in
Section 17.5.
17.7 Timing. The Partnership shall endeavor to complete
the payments, distributions and contributions described in
Sections 17.5 and 17.6 by the later of (a) the end of the Fiscal
Year during which the Termination Date occurs and (b) 90 days
after the Termination Date.
ARTICLE 18
CERTAIN CONSEQUENCES OF TRANSACTIONS
18.1 In General. This Article 18 sets forth additional
rules and consequences of the various transactions covered by
Articles 12 through 17 of this Agreement.
18.2 Transition Principles. The Partners recognize that
implementation and completion of the various purchase, sale and
dissolution procedures and transactions contemplated by those
Articles could substantially disrupt the Partnership's business,
the Partnership's employees, customers and suppliers, and the
Partnership's relationships with its employees, customers and
suppliers. Those procedures and transactions could also
adversely affect the Levi's(R) brand and the businesses and
reputations of the Partners and their Affiliates. Accordingly,
in implementing those procedures, the Partners and their
Affiliates shall exercise their reasonable efforts to minimize
the disruption and adverse effects, and to maintain and enhance
the goodwill of all parties and the Levi's(R) brand. Out-of-pocket
expenses, for that effort, shall be defrayed by the Partnership
to the extent the Partnership has available cash. However,
neither Partner shall be obligated to contribute cash to the
Partnership in order to assist the Partnership to defray those
expenses. The Partners shall, however, be obligated to perform
their then-existing obligations. To accomplish the purposes of
this Section 18.2 and also to implement Section 18.6 and deal
with all other relevant issues, the Partners in good faith shall
develop and implement a transition plan in connection with any
such transaction. The business of the Partnership and all
Stores, whether or not the subject of the pending transaction,
shall at all times be operated in the ordinary course of
business.
18.3 Cooperation to Close. At its own expense unless
specified otherwise in an offer accepted in accordance with this
Agreement, each Partner and each Affiliate of each Partner shall
implement all the procedures and complete all the transactions
required or permitted to be implemented and completed under
Articles 12 through 17 of this Agreement. Without limitation,
that shall include signing and delivering all documents,
obtaining all consents from and making all filings with private
and governmental third parties, and taking all other actions,
both before and after a transaction closes, which are reasonably
requested by the other Partner to effect or better memorialize
that transaction or the various "transitions" connected with that
transaction. Examples are recording memoranda of leases (or, if
appropriate at the time, real estate deeds), obtaining consents
from landlords and complying with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976.
18.4 Impact on Status of Partnership. If one Partner buys
the other Partner's Partnership Interest, whether under
Article 13, 14 or 16, the Partnership shall then be dissolved.
The Partnership shall also be dissolved, in this case on the
Termination Date, if Article 17 applies. If a Partnership
Interest is transferred under Section 12.4 or a Person other than
a Partner buys a Partnership Interest under Article 13, the
Partnership shall then be reconstituted and shall continue in
accordance with the terms of this Agreement, with the non-
transferring Partner and the transferee becoming the "Partners"
of the reconstituted Partnership. If a Restricted Interest that
is not a Partnership Interest is transferred under Section 12.4
or Article 13, the Partnership shall continue in existence. If
one Partner acquires one or more OLSs under Article 14 but the
Partnership retains any Partnership Assets, the Partnership shall
also continue in existence. Likewise, if the LOS Partner
acquires one or more Outlets under Article 15 but the Partnership
retains any Partnership Assets, the Partnership shall continue in
existence.
18.5 Certain Operational Issues. If the Designs Partner
ceases to be a Partner, the Designs Partner shall cease rendering
services to the Partnership at the time specified in, and
otherwise in accordance with, the Administrative Services
Agreement. Thirty days if and after the LOS Partner ceases to be
a Partner, the LOS Partner shall cease providing the direction
and assistance to the Partnership referred to in Section 6.5 of
this Agreement.
18.6 Intellectual Property.
(a) Neither Designs nor any Affiliate of Designs may
own or operate an OLS. Nor may Designs or any Affiliate of
Designs operate an Outlet using the name "Levi's Outlet" (it
being understood that, as explained in Subsection 10.1(b), there
are circumstances under which Designs may operate an Outlet using
the name "Levi's Outlet by Designs"). Accordingly, if the
Designs Partner or one of its Affiliates buys the LOS Partner's
Partnership Interest, that shall terminate the LOS Sublicense
Agreement. And, if the Designs Partner or one of its Affiliates
acquires one or more OLSs from the Partnership, that shall
terminate the LOS Sublicense Agreement with respect to those OLSs
(but no other Stores). In either such case, the Designs Partner
and its Affiliates shall then take all steps reasonably requested
by the LOS Partner to effect the transition of all relevant
Stores to a tradename and trade dress that is not covered by the
LOS Sublicense Agreement. The Designs Partner and its Affiliates
shall pay the costs of that transition.
(b) If the LOS Partner or one of its Affiliates buys
the Designs Partner's Partnership Interest, that shall terminate
the Designs License Agreement. And, if the LOS Partner or one of
its Affiliates acquires one or more Stores from the Partnership,
that shall terminate the Designs License Agreement with respect
to those Stores (but no other Stores). In either such case, the
LOS Partner and its Affiliates shall then take all steps
reasonably requested by the Designs Partner to effect that
termination. The LOS Partner and its Affiliates shall pay the
costs of that transition.
18.7 Product Supply.
(a) If and after the Designs Partner acquires the LOS
Partner's Partnership Interest or one or more OLSs, LS&CO. shall
accord all the Stores so acquired by the Designs Partner the same
treatment with respect to product supply, distribution policies
and trademark usage as LS&CO. then and thereafter accords
LS&CO.'s other accounts in the LS&CO. "tier" or other account
segment in which those Stores are classified.
(b) If, as a result of one or more transactions
effected under this Agreement, the ownership of any OLS and the
ownership of any Outlet diverge (for example, the Partnership
retains the Outlet but the Designs Partner acquires the OLS or
because the Partnership retains the OLS but the LOS Partner
acquires the Outlet), product supply arrangements regarding that
OLS and that Outlet shall be governed by whatever policies or
arrangements would have applied had that ownership diverged from
the outset.
18.8 Title. Except as otherwise specified in an offer
accepted in accordance with this Agreement, when a Partner or
Designs sells a Restricted Interest or the Partnership
distributes one or more Stores under Article 13, 14, 15, 16 or 17
of this Agreement, it shall furnish the transferee with good
title to that Restricted Interest or those Stores free of all
Liens other than any continuing restrictions imposed by this
Agreement.
18.9 Expenses. Except as otherwise specified in an offer
accepted in accordance with this Agreement, the expenses
associated with transactions effected under Article 14 of this
Agreement shall be split equally between the LOS Partner and the
Designs Partner. The LOS Partner shall pay the expenses
associated with a transaction effected under Article 15. The
expenses associated with a transaction effected under Article 16
of this Agreement shall be paid by the seller. The "expenses"
referred to in this Section 18.9 are such expenses as filing fees
(including, for example, filing fees under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976), recording fees and transfer
(but not income) taxes. They do not include the fees and costs
of financial advisors, consultants, attorneys, accountants and
other professionals. Those latter items shall be paid by the
Person that incurred them unless and to the extent specified
otherwise in an offer accepted in accordance with this Agreement.
18.10 Assumptions. At the closing of any transaction that
reconstitutes the Partnership with a new "Partner" (see
Section 18.4), the new Partner shall agree in writing to perform
all the obligations of a Partner under this Agreement and the
Participation Agreement from and after that closing. At that
same time, any and all Persons that Control that new Partner
shall agree in writing to be bound by obligations of the same
tenor as those imposed by Article 7 of the Participation
Agreement.
18.11 Indemnification. Except as otherwise specified in an
offer accepted in accordance with this Agreement:
(a) if a Partner or its permitted assignee buys the
other Partner's Partnership Interest under this Agreement, the
purchasing Partner and its assignee (if any) shall indemnify the
selling Partner and its Affiliates and hold the selling Partner
and its Affiliates harmless from and against any and all Damages
that are attributable to actions or inactions that occur after
that purchase is completed and which arise from the business that
had been the Partnership's business, as that business may have
been expanded, contracted or modified after that purchase;
(b) if a Partner or its permitted assignee buys the
other Partner's Partnership Interest under Article 16 of this
Agreement, the Purchasing Partner and its assignee (if any) shall
indemnify the Selling Partner and its Affiliates with respect to
all obligations and liabilities assumed by the Purchasing Partner
or its assignee as required by Section 16.5 of this Agreement and
(c) if a Partner acquires one or more Stores from the
Partnership under this Agreement, the acquiring Partner shall
indemnify the other Partner, its Affiliates and the Partnership
and hold them harmless from and against all Damages that are
attributable to actions or inactions that occur after that
acquisition is completed and which arise from that Store or
Stores or from the business conducted at that Store or Stores.
18.12 Special Netting Rules. Subsections 14.4(a)(ii),
14.4(b)(ii) and 15.2(b) describe circumstances in which the
Partnership will be required to distribute Excess Cash other than
in proportion to the Partners' Partnership Interests. If
multiple transactions under one or more of those subsections
gives rise to a distribution preference to each Partner, those
preferences shall be netted, with the difference being
distributed to the Partner entitled to the larger preference. In
addition, if one Partner acquires the other Partner's Partnership
Interest at a time when any such preference or net preference
remains unpaid, the purchase price for the Partnership Interest
shall be adjusted to reflect that preference. For example, if
the Designs Partner buys the LOS Partner's Partnership Interest
and the Partnership is obligated to make $500,000 of special
distributions of Excess Cash to the Designs Partner as a result
of an earlier transaction under Subsection 14.4(a)(ii),
14.4(b)(ii) or 15.2(b), the purchase price for the Partnership
Interest shall be reduced by $500,000 and the net amount shall be
paid by the appropriate Partner to the appropriate Partner.
Accordingly if, as a result of such reduction, the price shall be
negative in this example, the LOS Partner shall pay the negative
amount to the Designs Partner. By way of further example, if the
LOS Partner buys the Designs Partner's Partnership Interest and
the Partnership is obligated to make $1 million of special
distributions of Excess Cash to the Designs Partner as a result
of an earlier transaction under Subsection 14.4(a)(ii) or
14.4(b)(ii), the purchase price for the Partnership Interest
shall be increased by $1 million.
ARTICLE 19
OTHER INDEMNIFICATIONS
19.1 By the Partnership. Without recourse to the Partners,
the Partnership shall indemnify each member of its Management
Committee and the Partnership's senior managers and hold them
harmless from and against all Damages arising from their actions
and inactions in those capacities to the maximum extent that a
Delaware corporation is then permitted to indemnify its directors
and officers under the Delaware GCL. Also without recourse to
the Partners, the Partnership shall advance related defense
expenses to the maximum extent then permitted by the Delaware GCL
for such directors and senior managers. In addition, the
liability of members of the Management Committee for their
actions and inactions in that capacity shall be limited by the
same principles that Section 102(b)(7) of the Delaware GCL or any
successor to that Section authorizes be included in the
certificate of incorporation of a Delaware corporation.
19.2 By a Partner. Subject to the principles set forth in
Section 16.6 of this Agreement, each Partner shall indemnify the
Partnership, the other Partner and the other Partner's Affiliates
and hold them harmless from and against all Damages arising out
of any breach of any covenant of that Partner contained in this
Agreement or the gross negligence or willful misconduct of that
Partner or any Affiliate of that Partner respecting the
Partnership.
19.3 Indemnification Rules. Indemnification under this
Article 19 and under Article 18 shall be governed by the rules
set forth in Schedule 19.3 to this Agreement.
ARTICLE 20
DISPUTE RESOLUTION
20.1 Controversies. Any Controversy under this Agreement
or respecting any of the subjects treated in this Agreement shall
be resolved, if possible, by the good faith efforts of the
Partners including, if other efforts fail, a face-to-face meeting
between a senior manager of the LOS Partner and a senior manager
of the Designs Partner. If any Controversy is not settled by
such efforts within 30 days after one of the Partners requests
such a meeting, either Partner shall be entitled to cause the
Controversy to be resolved by an arbitrator employed by
JAMS/Endispute. If the Designs Partner initiates arbitration,
the arbitration shall be conducted in whichever of Columbus, Ohio
or San Francisco, California the LOS Partner chooses. If the
LOS Partner initiates arbitration, the arbitration shall be
conducted in Boston, Massachusetts. The arbitration shall be
conducted in accordance with JAMS/Endispute's then-applicable
Rules of Practice and Procedure for Arbitration. Pending the
completion of any arbitration proceeding, payments not in dispute
shall continue to be made and obligations not in dispute shall
continue to be performed. Except as provided below, such
arbitration shall be the Partners' and their Affiliates'
exclusive formal means of resolving any such Controversy. The
decision of the arbitrator shall be final and binding on the
Partners and their Affiliates. Judgment upon any award rendered
by the arbitrator may be entered by any state or federal court
having jurisdiction. Notwithstanding the foregoing, to preserve
rights or prevent or mitigate Damages and in aid of the
arbitration process, any party to the arbitration may apply to
such a court for temporary or preliminary injunctive or other
equitable relief pending the results of the arbitration.
However, if the final decision of the arbitrator is inconsistent
with any such relief so obtained, the arbitrator's final decision
shall preempt that relief.
20.2 Certain Accounting Matters. In the case of any
unresolved matter that this Agreement directs be resolved in
accordance with this Section 20.2, that matter (but no other
matter) shall be resolved by an accounting firm that shall be
jointly selected by the accounting firms normally used by the
Partners. Those accounting firms shall be instructed to select
that third firm within 10 days after either Partner invokes this
Section 20.2. The third accounting firm so chosen shall be
instructed to resolve the matter in controversy within 30 days
after it is selected or as soon thereafter as is reasonable. The
Partners and the Partnership shall furnish that third accounting
firm with all information it may reasonably request in order to
perform its task and meet that schedule. That firm's resolution
of the open issues shall bind both Partners and their Affiliates.
Each Partner shall pay half of the fees and expenses of that
accounting firm.
ARTICLE 21
MISCELLANEOUS
21.1 Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the permitted successors,
assigns and legal representatives of the Partners. However, the
Partners shall not assign any of their rights or delegate any of
their duties under this Agreement except as expressly provided in
this Agreement. Any purported assignment or delegation in
violation of this Agreement shall be void.
21.2 Amendments. All amendments to this Agreement must be
in writing and be signed by both Partners and the Partnership.
Either Partner may, by written instrument, waive compliance by
the other Partner with any of the covenants made for its benefit
by the other Partner. Both Partners may, by written instrument,
waive compliance by the Partnership with any of the Partnership's
covenants in this Agreement.
21.3 Notices. All notices under this Agreement shall be in
writing and shall be deemed to have been duly given only if and
when delivered by hand, by overnight delivery service or by
telecopier, in all cases with receipt confirmed, to the
appropriate addressees and the addresses or telecopier numbers
set forth below, or to such other addressees, addresses or
telecopier numbers as may be designated by notice given in
accordance with this section:
If to the Designs Partner:
Designs JV Corp.
c/o Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attention: Chief Executive Officer
Facsimile: (617) 734-3406
with a copy to:
Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attention: General Counsel
Facsimile: (617) 734-3406
If to the LOS Partner:
LDJV Inc.
c/o Levi's Only Stores, Inc.
116 East Chestnut Street
Columbus, Ohio 43215
Attention: President
Facsimile: (614) 228-5769
with a copy to:
Levi Strauss & Co.
Levi's Plaza
1155 Battery Street
San Francisco, California 94111
Attention: General Counsel/LOS
Facsimile: (415) 544-7650
If to the Partnership:
The Designs/OLS Partnership
c/o Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attention: General Counsel
Facsimile: (617) 734-3406
21.4 Interest Reduction. Nothing in this Agreement shall
require the payment of any interest, expense or other charge by
any party which, when combined with all other interest, expenses
and charges directly or indirectly paid by that party or imposed
by any party as a condition to the extension of credit, shall
exceed the highest lawful rate permissible under any applicable
law. If, but for this provision, this Agreement would require
any payment in excess of any such highest lawful rate, this
Agreement shall automatically be considered amended so that all
interest, charges, expenses and other payments required under
this Agreement or so imposed, both individually and in the
aggregate, shall be equal to, but no greater than, the highest
lawful rate.
21.5 Partnership as Signatory. Promptly after the Partners
sign this Agreement, they shall also sign this Agreement on
behalf of the Partnership. The effect of their doing so shall be
to confer on the Partnership the right to enforce this Agreement
against either or both Partners and to confer on the Partners the
right to enforce this Agreement against the Partnership.
Decisions regarding the exercise of the Partnership's rights
shall be made in accordance with Section 5.11.
21.6 Counterparts. This Agreement may be signed in one or
more counterparts. Each counterpart shall be deemed an original
of this Agreement.
21.7 Entire Agreement. This Agreement (including the
Schedules to this Agreement) and the other Transaction Documents
contain all the understandings between and among the Partners and
their Affiliates with respect to their subject matter. They
supersede all prior and contemporaneous agreements and
understandings among those parties relating to that subject
matter.
21.8 Expenses. Each party shall pay its own expenses
incurred in negotiating and drafting this Agreement and the other
Transaction Documents and in effecting the Closing.
21.9 Third Party Beneficiaries. The Partners and the
Partnership may enforce this Agreement. In addition, the
Affiliates of the Partners may enforce this Agreement, but only
with respect to the covenants which, by their terms, "run" to the benefit
of Affiliates. Otherwise, this Agreement shall have no
third party beneficiaries.
21.10 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of
Delaware applicable to contracts entered into and to be performed
within Delaware by Delaware residents.
* * *
The Partners have signed and delivered this Agreement as of the
date that appears in its first paragraph.
DESIGNS JV CORP.
By /s/ Joel Reichman
Joel Reichman,
President
LDJV INC.
By /s/ Edward T. Murphy
Edward T. Murphy,
President
The Partnership's signature below has the effects set forth in
Section 21.5 of this Agreement.
THE DESIGNS/OLS PARTNERSHIP
By Designs JV Corp., a Partner
By /s/ Joel Rechman
Joel Reichman,
President
By LDJV Inc., a Partner
By /s/ Edward T. Murphy
Edward T. Murphy,
President
PARTNERSHIP AGREEMENT
of
THE DESIGNS/OLS PARTNERSHIP
between
LDJV INC.
and
DESIGNS JV CORP.
dated as of
January 28, 1995
TABLE OF CONTENTS
Page
ARTICLE 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 - FORMATION, PURPOSE AND TERM . . . . . . . . . . . 2
2.1 Formation . . . . . . . . . . . . . . . . . . . . 2
2.2 Name. . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Purposes. . . . . . . . . . . . . . . . . . . . . 3
2.4 Powers. . . . . . . . . . . . . . . . . . . . . . 3
2.5 Manner of Conducting Business . . . . . . . . . . 3
2.6 Principal Office. . . . . . . . . . . . . . . . . 3
2.7 Term. . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 3 - INITIAL CAPITAL CONTRIBUTIONS . . . . . . . . . . 4
3.1 Initial Contribution by the Designs Partner . . . 4
3.2 Initial Contribution by the LOS Partner . . . . . 4
3.3 Partnership Interests . . . . . . . . . . . . . . 5
3.4 Assumption of Commitments . . . . . . . . . . . . 5
ARTICLE 4 - FUTURE CAPITAL SOURCES. . . . . . . . . . . . . . 5
4.1 In General. . . . . . . . . . . . . . . . . . . . 5
4.2 Guaranties and Other Contributions and
Borrowings. . . . . . . . . . . . . . . . . . . . 6
4.3 Consequences of Failure to Fund . . . . . . . . . 6
ARTICLE 5 - MANAGEMENT. . . . . . . . . . . . . . . . . . . . 8
5.1 In General. . . . . . . . . . . . . . . . . . . . 8
5.2 Membership. . . . . . . . . . . . . . . . . . . . 9
5.3 Chair . . . . . . . . . . . . . . . . . . . . . . 10
5.4 Quorum. . . . . . . . . . . . . . . . . . . . . . 10
5.5 Voting. . . . . . . . . . . . . . . . . . . . . . 10
5.6 Meetings. . . . . . . . . . . . . . . . . . . . . 11
5.7 Notices . . . . . . . . . . . . . . . . . . . . . 12
5.8 Subcommittees . . . . . . . . . . . . . . . . . . 12
5.9 Major Actions . . . . . . . . . . . . . . . . . . 13
5.10 Matters for Management Committee. . . . . . . . . 17
5.11 Special Rules for Insider Transactions. . . . . . 18
5.12 No Dissolution. . . . . . . . . . . . . . . . . . 20
5.13 Access. . . . . . . . . . . . . . . . . . . . . . 21
5.14 Compensation. . . . . . . . . . . . . . . . . . . 21
ARTICLE 6 - SENIOR MANAGERS, EMPLOYEES AND OPERATIONS . . . . 22
6.1 In General. . . . . . . . . . . . . . . . . . . . 22
6.2 Senior Managers in General. . . . . . . . . . . . 22
6.3 Duties of the GM. . . . . . . . . . . . . . . . . 22
6.4 Store Employees . . . . . . . . . . . . . . . . . 23
6.5 Assistance by the LOS Partner . . . . . . . . . . 23
6.6 Administrative Services by Designs. . . . . . . . 23
ARTICLE 7 - BUSINESS PLAN . . . . . . . . . . . . . . . . . . 24
ARTICLE 8 - ACCOUNTANTS AND FINANCIAL STATEMENTS. . . . . . . 25
8.1 Accountants . . . . . . . . . . . . . . . . . . . 25
8.2 Financial Statements. . . . . . . . . . . . . . . 25
8.3 Store Specific Information. . . . . . . . . . . . 26
8.4 Access. . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 9 - CAPITAL ACCOUNTS, DISTRIBUTIONS, ALLOCATIONS
AND TAX MATTERS . . . . . . . . . . . . . . . . . 28
9.1 Capital Accounts. . . . . . . . . . . . . . . . . 28
9.2 No Interest on Capital. . . . . . . . . . . . . . 30
9.3 Cash Distributions. . . . . . . . . . . . . . . . 30
9.4 General Allocations . . . . . . . . . . . . . . . 32
9.5 Other Allocation Rules. . . . . . . . . . . . . . 33
9.6 Tax Returns . . . . . . . . . . . . . . . . . . . 34
9.7 Tax Matters Partner . . . . . . . . . . . . . . . 36
9.8 Duties of Tax Matters Partner . . . . . . . . . . 36
9.9 Code Section 754. . . . . . . . . . . . . . . . . 37
ARTICLE 10 - PARTNERSHIP OPPORTUNITIES . . . . . . . . . . . . 38
10.1 Within the Territory. . . . . . . . . . . . . . . 38
10.2 Outside the Territory . . . . . . . . . . . . . . 39
10.3 Opportunities Defined.. . . . . . . . . . . . . . 40
10.4 The Designs Partner and Its Affiliates. . . . . . 41
10.5 The LOS Partner and Its Affiliates. . . . . . . . 42
10.6 Non-Obligation. . . . . . . . . . . . . . . . . . 42
10.7 Other Activities. . . . . . . . . . . . . . . . . 43
10.8 Use of Certain Rights . . . . . . . . . . . . . . 43
ARTICLE 11 - OVERVIEW REGARDING PURCHASES, SALES AND
DISSOLUTION . . . . . . . . . . . . . . . . . . . 44
11.1 Subject Matter. . . . . . . . . . . . . . . . . . 44
11.2 Function of Each Article. . . . . . . . . . . . . 44
11.3 Certain Relationships . . . . . . . . . . . . . . 45
11.4 Assumption. . . . . . . . . . . . . . . . . . . . 50
11.5 Timing. . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE 12 - EXCLUSIVITY OF RIGHTS . . . . . . . . . . . . . . 52
12.1 In General. . . . . . . . . . . . . . . . . . . . 52
12.2 Waivers . . . . . . . . . . . . . . . . . . . . . 52
12.3 Restrictions on Transfers . . . . . . . . . . . . 52
12.4 Transfers to Certain Affiliates . . . . . . . . . 53
ARTICLE 13 - CERTAIN TRANSFERS OF DESIGNS RESTRICTED
INTEREST. . . . . . . . . . . . . . . . . . . . . 53
13.1 In General. . . . . . . . . . . . . . . . . . . . 53
13.2 Qualified Transferee Status . . . . . . . . . . . 54
13.3 Elections . . . . . . . . . . . . . . . . . . . . 55
13.4 Acceptance. . . . . . . . . . . . . . . . . . . . 56
13.5 Rejection . . . . . . . . . . . . . . . . . . . . 56
13.6 Continuance of Restrictions . . . . . . . . . . . 56
ARTICLE 14 - SPECIAL PURCHASE AND SALE RIGHTS
FOR OLSs AND PARTNERSHIP INTERESTS. . . . . . . . 57
14.1 In General. . . . . . . . . . . . . . . . . . . . 57
14.2 Initiating the Process. . . . . . . . . . . . . . 59
14.3 Ownership Assumption. . . . . . . . . . . . . . . 62
14.4 Procedure as Initiated by the Designs Partner . . 63
14.5 Procedure as Initiated by the LOS Partner . . . . 67
14.6 LOS Partner Offer to Acquire. . . . . . . . . . . 67
14.7 LOS Partner Offer that the Designs Partner
Acquire . . . . . . . . . . . . . . . . . . . . . 74
14.8 Special Netting Rules . . . . . . . . . . . . . . 77
14.9 Affiliates as Purchasers. . . . . . . . . . . . . 77
14.10 Stock Alternative . . . . . . . . . . . . . . . . 77
ARTICLE 15 - SPECIAL PURCHASE RIGHTS FOR OUTLETS . . . . . . . 78
15.1 In General. . . . . . . . . . . . . . . . . . . . 78
15.2 Procedure . . . . . . . . . . . . . . . . . . . . 78
15.3 Pricing . . . . . . . . . . . . . . . . . . . . . 79
15.4 Verification of Outlet Value. . . . . . . . . . . 80
15.5 Termination of Rights . . . . . . . . . . . . . . 82
15.6 Special Netting Rules . . . . . . . . . . . . . . 82
15.7 Affiliate as Purchaser. . . . . . . . . . . . . . 82
ARTICLE 16 - TERMINATION EVENTS. . . . . . . . . . . . . . . . 83
16.1 In General. . . . . . . . . . . . . . . . . . . . 83
16.2 Types of Termination Events . . . . . . . . . . . 83
16.3 Partner Entitled to Buy . . . . . . . . . . . . . 83
16.4 Purchase Procedures . . . . . . . . . . . . . . . 85
16.5 Payment and Price . . . . . . . . . . . . . . . . 85
16.6 The Discounts . . . . . . . . . . . . . . . . . . 88
16.7 Special Netting Rule. . . . . . . . . . . . . . . 89
16.8 Information . . . . . . . . . . . . . . . . . . . 89
ARTICLE 17 - TERMINATION DATE PROCEDURES . . . . . . . . . . . 91
17.1 In General. . . . . . . . . . . . . . . . . . . . 91
17.2 Sale of Assets. . . . . . . . . . . . . . . . . . 91
17.3 Inside Bids . . . . . . . . . . . . . . . . . . . 92
17.4 Special Treatment of Outlets. . . . . . . . . . . 92
17.5 Application of Proceeds . . . . . . . . . . . . . 93
17.6 Restoration of Capital Accounts . . . . . . . . . 93
17.7 Timing. . . . . . . . . . . . . . . . . . . . . . 94
ARTICLE 18 - CERTAIN CONSEQUENCES OF TRANSACTIONS. . . . . . . 95
18.1 In General. . . . . . . . . . . . . . . . . . . . 95
18.2 Transition Principles . . . . . . . . . . . . . . 95
18.3 Cooperation to Close. . . . . . . . . . . . . . . 96
18.4 Impact on Status of Partnership . . . . . . . . . 96
18.5 Certain Operational Issues. . . . . . . . . . . . 97
18.6 Intellectual Property . . . . . . . . . . . . . . 98
18.7 Product Supply. . . . . . . . . . . . . . . . . . 99
18.8 Title . . . . . . . . . . . . . . . . . . . . . . 99
18.9 Expenses. . . . . . . . . . . . . . . . . . . . .100
18.10 Assumptions . . . . . . . . . . . . . . . . . . .100
18.11 Indemnification . . . . . . . . . . . . . . . . .101
18.12 Special Netting Rules . . . . . . . . . . . . . .102
ARTICLE 19 - OTHER INDEMNIFICATIONS. . . . . . . . . . . . . .103
19.1 By the Partnership. . . . . . . . . . . . . . . .103
19.2 By a Partner. . . . . . . . . . . . . . . . . . .104
ARTICLE 20 - DISPUTE RESOLUTION. . . . . . . . . . . . . . . .104
20.1 Controversies . . . . . . . . . . . . . . . . . .104
20.2 Certain Accounting Matters. . . . . . . . . . . .105
ARTICLE 21 - MISCELLANEOUS . . . . . . . . . . . . . . . . . .106
21.1 Successors and Assigns. . . . . . . . . . . . . .106
21.2 Amendments. . . . . . . . . . . . . . . . . . . .107
21.3 Notices . . . . . . . . . . . . . . . . . . . . .107
21.4 Interest Reduction. . . . . . . . . . . . . . . .108
21.5 Partnership as Signatory. . . . . . . . . . . . .109
21.6 Counterparts. . . . . . . . . . . . . . . . . . .109
21.7 Entire Agreement. . . . . . . . . . . . . . . . .109
21.8 Expenses. . . . . . . . . . . . . . . . . . . . .110
21.9 Third Party Beneficiaries . . . . . . . . . . . .110
21.10 Governing Law . . . . . . . . . . . . . . . . . .111
Schedules
5.2 Management Committee
6.2 Senior Managers
8.3 Rules for Preparing Asset Statements
19.3 Indemnification Rules
GLOSSARY
The following terms have the following meanings
wherever they appear in a Transaction Document (as defined here)
with initial capital letters, but not when they appear without
initial capital letters. Those meanings shall be equally
applicable to both the singular and the plural forms of the terms
defined. References to an agreement or other document in this
Glossary include that agreement or other document as it may be
amended or supplemented from time to time.
"Accountants" means the firm of certified public
accountants appointed from time to time to serve as the
Partnership's independent auditors in accordance with Section 8.1
of the Partnership Agreement. The Accountants shall be one of
the "big six" accounting firms or a successor of any such firm,
provided that, when appointed, the firm is not involved in an
adversary proceeding against Designs or an Affiliate of Designs.
"Administrative Services Agreement" means the
Administrative Services Agreement between Designs and the
Partnership signed and delivered at the Closing.
"Affiliate" means, with respect to any Person, any
other Person which directly or indirectly Controls, is Controlled
by, or is under common Control with, the specified Person.
However, the Partnership shall not be considered an "Affiliate"
of either Partner or of any Affiliate of either Partner.
Moreover, no stockholder of LSAI (in that capacity) shall be
considered an "Affiliate" of LSAI or of any entity that LSAI
Controls. However if, at any time, LSAI no longer Controls the
LOS Partner, there shall be no analogous "exclusion" respecting
any Person that thereafter Controls the LOS Partner. Similarly,
no stockholder of Designs (in that capacity) shall be considered
an "Affiliate" of Designs or of any entity that Designs Controls.
However if, at any time, Designs no longer Controls the Designs
Partner, there shall be no analogous "exclusion" respecting any
Person that thereafter Controls the Designs Partner.
"Asset Statement" has the meaning set forth in
Subsection 14.6(e) of the Partnership Agreement.
"Bankruptcy Event" means the occurrence of any one or
more of the following:
(a) the filing against a Partner of a bankruptcy
petition or other action seeking any reorganization, composition,
liquidation or similar relief under the United States Bankruptcy
Code or similar statute or law of the United States or any other
jurisdiction, which remains undismissed and unstayed for a total
of 90 days;
(b) the entry of a decree or other court order for the
appointment of a receiver, custodian, liquidator or trustee of a
Partner or all or any substantial part of its Property, or for
the winding up or liquidation of its affairs, which remains
undischarged and unstayed for a total of 90 days;
(c) the filing by a Partner of a voluntary bankruptcy
petition under the United States Bankruptcy Code or an answer or
consent acquiescing to an order for relief as to such Partner in
any case under the United States Bankruptcy Code or similar
statute or law of the United States or any other jurisdiction,
the consent by a Partner to the appointment of a receiver,
custodian, liquidator or trustee for it or all or any substantial
part of its Property, or the admission by a Partner in writing of
its inability to pay any substantial part of its debts when they
become due;
(d) with respect to the Designs Partner, any of the
actions or events referred to in paragraphs (a) through (c) of
this definition involving Designs or any Person that Designs
Controls (but only if that Person Controls the Designs Partner);
(e) the acceleration of any Debt of Designs or of any
Affiliate of Designs in excess of $5 million or
(f) with respect to the LOS Partner, any of the
actions or events referred to in paragraphs (a) through (c) of
this definition involving LSAI or any Person that LSAI Controls
(but only if that Person Controls the LOS Partner).
Notwithstanding the foregoing, an event or circumstance that
would otherwise be a "Bankruptcy Event" with respect to a Partner
or an Affiliate of a Partner shall not be a Bankruptcy Event if
it is caused by the failure of the other Partner or any Affiliate
of the other Partner to perform one or more obligations under any
Transaction Document. If, at any time, Designs no longer
Controls the Designs Partner, the principles reflected in
paragraphs (d) and (e) of this definition shall thereafter apply
to all Persons that Control the Designs Partner. If, at any
time, LSAI no longer Controls the LOS Partner, the principles
reflected in paragraph (f) of this definition shall thereafter
apply to all Persons that Control the LOS Partner.
"Base Rate" means the "base" or "reference" rate of
interest quoted, from time to time, by Bank of America, N.T. &
S.A. at its headquarters in San Francisco, California. Any
interest rate specified in a Transaction Document based upon the
"Base Rate" shall be adjusted, from time to time, whenever the
Base Rate changes.
"Business Plan" means a business plan for the
Partnership approved as provided in Article 7 of the Partnership
Agreement.
"Capital Account" means a capital account for each
Partner established on the books of the Partnership in accordance
with Section 9.1 of the Partnership Agreement.
"Carrying Value" means, with respect to any Partnership
Asset, that asset's adjusted basis for federal income tax
purposes except as follows:
(a) the initial Carrying Value of any asset
contributed to the Partnership shall be its gross fair market
value, as agreed to by the Partners at the time of the
contribution;
(b) the Carrying Value of all Partnership Assets shall
be adjusted to equal their respective gross fair market values
upon any election by the Partnership under Treasury Regulations
Section 1.704-1(b)(2)(iv)(f) to adjust the Partners' Capital
Accounts and
(c) if the Carrying Value of an asset has been
determined under paragraph (a) or (b) above, it thereafter shall
be adjusted by the depreciation or amortization taken into
account for that asset in computing Profits and Losses.
"CD" has the meaning set forth in Subsection 14.6(c) of
the Partnership Agreement.
"Chair" has the meaning contemplated by Section 5.3 of
the Partnership Agreement.
"Closing" means the signing and delivery of the
Transaction Documents and the formation and initial
capitalization of the Partnership. The Closing shall be deemed
to occur as of the close of business on the Closing Date.
"Closing Date" means January 28, 1995.
"Code" means the United States Internal Revenue Code of
1986, as amended, and any successor statute.
"Confidential Information" has the meaning set forth in
Article 12 of the Participation Agreement.
"Consultant" means the architectural consulting firm or
firms appointed from time to time by the Management Committee to
assist the Partnership in siting, designing, developing and
constructing OLSs, Outlets or both. Unless and until a new
consultant is appointed for such purpose, Bergmeyer Associates,
Inc. is appointed as the initial Consultant for the OLSs.
"Contracts" has the meaning set forth in
Subsection 2.1(c) of the Participation Agreement.
"Contributed Assets" has the meaning set forth in
Section 2.1 of the Participation Agreement.
"Contributed Asset Statement" has the meaning set forth
in Subsection 2.3(c) of the Participation Agreement.
"Control", as applied to any Person, means (and the
terms "Controls", "Controlling", "Controlled by" and "under
common Control with" refer to) the direct or indirect ownership
of stock or other equity interests, or contract or other rights,
in any such case entitling their holder to elect at least
50 percent of the directors or similar functionaries of that
Person. However, except for purposes of the definition of
"Fundamental Change", no Person shall be considered to Control
LSAI or Designs. If, at any time, LSAI no longer Controls the
LOS Partner, all Persons which then and thereafter meet the
criteria of the first sentence of this definition with respect to
the LOS Partner shall for all purposes be considered to Control
the LOS Partner unless the basis for that Control is ownership of
equity securities registered under Section 12 of the Exchange
Act. Likewise if, at any time, Designs no longer Controls the
Designs Partner, all Persons which then and thereafter meet the
criteria of the first sentence of this definition with respect to
the Designs Partner shall for all purposes be considered to
Control the Designs Partner unless the basis for that Control is
ownership of equity securities registered under Section 12 of the
Exchange Act.
"Controversy" means any dispute or claim involving the
rights, obligations or liabilities of any party under the
Transaction Document in which that term appears. However,
"Controversy" shall not include any dispute which a Transaction
Document specifies will be resolved by or referred to a
liquidator, accounting firm, mediator or other expert or
specialist. Moreover, if the Transaction Document in question is
the Partnership Agreement, any failure of the Management
Committee to approve any matter submitted to it for approval
shall not be deemed to have created a "Controversy".
"Covered Employees" has the meaning set forth in
Section 4.10 of the Participation Agreement.
"Cure Loan" has the meaning set forth in Section 4.3 of
the Partnership Agreement.
"Damages" means all losses, liabilities, damages,
deficiencies, judgments, assessments, interests, penalties,
fines, costs and expenses (including, without limitation, fees,
disbursements and other charges of attorneys, accountants,
consultants, experts and other professionals and irrespective of
whether any underlying liability is established). However, the
term "Damages" shall not include any punitive, exemplary or
similar damages.
"Debt" means, with respect to any Person, all
obligations of that Person at any time due: (a) for borrowed
money; (b) evidenced by bonds, debentures, notes or similar
instruments; (c) under any lease required to be accounted for
under GAAP as a capital lease; (d) under any real estate lease,
whether or not required to be accounted for under GAAP as a
capital lease; (e) in respect of any letters of credit, bankers'
acceptances or similar financial "products" or (f) in the nature
of a suretyship, guarantee or endorsement. In addition, "Debt"
of a Person shall include any obligation or liability of a person
or entity, other than that Person, which is secured by a Lien on
any asset owned by that Person, whether or not that obligation or
liability is assumed, to the extent of the lesser of the amount
of the obligation or liability and the fair market value of the
asset.
"Defaulting Partner" has the meaning set forth in
Section 4.3 of the Partnership Agreement.
"Delaware GCL" means the Delaware General Corporation
Law, as that statute may be amended from time to time.
"Delaware UPA" means the Delaware Uniform Partnership
Act, as that statute may be amended from time to time.
"Designated Trade Dress" means a trade dress used at a
store that includes any or all of the items (or any items that
are substantially similar to any or all of the items) which are
identified as part of the "Trade Dress" on Exhibit B to the LOS
Sublicense Agreement, as that list of items may be modified, from
time to time, in accordance with the procedures specified in
Section 5 of that Agreement.
"Designated Value" has the meaning set forth in
Section 14.2 of the Partnership Agreement.
"Designs" means Designs, Inc., a Delaware corporation.
"Designs License Agreement" means the License Agreement
between Designs and the Partnership signed and delivered at the
Closing.
"Designs Partner" means Designs JV Corp., a Delaware
corporation.
"Designs Party" means Designs or the Designs Partner
and "Designs Parties" means Designs and the Designs Partner.
"Designs Restricted Interest" means the Partnership
Interest issued to the Designs Partner and the capital stock of
the Designs Partner.
"Designs Transferor" has the meaning set forth in
Section 13.1 of the Partnership Agreement.
"Excess Cash" shall be determined annually but with
reference to 18-month periods. The first such determination
shall be made promptly after the Management Committee approves
the Business Plan for the 1997 Fiscal Year and preliminary
results are available for the 1996 Fiscal Year. That
determination shall be made with reference to the 18-month period
ending on the last day of the second quarter of the Partnership's
1998 Fiscal Year. The second such determination shall be made
promptly after the Management Committee approves the Business
Plan for the 1998 Fiscal Year and preliminary results are
available for the 1997 Fiscal Year. That determination shall be
made with reference to the 18-month period ending on the last day
of the second quarter of the Partnership's 1999 Fiscal Year.
That timing and "pattern" shall repeat thereafter. "Excess
Cash", for any such 18-month period, shall equal:
COH + R - IP - OE - (1.1 x CE) - $250,000
where
COH = the Partnership's cash and cash equivalents
at the beginning of the 18-month period
R = the Partnership's projected revenues (of all
types) for that 18-month period, as reflected
in the most recently-approved Business Plan
(the Business Plan for the 1997 Fiscal Year
for the 18-month period ending at the end of
the second quarter of the 1998 Fiscal Year;
the Business Plan for the 1998 Fiscal Year
for the 18-month period ending at the end of
the second quarter of the 1999 Fiscal Year;
etc.)
IP = the Partnership's projected inventory
purchases for that 18-month period
OE = the Partnership's projected cash operating
expenditures for that 18-month period
CE = the Partnership's projected capital
expenditures (whether for new OLSs or
Outlets, refurbishing existing OLSs or
Outlets or otherwise) for that 18-month
period
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Fiscal Year" means the fiscal year of the Partnership,
which shall be the same as the fiscal year of Designs for so long
as Designs is a partner of the Partnership. At present, Designs'
fiscal year begins on the Sunday immediately following the
Saturday closest to January 31 of each year. If and after
Designs ceases to be a partner of the Partnership, the Management
Committee shall select the Fiscal Year.
"Fundamental Change" means, with respect to a Partner,
the occurrence of any one or more of (a) through (f):
(a) that Partner or any Person that Controls that
Partner is merged or consolidated with another Person
(irrespective of which entity is merged into or consolidated with
which), after which that Partner is Controlled by a Person or
Group that had not Controlled that Partner before the merger or
consolidation;
(b) any Person or Group acquires or otherwise attains
"beneficial ownership" of at least 50 percent of the outstanding
voting securities of any Person which Controls that Partner (with
"beneficial ownership" having the meaning given it in
Section 13(d)(1) of the Exchange Act and Rule 13d-3 adopted under
that Act);
(c) both (i) the members of Designs' Board of
Directors when the Partners formed the Partnership (together with
any new directors whose election or nomination was approved by a
majority of the directors then still in office who were directors
when the Partners formed the Partnership) cease for any reason to
comprise at least a majority of the Designs' Board of Directors
and (ii) any Person or Group acquires or otherwise attains
"beneficial ownership" of at least 30 percent of the outstanding
voting securities of any Person which Controls the Designs
Partner (with "beneficial ownership" having the meaning given it
in Section 13(d)(1) of the Exchange Act and Rule 13d-3 adopted
under that Act);
(d) both (i) the members of LSAI's Board of Directors
when the Partners formed the Partnership (together with any new
directors whose election or nomination was approved by a majority
of the directors then still in office who were directors when the
Partners formed the Partnership) cease for any reason to comprise
at least a majority of the LSAI's Board of Directors and (ii) any
Person or Group acquires or otherwise attains "beneficial
ownership" of at least 30 percent of the outstanding voting
securities of any Person which Controls the LOS Partner (with
"beneficial ownership" having the meaning given it in
Section 13(d)(1) of the Exchange Act and Rule 13d-3 adopted under
that Act);
(e) that Partner or any Affiliate of that Partner
completes a merger, a consolidation or a stock or assets
transaction and more than 40 percent of the revenues (determined
in accordance with GAAP), for the four full calendar quarters
last preceding the transaction, of all the entities (including
that Partner) whose results are consolidated for financial
reporting purposes after the transaction, were derived from
sources other than sales of apparel or apparel-related
accessories or
(f) that Partner or Affiliates of that Partner,
whether in one or a series of transactions, sell or otherwise
transfer all or substantially all of their assets other than in
the ordinary course of business (with all the assets of the
Partner and of all its Affiliates combined, for this purpose, in
order to determine whether "all or substantially all of their
assets" have been sold or transferred).
Notwithstanding the foregoing:
(g) Under no circumstances shall the ownership of
shares of LSAI or of any other Person by any of the following
result in a "Fundamental Change" respecting the LOS Partner:
(i) any present stockholder of LSAI; (ii) any Person who is
presently a "Permitted Transferee" under the LSAI Class L
Stockholders Agreement dated April 30, 1991; (iii) any person who
becomes such a "Permitted Transferee" under that agreement, as
that agreement may be replaced or amended from time to time or
(iv) any trust or similar "vehicle" under any benefit plan in
which any present or future employees of LS&CO. or of any
Affiliate of LS&CO. participate.
(h) Under no circumstances shall the ownership of
shares of Designs or of any other Person by any of the following
result in a "Fundamental Change" respecting the Designs Partner:
(i) any person who was an executive officer or director of
Designs on the Closing Date or (ii) any trust or similar
"vehicle" under any benefit plan in which any present of future
employees of Designs or of any Affiliate of Designs participate.
(i) Paragraphs (a) and (b) above shall not apply to
transactions or events that do not result in a change of
"ultimate" Control of the Partner in question. For example, if
Designs transfers the ownership of its stock in the Designs
Partner to a wholly-owned subsidiary of Designs, that transfer
shall not be treated as a Fundamental Change respecting the
Designs Partner. Although, in that case, a Person (the wholly-
owned subsidiary) will have acquired beneficial ownership of at
least 50 percent of the voting securities of a Person that
Controls the LOS Partner, ultimate Control of the LOS Partner
will still reside in Designs.
(j) The first (but only the first) purchase of a
Designs Restricted Interest under Article 13 of the Partnership
Agreement shall not constitute a Fundamental Change with respect
to the Designs Partner. See Subsections 11.3(a)(iii) and (iv) of
the Partnership Agreement.
In addition:
(k) If, at any time, LSAI no longer Controls the LOS
Partner, then, for purposes of this definition of "Fundamental
Change" but subject to paragraph (i) above, all references to
"LSAI" shall be considered references to any Person which
Controls the LOS Partner.
(l) If, at any time, Designs no longer Controls the
Designs Partner, then, for purposes of this definition of
"Fundamental Change" but subject to paragraph (i) above, all
references to "Designs" shall be considered references to any
Person which Controls the Designs Partner.
"GAAP" means generally accepted United States
accounting principles and practices consistently applied from
period to period and from date to date.
"Glossary" means this Glossary, as it may be amended,
from time to time, in accordance with its last paragraph.
"GM" means the General Manager of the Partnership
contemplated by Section 6.2 of the Partnership Agreement.
"Group" means two or more Persons acting in concert in
the manner and for any of the purposes contemplated by
Section 13(d)(3) of the Exchange Act. However, contrary to that
Section 13(d)(3), this "Group" concept shall apply to the
securities of an entity even if it does not then have any
securities registered under the Exchange Act.
"Leases" has the meaning set forth in Subsection 2.1(a)
of the Participation Agreement.
"Lien" means any mortgage, deed of trust, security
interest, retention of title or lease for security purposes,
pledge, charge, encumbrance, claim, easement, right of way,
covenant, restriction, leasehold interest or other right of any
kind of any Person in or with respect to any Property.
"Liquidator" has the meaning set forth in Section 17.2
of the Partnership Agreement.
"LOS Inc." means Levi's Only Stores, Inc., a Delaware
corporation.
"LOS License Agreement" means the Sublicense Agreement
between LOS Inc. and the LOS Partner signed and delivered at the
Closing.
"LOS Partner" means LDJV Inc., a Delaware corporation.
"LOS Party" means LSAI, LS&CO., LOS Inc. or the LOS
Partner and "LOS Parties" means LSAI, LS&CO., LOS Inc. and the
LOS Partner.
"LOS Restricted Interest" means the Partnership
Interest issued to the LOS Partner, the capital stock of the LOS
Partner and the capital stock of LOS Inc.
"LOS Sublicense Agreement" means the Sublicense
Agreement between the LOS Partner and the Partnership signed and
delivered at the Closing.
"LSAI" means Levi Strauss Associates Inc., a Delaware
corporation.
"LS&CO." means Levi Strauss & Co., a Delaware
corporation.
"Major Actions" has the meaning set forth in
Section 5.9 of the Partnership Agreement.
"Management Committee" has the meaning set forth in
Article 5 of the Partnership Agreement.
"Material Breach" means a material breach of the
Partnership Agreement by a Partner. However, none of the
following shall be considered a Material Breach (as contrasted
with a "material breach" under common law) for purposes of
Article 16 or any other Article of the Partnership Agreement: a
Bankruptcy Event, a Reputation Event, an Unauthorized Termination
or any breach of Articles 11 through 18 of the Partnership
Agreement (including any breach by any Affiliate of any Partner
by virtue of Article 8 of the Participation Agreement). Nothing
in this definition or in this or any other Transaction Document
shall be construed as implying that a Bankruptcy Event or a
Reputation Event is a breach of any Transaction Document.
Moreover, a Fundamental Change that does not violate a specific
provision of the Partnership Agreement or the Participation
Agreement shall not be considered a breach of any Transaction
Document.
"Minimum Value" has the meaning set forth in
Subsection 14.6(a) of the Partnership Agreement.
"Non-Defaulting Partner" has the meaning set forth in
Section 4.3 of the Partnership Agreement.
"OLS" means a retail store that: (a) sells only
Levi's(R) adult jeans and jeans-related products, (b) does so under
the name "The Original Levi's(R) Store" and (c) uses some or all of
the elements of the Designated Trade Dress.
"OLS Opportunity" has the meaning set forth in
Subsection 10.3(a) of the Partnership Agreement.
"Original Stores" has the meaning set forth in
Subsection 2.1(a) of the Participation Agreement.
"Other OLSs" has the meaning set forth in
Subsection 14.6(c) of the Partnership Agreement.
"Outlet Asset Statement" has the meaning set forth in
Section 15.4 of the Partnership Agreement.
"Outlet Opportunity" has the meaning set forth in
Subsection 10.3(b) of the Partnership Agreement.
"Outlets" means a retail store that sells only
close-out, slow-moving and end-of-season Levi's(R) adult jeans and
jean-related products. However, "Outlets" shall not include any
store at which Designs was selling such products in the Territory
as of the Closing Date or for which Designs had signed a lease as
of the Closing Date.
"Outlet Value" has the meaning set forth in Section
15.3 of the Partnership Agreement.
"Participation Agreement" means the Participation
Agreement signed and delivered by the Designs Partner, Designs,
the LOS Partner, LOS Inc., LS&CO., LSAI and the Partnership at
the Closing.
"Party" or "Parties", as used in any Transaction
Document, means a signatory or signatories to that Transaction
Document.
"Partner" means the Designs Partner or the LOS Partner
and "Partners" means the Designs Partner and the LOS Partner.
"Partnership" means The Designs/OLS Partnership, the
general partnership formed under the Delaware UPA by the Designs
Partner and the LOS Partner under the Partnership Agreement.
"Partnership Agreement" means the Partnership Agreement
signed and delivered by the Partners and the Partnership at the
Closing.
"Partnership Assets" means any and all Property owned
by the Partnership from time to time.
"Partnership Interest" means a Partner's equity
interest in the Partnership.
"Partnership Purposes" has the meaning set forth in
Section 2.3 of the Partnership Agreement.
"Percentage Interest" has the meaning set forth in
Section 3.3 of the Partnership Agreement.
"Permit" means any permit, license, franchise, consent,
authorization, concession, grant, easement, right of way,
registration, qualification, filing or other similar act of or
made with any government body.
"Person" means any individual or entity including,
without limitation, any government body.
"Profit" and "Loss" mean the taxable income or loss for
any period determined in accordance with Code Section 703(a).
"Profit" and "Loss" shall be computed with these adjustments:
(a) Items of gain, loss and deduction shall be
computed based on the Carrying Values of the Partnership Assets
rather than their adjusted bases for federal income tax purposes.
For example, the amount of any deductions for depreciation or
amortization respecting any Partnership Asset for any period
shall equal that asset's Carrying Value at the beginning of the
period multiplied by a fraction, the numerator of which is the
amount of depreciation or amortization allowable for that asset
for federal income tax purposes for that period and the
denominator of which is that asset's adjusted tax basis at the
beginning of the period.
(b) Any tax-exempt income received by the Partnership
shall be included as an item of gross income.
(c) The amount of any adjustments to the Carrying
Value of any Partnership Asset under Code Section 743 shall not
be taken into account.
(d) Any Partnership expenditure described in Code
Section 705(a)(2)(B) shall be treated as a deductible expense,
including any expenditure treated as being described in Code
Section 705(a)(2)(b) under Treasury Regulations Section 1.704-
1(b)(2)(iv)(b).
(e) Despite paragraphs (a) through (d) above, any
items which are specially allocated under Section 9.4 or 9.5 of
the Partnership Agreement shall not be taken into account in
computing Profit and Loss.
Items of Partnership income, gain, loss or deduction available to
be specially allocated under Section 9.5 of the Partnership
Agreement shall be determined by applying rules analogous to
those set forth in paragraphs (a) through (e) above.
"Profitable OLSs" has the meaning set forth in
Subsection 14.6(c) of the Partnership Agreement.
"Property" means any interest in any kind of property
or asset, whether real, personal or mixed, tangible or
intangible, and wherever located, including, without limitation,
cash, claims, contract and other rights, and Permits.
"Purchase Offer" has the meaning set forth in
Section 13.1 of the Partnership Agreement.
"Purchasing Partner" has the meaning set forth in
Section 16.3 of the Partnership Agreement.
"Qualified Transferee" means an entity that meets all
of the following requirements:
(a) together with its continuing Affiliates, has sold
Levi's(R) branded adult jeans and jeans-related products to
consumers having a wholesale value of at least $25 million during
each of its two fiscal years that precede the anticipated closing
of the proposed transaction for which this definition is being
applied;
(b) together with its continuing Affiliates, has
derived revenues of at least $100 million from sales of apparel
(including, but not limited to, Levi's(R) branded adult jeans and
jeans-related products) to consumers during each of those same
two fiscal years;
(c) has a consolidated net worth, determined in
accordance with GAAP as of a date no more than 45 days before
that anticipated closing, of at least $50 million;
(d) together with its Affiliates, has not, since the
beginning of the first of the two fiscal years referred to in
paragraph (a) above, defaulted on any installment of material
indebtedness for borrowed money or rent on any material real
estate lease;
(e) together with its continuing Affiliates, operates
at least 30 stores in the Territory that have continuously sold
or been authorized to sell the entire selection of Levi's(R)
branded products to consumers since the beginning of the first of
those two fiscal years and
(f) since the beginning of the first of those two
fiscal years, has not experienced (nor, during that period, have
any of its Affiliates experienced) any event which would have
been a Reputation Event with respect to that entity or any of its
Affiliates had that entity then been a Partner.
"Reputation Event", with respect to the Designs
Partner, means any action or event (or series of actions or
events) by or relating to the Designs Partner or any Affiliate of
the Designs Partner which, in the reasonable judgment of the LOS
Partner, materially adversely affects (or is likely materially
adversely to affect) the reputation of LSAI, any Affiliate of
LSAI, the Partnership, the "Levi's(R)" name or brand, or any other
intellectual property or brand at the time owned, used or
controlled by LSAI or any Person that LSAI Controls. "Reputation
Event", with respect to the LOS Partner, means any action or
event (or series of actions or events) by or relating to the LOS
Partner or any Affiliate of the LOS Partner which, in the
reasonable judgment of the Designs Partner, materially adversely
affects (or is likely materially adversely to affect) the
reputation of Designs, any Affiliate of Designs or the
Partnership. A Bankruptcy Event or poor economic performance, in
and of itself, shall not constitute a Reputation Event.
"Restricted Interest" means any LOS Restricted Interest
or any Designs Restricted Interest.
"Selling Partner" has the meaning set forth in
Section 16.3 of the Partnership Agreement.
"Stores" means OLSs and Outlets.
"Subject Property" has the meaning set forth in
Section 14.2 of the Partnership Agreement.
"Tax Accounting Method" has the meaning set forth in
Subsection 9.5(b) of the Partnership Agreement.
"Taxes" means any tax, charge, assessment, levy, fee or
imposition of any kind of any governmental body, including,
without limitation, those imposed on or in respect of income,
gains, property, sales, use, franchises, stock, entities, wages,
employment, documents, stamps or transfers and any related
interest, penalties, additions or other amounts payable with
respect to such amounts.
"Tax Matters Partner" has the meaning specified in
Section 9.7 of the Partnership Agreement.
"Termination Date" has the meaning set forth in
Section 2.7 of the Partnership Agreement.
"Termination Event" means a Bankruptcy Event, a
Fundamental Change, a Material Breach, a Reputation Event or an
Unauthorized Termination.
"Territory" means (a) the States of Connecticut,
Delaware, Maine, Maryland, New Hampshire, New Jersey, New York,
Rhode Island and Vermont, (b) the Commonwealths of Massachusetts
and Pennsylvania and (c) the District of Columbia.
"Transaction Documents" means this Glossary, the
Partnership Agreement, the Participation Agreement, the LOS
Sublicense Agreement, the LOS License Agreement, the Designs
License Agreement and the Administrative Services Agreement.
"Transfer" has the meaning set forth in Section 12.3 of
the Partnership Agreement.
"Transferee" has the meaning set forth in Section 13.1
of the Partnership Agreement.
"Treasury Regulations" means regulations (including
temporary regulations) promulgated, from time to time, by the
United States Department of the Treasury under the Code.
"Trigger Notice" has the meaning set forth in Section
14.2 of the Partnership Agreement.
"Unauthorized Termination" means any termination,
dissolution or liquidation of the Partnership by a Partner or any
attempt by a Partner to achieve any such result, in any such case
in contravention of the Partnership Agreement.
* * *
All amendments to this Glossary must be in writing and
be signed by all the parties to this Glossary.
* * *
The undersigned have signed and delivered this Glossary as of
January 28, 1995.
DESIGNS JV CORP.
By /s/ Joel Reichman
Joel Reichman,
President
DESIGNS, INC.
By /s/ Joel Reichman
Joel Reichman,
President
LDJV INC.
By /s/ Edward T. Murphy
Edward T. Murphy,
President
LEVI'S ONLY STORES, INC.
By /s/ Edward T. Murphy
Edward T. Murphy,
President
LEVI STRAUSS & CO.
By /s/ Robert D. Rockey, Jr.
Robert D. Rockey, Jr.
Senior Vice President
LEVI STRAUSS ASSOCIATES INC.
By /s/ Robert D. Rockey, Jr.
Robert D. Rockey, Jr.
Senior Vice President
THE DESIGNS/OLS PARTNERSHIP
By DESIGNS JV CORP., a Partner
By /s/ Joel Reichman
Joel Reichman,
President
By LDJV INC., a Partner
By /s/ Edward T. Murphy
Edward T. Murphy
President
SUBLICENSE AGREEMENT
THIS IS A SUBLICENSE AGREEMENT dated January 28, 1995
(the "Agreement") between LEVI'S ONLY STORES, INC., a Delaware
corporation ("LOS"), and LDJV INC., a Delaware corporation and
wholly-owned subsidiary of LOS (the "LOS Partner").
B A C K G R O U N D
LOS is a licensee from Levi Strauss & Co. ("LS&CO.") of
certain intellectual property rights relating to the operation in
the United States, under the "The Original Levi's(R) Stores" name,
of retail stores offering Levi's(R) branded adult jeans and jeans-
related products. The LOS Partner desires to enter into an
agreement creating a partnership that will operate a number of
those stores in the northeastern United States. In order to
proceed with that transaction, the LOS Partner must obtain the
use of those rights in that territory.
LOS AND THE LOS PARTNER AGREE AS FOLLOWS:
1. Definitions
1.1 The documents relating to the formation and operation
of the Partnership are known as the "Transaction Documents."
They include a "Glossary." Capitalized terms used in this
Agreement and not otherwise defined in this Agreement have the
meanings given them in the Glossary, as that Glossary may be
amended from time to time in accordance with its terms.
1.2 "Partnership Sublicense" means the sublicense which the
LOS Partner enters into with the Partnership referred to in the
"Background" section of this Agreement, as that sublicense may be
amended from time to time.
1.3 "Rights" means: (a) the trade name and the two service
marks identified as such on Exhibit A to this Agreement, all
rights inhering in that name and those marks and all
registrations and applications for registration of that name and
those marks and (b) all right, title and interest of LOS in and
to the Trade Dress and any and all registrations and applications
for registration of the Trade Dress.
1.4 "Trade Dress" means the visual elements identified as
the "Trade Dress" on Exhibit A to this Agreement, as those
elements may be modified or supplemented in accordance with the
procedures set forth in Section 5 of the Partnership Sublicense.
2. License
2.1 Grant of Rights to Use and Sublicense
(a) LOS grants to the LOS Partner a royalty-free right
and license (i) to use the Rights and (ii) to sublicense the
Rights to the Partnership pursuant to the Partnership Sublicense,
in each such case solely for the operation of OLSs in the
Territory. The LOS Partner shall not be entitled to sublicense
or otherwise transfer or make available any Rights to any Person
other than the Partnership (including, without limitation, to the
Designs Partner or any Affiliate of the Designs Partner,
including after a purchase by the Designs Partner or an Affiliate
of the Designs Partner of one or more stores which the
Partnership had operated as OLSs), or to grant a Lien on any of
the Rights or on any of the LOS Partner's rights under this
Agreement. LOS shall not be entitled to sublicense or otherwise
transfer or make available any Rights to any Person for use
within the Territory, other than to the Partnership or,
consistent with the Transaction Documents and for the purpose of
operating any OLSs acquired from the Partnership, any Affiliate
of LOS. Nothing in this Agreement or in any other Transaction
Document shall limit LOS' right to sublicense or otherwise
transfer or make available any Rights to any Person for use
outside the Territory.
(b) Except for the rights specifically granted in this
Section 2, the LOS Partner does not and will not have any right,
title or interest in any of the Rights, all of which remain the
exclusive property of LS&CO. (subject, however, to the license
granted to the LOS Partner by this Agreement and the sublicense
to be granted to the Partnership by the Partnership Sublicense).
It is expressly understood and agreed that any service mark,
trademark or trade dress rights that in the future derive from
any of the Rights or from the operation of any OLS operated in
the Territory, as established in accordance with the procedures
set forth in Section 5 of the Partnership Sublicense, shall
become "Rights" and thus become the exclusive property of LS&CO.
subject, however, to the license granted to the LOS Partner by
this Agreement and the sublicense granted to the Partnership by
the Partnership Sublicense. The LOS Partner shall not take any
action contesting or impairing LOS' or LS&CO.'s right, title and
interest in, or impairing the good will symbolized by, any of the
Rights, and shall not take any action concerning the
establishment, protection or enforcement of any of the Rights
without first obtaining the written approval of LOS, which LOS
may grant or deny in its sole discretion.
2.2 Quality. In using the Rights, the LOS Partner shall
comply with LOS' quality standards, principles and guidelines.
Those standards, principles and guidelines shall be no stricter
or more rigorous than those which LOS imposes on any other
licensee respecting that other licensee's use of the Rights in
the United States. LOS may not terminate this Agreement due to a
failure of the LOS Partner to comply with any such standards,
principles or guidelines unless they first have been articulated
to the LOS Partner in writing and the LOS Partner has been given
a reasonable opportunity to comply with them. The LOS Partner
shall permit, and shall cause the Partnership to permit, LOS
access to the OLSs in the Territory during regular business hours
at LOS' expense, so that LOS may evaluate the LOS Partner's and
the Partnership's compliance with LOS' quality standards,
principles and guidelines. LOS may exercise its inspection and
quality control rights directly with the Partnership.
2.3 Representations of LOS. LOS represents and warrants
that: (a) its license respecting the Rights granted to LOS by
LS&CO. is a legal, valid and binding obligation of both LS&CO.
and LOS; (b) LOS has the right, power and authority to enter into
and perform this Agreement and to grant the license purported to
be granted by this Agreement and (c) so long as the LOS Partner
performs its obligations under this Agreement and the Partnership
performs its obligations under the Partnership Sublicense, LS&CO.
will not be entitled to terminate or cause the termination of the
sublicense granted by this Agreement or the sublicense granted by
the Partnership Sublicense, it being understood that any
termination in violation of this clause (c) shall be void.
3. Indemnification
3.1 The LOS Partner shall indemnify LOS and all other LOS
Parties and hold them harmless from and against any Damages
arising out of any breach by the LOS Partner of any of its
obligations under this Agreement or any breach by the Partnership
of any of its obligations under the Partnership Sublicense
(except, in any such case, for those Damages arising directly
from LOS' or another indemnitee's gross negligence or willful
misconduct).
3.2 LOS shall indemnify the LOS Partner and hold it
harmless from and against: (a) any Damages arising out of any
breach by LOS of any of its obligations under this Agreement,
except for those Damages arising directly from the LOS Partner's
gross negligence or willful misconduct and (b) any claim that the
trade name or either of the service marks identified on Exhibit A
to this Agreement, in the exact form in which they are identified
on Exhibit A, infringe any trade name or service mark rights of
any third party. However, this indemnity does not extend to any
claim that any aspect of the Trade Dress infringes any rights of
any third party.
3.3 Indemnification under this Section 3 shall be governed
by the rules set forth in Exhibit B to this Agreement.
4. Termination
4.1 Term. Unless terminated earlier in accordance with
this Section 4, this Agreement shall automatically terminate if
and when the LOS Partner no longer participates, either directly
or indirectly, in the ownership or management of OLSs in the
Territory, whether as a partner of the Partnership or otherwise.
4.2 Breach by LOS Partner. This Agreement may be
terminated by LOS if: (a) the LOS Partner fails to perform any
material obligation under this Agreement; (b) that failure is not
cured within 30 days after LOS delivers to the LOS Partner, the
Partnership and the Designs Partner a notice describing the
default and identifying it as a material breach of this Agreement
and (c) LOS then delivers a second notice to those parties, this
one terminating this Agreement, if neither the LOS Partner nor
the Partnership cures that default within those 30 days.
4.3 Breach by Partnership. This Agreement may be
terminated by LOS if: (a) the Partnership fails to perform any
material obligation under the Partnership Sublicense; (b) that
failure is not cured within 30 days after LOS delivers to the
Partnership, the LOS Partner and the Designs Partner a notice
describing the default identifying it as a material breach of
this Agreement and (c) LOS then delivers a second notice to those
parties, this one terminating this Agreement, if neither the
Partnership nor either Partner cures that default within those 30
days.
4.4 Effect of Termination. Upon termination of this
Agreement, the LOS Partner shall promptly discontinue use of the
Rights and the Partnership Sublicense shall automatically
terminate. Termination shall not discharge either party from its
obligations under Section 3 or from any liabilities to the other
party resulting from prior performance or breach of any
obligation under this Agreement.
5. Remedial Matters
5.1 Misuse of Rights. LOS and the LOS Partner acknowledge
and agree that monetary damages alone would not adequately
compensate either of them should the other breach its obligations
under Section 2 of this Agreement or otherwise misuse the Rights.
Accordingly, each party (as well as the Partnership, as explained
in Section 9) shall be entitled, in addition to any other
remedies, to enforce those obligations and to obtain related
relief by means of injunction or other equitable relief.
5.2 Not Exclusive. The provisions of this Agreement are in
addition to, and not in place of, any rights LOS or the LOS
Partner has under applicable law.
6. Entire Agreement; Amendment
This Agreement and its exhibits, together with the
other Transaction Documents, contain all the terms and conditions
agreed upon by the various parties to the Transaction Documents
relating to their subject matter, represent the final, complete
and exclusive statement by those parties regarding that subject
matter, and supersede any and all prior or contemporaneous
agreements, negotiations, correspondence, understandings and
communications between or among them, whether oral or written,
regarding that subject matter. This Agreement may be amended by,
but only by, a writing signed by LOS and the LOS Partner. The
LOS Partner may not amend the Partnership Sublicense without the
prior written consent of LOS. LOS shall be entitled to withhold
that consent in its sole discretion.
7. Binding Effect; Assignment
This Agreement shall be binding upon the successors and
permitted assigns of LOS and the LOS Partner. LOS may, without
obtaining the consent of the LOS Partner, freely assign its
rights and delegate its duties under this Agreement (either
directly or by operation of law) to any one of the following,
provided that the assignee agrees in writing to be bound by the
terms and conditions of this Agreement and provided also that the
Rights have been transferred or licensed to the assignee:
(i) any Affiliate of LOS; (ii) any successor to LOS by merger or
consolidation or (iii) any purchaser of all or substantially all
of the assets of LOS. The LOS Partner may not assign any of its
rights or delegate any of its duties under this Agreement, except
that it may grant the Partnership Sublicense. Any such
prohibited assignment or delegation or purported assignment or
delegation shall be void and without effect. Likewise, any
assignment or delegation or purported assignment or delegation by
LOS in contravention of this Section 7 shall be void and without
effect.
8. Controversies
Any Controversy under this Agreement or respecting any
of the subjects treated in this Agreement shall be resolved, if
possible, by the good faith efforts of LOS and the LOS Partner
including, if other efforts fail, a face-to-face meeting between
a senior manager of LOS and a senior manager of the LOS Partner.
If any Controversy is not settled by such efforts within 30 days
after LOS or the LOS Partner requests such a meeting, either of
them shall be entitled to cause the Controversy to be resolved by
an arbitrator employed by JAMS/Endispute. The arbitration shall
be conducted in accordance with JAMS/Endispute's then-applicable
Rules of Practice and Procedure for Arbitration. The party
initiating the arbitration shall promptly notify the Partnership
of the arbitration, and the Partnership shall be entitled to
observe the arbitration proceedings. Pending the completion of
any arbitration proceeding, obligations not in dispute shall
continue to be performed. Except as provided below, such
arbitration shall be LOS' and the LOS Partner's exclusive formal
means of resolving any such Controversy. The decision of the
arbitrator shall be final and binding on LOS and the LOS Partner.
Judgment upon any award rendered by the arbitrator may be entered
by any state or federal court having jurisdiction.
Notwithstanding the foregoing, to preserve rights or prevent or
mitigate Damages and in aid of the arbitration process, any party
to the arbitration may apply to such a court for temporary or
preliminary injunctive or other equitable relief pending the
results of the arbitration. However, if the final decision of
the arbitrator is inconsistent with any such relief so obtained,
the arbitrator's final decision shall preempt that relief.
9. Partnership as Beneficiary
The Partnership shall be a third party beneficiary of
the obligations of LOS under this Agreement and thus be entitled
to enforce those obligations. However, in the event of a
Controversy, the Partnership shall be bound by Section 8 of this
Agreement.
10. Bankruptcy
If an order for relief is entered in a case under the
United States Bankruptcy Code with respect to LOS and if LOS (as
the debtor in possession) or its trustee rejects the license
granted by this Agreement, the LOS Partner may (and, on the
written request of the Partnership, the LOS Partner shall) make
the election specified in Section 365(n)(1)(B) of the United
States Bankruptcy Code, as that Section may be amended or
replaced from time to time, in order that the LOS Partner retain
that license and the rights granted to it by this Agreement.
11. Governing Law
This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
12. Further Assurances
LOS and the LOS Partner shall sign those other docu-
ments and take those other actions as the other may reasonably
request in order to effect or memorialize the transactions
contemplated by this Agreement.
13. Notices
Any notice required under this Agreement shall be in
writing and shall be given by mail or by courier delivery or
facsimile transmission addressed to:
If to LOS:
Levi's Only Stores, Inc.
116 East Chestnut Street
Columbus, Ohio 43215
Attn: President
Facsimile: (614) 228-5769
If to the LOS Partner:
LDJV Inc.
c/o Levi's Only Stores, Inc.
116 East Chestnut Street
Columbus, Ohio 43215
Attn: President
Facsimile: (614) 228-5769
If to the Partnership:
The Designs/LOS Partnership
c/o Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attn: General Manager
Facsimile: (617) 734-3406
If to the Designs Partner:
Designs JV Corp.
c/o Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attn: General Counsel
Facsimile: (617) 734-3406
Those addresses may be changed by delivery of a notice to that
effect to the other notice parties. Notices given in the manner
contemplated by this Section shall be considered "given" three
business days after deposit in the mail or the first business day
after the date of delivery to a courier or receipt by facsimile
transmission, as the case may be.
14. Counterparts
This Agreement may signed in any number of
counterparts.
* * *
IN WITNESS WHEREOF, LOS and the LOS Partner signed and
delivered this Agreement on the date appearing in the first
paragraph of this Agreement.
LEVI'S ONLY STORES, INC.
By /s/ Edward T. Murphy
Edward T. Murphy,
President
LDJV INC.
By /s/ Edward T. Murphy
Edward T. Murphy,
President
Exhibit A
Service Marks, Trade Name and Trade Dress
Service Marks: 1. The Original Levi's(R) Store
2. the "diagonal red Levi's(R)" design shown
on pages 2 and 3 of this exhibit (the
"Diagonal")
Trade Name: The Original Levi's(R) Store
Trade Dress: 1. the red-striped stained wood floor
2. the white GWB slab ceiling shown on
page 4 of this exhibit
3. each fixture shown on pages 4, 5, 6 and
7 of this exhibit, but only if the
fixture has a cherry stain or
substantially similar color on all or a
substantial portion of its exterior
4. a "video wall" consisting of a
projection cube system, a single-screen
projection system or a multiple-glass
monitor matrix system, in any such case
having a total "diagonal" dimension of
more than 19 inches
5. all videos used, from time to time, in
any of the Partnership's OLSs in
connection with any video walls that
promote any LS&CO. products
6. signage bearing any one or more of the
service marks including, without
limitation, fit posters bearing the
Diagonal shown on page 8 of this exhibit
7. product identifier blade signs shown on
page 4 of this exhibit
Exhibit B
Indemnification Procedures
A Person making a claim under Section 3.1 or 3.2 of this
Agreement is referred to as an "Indemnified Party" and a Person
against whom such a claim is asserted is referred to as an
"Indemnifying Party". All such claims shall be asserted and
resolved in accordance with this Schedule.
(a) Third Party Claims. If any claim for which an
Indemnifying Party would be liable to an Indemnified Party is
asserted against the Indemnified Party by a third party, the
Indemnified Party shall, as promptly as is practical after its
receipt of the claim, notify the Indemnifying Party of the claim
in writing. That notice shall specify the nature of and the
alleged basis for the claim and the amount or estimated amount of
the claim to the extent then reasonably feasible (a "Claim
Notice"). Any failure to give a Claim Notice shall not waive any
rights of the Indemnified Party except to the extent that the
rights of the Indemnifying Party are actually prejudiced. The
Indemnifying Party may, and upon request of the Indemnified Party
shall, assume the defense of the claim with competent counsel of
its choice. The Indemnifying Party shall pay the fees and
expenses of that counsel. However, any Indemnified Party is
authorized (but not required) to retain counsel (in which case
the fees and expenses of that counsel shall be paid by the
Indemnifying Party) in order to file any motion, answer or other
pleading and take any other action which it reasonably considers
essential to protect its interests or those of the Indemnifying
Party until the Indemnifying Party retains counsel, provided that
such action does not prejudice the defense of the claim.
Moreover, even though the Indemnifying Party retains counsel, the
Indemnified Party shall have the right to retain its own counsel.
However, except as provided in the sentence preceding the
previous sentence, the fees and expenses of such counsel shall be
paid by the Indemnified Party. If requested by the Indemnifying
Party, the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in contesting any claim that
the Indemnifying Party defends or, if appropriate and related to
the claim, in making any counterclaim or cross-claim against the
Person asserting the claim or against any other Person. No claim
for which indemnification is sought under any of the Transaction
Documents may be settled or compromised without the consent of
the Indemnifying Party. Such consent shall not be unreasonably
withheld or delayed.
(b) Other Claims. If an Indemnified Party has a claim
against an Indemnifying Party which does not involve a claim
asserted by a third party, the Indemnified Party shall as
promptly as is practical send a Claim Notice respecting the claim
to the Indemnifying Party. However, any failure to give a Claim
Notice shall not waive any rights of the Indemnified Party except
to the extent that the rights of the Indemnifying Party are
actually prejudiced. If the Indemnifying Party does not notify
the Indemnified Party within 60 days after receipt of a claim
that it accepts the claim, the claim shall be resolved as a
Controversy.
SUBLICENSE AGREEMENT
THIS IS A SUBLICENSE AGREEMENT dated January 28, 1995
(the "Agreement"), between LDJV INC., a Delaware corporation (the
"LOS Partner"), and THE DESIGNS/OLS PARTNERSHIP, a Delaware
general partnership (the "Partnership").
B A C K G R O U N D
The LOS Partner is party to a license agreement (the
"LOS/LOS Partner License") with Levi's Only Stores, Inc. ("LOS").
A copy of that license is attached to this Agreement as
Exhibit A. Under that license, LOS licensed to the LOS Partner
intellectual property rights relating to the operation, under the
"The Original Levi's(R) Stores" name, of retail stores offering
Levi's(R) branded adult jeans and jeans-related products. The LOS
Partner and the Partnership desire that the LOS Partner license
all of those rights to the Partnership. That matter is the
subject of this Agreement.
THE LOS PARTNER AND THE PARTNERSHIP AGREE AS FOLLOWS:
1. Definitions
1.1 The documents relating to the formation and operation
of the Partnership are known as the "Transaction Documents."
They include a "Glossary." Capitalized terms used in this
Agreement and not otherwise defined in this Agreement have the
meanings given them in the Glossary, as that Glossary may be
amended from time to time in accordance with its terms.
1.2 "Rights" means: (a) the trade name and the two service
marks identified as such on Exhibit B to this Agreement, all
rights inhering in that name and those marks and all
registrations and applications for registration of that name and
those marks and (b) all right, title and interest of the LOS
Partner in and to the Trade Dress and any and all registrations
and applications for registration of the Trade Dress.
1.3 "Trade Dress" means the visual elements identified as
the "Trade Dress" on Exhibit B to this Agreement, as those
elements may be modified or supplemented in accordance with the
procedures set forth in Section 5 of this Agreement.
2. Sublicense
The LOS Partner grants to the Partnership an exclusive,
royalty-free right and license to use the Rights in the Territory
(the "Sublicense"). The Sublicense includes and transfers all of
the LOS Partner's benefits under the LOS/LOS Partner License.
The Sublicense is also subject to all of the terms, conditions
and limitations of the LOS/LOS Partner License including, without
limitation, those appearing in Section 2 of the LOS/LOS Partner
License. For example:
* the Partnership is entitled to use the Rights
solely in connection with the establishment and
operation by the Partnership of OLSs in the
Territory;
* the Sublicense terminates automatically if and
when the LOS/LOS Partner License terminates in
accordance with its terms;
* the Partnership under no circumstances shall be
entitled to sublicense or otherwise transfer or
make available any Rights to any other person or
entity including, without limitation, to the
Designs Partner or any Affiliate of the Designs
Partner (for example, after a purchase by the
Designs Partner or an Affiliate of the Designs
Partner of one or more stores which the
Partnership had operated as OLSs), or to grant a
Lien on any of the Rights or any of the
Partnership's rights under this Agreement;
* except for the rights specifically granted by this
Agreement, the Partnership has no right, title or
interest in any of the Rights;
* all trade dress rights that in the future derive
from the Rights or from the operation of any of
the OLSs by the Partnership and pursuant to
Section 5 of this Agreement become "Rights" shall
become the exclusive property of LS&CO. subject,
however, to the license granted to the LOS Partner
by the LOS/LOS Partner License and subject to the
Sublicense;
* the Partnership shall not take any action
contesting or impairing LOS' or LS&CO.'s right,
title or interest in, or impairing the good will
symbolized by, the Rights, and shall not take any
action concerning the establishment, protection or
enforcement of any of the Rights without first
obtaining the written approval of LOS, which LOS
may give or deny in its sole discretion;
* at LOS' request and expense, the Partnership shall
cooperate with LOS and any other LOS Party in
establishing, protecting or enforcing any of the
Rights;
* in using the Rights, the Partnership shall comply
with LOS' quality standards, principles and
guidelines (it being understood, however, that:
(a) those standards, principles and guidelines
shall be no stricter or more rigorous than those
which LOS imposes on any other licensee respecting
that other licensee's use of the Rights in the
United States and (b) the LOS Partner may not
terminate this Agreement due to the failure of the
Partnership to comply with any such standards,
principles or guidelines unless they first have
been articulated to the Partnership in writing and
the Partnership has been given a reasonable
opportunity to comply with them);
* the Partnership shall permit LOS access to the
OLSs, during regular business hours at LOS'
expense, so that LOS may evaluate the
Partnership's compliance with such LOS quality
standards, principles and guidelines;
* the LOS Partner or LOS (but also the Partnership)
shall be entitled, in addition to any other
remedies, to enforce the obligations set forth in
this Agreement and to obtain related relief by
means of injunctive or other equitable relief and
* the provisions of this Agreement are in addition
to, and not in place of, any rights that any LOS
Party or the Partnership has under applicable law.
3. Indemnification
3.1 The Partnership shall indemnify the LOS Partner and
hold the LOS Partner harmless from and against any Damages
arising out of any breach by the Partnership of any of its
obligations under this Agreement (including, without limitation,
any Damages that arise from any indemnification obligation of the
LOS Partner owed to any other LOS Party which are based on the
Partnership's breach of this Agreement), except for those Damages
arising directly from any LOS Party's gross negligence or willful
misconduct.
3.2 The LOS Partner shall indemnify the Partnership and
hold it harmless from and against: (a) any Damages arising out
of any breach by the LOS Partner of any of its obligations under
this Agreement or any breach by the LOS Partner or LOS of any
obligations under the LOS/LOS Partner License, except (in each
such case) for those Damages arising directly from the
Partnership's gross negligence or willful misconduct and (b) any
claim that the trade name or either of the service marks
identified on Exhibit B to this Agreement, in the exact form in
which they are identified on Exhibit B, infringe any trade name
or service mark rights of any third party. However, this
indemnity does not extend to any claim that any aspect of the
Trade Dress infringes any rights of any third party.
3.3 Indemnification under this Section 3 shall be governed
by the rules set forth on Exhibit C to this Agreement.
4. Termination
4.1 Automatic. This Agreement (including, without
limitation, the Sublicense) shall terminate automatically upon
the termination of the LOS/LOS Partner License in accordance with
its terms.
4.2 Breach by Partnership. This Agreement may be
terminated by the LOS Partner if: (a) the Partnership fails to
perform any material obligation under this Agreement; (b) that
failure is not cured within 30 days after the LOS Partner
delivers to the Partnership and the Designs Partner a notice
describing the default and identifying it as a material breach of
this Agreement and (c) the LOS Partner then delivers a second
notice to those parties, this one terminating this Agreement, if
the Partnership fails to cure that default within those 30 days.
4.3 Effect of Termination. Upon termination of this
Agreement, the Partnership shall promptly discontinue use of the
Rights subject, however, to the transition arrangements
contemplated by Article 17 of the Partnership Agreement and
subject to Section 10.8 of the Partnership Agreement.
Termination of this Agreement shall not discharge either party
from its obligations under Section 3 of this Agreement or from
any liabilities resulting from prior performance or breach of its
obligations under this Agreement. This all said, the LOS Partner
understands and acknowledges that the termination provisions of
this Agreement shall not be a means for the LOS Partner to
terminate the Partnership or otherwise gain a special advantage
over the Designs Partner with respect to the purchase or sale of
Partnership Interests or OLSs. The exclusive procedures for
terminating the Partnership or buying or selling Partnership
Interests or OLSs are set forth in the Partnership Agreement,
with the consequences of any such transactions being those set
forth in this Agreement, the LOS/LOS Partner License, the
Partnership Agreement and other Transaction Documents.
5. Modification of Rights
In connection with any modification or proposed
modification in the visual appearance of any of the Partnership's
OLSs (general store appearance, specific fixtures or other
features), the LOS Partner may propose that some or all of the
elements of that modified appearance be included in the Trade
Dress and thus be included among the "Rights" and otherwise be
governed by this Agreement. If, in accordance with Section 5.11
of the Partnership Agreement, the Partnership agrees to include
any of those trade dress elements in the Rights, they shall be so
included, in which case the LOS Partner and the Partnership shall
amend Exhibit B to this Agreement to reflect that fact. If the
Partnership does not so agree, the issue shall be resolved as a
Controversy in accordance with Section 11 of this Agreement. Any
new or modified trade dress elements included in the Rights as a
result of the resolution of such a Controversy shall likewise be
added to Exhibit B. In order to conclude that any new or
modified element should be added to the Rights, JAMS/Endispute
must determine that the element is: (a) distinctive relative to
the elements (or the analogous element or elements) of competing
retail specialty stores then operating in the Territory, (b) not
merely functional, provided that an element which is functional
but which also meets the distinctiveness criterion of clause (a)
above shall not be considered "merely functional" and (c) not
already being used in one or more stores then operated by Designs
or any Affiliate of Designs. The procedures described in this
Section 5 shall not be available for or otherwise be applicable
to the service marks or trade name identified on Exhibit B to
this Agreement.
6. Representations and Warranties
The LOS Partner represents and warrants to the
Partnership that: (a) its license respecting the Rights granted
to the LOS Partner by LOS is a legal, valid and binding
obligation of both the LOS Partner and LOS; (b) the LOS Partner
has the right, power and authority to enter into and perform this
Agreement and to grant the Sublicense and (c) so long as the
Partnership performs its obligations under this Agreement and the
LOS Partner performs its obligations under the license between
LOS and the LOS Partner, LOS will not be entitled to terminate or
cause the termination of the Sublicense or the license granted by
the license between LOS and the LOS Partner, it being understood
that any termination in violation of this clause (c) shall be
void.
7. Disclaimer
The LOS Partner makes no representation or warranty
that the LOS Partner or any Affiliate of the LOS Partner is
entitled, whether by contract or under applicable law, to prevent
any Person that is not an Affiliate of the LOS Partner from using
any element of the Trade Dress.
8. Enforcement of Rights
LOS, not the Partnership, shall determine whether to
prosecute any infringers or seeming infringers of any Rights.
LOS, not the Partnership, shall also control any such
prosecution. However, if LOS does decide to prosecute, then,
irrespective of whether the prosecuting party is the Partnership
or otherwise, LOS shall pay the costs and expenses of that
prosecution.
9. Entire Agreement; Amendment
This Agreement and its exhibits, together with the
other Transaction Documents, contain all the terms and conditions
agreed upon by the various parties to the Transaction Documents
relating to their subject matter, represent the final, complete
and exclusive statement by those parties regarding that subject
matter, and supersede any and all prior or contemporaneous
agreements, negotiations, correspondence, understandings and
communications between or among them, whether oral or written,
regarding that subject matter. This Agreement may be amended by,
but only by, a writing signed by the LOS Partner and the
Partnership.
10. Binding Effect; Assignment
This Agreement shall be binding upon the successors and
permitted assigns of the LOS Partner and the Partnership. The
LOS Partner may, without obtaining the consent of the
Partnership, freely assign its rights and delegate its duties
under this Agreement (either directly or by operation of law) to
any one of the following, provided that the assignee agrees in
writing to be bound by the terms and conditions of this Agreement
and the LOS/LOS Partner License and provided also that the Rights
have been transferred or licensed to the assignee: (i) any
Affiliate of the LOS Partner; (ii) any successor to the LOS
Partner by merger or consolidation or (iii) any purchaser of all
or substantially all of the assets of the LOS Partner. The
Partnership may not assign any of its rights or delegate any of
its duties under this Agreement. Any such assignment or
delegation or purported assignment or delegation shall be void
and without effect. Likewise, any assignment or delegation or
purported assignment or delegation by the LOS Partner in
contravention of this Section 10 shall be void and without
effect.
11. Controversies
Any Controversy under this Agreement or respecting any
of the subjects treated in this Agreement shall be resolved, if
possible, by the good faith efforts of the LOS Partner and the
Partnership including, if other efforts fail, a face-to-face
meeting between a senior manager of the LOS Partner and, on
behalf of the Partnership, a senior manager of the Designs
Partner. If any Controversy is not settled by such efforts
within 30 days after the LOS Partner or the Partnership requests
such a meeting, either of them shall be entitled to cause the
Controversy to be resolved by an arbitrator employed by
JAMS/Endispute. If the Partnership initiates arbitration, the
arbitration shall be conducted in whichever of Columbus, Ohio or
San Francisco, California the LOS Partner chooses. If the LOS
Partner initiates arbitration, the arbitration shall be conducted
in Boston, Massachusetts. The arbitration shall be conducted in
accordance with JAMS/Endispute's then-applicable Rules of
Practice and Procedure for Arbitration. Pending the completion
of any arbitration proceeding, obligations not in dispute shall
continue to be performed. Except as provided below, such
arbitration shall be the LOS Partner's and the Partnership's
exclusive formal means of resolving any such Controversy. The
decision of the arbitrator shall be final and binding on the LOS
Partner and the Partnership. Judgment upon any award rendered by
the arbitrator may be entered by any state or federal court
having jurisdiction. Notwithstanding the foregoing, to preserve
rights or prevent or mitigate Damages and in aid of the
arbitration process, any party to the arbitration may apply to
such a court for temporary or preliminary injunctive or other
equitable relief pending the results of the arbitration.
However, if the final decision of the arbitrator is inconsistent
with any such relief so obtained, the arbitrator's final decision
shall preempt that relief. All decisions respecting any such
Controversy shall be made on behalf of the Partnership by the
Designs Partner in accordance with Section 5.11 of the
Partnership Agreement.
12. Bankruptcy
If an order for relief is entered in a case under the
United States Bankruptcy Code with respect to LOS or the LOS
Partner and if LOS or the LOS Partner (as the debtor in
possession) or a trustee rejects the Sublicense or the LOS/LOS
Partner License, the Partnership may make the election specified
in Section 365(n)(1)(B) of the United States Bankruptcy Code, as
that Section may be amended or replaced from time to time, in
order that the Partnership retains the Sublicense and the rights
granted to the Partnership by this Agreement.
13. Amendment of the LOS/LOS Partner License
The LOS Partner shall not agree to any amendment of the
LOS/LOS Partner License without first obtaining the written
consent of the Partnership. In accordance with Section 5.11 of
the Partnership Agreement, the Designs Partner shall decide
whether the Partnership shall give any such consent.
14. Governing Law
This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
15. Further Assurances
The LOS Partner and the Partnership shall sign those
other documents and take those other actions as the other may
reasonably request in order to effect or memorialize the
transactions contemplated by this Agreement.
16. Notices
Any notice required under this Agreement shall be in
writing and shall be given by mail or by courier delivery or
facsimile transmission addressed to:
If to the LOS Partner:
LDJV Inc.
c/o Levi's Only Stores, Inc.
116 East Chestnut Street
Columbus, Ohio 43215
Attn: President
Facsimile: (614) 228-5769
If to the Partnership:
The Designs/LOS Partnership
c/o Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attn: General Manager
Facsimile: (617) 734-3406
If to the Designs Partner:
Designs JV Corp.
c/o Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attn: General Counsel
Facsimile: (617) 734-3406
Those addresses may be changed by delivery of a notice to that
effect to the other party. Notices given in the manner
contemplated by this Section shall be considered "given" three
business days after deposit in the mail or the first business day
after the date of delivery to a courier or receipt by facsimile
transmission, as the case may be.
17. Counterparts
This Agreement may signed in any number of
counterparts.
* * *
IN WITNESS WHEREOF, the LOS Partner and the Partnership
signed and delivered this Agreement on the date appearing in the
first paragraph of this Agreement.
THE DESIGNS/OLS PARTNERSHIP
By DESIGNS JV CORP., a Partner
By /s/ Joel Reichman
Joel Reichman,
President
By LDJV INC., a Partner
By /s/ Edward T. Murphy
Edward T. Murphy,
President
LDJV INC.
By /s/ Edward T. Murphy
Edward T. Murphy,
President
Exhibit A
[We will insert here the form of
the Sublicense Agreement between
LOS Inc. and LDJV Inc.]
Exhibit B
Service Marks, Trade Name and Trade Dress
Service Marks: 1. The Original Levi's(R) Store
2. the "diagonal red Levi's(R)" design shown
on pages 2 and 3 of this exhibit (the
"Diagonal")
Trade Name: The Original Levi's(R) Store
Trade Dress: 1. the red-striped stained wood floor
2. the white GWB slab ceiling shown on
page 4 of this exhibit
3. each fixture shown on pages 4, 5, 6 and
7 of this exhibit, but only if the
fixture has a cherry stain or
substantially similar color on all or a
substantial portion of its exterior
4. a "video wall" consisting of a
projection cube system, a single-screen
projection system or a multiple-glass
monitor matrix system, in any such case
having a total "diagonal" dimension of
more than 19 inches
5. all videos used, from time to time, in
any of the Partnership's OLSs in
connection with any video walls that
promote any LS&CO. products
6. signage bearing any one or more of the
service marks including, without
limitation, fit posters bearing the
Diagonal shown on page 8 of this exhibit
7. product identifier blade signs shown on
page 4 of this exhibit
Exhibit C
Indemnification Procedures
A Person making a claim under Section 3.1 or 3.2 of this
Agreement is referred to as an "Indemnified Party" and a Person
against whom such a claim is asserted is referred to as an
"Indemnifying Party". All such claims shall be asserted and
resolved in accordance with this Schedule.
(a) Third Party Claims. If any claim for which an
Indemnifying Party would be liable to an Indemnified Party is
asserted against the Indemnified Party by a third party, the
Indemnified Party shall, as promptly as is practical after its
receipt of the claim, notify the Indemnifying Party of the claim
in writing. That notice shall specify the nature of and the
alleged basis for the claim and the amount or estimated amount of
the claim to the extent then reasonably feasible (a "Claim
Notice"). Any failure to give a Claim Notice shall not waive any
rights of the Indemnified Party except to the extent that the
rights of the Indemnifying Party are actually prejudiced. The
Indemnifying Party may, and upon request of the Indemnified Party
shall, assume the defense of the claim with competent counsel of
its choice. The Indemnifying Party shall pay the fees and
expenses of that counsel. However, any Indemnified Party is
authorized (but not required) to retain counsel (in which case
the fees and expenses of that counsel shall be paid by the
Indemnifying Party) in order to file any motion, answer or other
pleading and take any other action which it reasonably considers
essential to protect its interests or those of the Indemnifying
Party until the Indemnifying Party retains counsel, provided that
such action does not prejudice the defense of the claim.
Moreover, even though the Indemnifying Party retains counsel, the
Indemnified Party shall have the right to retain its own counsel.
However, except as provided in the sentence preceding the
previous sentence, the fees and expenses of such counsel shall be
paid by the Indemnified Party. If requested by the Indemnifying
Party, the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in contesting any claim that
the Indemnifying Party defends or, if appropriate and related to
the claim, in making any counterclaim or cross-claim against the
Person asserting the claim or against any other Person. No claim
for which indemnification is sought under any of the Transaction
Documents may be settled or compromised without the consent of
the Indemnifying Party. Such consent shall not be unreasonably
withheld or delayed.
(b) Other Claims. If an Indemnified Party has a claim
against an Indemnifying Party which does not involve a claim
asserted by a third party, the Indemnified Party shall as
promptly as is practical send a Claim Notice respecting the claim
to the Indemnifying Party. However, any failure to give a Claim
Notice shall not waive any rights of the Indemnified Party except
to the extent that the rights of the Indemnifying Party are
actually prejudiced. If the Indemnifying Party does not notify
the Indemnified Party within 60 days after receipt of a claim
that it accepts the claim, the claim shall be resolved as a
Controversy.
* * *
LICENSE AGREEMENT
THIS IS AN AGREEMENT, dated January 28, 1995 (the
"Agreement"), between Designs, Inc., a Delaware corporation
("Designs") and The Designs/OLS Partnership, a Delaware general
partnership (the "Partnership").
BACKGROUND
Designs' wholly-owned subsidiary, the Designs Partner, is
party to an agreement creating the Partnership, which will
operate a number of OLS and Outlet stores in the Territory.
Designs has spent time, money and effort to develop a distinctive
proprietary system consisting of operating procedures and
instructional and operating manuals and related materials for the
establishment and operation of retail stores offering only Levi
Strauss & Co. products, and Designs and the Partnership desire
that Designs license to the Partnership the right to use such
system for the establishment and operation of OLSs and Outlets.
That matter is the subject of this Agreement.
DESIGNS AND THE PARTNERSHIP AGREE AS FOLLOWS:
1. Definitions
1.1 The documents relating to the formation and operation
of the Partnership are known as the "Transaction Documents."
They include a "Glossary." Capitalized terms used in this
Agreement and not otherwise defined in this Agreement have the
meanings given them in the Glossary, as that Glossary may be
amended from time to time in accordance with its terms.
1.2 "Manuals" shall mean the "Operating Manual(s)",
"Training Manual(s)" and "Compliance Manual(s)" as each is
identified in Exhibit A to this Agreement and all Updates.
1.3 "Proprietary Information" shall mean the information in
the Manuals received by the Partnership from Designs pursuant to
this Agreement or another Transaction Document, except that
Proprietary Information shall not include any information that
the Partnership can prove (i) was generally available to the
public at the time of disclosure to the Partnership or
subsequently became generally available through no wrongful act
of the Partnership, (ii) was lawfully acquired by the Partnership
from a third party who was entitled to possession of such
information and was not under an obligation of confidentiality,
or (iii) was lawfully and independently developed by the
Partnership without reference to or reliance upon the Manuals or
any Proprietary Information.
1.4 "Update" shall mean a version, enhancement or
modification of a Manual, or an update or replacement to a
Manual, that is furnished or required to be furnished by Designs
to the Partnership pursuant to Section 3.1 of this Agreement.
2. License
2.1 Grant of Right to Use. Designs grants to the
Partnership a royalty-free, non-exclusive, nontransferable right
and license to use the Manuals solely in connection with the
operation of OLSs and Outlets in the Territory pursuant to the
Transaction Documents. The Partnership shall not be entitled in
any case to sublicense or otherwise transfer or make available
any Manuals to any person or entity, including, without
limitation, to the LOS Partner or any Affiliate of the LOS
Partner or to grant a Lien on any of the Manuals or any of its
rights under this Agreement.
3. Updates
3.1 If Designs or a Designs Affiliate modifies, enhances or
replaces any of the Manuals or any of the information in any of
the Manuals for use with any or all of its stores and such
modified, enhanced or new Manual or information is also relevant
to, or could have utility to, operation of any of the
Partnership's OLSs or Outlets, then Designs shall furnish that
modified, enhanced or new Manual or information to the
Partnership and such modified, enhanced or new Manual or
information shall be deemed an "Update" and become part of the
"Manuals" for all purposes of this Agreement.
3.2 The Partnership shall maintain current versions of the
Manuals in accordance with the procedures set forth in Exhibit B
hereto.
4. Confidentiality
4.1 Without the prior written consent of Designs, which
Designs shall be entitled to withhold in its absolute discretion,
the Partnership shall not use any Proprietary Information for any
purpose other than operation of the OLSs and Outlets pursuant to
this Agreement during the term hereof and, both during and after
the term of this Agreement, the Partnership shall not disclose
any Proprietary Information to any third party, except that the
Partnership may furnish the Proprietary Information to the LOS
Partner subject to the LOS Partner's obligations under the
agreement set forth on the last page hereof. The Partnership
shall communicate the contents of this Section 4 to all of its
employees and agents who shall have access to any Proprietary
Information.
4.2 Immediately upon expiration or termination of this
Agreement for any reason, the Partnership shall (i) deliver to
Designs all copies of Manuals, (ii) deliver to Designs or destroy
any and all other copies of Proprietary Information (other than
Manuals) and (iii) certify in writing that it has complied with
the provisions of this Section 4.2. If the license provided in
Section 2 of this Agreement terminates with respect to an OLS or
Outlet pursuant to Section 6.1, such OLS or Outlet shall promptly
comply with the provisions of clauses (i), (ii) and (iii) of this
Section 4.2.
5. Indemnification
5.1 The Partnership shall indemnify Designs and hold it
harmless from and against any Damages arising out of any breach
by the Partnership of any of its obligations under this
Agreement, except for those Damages arising directly from
Designs' gross negligence or willful misconduct or that of any
Designs Affiliate.
5.2 Designs shall indemnify the Partnership and hold it
harmless from and against any Damages arising out of any breach
by Designs of any of its obligations under this Agreement, except
for those Damages arising directly from the Partnership's gross
negligence or willful misconduct.
5.3 Indemnification under this Section 5 shall be governed
by the rules set forth in Exhibit C to this Agreement.
6. Termination
6.1 Automatic. This Agreement shall terminate
automatically if the Designs Partner ceases to hold, whether
directly or indirectly, equity interest in the Partnership, or if
the Administrative Services Agreement is terminated. The license
provided in Section 2 of this Agreement shall terminate
automatically with respect to an OLS or Outlet, if the
Partnership ceases to own and manage such OLS or Outlet.
6.2 Breach. This Agreement may be terminated by Designs
if: (a) the Partnership fails to perform any material obligations
under this Agreement; (b) that failure is not cured within thirty
days after Designs delivers to the Partnership and the LOS
Partner a notice describing the default and identifying it as a
material breach of this Agreement; and (c) Designs then delivers
a second notice to those parties, this one terminating this
Agreement, if the Partnership fails to cure that default within
those thirty days. That termination will become effective on the
date Designs delivers to the Partnership and the LOS Partner a
notice of termination.
6.3 Effect of Termination. Upon termination of this
Agreement, the Partnership shall promptly discontinue use of the
Manuals and the license to use the Manuals, as provided in
Section 2 of this Agreement, shall automatically terminate. Upon
termination of the license provided in Section 2 with respect to
an OLS or Outlet, such OLS or Outlet shall promptly discontinue
use of the Manuals. Termination shall not discharge either party
from its obligations under Section 4 or from any liabilities to
the other party resulting from prior performance or breach of its
obligations under this Agreement.
7. Remedial Matters
7.1 Misuse of Rights. The Partnership and Designs
acknowledge and agree that monetary damages alone would not
adequately compensate either party should the other party breach
its obligations under Sections 2 and 4 of this Agreement or
otherwise misuse the Manuals or Proprietary Information.
Accordingly, each party shall be entitled, in addition to any
other remedies, to enforce those obligations and to obtain
related relief by means of injunction or other equitable relief.
7.2 Not Exclusive. The provisions of this Agreement are in
addition to, and not in place of, any rights Designs or the
Partnership has under applicable law.
8. Representations and Warranties.
Designs represents and warrants to the Partnership that the
license granted by this Agreement is a legal, valid and binding
obligation of Designs and that Designs has the right, power and
authority to enter into and perform this Agreement and to grant
the license granted herein.
9. Controversies.
Any Controversy under this Agreement or respecting any of
the subjects treated in this Agreement shall be resolved, if
possible, by the good faith efforts of Designs and the
Partnership including, if other efforts fail, a face-to-face
meeting between a senior manager of Designs and, on behalf of the
Partnership, a senior manager of the LOS Partner. If any
Controversy is not settled by such efforts within 30 days after
Designs or the Partnership requests such a meeting, either of
them shall be entitled to cause the Controversy to be resolved by
an arbitrator employed by JAMS/Endispute. If the Partnership
initiates arbitration, the arbitration shall be conducted in
Boston, Massachusetts. If Designs initiates arbitration, the
arbitration shall be conducted in whichever of Columbus, Ohio or
San Francisco, California the Partnership chooses. The
arbitration shall be conducted in accordance with
JAMS/Endispute's then-applicable Rules of Practice and Procedure
for Arbitration. Pending the completion of any such proceeding,
all obligations not in dispute shall continue to be performed
under this Agreement. Except as provided below, such arbitration
shall be Design's and the Partnership's exclusive formal means of
resolving any such Controversy. The decision of the arbitrator
shall be final and binding on Designs and the Partnership.
Judgment upon any award renedered by the arbitrator may be
entered by any state or federal court having jurisdiction.
Notwithstanding the foregoing, to preserve rights or prevent or
mitigate Damages and in aid of the arbitration process, any party
to the arbitration may apply to such a court for temporary or
preliminary injunctive or other equitable relief pending the
results of the arbitration. However, if the final decision of
the arbitrator is inconsistent with any such relief so obtained,
the arbitrator's final decision shall preempt such relief. All
decisions respecting any such Controversy shall be made on behalf
of the Partnership by the LOS Partner in accordance with Section
5.11 of the Partnership Agreement.
10. Bankruptcy
If an order for relief is entered in a case under the United
States Bankruptcy Code with respect to Designs and if Designs (as
the debtor in possession) or its trustee rejects this Agreement,
the Partnership may make the election specified in Section
365(n)(1)(B) of the United States Bankruptcy Code, as that
Section may be amended or replaced from time to time, in order
that the Partnership retains the rights granted to the
Partnership by this Agreement.
11. Entire Agreement; Amendment
This Agreement and its exhibits, together with the other
Transaction Documents incorporated herein, contain all of the
terms and conditions agreed upon by the various parties to the
Transaction Documents relating to their subject matter, represent
the final, complete and exclusive statement by those parties
regarding that subject matter, and supersede any and all prior or
contemporaneous agreements, negotiations, correspondence,
understandings and communications between or among them, whether
oral or written regarding that subject matter. This Agreement
may be amended only by a writing signed by Designs and the
Partnership.
12. Binding Effect; Assignment
This Agreement shall be binding upon the successors and
permitted assigns of Designs and the Partnership. Designs may,
without obtaining the consent of the Partnership, freely assign
its rights and delegate its duties under this Agreement (either
directly or by operation of law) to any one of the following,
provided that the assignee agrees in writing to be bound by the
terms and conditions of this Agreement and provided also that the
right to license the Manuals has been transferred or licensed to
the assignee: (i) any Affiliate of Designs; (ii) any successor
to Designs by merger or consolidation; or (iii) any purchaser of
all or substantially all of the assets of Designs. The
Partnership may not assign any of its rights or delegate any of
its duties without the express, prior written consent of Designs.
Any assignment or delegation or purported assignment or
delegation made in contravention to this Section 12 shall be void
and without effect. Designs may grant or deny consent in its
sole discretion.
13. Governing Law
This Agreement shall be governed by and construed in
accordance with the laws of the state of Delaware.
14. Further Assurances
Designs and the Partnership agree to sign those other
documents and to take those other actions as the other may
reasonably request in order to effect or memorialize the
transactions contemplated by this Agreement.
15. Notices
Any notice required under this Agreement shall be in writing
and shall be given by mail or courier delivery or by facsimile
transmission addressed to:
If to Designs:
Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attn: General Counsel
Facsimile: (617) 734-3406
If to the Partnership:
The Designs/LOS Partnership
c/o Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attn: General Manager
Facsimile: (617) 734-3406
If to the LOS Partner:
LDJV Inc.
c/o Levi's Only Stores, Inc.
116 East Chestnut Street
Columbus, Ohio 43215
Attn: President
Facsimile: (614) 228-5769
Those addresses may be changed by delivery of a notice to that
effect to the other party. Notices given in the manner
contemplated by this Section 15 shall be considered "given" three
business days after deposit in the mail, or the first business
day after the date of delivery to a courier or receipt by
facsimile transmission, as the case may be.
16. Counterparts
This Agreement may signed in any number of counterparts.
IN WITNESS WHEREOF, Designs and the Partnership signed and
delivered this Agreement on the date appearing in the first
paragraph of this Agreement.
The Designs/LOS Partnership
By: LDJV Inc., a Partner
By:/s/ Edward T. Murphy
Edward T. Murphy, President
By: Designs JV Corp., a Partner
By: /s/ Joel Reichman
Joel Reichman, President
Designs, Inc.
By: /s/ Joel Reichman
Joel Reichman, President
In consideration of the foregoing License Agreement (the
"License Agreement"), LDJV Inc. (the "LOS Partner") hereby agrees
that it shall not disclose the Proprietary Information (as
defined in Section 1.3 of the License Agreement) to any person
other than Designs, Inc. or The Designs/LOS Partnership and it
shall not use the Proprietary Information for any purpose other than
the The Designs/LOS Partnership's operation of OLSs and
Outlets (as defined in the Glossary referenced in Section 1.1 of
the License Agreement) pursuant to, and during the term of, the
License Agreement.
Date: LDJV Inc.
By: /s/ Edward T. Murphy
Edward T. Murphy, President
ADMINISTRATIVE SERVICES AGREEMENT
THIS IS AN AGREEMENT, dated January 28, 1995 (the
"Agreement"), between Designs, Inc., a Delaware corporation
("Designs"), and THE DESIGNS/OLS PARTNERSHIP, a Delaware general
partnership (the "Partnership").
BACKGROUND
Simultaneously with the execution and delivery of this
Agreement, Designs' wholly-owned subsidiary, Designs JV Corp. (the
"Designs Partner"), has entered into an agreement (the
"Partnership Agreement") with LDJV, Inc. (the "LOS Partner")
creating a partnership (the "Partnership") which will operate a
number of OLS and Outlet stores in the Territory. In accordance
with the Partnership Agreement each of LOS and Designs are to
provide certain services to the Partnership. This Agreement
describes the services to be provided by Designs as well as the
terms and conditions governing the extent to which Designs is
obligated to provide such services. This Agreement does not cover
the licensing of any intellectual or other property to the
Partnership or any other services to be provided by Designs in
accordance with a Business Plan approved under the Partnership
Agreement.
In consideration of the premises and the mutual agreements
hereinafter set forth, Designs and the Partnership agree as
follows:
1. Administrative and Other Services to be Provided
Hereunder. During the term of this Agreement, Designs shall
provide to and for the benefit of the Partnership, and the
Partnership agrees to use, the services described below
(collectively, the "Corporate Services") on the terms and
conditions hereof:
(a) accounting, bookkeeping, internal auditing, and
payroll services, including advice related thereto, such services
and advice to be provided by, or under the supervision of,
Designs' internal accounting, auditing and payroll staff;
(b) providing or supervising the provision of legal
advice and services, including, but not limited to, assistance
with respect to claims that become or may become the subject of
litigation, supervising the preparation and review of documents
involving loans, financing transactions, employment and employee
benefits matters, real estate matters, contractual documents,
documents relating to any applicable reporting requirements
promulgated by any federal, state, local or foreign government or
other governmental authority, instrumentality or subdivision
thereof, consultation related to legal and administrative
proceedings, and consultation related to compliance with
applicable laws and regulations; all lawyers providing legal
services to the Partnership shall do so as counsel to the
Partnership; however, if, in the reasonable opinion of Designs'
outside counsel or counsel for the LOS Partner, there is a
conflict in interest between Designs and the Partnership or
between Designs and an LOS Party with respect to a specific
matter, the Partnership may retain independent counsel with
respect to that matter and the provisions of Section 5.11 of the
Partnership Agreement shall govern matters relating to the
activities of such independent counsel;
(c) providing or supervising, subject to the relevant
provisions of the Partnership Agreement, the performance of
accounting advice and services relating to any income, real
estate, sales, use, personal property or other tax, including, but
not limited to, the preparation or supervising the preparation of
any tax returns or other documents required or which may be filed
with any federal, state, local or foreign government or other
governmental authority, instrumentality or subdivision thereof;
(d) assistance in organizational matters associated
with meetings of the Management Committee and the committees of
the Management Committee, assistance in preparation of financial
reports related to the operation of the Partnership in accordance
with the Partnership Agreement and Transaction Documents, employee
compensation, incentive and retirement plans;
(e) human resources and personnel advice and services,
including, but not limited to, providing or supervising the
performance of the administration of employee insurance plans,
retirement plans, and other employee benefit plans so long as same
are substantially similar to those which are provided by Designs
to its non-Partnership employees;
(f) real estate services, including, but not limited
to, providing or supervising the performance of site evaluation
and recommendation services, negotiation, development services and
lease administration services; and
(g) management information and data processing
services, including, but not limited to, providing or supervising
the performance of sales polling and reporting, cash register
support and software and hardware selection and maintenance.
If the Business Plan for any year contemplates the need
for Designs to provide to the Partnership corporate services which
are not Corporate Services as defined herein ("Additional
Corporate Services"), the Partnership shall, subject to the
provisions of Section 5.11 of the Partnership Agreement, negotiate
with Designs concerning the terms and conditions for provision of
the Additional Corporate Services to the Partnership by Designs.
It is understood that the Partnership will engage Designs to
perform any Additional Corporate Service for which terms and
conditions offered by Designs are competitive with those offered
by other potential providers.
Any of the Corporate Services may be provided by
Designs either directly with Designs personnel or by supervision
of employees of the Partnership or by third parties. If Designs
determines that Corporate Services should be provided by third
parties under its supervision, the Partnership shall enter into
contracts or other relationships with such third parties which are
appropriate to enable Designs to proceed on that basis. However,
Designs may only retain such third parties on behalf of and to
provide Corporate Services to the Partnership if the Corporate
Service to be provided by the third party is of a type that
Designs normally obtains or has obtained on behalf of Designs'
non-Partnership stores or store operations.
In providing the Corporate Services to the Partnership,
Designs' officers and employees shall conduct themselves in
accordance with Designs' policies and procedures, and the
Partnership shall follow such policies and procedures in
connection with the subject matter of the Corporate Services.
Designs agrees that the Corporate Services it will provide to the
Partnership hereunder will generally be of no lesser quality than
those similar Corporate Services which Designs provides to itself.
At the outset of this Agreement, the Partnership shall utilize
equipment and systems which are compatible with Designs' systems
and equipment. However, if thereafter the Management Committee of
the Partnership decides that the Partnership should adopt systems
and/or equipment which are incompatible with those of Designs
(each an "Incompatible Item"), the GM shall, within thirty (30)
days after the date of such a Management Committee decision,
provide Designs with an independent evaluation (an "Independent
Evaluation") listing the estimated costs and expenses for the
equipment, software, maintenance, personnel, support and all other
items which will be required in order for any Corporate Service
affected by the Incompatible Item to be provided by each of
Designs and the Partnership. If the Independent Evaluation shows
that, after adoption of an Incompatible Item by the Partnership,
it will cost more for Designs to provide a Corporate Service than
it would cost the Partnership to provide that Corporate Service
then, upon adoption of the Incompatible Item by the Partnership,
Designs shall have no further obligation to provide that Corporate
Service to the Partnership. If the Independent Evaluation shows
that, after adoption of an Incompatible Item by the Partnership,
it will cost less for Designs to provide a Corporate Service than
it would cost the Partnership to provide that Corporate Service,
then the Partnership shall reimburse Designs for all of its costs
and expenses associated with modifying Designs' systems and/or
equipment in order for Designs to continue to provide that
Corporate Service. The Independent Evaluation may include an
analysis of how much it would cost the Partnership to hire an
outside vendor to provide the affected Corporate Service.
2. Limitations on Designs' Obligation to Provide Services.
The parties intend that the Corporate Services be provided by
Designs until such time as an employee or consultant employed or
engaged by Designs to provide the Corporate Service becomes a
Substantial Time Employee (as hereinafter defined).
Notwithstanding this, no matter what amount of time any of them
may spend providing Corporate Services, those senior employees of
Designs who hold the job titles listed in Schedule "A" hereto
("Senior Staff") will not become Substantial Time Employees.
3. Cost of Corporate Services.
(a) Designs shall make best efforts to cause its
employees and consultants to keep records of the time such
employees and consultants devote to providing Corporate Services
to the Partnership. At such time as any Designs employee who
provides Corporate Services to or for the benefit of the
Partnership, other than Senior Staff, has spent an average of
forty (40) hours or more for eight consecutive weeks (320 hours)
(each a "Substantial Time Employee") providing Corporate Services,
Designs shall have the option to notify the GM of the Partnership
of the fact that there is a Substantial Time Employee, which
notice must specify the Corporate Service being provided by the
Substantial Time Employee (a "Substantial Time Employee Notice").
The GM must, within forty five (45) days after receiving a
Substantial Time Employee notice, advise Designs whether the
Partnership will (i) reimburse Designs for the cost to Designs of
the Substantial Time Employee continuing to provide that Corporate
Service to the Partnership, (ii) offer the Substantial Time
Employee providing the Corporate Service a position with the
Partnership, in which event Designs agrees not to object to that
employee becoming an employee of the Partnership, or (iii) retain
a third party or hire a new Partnership employee to provide the
Corporate Service to the Partnership. In all events, ten (10) days
after Designs notifies the GM of the existence of a Substantial
Time Employee, Designs shall have the absolute right to cease
providing that Corporate Service to the Partnership at no cost and
the Partnership shall reimburse Designs for the cost to Designs of
the Substantial Time Employee to and through the forty-fifth
(45th) day after the Partnership receives a Substantial Time
Employee notice. For this purpose, the cost to Designs of the
Substantial Time Employee shall be related direct labor cost plus
the actual cost of relevant fringe benefits. If the Partnership
elects (i) above, Designs shall provide the relevant Corporate
Service, and the Partnership shall provide the related
reimbursement, in accordance with this Section. If, by the forty-
fifth (45th) day after the GM receives a Substantial Time Employee
notice, Designs has not received the GM's written advice that the
Partnership has elected either (i), (ii) or (iii) above, then the
Partnership shall be deemed to have elected (i) and the
Partnership shall thereafter be so obligated to Designs and
Designs shall thereafter have no obligation to provide the
affected Corporate Service to the Partnership at no cost.
(b) In addition, the Partnership shall reimburse
Designs, within thirty (30) days after presentation of invoices
therefor, for all out-of-pocket expenses arising out of or in
connection with Designs' performance of its obligations hereunder,
including, without limitation, expenses of accounting, legal, real
estate, tax, personnel, or other consulting or related services,
third party expenses of computers and communications and costs of
travel.
4. Indemnity; Limitation of Liability.
(a) The Partnership shall indemnify and hold harmless
Designs and all of its Affiliates from and against all Damages
arising out of or relating to (i) any breach by the Partnership of
any of its obligations under this Agreement or (ii) any other
action or inaction taken or omitted by Designs hereunder, except
such Damages, costs or expenses caused by the gross negligence or
willful misconduct of Designs.
(b) Designs shall not be liable for any delays in the
performance of any of its obligations hereunder due to causes
beyond its reasonable control, including, without limitation,
fire, strike, war, riots, acts of any civil or military authority,
acts of God, judicial action, unavailability or shortages of
labor, materials or equipment, failure or delays in delivery of
Designs' vendors and suppliers, delays in transportation or
communications or other force majeure.
(c) Designs shall indemnify and hold harmless the
Partnership from and against all Damages arising out of or
relating to any willful misconduct or gross negligence by Designs
in its performance of Corporate Services.
(d) Notwithstanding the foregoing, in no event shall
Designs or the Partnership ever be liable for any punitive or
analogous damages, whether or not Designs or the Partnership has
been advised of the possibility of such damages or any special,
incidental, consequential or other Damages for any reason other
than gross negligence or willful misconduct.
(e) The provisions of this Section 4 shall survive the
termination of this Agreement, the Partnership and any of the
Transaction Documents.
5. Termination.
(a) Except as otherwise provided in this Section 5,
this Agreement shall remain effective for so long as the Designs
Partner, or any entity to which the Designs Partner transfers the
Designs Partner's Partnership Interest, (i) is, directly or
indirectly, wholly owned by Designs or is, directly or indirectly,
wholly owned by a Person which, directly or indirectly, wholly
owns Designs, and (ii) the Partnership owns at least 65% of the
Stores in the Territory after including in the divisor in the
calculation of such percentage all Stores and all other stores
which at any time were owned by the Partnership and are operating.
For example, it shall terminate if the Designs Partner is acquired
by any Person other than a direct or indirect wholly-owned
subsidiary of Designs, if the LOS Partner or an Affiliate of the
LOS Partner purchases the Designs Partner's Partnership Interest
or if the Partnership is terminated.
(b) If the Partnership fails to perform any material
obligations under this Agreement, Designs may give thirty days
written notice to the Partnership specifying the nature of such
breach and advising the Partnership that unless the breach is
cured within thirty days of the date of the notice Designs shall
have the right to terminate this Agreement. If such breach is not
cured within such thirty day period Designs may terminate this
Agreement by sending to the Partnership a notice stating that this
Agreement has been terminated. A termination will become effective
on the date Designs delivers to the Partnership a notice of
termination.
(c) If Designs fails to perform any material
obligations under this Agreement, the Partnership may give thirty
days written notice to Designs specifying the nature of such
breach and advising Designs that unless the breach is cured within
thirty days of the date of the notice the Partnership shall have
the right to terminate this Agreement. If such breach is not
cured within such thirty-day period the Partnership may terminate
this Agreement by sending Designs a notice stating that this
Agreement has been terminated. A termination will become
effective on the date the Partnership delivers to Designs a notice
of termination.
(d) Upon termination of this Agreement, Designs shall
have no further obligation hereunder except as expressly set forth
in Section 4(c) of this Agreement.
6. Dispute Resolution.
Any Controversy under this Agreement or respecting any of the
subjects treated in this Agreement shall be resolved, if possible,
by the good faith efforts of Designs and the Partnership
including, if other efforts fail, a face-to-face meeting between a
senior manager of Designs and, on behalf of the Partnership, a
senior manager of the LOS Partner. If any Controversy is not
settled by such efforts within 30 days after Designs or the
Partnership requests such a meeting, either of them shall be
entitled to cause the Controversy to be resolved by an arbitrator
employed by JAMS/Endispute. If Designs initiates arbitration, the
arbitration shall be conducted in whichever of Columbus, Ohio or
San Francisco, California the LOS Partner chooses. If the
Partnership initiates arbitration, the arbitration shall be
conducted in Boston, Massachusetts. The arbitration shall be
conducted in accordance with JAMS/Endispute's then-applicable
Rules of Practice and Procedure for Arbitration. Pending the
completion of any arbitration proceeding, obligations not in
dispute shall continue to be performed. Except as provided below,
such arbitration shall be Designs' and the Partnership's exclusive
formal means of resolving any such Controversy. The decision of
the arbitrator shall be final and binding on Designs and the
Partnership. Judgment upon any award rendered by the arbitrator
may be entered by any state or federal court having jurisdiction.
Notwithstanding the foregoing, to preserve rights or prevent or
mitigate Damages and in aid of the arbitration process, any party
to the arbitration may apply to such a court for temporary or
preliminary injunctive or other equitable relief pending the
results of the arbitration. However, if the final decision of the
arbitrator is inconsistent with any such relief so obtained, the
arbitrator's final decision shall preempt that relief. All
decisions respecting any such Controversy shall be made on behalf
of the Partnership by the LOS Partner in accordance with Section
5.11 of the Partnership Agreement.
7. Miscellaneous.
(a) Capitalized terms used, but not otherwise defined,
herein shall have the meanings given them in the glossary which
the Designs Partner and the LOS Partner executed simultaneously
with execution of the Partnership Agreement, as such glossary may
be amended from time to time.
(b) This Agreement shall not be assignable, in whole
or in part, directly or indirectly, whether by operation of law or
otherwise, by either party hereto without the prior written
consent of the other, and any attempt to assign any rights or
obligations arising under this Agreement without such consent
shall be void.
(c) Subject to the other provisions hereof and
specifically to the provisions of Section 3 hereof, the
Partnership shall make, execute, acknowledge, seal and deliver all
such documents, and take all such other actions, as may be
reasonably requested by Designs in order to effectuate the
purposes of this Agreement, to comply with any applicable laws,
regulations, orders and decrees in connection with any services
contemplated hereby, obtain any required consents and approvals,
and to make any required filings with any governmental agency,
other regulatory or administrative agency, commission or similar
authority. Without limiting the generality of the foregoing, the
Partnership shall make available to Designs all such facilities,
equipment and personnel as Designs may reasonably request in
connection with performance of its services hereunder and shall
provide access to all such facilities and equipment at such times,
and in such manner, as Designs may request.
(d) No failure or delay on the part of Designs or the
Partnership in exercising any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any
such right, or any abandonment or discontinuance of steps to
enforce such a right, preclude any other or further exercise
thereof or the exercise of any other right. No modification or
waiver of any provision of this Agreement nor consent to any
departure by Designs or the Partnership therefrom shall in any
event be effective unless the same shall be in writing, and then
such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. Any consent or
waiver by the Partnership under this Section 7(d) shall be
approved in accordance with Section 5.11 of the Partnership
Agreement.
(e) This Agreement and the Other Transaction Documents
contain the entire understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior
agreements and understandings, written or oral, between them with
respect thereto.
(f) This Agreement may be amended or supplemented only
in a writing executed by the parties hereto under authorization by
the Board of Directors of Designs and the Partnership in
accordance with Section 5.11 of the Partnership Agreement.
(g) All notices, approvals and other communications
provided for herein shall be validly given, made or served, if in
writing and delivered personally, by telegram or by telephonic
facsimile transmission with confirmed answerback, or sent by
registered mail, postage prepaid, to:
Designs: Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attention: President
with a copy to: Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attention: General Counsel
the Partnership: THE DESIGNS/OLS PARTNERSHIP
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attention: General Manager
with a copy to: Levi's Only Stores, Inc.
116 East Chestnut Street
Columbus, Ohio 43215
Attention: President
and shall become effective upon receipt.
(h) Upon reasonable notice, the Partnership shall be
entitled to review such of Designs' internal records as relate
solely to the Corporate Services being provided to the Partnership
by Designs. If, in the reasonable opinion of legal counsel to
Designs, any such records constitute or contain information which
is confidential or proprietary to Designs or to any other person
or entity to whom/which Designs has confidentiality obligations,
the Partnership shall execute a confidentiality agreement with
respect to any such information.
(i) This Agreement shall be governed by, and construed
and enforced in accordance with, the substantive laws of the State
of Delaware, without regard to its principles of conflicts of
laws.
IN WITNESS WHEREOF, the parties hereto have executed this
Administrative Services Agreement, under seal, as of the date
first above written.
DESIGNS, INC.
By:/s/ Joel Reichman
Joel Reichman, President
THE DESIGNS/OLS PARTNERSHIP
By: Designs JV Corp., a Partner
By: /s/ Joel Reichman
Joel Reichman, President
By: LDJV Inc., a Partner
By: /s/ Edward T. Murphy
Edward T. Murphy, President
THIS AGREEMENT made this 28th day of January, 1995 by and
between Designs, Inc., a Delaware corporation ("Designs"), and
Levi's Only Stores, Inc., a Delaware corporation ("LOS").
WHEREAS, Designs is this day transferring to The Designs/OLS
Partnership (the "Partnership"), on behalf of its wholly-owned
subsidiary, Designs JV Corp., eleven stores (the "Partnership
Stores") doing business under the name "The Original Levi's (R)
Store"; and
WHEREAS, simultaneously with such transfer, Designs is
entering into asset purchase agreements which include a transfer
to LOS of one other store doing business under the name "The
Original Levi's Store" in Bloomington, Minnesota (the "Direct OLS
Store"; the Partnership Stores and the Direct OLS Stores being
hereinafter referred to as the "OLS Stores"); and
WHEREAS, Levi Strauss & Co., an affiliate of LOS, has
indicated that it will not in the future license Designs to
operate stores under the name The Original Levi's Store;
WHEREAS, LOS now wishes to compensate Designs for its
services, contributions and risks taken in establishing the OLS
Stores and The Original Levi's Store concept;
WHEREAS, LOS has agreed to pay Designs a fee of $875,000
(the "Fee") in consideration of such services, contributions and
risks;
NOW, THEREFORE, in consideration of the premises and the
mutual promises hereinafter set forth, Designs and LOS agree as
follows:
1. At the time of the organization of the Partnership and
the transfer of the Direct OLS Store to LOS, LOS shall pay to
Designs the Fee.
2. This Agreement shall be governed by, and construed and
enforced in accordance with, the substantive laws of the State of
Delaware.
IN WITNESS WHEREOF, Designs and LOS have executed this
Agreement on the date first above written.
DESIGNS, INC.
By:/s/ Joel Reichman
Joel Reichman, President
LEVI'S ONLY STORES, INC.
By:/s/ Edward T. Murphy
Edward T. Murphy, President
ASSET PURCHASE AGREEMENT
THIS IS AN ASSET PURCHASE AGREEMENT (the "Agreement")
dated as of January 28, 1995, by and between LEVI'S ONLY STORES,
INC., a Delaware corporation ("LOS"), and DESIGNS, INC., a
Delaware corporation ("Designs"). Designs and LOS are sometimes
referred to individually as a "Party" and together as the
"Parties".
B A C K G R O U N D
Designs operates two retail stores on adjacent leased
premises in the Mall of America in Bloomington, Minnesota (each a
"Store" and together the "Stores"). One Store sells Levi's(R)
branded adult jeans and jeans-related products and the other
Store sells Dockers(R) products. Designs and LOS desire that LOS
acquire the Stores on the terms and conditions set forth in this
Agreement.
ACCORDINGLY, THE PARTIES HEREBY AGREE AS FOLLOWS:
ARTICLE 1
DEFINITIONS
1.1 Definitions
When used with initial capital letters in this
Agreement, the following terms have the following meanings:
"Affiliate" means, with respect to any Person, any
other Person which directly or indirectly Controls, is Controlled
by, or is under common Control with, the specified Person.
"Asset Statement" has the meaning set forth in
Section 2.5 of this Agreement.
"Base Rate" means the "base" or "reference" rate of
interest quoted, from time to time, by Bank of America, N.T. &
S.A. at its headquarters in San Francisco, California. Any
interest rate specified in this Agreement based upon the "Base
Rate" shall be adjusted, from time to time, whenever the Base
Rate changes. However, under no circumstances shall the Base
Rate at any time exceed the maximum rate permitted by applicable
law.
"Closing" means the signing and delivery of the
Transaction Documents.
"Closing Date" means the date the Closing takes place.
"Contracts" has the meaning set forth in
Subsection 2.1(c) of this Agreement.
"Control", as applied to any Person, means (and the
terms "Controls", "Controlling", "Controlled by" and "under
common Control with" refer to) the direct or indirect ownership
of stock or other equity interests, or contract or other rights,
in any such case entitling their holder to elect at least
50 percent of the directors or similar functionaries of that
Person.
"Covered Employees" has the meaning set forth in
Section 4.9 of this Agreement.
"Damages" means all losses, liabilities, damages,
deficiencies, judgments, assessments, interests, penalties,
fines, costs and expenses (including, without limitation, fees,
disbursements and other charges of attorneys, accountants,
consultants, experts and other professionals and irrespective of
whether any underlying liability is established). However,
"Damages" shall not include any punitive, exemplary or similar
damages, it being understood that punitive, exemplary and similar
damages shall not be recoverable for any breach of this
Agreement.
"Lien" means any mortgage, deed of trust, security
interest, retention of title or lease for security purposes,
pledge, charge, encumbrance, claim, easement, right of way,
covenant, restriction, leasehold interest or other right of any
kind of any Person in or with respect to any property.
"LS&CO." means Levi Strauss & Co., a Delaware
corporation.
"Person" means any individual or entity including,
without limitation, any government body.
"Purchase Prices" has the meaning set forth in Section
2.3 of this Agreement.
"Store Assets" has the meaning set forth in
Sections 2.1 and 2.2 of this Agreement.
"Stores" has the meaning set forth in the "Background"
paragraph of this Agreement.
"Transaction Documents" means this Agreement and all
other documents, certificates and instruments signed and
delivered by one or both of the Parties in order to effect the
Closing.
1.2 Accounting Terms. For purposes of this Agreement, all
accounting terms not otherwise defined in this Agreement have the
meanings assigned to them by generally accepted accounted
principles.
ARTICLE 2
THE BASIC TRANSACTION
2.1 Purchase and Sale. At the Closing, Designs shall sell
and transfer to LOS, and LOS shall purchase from Designs, all of
Designs' right, title and interest in and to the Store Assets.
The Store Assets consist of:
(a) the lease agreements for the real estate occupied
by the Stores identified on Schedule 2.1 to this Agreement (the
"Leases");
(b) all fixtures and tangible personal property owned
by Designs and either located at either Store at the Closing or
in any event normally located at either Store (including, for
example, all furniture, equipment, inventory and copies, but not
originals, of records) and
(c) except as explained in Subsection 2.1(d), all
rights that accrue after the Closing under all leases for
fixtures and tangible personal property either located at a Store
at the Closing or in any event normally located at a Store, and
all rights that accrue after the Closing under all other
contracts and understandings to which Designs is a party
respecting any goods or services (for example, utilities) that
are used or consumed at a Store (the Leases and such contracts
and understandings being referred to collectively as the
"Contracts"). The Contracts include, without limitation, all of
Designs' rights under purchase orders for LS&CO. products
designated for delivery to either Store on or after the Closing
Date.
(d) Notwithstanding Subsection 2.1(c), certain
Contracts relate also to tangible personal property, other items
or services that are used at stores owned or operated by Designs
other than the Stores. An example is the Contract or Contracts
under which Designs purchases fire protection and HVAC
maintenance services. Those Contracts shall not be assigned to,
or assumed by, LOS. Instead LOS shall obtain substitutes for
such Contracts to use in the operation of the Stores.
Schedule 2.1 to this Agreement is a list of the Store Assets
segregated by Store. However, Schedule 2.1 does not include
items of owned tangible property and leases respecting tangible
property that in either case had an original cost of less than
$1,000. Because Designs prepared Schedule 2.1, any failure to
identify any Store Assets on Schedule 2.1 shall not prejudice
LOS' right to those assets.
2.2 Excluded Assets. Despite Section 2.1, the Store Assets
do not include:
(a) cash, cash equivalents, accounts receivable,
deposits, claims, rights to refunds, point-of-sale registers,
printers, LED displays, backroom terminals, ticket machines,
ticket stock, scanners and time clocks and
(b) close-out, irregular and end-out-season product
identified on Schedule 2.2 to this Agreement.
2.3 Purchase Price. The purchase price for the Store
Assets (the "Purchase Price") shall equal:
CPE + GFA + I - P + L
where
CPE = the capitalized pre-opening expenses of
the Stores
GFA = the gross fixed assets of the Stores as
of the opening of business on the
Closing Date (other than the video walls
and any other fixed assets that are
Excluded Assets)
I = the inventories (not constituting
Excluded Assets) located at or already
ordered for either Store as of the
opening of business on the Closing Date
that, as of that time, have not been
sold by Designs but have been (or later
are) paid for by Designs
P = the cumulative profit (if any) of each
Store from the date each Store was
opened to the opening of business on the
Closing Date
L = the cumulative losses (if any) of each
Store from the date each Store was
opened to the Closing Date
Schedule 2.3 to this Agreement explains the manner in which the
elements of this formula will be determined.
2.4 Payment. At the Closing, LOS shall pay Designs
$1,275,000 in cash. That figure represents the Parties'
preliminary estimate of the Purchase Price. LOS shall wire that
sum to an account designated by Designs.
2.5 Adjustment. After the Closing, the Parties shall
determine the exact Purchase Price as follows:
(a) Within 60 days after the Closing, Designs shall
deliver a statement to LOS setting forth all the figures needed
to apply the formula in Section 2.3 (the "Asset Statement"). The
Asset Statement shall be certified by Designs' Chief Financial
Officer as having been prepared in accordance with generally
accepted accounting principles but subject to the rules set forth
on Schedule 2.3. Within 30 days after Designs delivers the Asset
Statement, LOS shall (i) accept that statement or (ii) furnish
Designs with a statement objecting to one or more of the figures
in the Asset Statement and the basis for its objections and/or
requiring that one or more of the figures in the Asset Statement
be audited. If LOS does not respond within those 30 days, LOS
shall be considered to have accepted the Asset Statement.
Designs shall furnish LOS and its representatives with all
information reasonably requested by LOS or its representatives to
enable them to assess the Asset Statement both during and after
that 30-day period.
(b) If LOS timely objects to any aspect of the Asset
Statement or, in any event, LOS requests that one or more figures
in the Asset Statement be audited, the open issues shall be
resolved or the audit performed by an accounting firm jointly
selected by the accounting firms normally used by LOS and
Designs. The firm selected shall be instructed to resolve the
matters in controversy within 30 days after it is selected or as
soon thereafter as is reasonable. The Parties shall furnish that
firm with all information it reasonably requests in order to
perform its task and meet that schedule. That firm's resolution
of the open issues shall bind both Parties. LOS shall pay the
fees and expenses of that firm.
(c) Within three days after the final Asset Statement
has been completed (whether by acquiescence, negotiation or
submission to the third accounting firm), LOS shall pay an
additional amount to Designs or Designs shall refund an amount to
LOS (whichever is appropriate) equal to the amount by which the
Purchase Price shown on the final Asset Statement differs from
the estimated amount that LOS paid to Designs at Closing under
Section 2.4. That payment or refund shall be accompanied by
interest from the Closing Date to the date of the payment or
refund calculated at the Base Rate.
2.6 Assumptions. Subject to the accuracy of Designs'
representations and warranties set forth in the first three
sentences of Section 4.6 of this Agreement and except as set
forth in Subsection 2.1(d), at the Closing, LOS shall assume
Designs' obligations under each Contract, to the extent (but only
to the extent) that those obligations accrue after the Closing.
2.7 Gift Certificates and Credits. Before the Closing,
Designs issued gift certificates and merchandise credits that are
redeemable at the Stores. A number of those certificates and
credits are still outstanding. LOS shall honor those
certificates and credits after the Closing. LOS shall
periodically submit copies of those gift certificates and
merchandise credits redeemed after the Closing to Designs or,
instead, a statement listing the serial numbers and face amounts
of those redeemed certificates and credits. Within ten days
after each such submission, Designs shall pay LOS an amount equal
to the total face amount of the redeemed certificates and credits
that were the subject of that submission.
2.8 No Other Assumptions. LOS shall not assume any
obligations or liabilities of Designs, except as expressly
provided in Sections 2.6 and 2.7. For example, Designs shall
retain and discharge all obligations and liabilities associated
with its employees, including all of its employees who are hired
by LOS, for the period they were or are employed by Designs,
including, without limitation, any and all obligations and
liabilities for severance, vacation, personal time and sick time.
2.9 Prorations. In order to implement this Article 2,
Designs and LOS shall prorate, as between them, all expenses
associated with the Store Assets and the operation of the Stores.
They shall do that as of the opening of business on the Closing
Date. Examples are utilities, rent (including, for example,
common area maintenance charges), insurance premiums (unless and
to the extent LOS displaces existing coverage with other
coverage), HVAC maintenance charges and security service charges.
The prorations shall be based on the number of days elapsed
during the relevant period that includes the Closing Date, unless
such proration period would be manifestly unfair. An example of
such "unfairness" would be a waterpipe break at a Store, two days
after the Closing Date, that results in charges for one million
gallons of water on the water bill for that Store for the period
that includes the Closing Date. Under that circumstance, LOS
would pay those incremental charges.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF LOS
LOS represents and warrants to Designs that, except as
shown on Schedule 3, as of the Closing:
3.1 Organization and Authority. LOS is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware. LOS has also qualified to conduct
business or is in the process of qualifying to conduct business
in the State of Minnesota. LOS has all requisite power and
authority to enter into and perform the Transaction Documents.
The signing, delivery and performance by LOS of the Transaction
Documents have been duly and validly authorized by all necessary
corporate action on the part of LOS. Each Transaction Document
constitutes a valid and binding obligation of LOS enforceable
against LOS in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws that generally affect creditors and
except as may be limited by general principles of equity. The
signing, delivery and performance by LOS of each Transaction
Document will not: (a) violate or conflict with any provision of
LOS' Certificate of Incorporation or Bylaws, (b) violate,
conflict with or result in a breach or termination of any
contract or other instrument to which LOS is a party or by which
any of its assets is bound, (c) result in the creation of any
Lien on any assets of LOS, (d) violate any judgment, order,
injunction, decree or award that binds LOS or any of its assets
or (e) constitute a violation of law.
3.2 Consents and Approvals. Schedule 3.2 to this
Agreement lists all consents and approvals of, and filings and
registrations with, all Persons required in order for LOS to
sign, deliver and perform the Transaction Documents. An example
is consents from LS&CO.'s lenders. LOS has obtained all of those
consents and approvals and made all of those filings and
registrations.
3.3 Litigation and Claims. Subject to Schedule 3.3, there
is no suit, action, investigation or other proceeding pending or,
to the best knowledge of LOS, threatened against LOS relating to
any of the transactions contemplated by this Agreement.
3.4 Brokers and Finders. Subject to Schedule 3.4, no
broker, finder or other Person acting on behalf of LOS is or will
be entitled to any commission, fee or reimbursement in connection
with any of the transactions contemplated by this Agreement.
Designs shall have no liability to pay any broker, finder or
other Person, who may have acted on behalf of LOS, for any
commission, fee or reimbursement in connection with the
transactions contemplated by this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF DESIGNS
Designs represents and warrants to LOS that, except as
shown on Schedule 4, as of the Closing:
4.1 Organization and Authority. Designs is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Delaware. Designs is also duly qualified to
conduct business and is in good standing in the State of
Minnesota. Designs has all requisite power and authority to
lease and operate the Stores, to carry on the business of the
Stores and to enter into and perform the Transaction Documents.
The signing, delivery and performance by Designs of the
Transaction Documents have been duly and validly authorized by
all necessary corporate action on the part of Designs. Each
Transaction Document constitutes a valid and binding obligation
of Designs and is enforceable against Designs in accordance with
its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws that
generally affect creditors and except as may be limited by
general principles of equity. The signing, delivery and
performance by Designs of each Transaction Document will not:
(a) violate or conflict with any provision of Designs'
Certificate of Incorporation or Bylaws, (b) violate, conflict
with or result in a breach or termination of any contract or
other instrument (including any Contract) to which Designs is a
party or by which any of its assets (including any Store Assets)
is bound, (c) result in the creation of any Lien on any assets of
Designs (including any Store Assets), (d) violate any judgment,
order, injunction, decree or award that binds Designs or any of
its assets (including any Store Assets) or (e) constitute a
violation of law.
4.2 Consents, Permits and Approvals. Schedule 4.2 to this
Agreement lists all consents, permits and approvals of, and
filings and registrations with, all Persons required in order for
Designs to sign, deliver and perform the Transaction Documents
and to enable LOS to continue to conduct, at each Store after the
Closing, the business that Designs conducted at that Store before
the Closing. Examples are consents from landlords under the
Leases, consents from other parties under other Contracts,
consents from Designs' lenders, and transferred or reissued
operating permits. Designs has obtained all of those consents,
permits and approvals and made all of those filings and
registrations.
4.3 Litigation and Claims. There is no suit, action,
investigation or other proceeding pending or, to the best
knowledge of Designs, threatened against Designs relating to any
of the transactions contemplated by this Agreement, any of the
Store Assets (whether a Contract or another asset), either Store
or any aspect of the business conducted at either Store. Nor is
there any outstanding judgment, order, injunction, decree or
award that binds Designs with respect to, or otherwise affects,
any of the Store Assets (whether a Contract or another asset),
either Store or any aspect of the business conducted at either
Store.
4.4 Compliance with Laws. Before the Closing, Designs was
conducting the business of the Stores in substantial compliance
with all laws applicable to Designs including, for example, all
laws relating to employees, safety, the environment, consumer
protection and land use.
4.5 Title and Condition. At the Closing, Designs is
conveying to LOS good title in and to all the Store Assets free
and clear of all Liens. Immediately after the Closing, LOS will
have good title to all the Store Assets free and clear of all
Liens. To the best knowledge of Designs: (i) there are no
material defects in the premises covered by either of the Leases
or the real estate on which those premises are located; (ii) the
utilities and other systems that serve those premises and real
estate are in normal working order and condition, ordinary wear
and tear excepted and (iii) all the material fixtures, equipment,
furniture and vehicles that are included among the Store Assets,
as well as all the material fixtures, equipment, furniture and
vehicles leased or otherwise used at the Stores, are also in
normal working order and condition, ordinary wear and tear
excepted.
4.6 Contracts. All the Contracts are identified on
Schedule 2.1. They constitute all the Contracts relating to
either Store or the business conducted at either Store. Designs
has given LOS correct and complete copies of all the Contracts,
including copies of all amendments to all the Contracts and all
material written waivers of rights under all the Contracts. All
the Contracts are legal, valid and binding obligations of
Designs. To the knowledge of Designs, all the Contracts are also
legal, valid and binding obligations of the other parties to the
Contracts. Neither Designs nor, to the knowledge of Designs, any
other party to any Contract is in material default under any
Contract. Neither Designs nor, to the knowledge of Designs, any
other such party has repudiated or purported to repudiate any
Contract. No party to any Contract is an Affiliate, director or
officer of Designs.
4.7 Financial Statements. Schedule 4.7 contains an income
statement and a balance sheet for the Stores for the periods and
as of the dates indicated on Schedule 4.7. That income statement
and balance sheet were prepared in accordance with generally
accepted accounting principles except to the extent indicated on
Schedule 4.7.
4.8 Employees. Designs is not a party to any collective
bargaining agreement that covers any of the employees who
presently work at, or at any time during the 12 months before the
Closing worked at, either of the Stores (in either case, "Covered
Employees"). To Designs' best knowledge, no union or other labor
organization is attempting or has attempted to organize any of
the Covered Employees. Except as shown on Schedule 4.8, Designs
neither maintains or contributes to, nor has maintained or
contributed to, any "employee pension benefit plan" (including
any "multiemployer plan") or any "employee welfare benefit plan"
(in each such case within the meaning of the Employee Retirement
Income Security Act of 1974, as amended, or any rule or
regulation adopted under that act) in which any Covered Employees
participate or have participated.
4.9 Brokers and Finders. Except for Financo, no broker,
finder or other Person acting on behalf of Designs is or will be
entitled to any commission, fee or reimbursement in connection
with any of the transactions contemplated by this Agreement, it
being understood that Designs shall pay the fee of Financo. LOS
shall have no liability for that firm's fee.
ARTICLE 5
EMPLOYEES
At the Closing, Designs shall make available to LOS,
for hiring by LOS, all the employees identified on Schedule 5.
ARTICLE 6
INDEMNIFICATION
6.1 By LOS. LOS shall indemnify Designs and Designs'
Affiliates and hold them harmless from and against any and all
Damages arising from: (a) any breach of any covenant,
representation or warranty of LOS set forth in this Agreement;
(b) all obligations of Designs to the extent (but only to the
extent) that LOS expressly assumed them under Section 2.6 or 2.7
of this Agreement and (c) all obligations and liabilities of LOS
that arise from LOS' ownership or operation of the Stores after
the Closing other than because LOS assumed the accuracy of one or
more of Designs' representations and warranties contained in this
Agreement.
6.2 By Designs. Designs shall indemnify LOS and LOS'
Affiliates and hold them harmless from and against any and all
Damages arising from (a) any breach of any covenant,
representation or warranty of Designs set forth in this
Agreement; (b) all obligations and liabilities of Designs that in
any way relate to or are connected with either of the Stores or
their past or present operation, other than the obligations that
LOS expressly assumed under Section 2.6 or 2.7 of this Agreement
and (c) the failure to comply with bulk sales laws (if
applicable) or any similar laws in connection with the
transactions contemplated by this Agreement.
6.3 Indemnification Rules. Indemnification under this
Article 6 shall be governed by the rules set forth in
Schedule 6.3 to this Agreement.
6.4 Deductible. Notwithstanding anything to the contrary
in this Agreement or otherwise provided by law, neither Party
shall be required to indemnify the other Party or the other
Party's Affiliates unless the total amount required to be so
indemnified exceeds $10,000 (for all matters combined), in which
case the amount indemnified shall be the amount in excess of
$10,000.
6.5 Limitation. Notwithstanding anything to the contrary
in this Agreement or otherwise provided by law, neither Party
shall be required to indemnify the other Party or the other
Party's Affiliates for any amount (for all matters combined) in
excess of the Purchase Price.
6.6 Survival. The covenants, representations and
warranties set forth in this Agreement shall survive the Closing.
ARTICLE 7
DISPUTE RESOLUTION
Any Controversy under this Agreement or respecting any of
the subjects treated in this Agreement shall be resolved, if
possible, by the good faith efforts of LOS and Designs including,
if other efforts fail, a face-to-face meeting between a senior
manager of LOS and a senior manager of Designs. If any
Controversy is not settled by such efforts within 30 days after
LOS or Designs requests such a meeting, either of them shall be
entitled to cause the Controversy to be resolved by an arbitrator
employed by JAMS/Endispute. If Designs initiates arbitration,
the arbitration shall be conducted in whichever of Columbus, Ohio
or San Francisco, California LOS chooses. If LOS initiates
arbitration, the arbitration shall be conducted in Boston,
Massachusetts. The arbitration shall be conducted in accordance
with JAMS/Endispute's then-applicable Rules of Practice and
Procedure for Arbitration. Pending the completion of any
arbitration proceeding, obligations not in dispute shall continue
to be performed. Except as provided below, such arbitration
shall be the Parties' exclusive formal means of resolving any
such Controversy. The decision of the arbitrator shall be final
and binding on both Parties. Judgment upon any award rendered by
the arbitrator may be entered by any state or federal court
having jurisdiction. Notwithstanding the foregoing, to preserve
rights or prevent or mitigate Damages and in aid of the
arbitration process, LOS or Designs may apply to such a court for
temporary or preliminary injunctive or other equitable relief
pending the results of the arbitration. However, if the final
decision of the arbitrator is inconsistent with any such relief
so obtained, the arbitrator's final decision shall preempt that
relief.
ARTICLE 8
MISCELLANEOUS
8.1 Sales and Lease Transfer Taxes. Each Party shall pay
one-half of any sales or lease transfer taxes payable in
connection with the transactions contemplated by this Agreement.
8.2 Further Assurances. After the Closing, each Party, at
its own expense, shall sign and deliver all documents and take
all other actions reasonably requested by the other Party in
order to memorialize or better effectuate the sale of the Store
Assets to LOS and LOS' assumption of the obligations required by
Section 2.6 of this Agreement.
8.3 Successors and Assigns. The Parties shall not assign
any of their rights or delegate any of their duties under this
Agreement. Any purported assignment or delegation in violation
of this Agreement shall be void.
8.4 Amendments. All amendments to this Agreement must be
in writing and be signed by both Parties.
8.5 Notices. All notices under this Agreement shall be in
writing and shall be deemed to have been duly given only if and
when delivered by hand, by overnight delivery service or by
telecopier, in all cases with receipt confirmed, to the
appropriate addressees and the addresses or telecopier numbers
set forth below, or to such other addressees, addresses or
telecopier numbers as may be designated by notice given in
accordance with this section:
If to Designs:
Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attention: Chief Executive Officer
Facsimile: (617) 734-3406
with a copy to:
Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attention: General Counsel
Facsimile: (617) 734-3406
If to LOS:
Levi's Only Stores, Inc.
116 East Chestnut Street
Columbus, Ohio 43215
Attention: President
Facsimile: (614) 228-5769
with a copy to:
Levi Strauss & Co.
Levi's Plaza
1155 Battery Street
San Francisco, California 94111
Attention: General Counsel/LOS
Facsimile: (415) 544-7650
8.6 Counterparts. This Agreement may be signed in one or
more counterparts. Each counterpart shall be deemed an original
of this Agreement.
8.7 Entire Agreement. This Agreement (including the
Schedules to this Agreement) and the other Transaction Documents
contain all the understandings between the Parties with respect
to the subject matter of this Agreement. They supersede all
prior and contemporaneous agreements and understandings among the
Parties and their Affiliates relating to that subject matter.
8.8 Severability. If any portion of this Agreement is
determined to be invalid or unenforceable, it shall be modified
rather than voided, if possible, in order to carry out the intent
of this Agreement. In any event, the remainder of this Agreement
shall be valid and enforceable to the fullest extent possible.
8.9 No Third Party Beneficiaries. This Agreement is for
the sole benefit of the Parties and is not for the benefit of any
third party.
8.10 Costs of Enforcement. If either Party to this
Agreement seeks to enforce its rights under this Agreement by
formal proceedings or otherwise, the non-prevailing Party shall
pay all costs and expenses incurred by the prevailing Party (who
shall be the Party which obtains substantially the relief it
sought, whether by settlement, compromise or judgment),
including, without limitation, all reasonable attorneys' fees and
costs.
8.11 Expenses. Each Party shall pay its own expenses
incurred in negotiating and drafting this Agreement and the other
Transaction Documents and in effecting the Closing.
8.12 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware
applicable to contracts entered into and to be performed
within Delaware by Delaware residents.
* * *
The Parties have signed and delivered this Agreement as of the
date that appears in its first paragraph.
LEVI'S ONLY STORES, INC.
By ________________________________
Edward T. Murphy,
President
DESIGNS, INC.
By ________________________________
Joel Reichman,
President
Schedules
2.1 Store Assets
2.2 Excluded Inventory
2.3 Calculation of Purchase Price
3 Exceptions to LOS' Representations
3.2 LOS Consents and Approvals
3.3 LOS Litigation and Claims
3.4 LOS Brokers and Finders
4 Exceptions to Designs' Representations
4.2 Designs' Consents, Permits and Approvals
4.7 Financial Statements
4.8 Employee Information
5 List of Employees
6.3 Indemnification Rules
ASSET PURCHASE AGREEMENT
between
LEVI'S ONLY STORES, INC.
and
DESIGNS, INC.
(Minnesota)
dated as of
January 28, 1995
ASSET PURCHASE AGREEMENT
THIS IS AN ASSET PURCHASE AGREEMENT (the "Agreement")
dated as of January 28, 1995, by and between LEVI'S ONLY STORES,
INC., a Delaware corporation ("LOS"), and DESIGNS, INC., a
Delaware corporation ("Designs"). Designs and LOS are sometimes
referred to individually as a "Party" and together as the
"Parties".
B A C K G R O U N D
Designs operates a retail store in the Cambridgeside
Mall in Cambridge, Massachusetts (the "Store"). The Store,
called the "Dockers(R) Shop", sells Dockers(R) products. Designs and
LOS desire that LOS acquire the Store on the terms and conditions
set forth in this Agreement.
ACCORDINGLY, THE PARTIES HEREBY AGREE AS FOLLOWS:
ARTICLE 1
DEFINITIONS
1.1 Definitions
When used with initial capital letters in this
Agreement, the following terms have the following meanings:
"Affiliate" means, with respect to any Person, any
other Person which directly or indirectly Controls, is Controlled
by, or is under common Control with, the specified Person.
"Asset Statement" has the meaning set forth in
Section 2.5 of this Agreement.
"Base Rate" means the "base" or "reference" rate of
interest quoted, from time to time, by Bank of America, N.T. &
S.A. at its headquarters in San Francisco, California. Any
interest rate specified in this Agreement based upon the "Base
Rate" shall be adjusted, from time to time, whenever the Base
Rate changes. However, under no circumstances shall the Base
Rate at any time exceed the maximum rate permitted by applicable
law.
"Closing" means the signing and delivery of the
Transaction Documents.
"Closing Date" means the date the Closing takes place.
"Contracts" has the meaning set forth in
Subsection 2.1(c) of this Agreement.
"Control", as applied to any Person, means (and the
terms "Controls", "Controlling", "Controlled by" and "under
common Control with" refer to) the direct or indirect ownership
of stock or other equity interests, or contract or other rights,
in any such case entitling their holder to elect at least
50 percent of the directors or similar functionaries of that
Person.
"Covered Employees" has the meaning set forth in
Section 4.9 of this Agreement.
"Damages" means all losses, liabilities, damages,
deficiencies, judgments, assessments, interests, penalties,
fines, costs and expenses (including, without limitation, fees,
disbursements and other charges of attorneys, accountants,
consultants, experts and other professionals and irrespective of
whether any underlying liability is established). However,
"Damages" shall not include any punitive, exemplary or similar
damages, it being understood that punitive, exemplary and similar
damages shall not be recoverable for any breach of this
Agreement.
"Lien" means any mortgage, deed of trust, security
interest, retention of title or lease for security purposes,
pledge, charge, encumbrance, claim, easement, right of way,
covenant, restriction, leasehold interest or other right of any
kind of any Person in or with respect to any property.
"LS&CO." means Levi Strauss & Co., a Delaware
corporation.
"Person" means any individual or entity including,
without limitation, any government body.
"Purchase Price" has the meaning set forth in Section
2.3 of this Agreement.
"Store Assets" has the meaning set forth in
Sections 2.1 and 2.2 of this Agreement.
"Store" has the meaning set forth in the "Background"
paragraph of this Agreement.
"Transaction Documents" means this Agreement and all
other documents, certificates and instruments signed and
delivered by one or both of the Parties in order to effect the
Closing.
1.2 Accounting Terms. For purposes of this Agreement, all
accounting terms not otherwise defined in this Agreement have the
meanings assigned to them by generally accepted accounted
principles.
ARTICLE 2
THE BASIC TRANSACTION
2.1 Purchase and Sale. At the Closing, Designs shall sell
and transfer to LOS, and LOS shall purchase from Designs, all of
Designs' right, title and interest in and to the Store Assets.
The Store Assets consist of:
(a) the lease agreement for the real estate occupied
by the Store identified on Schedule 2.1 to this Agreement (the
"Lease");
(b) all fixtures and tangible personal property owned
by Designs and either located at the Store at the Closing or in
any event normally located at the Store (including, for example,
all furniture, equipment, inventory and copies, but not
originals, of records) and
(c) except as explained in Subsection 2.1(d), all
rights that accrue after the Closing under all leases for
fixtures and tangible personal property either located at the
Store at the Closing or in any event normally located at the
Store, and all rights that accrue after the Closing under all
other contracts and understandings to which Designs is a party
respecting any goods or services (for example, utilities) that
are used or consumed at the Store (the Lease and such contracts
and understandings being referred to collectively as the
"Contracts"). The Contracts include, without limitation, all of
Designs' rights under purchase orders for LS&CO. products
designated for delivery to the Store on or after the Closing
Date.
(d) Notwithstanding Subsection 2.1(c), certain
Contracts relate also to tangible personal property, other items
or services that are used at stores owned or operated by Designs
other than the Store. An example is the Contract or Contracts
under which Designs purchases fire protection and HVAC
maintenance services. Those Contracts shall not be assigned to,
or assumed by, LOS. Instead LOS shall obtain substitutes for
such Contracts to use in the operation of the Store.
Schedule 2.1 to this Agreement is a list of the Store Assets.
However, Schedule 2.1 does not include items of owned tangible
property and leases respecting tangible property that in either
case had an original cost of less than $1,000. Because Designs
prepared Schedule 2.1, any failure to identify any Store Assets
on Schedule 2.1 shall not prejudice LOS' right to those assets.
2.2 Excluded Assets. Despite Section 2.1, the Store Assets
do not include:
(a) cash, cash equivalents, accounts receivable,
deposits, claims, rights to refunds, point-of-sale registers,
printers, LED displays, backroom terminals, ticket machines,
ticket stock, scanners and time clocks and
(b) close-out, irregular and end-out-season product
identified on Schedule 2.2 to this Agreement.
2.3 Purchase Price. The purchase price for the Store
Assets (the "Purchase Price") shall equal:
CPE + GFA + I - P + L
where
CPE = the capitalized pre-opening expenses of
the Store
GFA = the gross fixed assets of the Store as
of the opening of business on the
Closing Date (other than any fixed
assets that are Excluded Assets)
I = the inventories (not constituting
Excluded Assets) located at or already
ordered for the Store as of the opening
of business on the Closing Date that, as
of that time, have not been sold by
Designs but have been (or later are)
paid for by Designs
P = the cumulative profit (if any) of the
Store from the date the Store was opened
to the opening of business on the
Closing Date
L = the cumulative losses (if any) of the
Store from the date the Store was opened
to the Closing Date
Schedule 2.3 to this Agreement explains the manner in which the
elements of this formula will be determined.
2.4 Payment. At the Closing, LOS shall pay Designs
$1,239,000 in cash. That figure represents the Parties'
preliminary estimate of the Purchase Price. LOS shall wire that
sum to an account designated by Designs.
2.5 Adjustment. After the Closing, the Parties shall
determine the exact Purchase Price as follows:
(a) Within 60 days after the Closing, Designs shall
deliver a statement to LOS setting forth all the figures needed
to apply the formula in Section 2.3 (the "Asset Statement"). The
Asset Statement shall be certified by Designs' Chief Financial
Officer as having been prepared in accordance with generally
accepted accounting principles but subject to the rules set forth
on Schedule 2.3. Within 30 days after Designs delivers the Asset
Statement, LOS shall (i) accept that statement or (ii) furnish
Designs with a statement objecting to one or more of the figures
in the Asset Statement and the basis for its objections and/or
requiring that one or more of the figures in the Asset Statement
be audited. If LOS does not respond within those 30 days, LOS
shall be considered to have accepted the Asset Statement.
Designs shall furnish LOS and its representatives with all
information reasonably requested by LOS or its representatives to
enable them to assess the Asset Statement both during and after
that 30-day period.
(b) If LOS timely objects to any aspect of the Asset
Statement or, in any event, LOS requests that one or more figures
in the Asset Statement be audited, the open issues shall be
resolved or the audit performed by an accounting firm jointly
selected by the accounting firms normally used by LOS and
Designs. The firm selected shall be instructed to resolve the
matters in controversy within 30 days after it is selected or as
soon thereafter as is reasonable. The Parties shall furnish that
firm with all information it reasonably requests in order to
perform its task and meet that schedule. That firm's resolution
of the open issues shall bind both Parties. LOS shall pay the
fees and expenses of that firm.
(c) Within three days after the final Asset Statement
has been completed (whether by acquiescence, negotiation or
submission to the third accounting firm), LOS shall pay an
additional amount to Designs or Designs shall refund an amount to
LOS (whichever is appropriate) equal to the amount by which the
Purchase Price shown on the final Asset Statement differs from
the estimated amount that LOS paid to Designs at Closing under
Section 2.4. That payment or refund shall be accompanied by
interest from the Closing Date to the date of the payment or
refund calculated at the Base Rate.
2.6 Assumptions. Subject to the accuracy of Designs'
representations and warranties set forth in the first three
sentences of Section 4.6 of this Agreement and except as set
forth in Subsection 2.1(d), at the Closing, LOS shall assume
Designs' obligations under each Contract, to the extent (but only
to the extent) that those obligations accrue after the Closing.
2.7 Gift Certificates and Credits. Before the Closing,
Designs issued gift certificates and merchandise credits that are
redeemable at the Store. A number of those certificates and
credits are still outstanding. LOS shall honor those
certificates and credits after the Closing. LOS shall
periodically submit copies of those gift certificates and
merchandise credits redeemed after the Closing to Designs or,
instead, a statement listing the serial numbers and face amounts
of those redeemed certificates and credits. Within ten days
after each such submission, Designs shall pay LOS an amount equal
to the total face amount of the redeemed certificates and credits
that were the subject of that submission.
2.8 No Other Assumptions. LOS shall not assume any
obligations or liabilities of Designs, except as expressly
provided in Sections 2.6 and 2.7. For example, Designs shall
retain and discharge all obligations and liabilities associated
with its employees, including all of its employees who are hired
by LOS, for the period they were or are employed by Designs,
including, without limitation, any and all obligations and
liabilities for severance, vacation, personal time and sick time.
2.9 Prorations. In order to implement this Article 2,
Designs and LOS shall prorate, as between them, all expenses
associated with the Store Assets and the operation of the Store.
They shall do that as of the opening of business on the Closing
Date. Examples are utilities, rent (including, for example,
common area maintenance charges), insurance premiums (unless and
to the extent LOS displaces existing coverage with other
coverage), HVAC maintenance charges and security service charges.
The prorations shall be based on the number of days elapsed
during the relevant period that includes the Closing Date, unless
such proration period would be manifestly unfair. An example of
such "unfairness" would be a waterpipe break at the Store, two
days after the Closing Date, that results in charges for one
million gallons of water on the water bill for the Store for the
period that includes the Closing Date. Under that circumstance,
LOS would pay those incremental charges.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF LOS
LOS represents and warrants to Designs that, except as
shown on Schedule 3, as of the Closing:
3.1 Organization and Authority. LOS is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware. LOS has also qualified to conduct
business or is in the process of qualifying to conduct business
in the Commonwealth of Massachusetts. LOS has all requisite
power and authority to enter into and perform the Transaction
Documents. The signing, delivery and performance by LOS of the
Transaction Documents have been duly and validly authorized by
all necessary corporate action on the part of LOS. Each
Transaction Document constitutes a valid and binding obligation
of LOS enforceable against LOS in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws that generally affect
creditors and except as may be limited by general principles of
equity. The signing, delivery and performance by LOS of each
Transaction Document will not: (a) violate or conflict with any
provision of LOS' Certificate of Incorporation or Bylaws,
(b) violate, conflict with or result in a breach or termination
of any contract or other instrument to which LOS is a party or by
which any of its assets is bound, (c) result in the creation of
any Lien on any assets of LOS, (d) violate any judgment, order,
injunction, decree or award that binds LOS or any of its assets
or (e) constitute a violation of law.
3.2 Consents and Approvals. Schedule 3.2 to this
Agreement lists all consents and approvals of, and filings and
registrations with, all Persons required in order for LOS to
sign, deliver and perform the Transaction Documents. An example
is consents from LS&CO.'s lenders. LOS has obtained all of those
consents and approvals and made all of those filings and
registrations.
3.3 Litigation and Claims. Subject to Schedule 3.3, there
is no suit, action, investigation or other proceeding pending or,
to the best knowledge of LOS, threatened against LOS relating to
any of the transactions contemplated by this Agreement.
3.4 Brokers and Finders. Subject to Schedule 3.4, no
broker, finder or other Person acting on behalf of LOS is or will
be entitled to any commission, fee or reimbursement in connection
with any of the transactions contemplated by this Agreement.
Designs shall have no liability to any broker, finder or other
Person, who may have acted on behalf of LOS, for any commission,
fee or reimbursement in connection with the transactions
contemplated by this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF DESIGNS
Designs represents and warrants to LOS that, except as
shown on Schedule 4, as of the Closing:
4.1 Organization and Authority. Designs is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Delaware. Designs is also duly qualified to
conduct business and is in good standing in the Commonwealth of
Massachusetts. Designs has all requisite power and authority to
lease and operate the Store, to carry on the business of the
Store and to enter into and perform the Transaction Documents.
The signing, delivery and performance by Designs of the
Transaction Documents have been duly and validly authorized by
all necessary corporate action on the part of Designs. Each
Transaction Document constitutes a valid and binding obligation
of Designs and is enforceable against Designs in accordance with
its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws that
generally affect creditors and except as may be limited by
general principles of equity. The signing, delivery and
performance by Designs of each Transaction Document will not:
(a) violate or conflict with any provision of Designs'
Certificate of Incorporation or Bylaws, (b) violate, conflict
with or result in a breach or termination of any contract or
other instrument (including any Contract) to which Designs is a
party or by which any of its assets (including any Store Assets)
is bound, (c) result in the creation of any Lien on any assets of
Designs (including any Store Assets), (d) violate any judgment,
order, injunction, decree or award that binds Designs or any of
its assets (including any Store Assets) or (e) constitute a
violation of law.
4.2 Consents, Permits and Approvals. Schedule 4.2 to this
Agreement lists all consents, permits and approvals of, and
filings and registrations with, all Persons required in order for
Designs to sign, deliver and perform the Transaction Documents
and to enable LOS to continue to conduct, at the Store after the
Closing, the business that Designs conducted at the Store before
the Closing. Examples are consents from landlords under the
Lease, consents from other parties under other Contracts,
consents from Designs' lenders, and transferred or reissued
operating permits. Designs has obtained all of those consents,
permits and approvals and made all of those filings and
registrations.
4.3 Litigation and Claims. There is no suit, action,
investigation or other proceeding pending or, to the best
knowledge of Designs, threatened against Designs relating to any
of the transactions contemplated by this Agreement, any of the
Store Assets (whether a Contract or another asset), the Store or
any aspect of the business conducted at the Store. Nor is there
any outstanding judgment, order, injunction, decree or award that
binds Designs with respect to, or otherwise affects, any of the
Store Assets (whether a Contract or another asset), the Store or
any aspect of the business conducted at the Store.
4.4 Compliance with Laws. Before the Closing, Designs was
conducting the business of the Store in substantial compliance
with all laws applicable to Designs including, for example, all
laws relating to employees, safety, the environment, consumer
protection and land use.
4.5 Title and Condition. At the Closing, Designs is
conveying to LOS good title in and to all the Store Assets free
and clear of all Liens. Immediately after the Closing, LOS will
have good title to all the Store Assets free and clear of all
Liens. To the best knowledge of Designs: (i) there are no
material defects in the premises covered by the Lease or the real
estate on which those premises are located; (ii) the utilities
and other systems that serve those premises and real estate are
in normal working order and condition, ordinary wear and tear
excepted and (iii) all the material fixtures, equipment,
furniture and vehicles that are included among the Store Assets,
as well as all the material fixtures, equipment, furniture and
vehicles leased or otherwise used at the Store, are also in
normal working order and condition, ordinary wear and tear
excepted.
4.6 Contracts. All the Contracts are identified on
Schedule 2.1. They constitute all the Contracts relating to the
Store or the business conducted at the Store. Designs has given
LOS correct and complete copies of all the Contracts, including
copies of all amendments to all the Contracts and all material
written waivers of rights under all the Contracts. All the
Contracts are legal, valid and binding obligations of Designs.
To the knowledge of Designs, all the Contracts are also legal,
valid and binding obligations of the other parties to the
Contracts. Neither Designs nor, to the knowledge of Designs, any
other party to any Contract is in material default under any
Contract. Neither Designs, nor to the knowledge of Designs, any
other such party has repudiated or purported to repudiate any
Contract. No party to any Contract is an Affiliate, director or
officer of Designs.
4.7 Financial Statements. Schedule 4.7 contains an income
statement and a balance sheet for the Store for the periods and
as of the dates indicated on Schedule 4.7. That income statement
and balance sheet were prepared in accordance with generally
accepted accounting principles except to the extent indicated on
Schedule 4.7.
4.8 Employees. Designs is not a party to any collective
bargaining agreement that covers any of the employees who
presently work at, or at any time during the 12 months before the
Closing worked at, the Store (in either case, "Covered
Employees"). To Designs' best knowledge, no union or other labor
organization is attempting or has attempted to organize any of
the Covered Employees. Except as shown on Schedule 4.8, Designs
neither maintains or contributes to, nor has maintained or
contributed to, any "employee pension benefit plan" (including
any "multiemployer plan") or any "employee welfare benefit plan"
(in each such case within the meaning of the Employee Retirement
Income Security Act of 1974, as amended, or any rule or
regulation adopted under that act) in which any Covered Employees
participate or have participated.
4.9 Brokers and Finders. Except for Financo, no broker,
finder or other Person acting on behalf of Designs is or will be
entitled to any commission, fee or reimbursement in connection
with any of the transactions contemplated by this Agreement, it
being understood that Designs shall pay the fee of Financo. LOS
shall have no liability for that firm's fee.
ARTICLE 5
EMPLOYEES
At the Closing, Designs shall make available to LOS,
for hiring by LOS, all the employees identified on Schedule 5.
ARTICLE 6
INDEMNIFICATION
6.1 By LOS. LOS shall indemnify Designs and Designs'
Affiliates and hold them harmless from and against any and all
Damages arising from: (a) any breach of any covenant,
representation or warranty of LOS set forth in this Agreement;
(b) all obligations of Designs to the extent (but only to the
extent) that LOS expressly assumed them under Section 2.6 or 2.7
of this Agreement and (c) all obligations and liabilities of LOS
that arise from LOS' ownership or operation of the Store after
the Closing other than because LOS assumed the accuracy of one or
more of Designs' representations and warranties contained in this
Agreement.
6.2 By Designs. Designs shall indemnify LOS and LOS'
Affiliates and hold them harmless from and against any and all
Damages arising from (a) any breach of any covenant,
representation or warranty of Designs set forth in this
Agreement; (b) all obligations and liabilities of Designs that in
any way relate to or are connected with the Store or its past or
present operation, other than the obligations that LOS expressly
assumed under Section 2.6 or 2.7 of this Agreement and (c) the
failure to comply with bulk sales laws (if applicable) or any
similar laws in connection with the transactions contemplated by
this Agreement.
6.3 Indemnification Rules. Indemnification under this
Article 6 shall be governed by the rules set forth in
Schedule 6.3 to this Agreement.
6.4 Deductible. Notwithstanding anything to the contrary
in this Agreement or otherwise provided by law, neither Party
shall be required to indemnify the other Party or the other
Party's Affiliates unless the total amount required to be so
indemnified exceeds $10,000 (for all matters combined), in which
case the amount indemnified shall be the amount in excess of
$10,000.
6.5 Limitation. Notwithstanding anything to the contrary
in this Agreement or otherwise provided by law, neither Party
shall be required to indemnify the other Party or the other
Party's Affiliates for any amount (for all matters combined) in
excess of the Purchase Price.
6.6 Survival. The covenants, representations and
warranties set forth in this Agreement shall survive the Closing.
ARTICLE 7
DISPUTE RESOLUTION
Any Controversy under this Agreement or respecting any of
the subjects treated in this Agreement shall be resolved, if
possible, by the good faith efforts of LOS and Designs including,
if other efforts fail, a face-to-face meeting between a senior
manager of LOS and a senior manager of Designs. If any
Controversy is not settled by such efforts within 30 days after
LOS or Designs requests such a meeting, either of them shall be
entitled to cause the Controversy to be resolved by an arbitrator
employed by JAMS/Endispute. If Designs initiates arbitration,
the arbitration shall be conducted in whichever of Columbus, Ohio
or San Francisco, California LOS chooses. If LOS initiates
arbitration, the arbitration shall be conducted in Boston,
Massachusetts. The arbitration shall be conducted in accordance
with JAMS/Endispute's then-applicable Rules of Practice and
Procedure for Arbitration. Pending the completion of any
arbitration proceeding, obligations not in dispute shall continue
to be performed. Except as provided below, such arbitration
shall be the Parties' exclusive formal means of resolving any
such Controversy. The decision of the arbitrator shall be final
and binding on both Parties. Judgment upon any award rendered by
the arbitrator may be entered by any state or federal court
having jurisdiction. Notwithstanding the foregoing, to preserve
rights or prevent or mitigate Damages and in aid of the
arbitration process, LOS or Designs may apply to such a court for
temporary or preliminary injunctive or other equitable relief
pending the results of the arbitration. However, if the final
decision of the arbitrator is inconsistent with any such relief
so obtained, the arbitrator's final decision shall preempt that
relief.
ARTICLE 8
MISCELLANEOUS
8.1 Sales and Lease Transfer Taxes. Each Party shall pay
one-half of any sales or lease transfer taxes payable in
connection with the transactions contemplated by this Agreement.
8.2 Further Assurances. After the Closing, each Party, at
its own expense, shall sign and deliver all documents and take
all other actions reasonably requested by the other Party in
order to memorialize or better effectuate the sale of the Store
Assets to LOS and LOS' assumption of the obligations required by
Section 2.6 of this Agreement.
8.3 Successors and Assigns. The Parties shall not assign
any of their rights or delegate any of their duties under this
Agreement. Any purported assignment or delegation in violation
of this Agreement shall be void.
8.4 Amendments. All amendments to this Agreement must be
in writing and be signed by both Parties.
8.5 Notices. All notices under this Agreement shall be in
writing and shall be deemed to have been duly given only if and
when delivered by hand, by overnight delivery service or by
telecopier, in all cases with receipt confirmed, to the
appropriate addressees and the addresses or telecopier numbers
set forth below, or to such other addressees, addresses or
telecopier numbers as may be designated by notice given in
accordance with this section:
If to Designs:
Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attention: Chief Executive Officer
Facsimile: (617) 734-3406
with a copy to:
Designs, Inc.
1244 Boylston Street
Chestnut Hill, Massachusetts 02167
Attention: General Counsel
Facsimile: (617) 734-3406
If to LOS:
Levi's Only Stores, Inc.
116 East Chestnut Street
Columbus, Ohio 43215
Attention: President
Facsimile: (614) 228-5769
with a copy to:
Levi Strauss & Co.
Levi's Plaza
1155 Battery Street
San Francisco, California 94111
Attention: General Counsel/LOS
Facsimile: (415) 544-7650
8.6 Counterparts. This Agreement may be signed in one or
more counterparts. Each counterpart shall be deemed an original
of this Agreement.
8.7 Entire Agreement. This Agreement (including the
Schedules to this Agreement) and the other Transaction Documents
contain all the understandings between the Parties with respect
to the subject matter of this Agreement. They supersede all
prior and contemporaneous agreements and understandings among the
Parties and their Affiliates relating to that subject matter.
8.8 Severability. If any portion of this Agreement is
determined to be invalid or unenforceable, it shall be modified
rather than voided, if possible, in order to carry out the intent
of this Agreement. In any event, the remainder of this Agreement
shall be valid and enforceable to the fullest extent possible.
8.9 No Third Party Beneficiaries. This Agreement is for
the sole benefit of the Parties and is not for the benefit of any
third party.
8.10 Costs of Enforcement. If either Party to this
Agreement seeks to enforce its rights under this Agreement by
formal proceedings or otherwise, the non-prevailing Party shall
pay all costs and expenses incurred by the prevailing Party (who
shall be the Party which obtains substantially the relief it
sought, whether by settlement, compromise or judgment),
including, without limitation, all reasonable attorneys' fees and
costs.
8.11 Expenses. Each Party shall pay its own expenses
incurred in negotiating and drafting this Agreement and the other
Transaction Documents and in effecting the Closing.
8.12 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware
applicable to contracts entered into and to be performed
within Delaware by Delaware residents.
* * *
The Parties have signed and delivered this Agreement as of the
date that appears in its first paragraph.
LEVI'S ONLY STORES, INC.
By /s/ Edward T. Murphy
Edward T. Murphy,
President
DESIGNS, INC.
By /s/ Joel Reichman
Joel Reichman,
President
Schedules
2.1 Store Assets
2.2 Excluded Inventory
2.3 Calculation of Purchase Price
3 Exceptions to LOS' Representations
3.2 LOS Consents and Approvals
3.3 LOS Litigation and Claims
3.4 LOS Brokers and Finders
4 Exceptions to Designs' Representations
4.2 Designs' Consents, Permits and Approvals
4.7 Financial Statements
4.8 Employee Information
5 List of Employees
6.3 Indemnification Rules
ASSET PURCHASE AGREEMENT
between
LEVI'S ONLY STORES, INC.
and
DESIGNS, INC.
(Cambridgeside)
dated as of
January 28, 1995