-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UJEn/o7yEuSBr4OAIbSdAA1IaNtGo/V9f36f3CRs/LUUzS4NmYgzZoCbwusIgjql 2P76cV/rdndvHskuX0cecQ== 0000940180-99-000731.txt : 19990623 0000940180-99-000731.hdr.sgml : 19990623 ACCESSION NUMBER: 0000940180-99-000731 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 43 FILED AS OF DATE: 19990622 FILER: COMPANY DATA: COMPANY CONFORMED NAME: G & G RETAIL INC CENTRAL INDEX KEY: 0001088811 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 0129 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-81307 FILM NUMBER: 99650358 BUSINESS ADDRESS: STREET 1: 520 EIGHTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2122794961 S-4 1 FORM S-4 As filed with the Securities and Exchange Commission on June 22, 1999 Registration No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- Form S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- G+G Retail, Inc. (Exact name of registrant as specified in its charter)
Delaware 5621 22-3596083 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or organization) Classification Code Number) Identification No.)
---------------- 520 Eighth Avenue Mr. Scott Galin New York, New York 10018 President and Chief Operating Officer (212) 279-4961 G+G Retail, Inc. 520 Eighth Avenue (Address, including zip code, and New York, New York 10018 telephone (212) 279-4961 number, including area code, of registrant's (Name, address, including zip code, and principal executive offices) telephone number, including area code, of agent for service) Copies of communications to: Mark S. Selinger, Esq. Kaye, Scholer, Fierman, Hays & Handler, LLP 425 Park Avenue New York, New York 10022 (212) 836-7016 ---------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] _______________ If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] _________________ ---------------- CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Proposed Title of each class of maximum offering Proposed securities to be Amount to price per maximum aggregate Amount of registered be registered security offering price(1) registration fee - ------------------------------------------------------------------------------------------ 11% Senior Notes due 2006................... $107,000,000 100% $107,000,000 $29,746
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Estimated pursuant to Rule 457(f) solely for the purpose of calculating the registration fee. ---------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject to Completion, Dated June 22, 1999 Preliminary Prospectus $107,000,000 [LOGO] G+G Retail, Inc. Offer to Exchange All Outstanding 11% Senior Notes due 2006 for 11% Senior Notes due 2006, which have been Registered under the Securities Act of 1933 The Exchange Offer . We will exchange all outstanding notes that are validly tendered and not validly withdrawn for an equal principal amount of exchange notes that are freely tradeable. . You may withdraw tenders of outstanding notes at any time prior to the expiration of the exchange offer. . The exchange offer expires at 5:00 p.m., New York City time, on , 1999, unless extended. We do not currently intend to extend the expiration date. . The exchange of outstanding notes for exchange notes in the exchange offer will not be a taxable event for U.S. federal income tax purposes. . We will not receive any proceeds from the exchange offer. The Exchange Notes . The exchange notes are being offered in order to satisfy certain of our obligations under the registration rights agreement entered into in connection with the private placement of the outstanding notes. . The terms of the exchange notes to be issued in the exchange offer are substantially identical to the outstanding notes, except that the exchange notes are registered under the Securities Act of 1933 and will be freely tradeable. Resales of Exchange Notes . The exchange notes may be sold in the over-the-counter market, in negotiated transactions or through a combination of such methods. -------------- If you are a broker-dealer and you receive exchange notes for your own account, you must acknowledge that you will deliver a prospectus in connection with any resale of such exchange notes. By making such acknowledgment, you will not be deemed to admit that you are an "underwriter" under the Securities Act of 1933. Broker-dealers may use this Prospectus in connection with any resale of exchange notes received in exchange for outstanding notes where such outstanding notes were acquired by the broker-dealer as a result of market- making activities or trading activities. We will make this Prospectus available to any broker-dealer for use in any such resale for a period of up to one year after the date of this Prospectus. A broker-dealer may not participate in the exchange offer with respect to outstanding notes acquired other than as a result of market-making activities or trading activities. If you are an affiliate of G+G Retail, Inc. or are engaged in, or intend to engage in, or have an agreement or understanding to participate in, a distribution of the exchange notes, you cannot rely on the applicable interpretations of the Securities and Exchange Commission and you must comply with the registration requirements of the Securities Act of 1933 in connection with any resale transaction. -------------- You should consider carefully the risk factors beginning on page 14 of this Prospectus before participating in the exchange offer. -------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense. -------------- The information in this Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. The date of this Prospectus is , 1999. NOTE REGARDING FORWARD-LOOKING STATEMENTS This Prospectus includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The statements appear in a number of places in this Prospectus and include statements regarding the intent, belief or current expectations of our company or our officers with respect to, among other things, the use of proceeds of the offering of the outstanding notes, the ability to enter into and borrow funds under our revolving credit facility, and the ability to successfully implement operating strategies, including trends affecting our business, financial condition and results of operations. All statements other than statements of historical facts included in this Prospectus, including, without limitation, the statements under "Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business," and the "Unaudited Pro Forma Consolidated Financial Statements" and the notes related thereto, located elsewhere herein, regarding industry prospects and our future financial position are forward- looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations are disclosed in this Prospectus, including, without limitation, in conjunction with the forward-looking statements included in this Prospectus under "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." All subsequent written and oral forward-looking statements attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these important factors and risk factors contained throughout this Prospectus. TRADEMARKS AND TRADENAMES The following store and product names referred to in this Prospectus are trademarks and/or service marks owned by our company and are registered on the federal and/or state levels in the United States and abroad pursuant to applicable intellectual property laws: G+G; In Charge; Rave; and Rave Up. i PROSPECTUS SUMMARY This summary highlights selected information found in greater detail elsewhere in this Prospectus. This summary does not contain all of the information that is important to you. To understand the offering of the exchange notes and for a more complete description of our company's business, we urge you to carefully read the entire document. Certain Defined Terms. Throughout this Prospectus, the terms "we," "us," "our," "our company" and the "Company" are used. Unless the context otherwise requires, these terms mean G+G Retail, Inc. and its subsidiary and, prior to August 28, 1998, these terms mean the mall-based female junior apparel retail business historically conducted by our predecessor. In addition, throughout this Prospectus, the terms "our parent company" and the "Parent" are used. Unless the context otherwise requires, these terms mean G&G Retail Holdings, Inc., the direct parent and sole owner of G+G Retail, Inc. Fiscal Year. We account for our operations on a fiscal year rather than on a calendar year. As a result, throughout this Prospectus information is presented on a fiscal year basis. Each reference to one of our "fiscal years" means our 52- or 53-week fiscal year which ends on the Saturday nearest January 31 in such calendar year. For example, references to "fiscal 1999" mean the fiscal year ended January 30, 1999. Teen Market Data. The data regarding the teenage market used throughout this Prospectus is based upon third party data. While we believe that such data is reasonable and reliable, we have not independently verified the information. Accordingly, we cannot be certain that such market data is completely accurate. Moreover, conditions underlying such data may change. Unless otherwise stated, all data regarding the teenage market contained in this Prospectus is derived from Kalorama Information's October 1998 report entitled "The Teen Market," published under the name Packaged Facts.(R) The Company Overview We are a leading national mall-based retailer of popular price female junior apparel. For over 30 years, we have built a reputation for providing fashion apparel and accessories distinctly targeted at teenaged women. We closely monitor the fashion trends of our core customers, young women principally between the ages of 13 to 19 years old, who, together with male teenagers, represent the fastest growing segment of the consumer market. We sell substantially all of our merchandise under private label names including Rave, Rave Up and In Charge, which provide our customers with fashionable, quality apparel and accessories at lower prices than brand name merchandise. Our emphasis on sourcing merchandise domestically and our efficient distribution system provide us with short inventory lead times, which enable us to respond quickly to the latest fashion trends and thereby achieve high inventory turns and reduce markdowns. Our pricing strategy, which emphasizes delivering consistent value to our customers rather than driving sales with periodic promotions, also contributes to reducing markdowns. As of May 1, 1999, we had 441 stores, generally in major enclosed regional shopping malls, throughout the United States, Puerto Rico and the U.S. Virgin Islands primarily under the G+G and Rave names. We use the same store format for both our G+G and Rave stores and apply this format in all of our markets. Our stores average approximately 2,400 gross square feet with approximately 25 feet of mall frontage and are designed to create a lively and exciting shopping experience for our teenaged customers. Our sales per gross square foot increased from $222 in fiscal 1995 to $290 in fiscal 1999 (representing a compounded annual growth rate of 6.9%) and our EBITDA as adjusted (i.e., our operating income plus depreciation, amortization and royalty expenses paid by our 1 predecessor to its parent for the use of certain trademarks) increased from $9.7 million in fiscal 1995 to $27.9 million in pro forma fiscal 1999 (representing a compounded annual growth rate of 30.1%). In addition, from fiscal 1995 to fiscal 1999, our same store sales (based on 359 stores open throughout this period) grew 23.6%. Business Strengths Low Inventory Risk. We have developed an operating strategy that achieves high inventory turns and reduces markdowns. By closely monitoring teenage fashion trends, emphasizing private label merchandise and sourcing merchandise domestically, we can order our inventory just prior to season and change our product mix in season. From fiscal 1995 through fiscal 1999, our inventory turns increased from 5.1x to 6.2x. The key elements of our operating strategy include: . Emphasis on Domestic Sourcing. Due to the dynamic nature of fashion trends, the speed of product supply is a key element to achieving high inventory turns. We purchase our merchandise from numerous suppliers, substantially all of which manufacture domestically. We have established strong relationships with a number of key suppliers who continually consult with us regarding developing fashion trends so that they can respond quickly to our product orders. Our close relationships with, and the domestic location of, our suppliers allow us to procure the majority of our merchandise within two to four weeks from delivery of a purchase order and thereby purchase merchandise closer to the season to which it relates. . Private Label Merchandise. We sell substantially all of our merchandise under the private labels Rave, Rave Up and In Charge. By monitoring teenage fashion trends and working closely with our suppliers, our merchandising team develops our own styles based upon the latest trends. Accordingly, our private label merchandise provides us with additional flexibility to respond quickly to current fashion trends and purchase merchandise closer to the season to which it relates. . Sophisticated Distribution System. Our distribution system enables us to effectively manage our inventory. Our suppliers ship all of our inventory purchases to our 165,000 square foot distribution center in North Bergen, New Jersey. To decrease the shipping time of merchandise to our stores, we employ a merchandise allocation system that identifies store needs for replenishment based on sales data received the prior business day. As a result, we generally can ship merchandise from our distribution center to our stores within 24 hours after receipt. Attractive Market Niche. We primarily cater to teenaged women. Teenagers represent both a growing part of the U.S. population and an increasing source of purchasing power. The teenaged population reached approximately 31 million in 1998 and is projected to grow to approximately 34 million by 2005, representing a projected average annual growth rate nearly twice that of the overall U.S. population. Income for teens reached a record $119.9 billion in 1998, up from $75.0 billion in 1995, and is expected to grow to approximately $148.5 billion in 2003. Teen buying power has been aided by a rising minimum wage, higher teenage employment and easier access to credit cards. On average, teens go to malls 40% more frequently than older shoppers. Teenage girls spend the largest percentage of their total income, approximately 42%, on clothing and jewelry. Latest Fashions at Attractive Price Points. We believe that we deliver the latest fashions sought by our teenaged customers at lower prices than our competitors. During fiscal 1999, the average selling price of the items we sold was $10.50. The primary decision maker for purchasing our merchandise is the young woman who views our stores as a popular source of fashion apparel priced within her budget. We believe that our consistent value approach has created a loyal customer base. 2 Attractive Store Base. Our stores are predominantly located in major enclosed regional shopping malls including Roosevelt Field in Garden City, New York and Florida Mall in Orlando, Florida. We seek locations within malls in proximity to stores and areas having high teen traffic flow such as music stores, shoe stores and food courts. The clean design of our stores allows us to enjoy a relatively low level of maintenance expenditures ($3.2 million in fiscal 1999) while retaining an attractive, well-maintained store base. Sales have been evenly balanced among our store base, with our highest volume store accounting for less than 1.0% of gross sales during fiscal 1999. Strong Relationships with Landlords. We believe that we have strong relationships with our landlords. We believe that the strength of these relationships is based, among other things, upon the credibility established from the many years of our doing business with key leasing personnel at our major landlords, the national scope of our business, our consistent financial results and the attractive tenant use offered by our stores. We believe that our strong relationships with our landlords allow us to obtain what we believe are favorable locations and lease terms for our stores. Experienced Management Team. Our senior management team is led by Jay Galin, our Chairman of the Board and Chief Executive Officer, who has been with our company for over 40 years, and Scott Galin, our President and Chief Operating Officer, who has been with our company for over 20 years. Our six divisional merchandise managers and the three other members of our senior management team have an average of 23 years experience in the retail industry and an average of nine years experience with our company. Business Strategy Our business strategy is to expand our operations and increase our sales and EBITDA through the opening of new Rave stores (including through the acquisition of groups of or individual leases) primarily in mall locations that we believe are favorable for our business. We opened 22 new stores in fiscal 1999 and six new stores in the period from January 31, 1999 to May 1, 1999; we anticipate opening approximately 24 new stores during the remainder of fiscal 2000. We believe that our strong relationships with our existing landlords, together with the fact that we no longer are hampered by our predecessor's recent bankruptcy proceedings, provide us with a good opportunity to negotiate favorable leases in new locations. We believe that at least 200 locations exist where the opening of new stores would be attractive. We believe that our current distribution infrastructure can support a total of 700 stores without a material increase in cost. In addition, we intend to test the market for sales to 8- to 12-year-old girls by opening approximately six mall stores under the name Rave Girl during fiscal 2000. We believe that the market for the sale of popularly priced fashion apparel to this age group is currently under-served. We intend to enter this market at a relatively low incremental cost by leveraging our existing administrative, distribution and marketing infrastructure. Our prototype Rave Girl store is approximately 1,500 square feet with a design aimed at appealing to 8- to 12-year-old girls. If this market test succeeds, we will seek to opportunistically open additional Rave Girl stores. We recently launched, and are in the process of expanding, an Internet web site that provides information about our merchandise offerings, promotions and store sites. The address of this web site is www.gorave.com. We intend to actively monitor the popularity of this web site and its potential for additional applications. The Acquisition Prior to August 28, 1998, our junior apparel retail business was conducted by our predecessor company, G & G Shops, Inc. together with its subsidiaries and certain other subsidiaries of its parent, 3 Petrie Retail, Inc. We refer to the predecessor of our business throughout this Prospectus as the "Predecessor." On August 28, 1998, senior management of the Predecessor, together with an investor group led by affiliates of Pegasus Investors, L.P., a Connecticut-based private equity investment fund, acquired the junior apparel retail business we currently conduct from the Predecessor. In the acquisition, we acquired substantially all of the Predecessor's assets for $132.0 million in cash, the assumption of certain liabilities and the issuance to the Predecessor of shares of non-voting Class C common stock of our parent company. In connection with the acquisition, equity investments of $50.5 million were made in our parent company. Approximately $33.0 million of the $50.5 million was collectively invested by senior management and affiliates of Pegasus Investors, L.P. In October 1995, Petrie Retail, Inc., on behalf of itself and its subsidiaries, filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. In December 1998, the United States Bankruptcy Court for the Southern District of New York issued an order confirming Petrie Retail, Inc.'s plan of reorganization. The Predecessor's operating performance was strong prior to and during the bankruptcy proceedings. The Predecessor generated aggregate EBITDA as adjusted of $84.1 million and aggregate net income of $27.0 million from the beginning of fiscal 1995 through August 28, 1998. The Parent Our parent company's only material asset is shares of our common stock, and it conducts no business other than owning shares of our common stock. Pegasus Investors, L.P. Pegasus Investors, L.P., the financial sponsor of our August 28, 1998 acquisition of the Predecessor's junior apparel retail business, was founded by Craig Cogut, who was a senior principal of Apollo Advisors, L.P. Pegasus Investors, L.P. makes control investments in middle market companies, with a focus on complex transactions such as bankruptcies and restructurings. Pegasus Investors, L.P. typically invests in companies with strong management teams with whom they partner to grow and strategically develop the companies' businesses. Pegasus Investors, L.P. currently manages $220.0 million in committed capital and has participated in 15 acquisitions and investments. ---------------- Mailing Address Our principal executive offices are located at 520 Eighth Avenue, New York, New York 10018 and our main telephone number is (212) 279-4961. 4 Summary of the Exchange Offer On May 17, 1999, we and our parent company completed the private offering of 107,000 units, each consisting of $1,000 principal amount of our 11% Senior Notes due 2006 and one warrant to initially purchase 0.07672 shares of our parent company's Class D common stock. The units were issued at a price equal to $931.40 per unit. As part of that offering, we entered into a registration rights agreement with the initial purchasers of the outstanding units pursuant to which we agreed, among other things, to deliver to you this Prospectus and complete an exchange offer for our outstanding notes. Upon the commencement of this exchange offer (if not separated earlier), the outstanding notes and warrants comprising the outstanding units will trade separately. Set forth below is a summary of the exchange offer. Securities Offered.......... We are offering up to $107.0 million aggregate principal amount of new 11% Senior Notes due 2006, which have been registered under the Securities Act of 1933. The form and terms of these exchange notes are identical in all material respects to those of the outstanding notes. The exchange notes, however, will not contain transfer restrictions and registration rights applicable to the outstanding notes. The Exchange Offer.......... We are offering to exchange new $1,000 principal amount of our 11% Senior Notes due 2006, which have been registered under the Securities Act of 1933, for $1,000 principal amount of our outstanding 11% Senior Notes due 2006. In order to be exchanged, an outstanding note must be properly tendered and accepted. All outstanding notes that are validly tendered and not withdrawn will be exchanged. As of the date of this Prospectus, there is $107.0 million principal of notes outstanding. We will issue exchange notes promptly after the expiration of the exchange offer. Resales..................... Based on interpretations by the staff of the Securities and Exchange Commission, as set forth in a series of no-action letters issued to third parties, we believe that the exchange notes issued in the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act of 1933 provided that: . you are acquiring the exchange notes in the ordinary course of your business; . you are not participating, do not intend to participate and have no arrangement or understanding with any person to participate, in a distribution of the exchange notes; and . you are not an "affiliate" of ours. 5 If you are an affiliate of ours, are not acquiring the exchange notes in the ordinary course of your business or are engaged in, intend to engage in or have any arrangement or understanding with any person to participate in the distribution of the exchange notes: . you cannot rely on the applicable interpretations of the staff of the Securities and Exchange Commission; and . you must comply with the registration requirements of the Securities Act of 1933 in connection with any resale transaction. Each broker or dealer that receives exchange notes for its own account in exchange for outstanding notes that were acquired as a result of market-making or other trading activities must acknowledge that it will deliver this Prospectus in connection with any offer to resell, resale, or other transfer of the exchange notes issued in the exchange offer. Expiration Date............. 5:00 p.m., New York City time, on , 1999, unless we extend the expiration date. Accrued Interest on the Exchange Notes and Outstanding Notes.......... The exchange notes will bear interest from May 17, 1999. If your outstanding notes are accepted for exchange, then you will receive interest on the exchange notes and not on the outstanding notes. Conditions to the Exchange The exchange offer is subject to customary Offer...................... conditions. We may assert or waive these conditions in our sole discretion. If we materially change the terms of the exchange offer, we will resolicit tenders of the outstanding notes. Please read the section "The Exchange Offer--Certain Conditions to the Exchange Offer" of this Prospectus for more information regarding conditions to the exchange offer. Procedures for Tendering Outstanding Notes.......... If you wish to tender your outstanding notes, you must (1) complete, sign and date the letter of transmittal delivered to you with this Prospectus, or a facsimile of it, according to its instructions and (2) transmit the letter of transmittal, together with your outstanding notes and any other required documentation to U.S. Bank Trust National Association. U.S. Bank Trust National Association, which is the exchange agent, must receive this documentation at the address set forth in the letter of transmittal by 5:00 p.m. New York City time, on the expiration date. By executing the letter of transmittal you will represent to us that you are acquiring the exchange notes in the ordinary course of your business, that you are not participating, do not intend to participate and have no arrangement or understanding with any person to participate, 6 in the distribution of exchange notes, and that you are not an "affiliate" of ours. See "The Exchange Offer--Procedures for Tendering." Special Procedures for Beneficial Holders......... If you are the beneficial holder of outstanding notes that are registered in the name of your broker, dealer, commercial bank, trust company or other nominee, and you wish to tender in the exchange offer, you should promptly contact the person in whose name your outstanding notes are registered and instruct that person to tender on your behalf. See "The Exchange Offer--Procedures for Tendering." Guaranteed Delivery If you wish to tender your outstanding notes and Procedures................. you cannot deliver your notes, the letter of transmittal or any other required documents to the exchange agent before the expiration date, you may tender your outstanding notes according to the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures." Withdrawal Rights........... Tenders may be withdrawn at any time before 5:00 p.m., New York City time, on the expiration date. Acceptance of Outstanding Notes and Delivery of Exchange Notes............. Subject to the conditions set forth in the section "The Exchange Offer--Certain Conditions to the Exchange Offer" of this Prospectus, we will accept for exchange any and all outstanding notes which are properly tendered in the exchange offer before 5:00 p.m., New York City time, on the expiration date. The exchange notes will be delivered promptly after the expiration date. See "The Exchange Offer--Terms of the Exchange Offer." Effect on Holders of Outstanding Notes.......... As a result of the making of, and upon acceptance for exchange of all validly tendered outstanding notes pursuant to the terms of, the exchange offer, we will have fulfilled a covenant contained in the registration rights agreement and, accordingly, there will be no increase in the interest rate on the outstanding notes under the circumstances described in the registration rights agreement. If you do not tender your outstanding notes in the exchange offer, you will continue to hold such outstanding notes and be entitled to all the rights and limitations applicable to the outstanding notes in the indenture, except for any rights under the registration rights agreement that by their terms terminate upon the consummation of the exchange offer. 7 Consequences of Failure to Exchange................... All untendered outstanding notes will continue to be subject to the restrictions on transfer provided for in the outstanding notes and in the indenture. In general, the outstanding notes may not be offered or sold, unless registered under the Securities Act of 1933, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act of 1933 and applicable state securities laws. Other than in connection with the exchange offer, we do not currently anticipate that we will register the outstanding notes under the Securities Act of 1933. Material U.S. Federal Income Tax We believe that your exchange of outstanding Considerations............. notes for exchange notes pursuant to the exchange offer will not result in any gain or loss to you for U.S. federal income tax purposes. See "Certain Federal Income Tax Considerations" in this Prospectus. Exchange Agent.............. U.S. Bank Trust National Association is serving as exchange agent in connection with the exchange offer. The address and telephone number of the exchange agent are set forth in "The Exchange Offer--Exchange Agent" in this Prospectus. Use of Proceeds............. We will not receive any proceeds from the issuance of exchange notes pursuant to the exchange offer. We will pay all expenses incident to the exchange offer. 8 Summary of Terms of the Exchange Notes The form and terms of the exchange notes and the outstanding notes are identical in all material respects, except that transfer restrictions and registration rights applicable to the outstanding notes do not apply to the exchange notes. The exchange notes will evidence the same debt as the outstanding notes and will be governed by the same indenture. Where we refer to "notes" in this Prospectus, we are referring to both outstanding notes and exchange notes. Total Amount of Notes....... $107.0 million in aggregate principal amount of 11% Senior Notes due 2006. Maturity Date............... May 15, 2006. Interest Payment Date....... Interest on the notes will accrue at 11% per annum, payable semi-annually in arrears on May 15 and November 15 of each year, beginning November 15, 1999. Subsidiary Guarantors....... Each of our domestic subsidiaries and any of our subsidiaries which guarantees our debt or the debt of another subsidiary of our company must guarantee the notes. If we cannot make payments on the notes when they are due, our guarantor subsidiaries, if any, must make them instead. As of May 1, 1999, we had only one subsidiary, a Puerto Rican subsidiary, which had no material assets and which is not a guarantor of the outstanding notes and will not be a guarantor of the exchange notes at the time the exchange offer is consummated. Ranking..................... The notes are general unsecured obligations of our company. They will rank equal in right of payment with all of our existing and future senior debt. The notes will rank ahead of all of our existing and future debts that expressly provide that they are subordinated to the notes. However, the notes will effectively rank junior to all of our secured debt to the extent of the value of the assets securing that debt. Optional Redemption......... We may redeem some or all of the notes at any time on or after May 15, 2003, at the redemption prices listed in "Description of the Notes" under the heading "Optional Redemption." Before May 15, 2002, we may redeem up to 35% of the notes with the proceeds of certain offerings of equity of our company or our parent company at the price listed in "Description of the Notes" under the heading "Optional Redemption." Mandatory Offer to If we sell certain assets or experience specific Repurchase................. kinds of changes of control, we must offer to repurchase the notes at the price listed in "Description of the Notes" under the heading "Repurchase at the Option of Holders." 9 Basic Covenants of We issued the outstanding notes and will issue Indenture.................. the exchange notes under an indenture with U.S. Bank Trust National Association. The indenture, among other things, restricts our ability and the ability of our subsidiaries to: . borrow money; . pay dividends on, redeem or repurchase our capital stock; . make investments; . use assets as security in other transactions; and . sell certain assets or merge with or into other companies. These covenants are subject to important exceptions and qualifications which are described in "Description of the Notes" under the heading "Certain Covenants." See "Risk Factors" immediately following this summary for a discussion of certain factors that you should consider in connection with your participation in the exchange offer. 10 Summary Historical and Unaudited Pro Forma Financial and Operating Data The following table sets forth: . the Predecessor's summary historical combined financial data for fiscal 1995 through fiscal 1998, the seven months ended August 28, 1998 and the three months ended May 2, 1998; . the Predecessor's summary historical combined balance sheet data as of January 28, 1995, February 3, 1996, February 1, 1997, January 31, 1998 and May 2, 1998; . our company's summary historical consolidated financial data for the five months ended January 30, 1999 and the three months ended May 1, 1999; . our company's summary historical consolidated balance sheet data as of January 30, 1999 and May 1, 1999; and . our company's summary unaudited pro forma consolidated financial data for fiscal 1999 and the three months ended May 1, 1999 and as of May 1, 1999. The Predecessor's historical financial data for fiscal 1995 and the three months ended May 2, 1998 and balance sheet data as of January 28, 1995, February 3, 1996 and May 2, 1998 were derived from unaudited combined financial statements of the Predecessor. The Predecessor's historical financial data for fiscal 1996 (other than the balance sheet data as of February 3, 1996) through fiscal 1998 and the seven months ended August 28, 1998, and balance sheet data as of February 1, 1997 and January 31, 1998, were derived from audited combined financial statements of the Predecessor. The Predecessor's combined financial statements include the accounts of G & G Shops, Inc. and certain store assets owned by subsidiaries of Petrie Retail, Inc. Our company's historical financial data for the five months ended January 30, 1999 and balance sheet data as of January 30, 1999 were derived from our audited consolidated financial statements. Our company's historical financial data for the three months ended May 1, 1999 and balance sheet data as of May 1, 1999 were derived from our unaudited financial statements. The pro forma statement of operations data for fiscal 1999 is intended to give you a better picture of what our business might have looked like if the following transactions had each occurred on February 1, 1998: . the acquisition of our business from the Predecessor; and . the sale of the units consisting of the outstanding notes and certain warrants to purchase our parent company's Class D common stock. The pro forma statement of operations data for the three months ended May 1, 1999 and the pro forma balance sheet data as of May 1, 1999 are intended to give you a better picture of what our business might have looked like if the sale of the units had occurred on January 31, 1999 and May 1, 1999, respectively. The pro forma statements of operations data do not reflect the write-off of the unamortized portion of the financing costs (net of tax) related to the financing of the acquisition of our business from the Predecessor. This write- off will be treated as an extraordinary item in our financial statements for the second quarter of fiscal 2000. The pro forma financial data should not be considered indicative of either future results of operations or the results that might have occurred if these transactions had been consummated on the indicated dates or had been in effect for the period presented. The pro forma financial data is unaudited. You should read the summary financial data presented below in conjunction with "Selected Financial and Operating Data," "Unaudited Pro Forma Consolidated Financial Statements," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical combined and consolidated financial statements and the notes related thereto of the Predecessor and our company included elsewhere in this Prospectus. 11 Summary Historical and Unaudited Pro Forma Financial and Operating Data
Predecessor Company --------------------------------------------------- ------------------------- February 1, August 29, Fiscal Year 1998 to 1998 to Pro Forma -------------------------------------- August 28, January 30, Fiscal Year 1995 1996(1) 1997 1998 1998 1999(2) 1999 -------- -------- -------- -------- ----------- ----------- ------------ (Dollars in thousands)* Statement of Operations Data: Net sales........ $237,680 $243,583 $266,362 $286,938 $162,823 $131,567 $294,390 Cost of sales (including occupancy costs).......... 155,940 159,262 166,636 177,765 106,056 79,267 185,323 -------- -------- -------- -------- -------- -------- -------- Gross margin..... 81,740 84,321 99,726 109,173 56,767 52,300 109,067 Selling, general, administrative and buying expenses(3)..... 75,526 78,128 76,684 79,702 49,330 36,170 81,188 Depreciation and amortization expense(4)...... 8,905 5,148 4,526 4,489 2,845 5,141 11,074 -------- -------- -------- -------- -------- -------- -------- Operating income (loss).......... (2,691) 1,045 18,516 24,982 4,592 10,989 16,805 Interest expense, net............. -- -- -- -- -- 7,395 13,794 -------- -------- -------- -------- -------- -------- -------- Income (loss) before provision for (benefit from) income taxes........... (2,691) 1,045 18,516 24,982 4,592 3,594 3,011 Provision for (benefit from) income taxes.... (1,109) 431 7,629 10,293 1,892 1,581 1,322 -------- -------- -------- -------- -------- -------- -------- Net income (loss).......... $ (1,582) $ 614 $ 10,887 $ 14,689 $ 2,700 $ 2,013 $ 1,689 ======== ======== ======== ======== ======== ======== ======== Other Operating Data: Sales per gross square foot..... $ 222 $ 238 $ 277 $ 295 $ 160 $ 130 $ 290 Inventory turnover(5)..... 5.1x 5.4x 6.4x 6.6x 6.0x 6.5x 6.2x Same store net sales increase (decrease)(6)... 3.1% 5.5% 13.0% 4.5% (3.0%) (1.1%) (2.2%) Capital expenditures: New stores...... $ 940 $ 835 $ 829 $ 2,972 $ 1,299 $ 1,027 $ 2,326 Remodels........ 887 1,780 892 3,320 1,809 1,341 3,150 Non-store assets and systems.... 576 205 231 713 292 411 703 -------- -------- -------- -------- -------- -------- -------- Total capital expenditures... $ 2,403 $ 2,820 $ 1,952 $ 7,005 $ 3,400 $2,779 $ 6,179 ======== ======== ======== ======== ======== ======== ======== Number of stores: Beginning balance........ 465 441 416 395 408 415 408 New stores opened......... 5 6 11 25 9 13 22 Existing stores closed......... 29 31 32 12 2 6 8 -------- -------- -------- -------- -------- -------- -------- Ending balance.. 441 416 395 408 415 422 422 ======== ======== ======== ======== ======== ======== ======== Other Financial Data: EBITDA as adjusted(7)..... $ 9,721 $ 9,802 $ 24,791 $ 31,305 $ 8,449 $ 16,130 $ 27,879 EBITDA margin as adjusted(8)..... 4.1% 4.0% 9.3% 10.9% 5.2% 12.3% 9.5% Gross margin percentage...... 34.4% 34.6% 37.4% 38.0% 34.9% 39.8% 37.0% Royalty expense(9)...... $ 3,507 $ 3,609 $ 1,749 $ 1,834 $ 1,012 $ -- $ -- Ratio of earnings to fixed charges(10)..... -- 1.2x 3.7x 4.5x 2.1x 1.3x 1.1x Ratio of earnings as adjusted to fixed charges(11)................................................1.3x Ratio of EBITDA as adjusted to interest expense(12)...............................................2.2x Ratio of net debt to EBITDA as adjusted(13).......................................................3.0x Predecessor Company ------------ ------------------------- Pro Forma First Fiscal First Fiscal First Fiscal Quarter Quarter Quarter 1999 2000 2000 ------------ ------------ ------------ (Dollars in thousands)* Statement of Operations Data: Net sales........ $66,398 $72,733 $72,733 Cost of sales (including occupancy costs).......... 42,594 46,374 46,374 ------------ ------------ ------------ Gross margin..... 23,804 26,359 26,359 Selling, general, administrative and buying expenses(3)..... 19,338 20,728 20,728 Depreciation and amortization expense(4)...... 1,225 3,173 3,173 ------------ ------------ ------------ Operating income (loss).......... 3,241 2,458 2,458 Interest expense, net............. -- 3,168 3,200 ------------ ------------ ------------ Income (loss) before provision for (benefit from) income taxes........... 3,241 (710) (742) Provision for (benefit from) income taxes.... 1,335 (313) (327) ------------ ------------ ------------ Net income (loss).......... $ 1,906 $ (397) $ (415) ============ ============ ============ Other Operating Data: Sales per gross square foot..... $ 67 $ 70 $ 70 Inventory turnover(5)..... 5.8x 6.0x 6.0x Same store net sales increase (decrease)(6)... (4.7%) 3.4% 3.4% Capital expenditures: New stores...... $ 714 $ 1,054 $ 1,054 Remodels........ 736 1,888 1,888 Non-store assets and systems.... 108 304 304 ------------ ------------ ------------ Total capital expenditures... $ 1,558 $ 3,246 $ 3,246 ============ ============ ============ Number of stores: Beginning balance........ 408 422 422 New stores opened......... 7 6 6 Existing stores closed......... -- -- -- ------------ ------------ ------------ Ending balance.. 415 428** 428** ============ ============ ============ Other Financial Data: EBITDA as adjusted(7)..... $ 4,874 $ 5,631 $ 5,631 EBITDA margin as adjusted(8)..... 7.3% 7.7% 7.7% Gross margin percentage...... 35.9% 36.2% 36.2% Royalty expense(9)...... $ 408 $ -- $ -- Ratio of earnings to fixed charges(10)..... 2.7x -- -- Ratio of earnings as adjusted to fixed charges(11).......1.0x Ratio of EBITDA as adjusted to interest expense (12).....1.8x Ratio of net debt to EBIT as adjusted(13)................16.3x
Predecessor Company Predecessor Company ----------------------------------------------- ----------- ----------- ------------------ Pro Forma January 28, February 3, February 1, January 31, January 30, May 2, May 1, May 1, 1995 1996 1997 1998 1999 1998 1999 1999 ----------- ----------- ----------- ----------- ----------- ----------- -------- --------- (Dollars in thousands) Balance Sheet Data: Total assets............ $31,746 $29,218 $25,818 $28,157 $167,664 $36,665 $171,650 $180,506 Total long-term debt.... 7,623 12,364 20,591 20,866 90,000 20,886 90,000 98,960
- ------ * Other than sales per gross square foot. **Does not include 13 stores for which we have executed leases, but which were not open as of May 1, 1999. 12 Notes to Summary Historical and Unaudited Pro Forma Financial and Operating Data (1) The year ended February 3, 1996 consisted of 53 weeks. (2) We were inactive from the date of our incorporation on June 26, 1998 to August 28, 1998, the date on which we completed the acquisition of our business from the Predecessor. (3) Selling, general, administrative and buying expenses include royalty expense (see Note 9 below) and store closing expenses. (4) In November 1994, Petrie Retail, Inc., the Predecessor's parent, was acquired. This acquisition was a bargain purchase and, accordingly, the fixed assets were written down. This write-down of assets caused the substantial decrease in depreciation and amortization for fiscal years 1996, 1997 and 1998. (5) Inventory turnover is calculated by dividing the summation of monthly net sales (at retail) by average monthly retail inventory. (6) A store becomes comparable after it is open twelve full months. (7) EBITDA is defined by us as operating income plus depreciation and amortization. In addition, we have further adjusted EBITDA to add back royalty expense (see Note 9 below). EBITDA as adjusted is not intended to represent cash flow from operations and should not be considered as an alternative to operating or net income computed in accordance with generally accepted accounting principles as an indicator of our operating performance, as an alternative to cash from operating activities (as determined in accordance with generally accepted accounting principles) or as a measure of liquidity. We believe that EBITDA is a standard measure commonly reported and widely used by analysts, investors and other interested parties in the retail industry. Accordingly, this information is presented to permit a more complete comparative analysis of our operating performance relative to other companies in the industry. However, not all companies calculate EBITDA using the same methods; therefore, the EBITDA as adjusted figures presented herein may not be comparable to EBITDA reported by other companies. (8) Computed by dividing EBITDA as adjusted by net sales. (9) Royalty expense represents an amount charged by Petrie Retail, Inc., the Predecessor's parent, for the use of certain trademarks which it owned. We purchased these trademarks in connection with our acquisition of the Predecessor's junior apparel retail business. (10) Computed by dividing (i) the sum of (a) earnings before income taxes and (b) fixed charges, by (ii) fixed charges. Fixed charges consist of interest on debt, amortization of debt issuance costs, amortization of original issue discount with respect to the outstanding notes and the value assigned to the outstanding warrants of our parent company issued as part of the units and the estimated interest component of rental expense. For 1995 and the three months ended May 1, 1999, earnings were insufficient to cover fixed charges by $2.7 million and $710,000, respectively. (11) Computed by dividing (i) the sum of (a) earnings before income taxes, (b) amortization of goodwill and (c) fixed charges, by (ii) fixed charges. Fixed charges consist of interest on debt, amortization of debt issuance costs, amortization of original issue discount with respect to the outstanding notes and the value assigned to the outstanding warrants of our parent company issued as part of the units and the estimated interest component of rental expense. Ratio of earnings as adjusted to fixed charges is not intended as a substitute for the ratio of earnings to fixed charges. We believe this ratio is meaningful information for analysts, investors and other interested parties. (12) Computed by dividing EBITDA as adjusted by interest expense including the amortization of the original issue discount with respect to the outstanding notes and the discount related to the value assigned to the outstanding warrants of our parent company issued as part of the units (excluding amortization of deferred financing costs). (13) Computed by dividing (i) total debt less excess cash, where excess cash is defined as the cash balance less $3.0 million, the amount estimated by management as the minimum average balance required for operations, by (ii) EBITDA as adjusted. 13 RISK FACTORS You should carefully consider the following risk factors and other information in this Prospectus before deciding to tender outstanding notes in the exchange offer. Some of the information in this Prospectus contains forward-looking statements. Forward-Looking Statements. Forward-looking statements can be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "estimate," "continue" or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition or state other "forward-looking" information. While these statements reflect our current judgment about the direction of our business, our actual results likely will vary, sometimes in a material way, from the estimates, projections, assumptions and other future performance suggested in this Prospectus. Our actual revenues, profitability and operating results may differ materially from those expressed in the "forward-looking" statements contained in this Prospectus as a result of one or more factors including the following factors: . our ability to successfully implement operating strategies (including the opening of new stores); . changes in economic conditions; . our competition; and . risk factors set forth below and other matters referred to elsewhere in this Prospectus. We do not intend to release publicly any revisions to our forward-looking statements that we may make as a result of events or circumstances that occur after the date of this Prospectus. Failure to Exchange--There may be adverse consequences if you do not exchange your outstanding notes. If you do not exchange your outstanding notes for exchange notes in the exchange offer, then you will continue to be subject to the transfer restrictions on the outstanding notes as set forth in the Offering Memorandum distributed in connection with the private placement of the units consisting of the outstanding notes and certain warrants to purchase shares of our parent company's Class D common stock. In general, the outstanding notes may not be offered or sold unless they are registered or exempt from registration under the Securities Act of 1993 and applicable state securities laws. Except as required by the registration rights agreement that we entered into with the initial purchasers of the units, we do not intend to register resales of the outstanding notes under the Securities Act of 1933. See "The Exchange Offer-- Consequences of Failure to Exchange." You should refer to "The Exchange Offer" for information about how to tender your outstanding notes. The tender of outstanding notes pursuant to the exchange offer will reduce the principal amount of the outstanding notes outstanding, which may have an adverse effect upon, and increase the volatility of, the market price of the outstanding notes due to a reduction in liquidity. Significant Indebtedness--We have significant indebtedness that may prevent us from fulfilling our obligations under the notes. We have significant indebtedness. As of May 1, 1999, after giving pro forma effect to the private placement of the units, our outstanding indebtedness would have been $99.0 million after giving effect to the original issue discount (or $107.0 million principal amount). In addition, as of such date, we had $681,000 of letters of credit outstanding under our current revolving credit facility. See "Capitalization" and "Unaudited Pro Forma Consolidated Financial Statements." As of such date, we would have had additional availability of approximately $15.5 million under our revolving credit facility. Furthermore, subject to restrictions in our revolving credit facility (or any revolving line of credit which may replace it in the future) and the indenture for the notes, we may incur additional 14 indebtedness from time to time to finance acquisitions or capital expenditures. See "Description of Revolving Credit Facility" and "Description of the Notes-- Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock." In addition, we recently entered into a capital lease agreement pursuant to which we may incur indebtedness of up to $5.0 million to finance our point of sale equipment upgrade by the end of fiscal 2001. See "Business--Management Information Systems." Our significant indebtedness, and the resulting amount of leverage, may: . make it more difficult for us to satisfy our obligations with respect to the notes; . make it more difficult for us to make required payments under our revolving credit facility; . increase our vulnerability to general adverse economic and industry conditions; . limit our ability to obtain additional financing to fund future working capital, capital expenditure and other general corporate requirements; . require us to dedicate a substantial portion of cash flow from operations to principal and interest payments with respect to our indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures or other general corporate purposes; . limit our flexibility in planning for, or reacting to, changes in our business and industry; and . place us at a competitive disadvantage compared to our competitors that have less debt. For the three months ended May 1, 1999, our earnings were insufficient to cover our fixed charges by $710,000 due to the seasonal nature of our business. See "--Effect of Seasonality." Ability to Service Debt--To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control. Our ability to make payments on and to refinance our indebtedness, including the notes, and to fund planned capital expenditures will depend on our ability to generate cash in the future. This ability, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations, we believe our cash flow from operations, available cash, available borrowings under our revolving credit facility and available capitalized leases will be adequate to meet our future liquidity needs for at least the next few years. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our revolving credit facility in an amount sufficient to enable us to pay our indebtedness, including the notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, including the notes, on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness, including our revolving credit facility and the notes, on commercially reasonable terms or at all. Effective Subordination--Although the notes are senior debt they will be effectively subordinated to our secured debt. The outstanding notes are, and the exchange notes will be, unsecured and therefore will be effectively subordinated to any secured debt we may incur to the extent of the value of the assets securing such debt. We pledged substantially all of our assets to secure our indebtedness under our revolving credit facility. See "Description of Revolving Credit Facility." In the event of a bankruptcy or similar proceeding involving us, our assets that serve as collateral will be available to satisfy the obligations under any secured debt before any payments are made on the notes. In addition, if we default on our secured indebtedness, the lenders thereunder may foreclose on and take control of our assets pledged as collateral. As a result, we may have insufficient remaining assets to pay amounts due on your notes. As of May 1, 1999, we had no outstanding secured indebtedness. However, as of May 1, 1999, we had $681,000 of secured letters of credit outstanding under our revolving credit facility. In addition, the notes will be effectively subordinated to the 15 capitalized lease that we recently entered into to finance our point of sale equipment upgrade to the extent of the value of the equipment leased. See "Business--Management Information Systems." In addition, although our domestic subsidiaries will guarantee the notes, our foreign subsidiaries, including our Puerto Rican subsidiary, may not be required to guarantee the notes. The notes will be effectively subordinated to all indebtedness and other liabilities (including trade payables) of any of our foreign subsidiaries which do not guarantee the notes. Restrictive Covenants--We may be unable to comply with the restrictions imposed by our revolving credit facility and the indenture for the notes which could cause a default under these instruments. We must comply with various restrictive covenants contained in our revolving credit facility and the indenture for the notes. Our revolving credit facility requires us to maintain a minimum tangible net worth. Our revolving credit facility and the indenture for the notes require us to comply with customary affirmative and negative covenants including, among other things, limitations on our ability to (1) incur additional indebtedness, (2) make certain payments, (3) pay dividends, (4) create liens on assets, (5) sell assets and (6) engage in fundamental business changes. Our revolving credit facility also limits our ability to make acquisitions and capital expenditures. See "Description of Revolving Credit Facility" and "Description of the Notes--Certain Covenants." Our ability to continue to comply with these covenants may be affected by events beyond our control. Our failure to comply with these covenants could cause a default under our revolving credit facility, which in turn could cause the lenders under such facility to accelerate our indebtedness or to cease to provide additional revolving loans or letters of credit. If we cannot pay the accelerated indebtedness, the lenders under our revolving credit facility could foreclose on the collateral we pledged to secure our indebtedness under such facility. This collateral consists of all or substantially all of our assets. See "Description of Revolving Credit Facility." As a result of foreclosure, we may have insufficient remaining assets to pay amounts due on your notes. The acceleration of indebtedness under our revolving credit facility would constitute an event of default under the indenture relating to the notes. Similarly, our failure to comply with the restrictions in the indenture could result in an event of default under the indenture, which could lead to a cross- default under our revolving credit facility and under the terms of other indebtedness. Same Store Sales--Our same store sales results declined from fiscal 1998 to fiscal 1999. Our same store sales results have fluctuated in the past and likely will continue to fluctuate in the future. Factors affecting these results include, among others, economic conditions, fashion trends, the retail sales environment, changes in our merchandise mix, sourcing and distribution of products, our ability to execute our business strategy efficiently, calendar shifts of holiday periods, actions by our competitors and weather. The following table shows the fluctuations in our annual same store sales results over the past five fiscal years.
Same Store Fiscal Year Sales Growth (Decrease) ----------- ----------------------- 1995............................................. 3.1% 1996............................................. 5.5% 1997............................................. 13.0% 1998............................................. 4.5% 1999............................................. (2.2%)
As indicated in the table above, we recorded same store sales decreases in fiscal 1999. Same store sales for any particular quarter or fiscal year may decrease in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 16 Competition--We face significant competition in the junior apparel retail business. The junior apparel retail business is highly competitive. We compete for sales primarily with specialty apparel retailers such as Wet Seal/Contempo Casual, a mall-based junior apparel retailer. We also compete with several discount department stores and local and regional department store chains that overlap with our merchandise offerings and price points. Some of our competitors are larger and may have greater financial, marketing and other resources than us. In addition, we compete with our competitors and other persons for favorable site locations and lease terms in shopping malls. Competition from our current major competitors, as well as from catalog and Internet retailers, may increase significantly in the future which could adversely affect our business. See "Business--Competition." Fashion Risks--Our profitability depends upon our ability to identify our customers' fashion tastes which may change frequently. Our profitability largely depends upon our ability to identify the fashion tastes of our customers and to provide merchandise that appeals to their preferences in a timely manner. The fashion tastes of our customers may change frequently. Our failure to identify or react appropriately to changes in styles or trends could lead to, among other things, excess inventories and higher markdowns than we anticipated, which could have a material adverse effect on our business. In addition, our fashion misjudgments could materially and adversely affect our business, financial condition, operating results and image with our customers. See "Business--General" and "Business--Merchandising and Marketing." Dependence on Key Personnel--Our success depends upon our ability to retain our senior management. We believe that our success depends significantly upon the performance of our senior management. Jay Galin has been with our company for over 40 years and is our Chairman of the Board and Chief Executive Officer. Scott Galin, Jay Galin's son, who has been with our company for over 20 years, is our President and Chief Operating Officer. Jay and Scott Galin are employed pursuant to employment agreements expiring in August 2000 and August 2003, respectively. In addition to Jay and Scott Galin, our senior management includes our Chief Financial Officer, Vice President-Store Operations, Vice President-Warehouse and Distribution and Vice President/Divisional Merchandise Manager and five other Divisional Merchandise Managers who have an average of nine years experience with our company. The loss of the services of members of our senior management could have a material adverse effect on our business. Our success also depends upon our ability to retain and attract qualified employees to meet our needs in connection with our growth strategy. We do not maintain "key man" life insurance on any member of senior management. See "Management." Growth Strategy--We may be unable to successfully implement our growth strategy of opening new stores. Our continued growth significantly depends upon our ability to open new stores on a profitable basis and our management's ability to manage our growth and resultant expanded operations. During fiscal 1997, 1998 and 1999, we opened 11, 25 and 22 new stores, respectively. We opened six new Rave stores during the period from January 31, 1999 to May 1, 1999, and we intend to open approximately 24 new Rave stores by the end of fiscal 2000. Accomplishing our expansion goals will depend upon a number of factors, including our ability to obtain favorable geographical locations and suitably sized locations for new stores at acceptable costs, and availability of capital. We also intend to test the market for sales to 8- to 12-year-old girls by opening approximately six mall stores under the name Rave Girl during fiscal 2000. If this market test succeeds, we also intend to further expand into this market. Our ability to successfully operate in this market will depend upon a 17 number of factors including our ability to identify and react appropriately to fashion trends in this market. The market for sales to 8- to 12-year-old girls may present different merchandising challenges from the teen market. We expect to finance the expenditures related to our planned expansion, including our Rave Girl stores, with cash flow from operations and borrowings under our revolving credit facility (or any revolving line of credit which may replace it in the future). We may not always have access to sufficient funds to finance these expenditures or be able to achieve our store expansion goals, successfully integrate planned new stores into our operations, successfully expand into the market for sales to 8- to 12-year-old girls or operate new stores profitably. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Business--Store Openings and Closings." Economic Conditions--We may be adversely affected by economic conditions that affect the demand for our merchandise. We depend on the popularity of malls as a shopping destination. Certain economic conditions affect the level of consumer spending on the merchandise that we offer, including, among others, business conditions, levels of employment and consumer confidence in future economic conditions. If the demand for apparel and related merchandise by female teenagers were to decline, our business, financial condition and results of operations would be materially and adversely affected. In addition, because our stores are located primarily in malls, we depend upon the continued popularity of malls as a shopping destination and the ability of mall anchor tenants and other attractions to generate customer traffic for our stores. A decrease in mall traffic or a decline in economic conditions in the markets in which our stores are located would adversely affect our business, financial condition and results of operations. See "Business--Stores" and "Business--Properties." Lease Expirations--A significant number of our store leases will expire in the near future. All of our store sites are leased. As of May 1, 1999, the leases for 45 (or approximately 10%) of our stores expired, and we are occupying such premises on a month-to-month basis. In addition, as of May 1, 1999, the leases for an additional 98 (or approximately 22%) of our stores are scheduled to expire by January 31, 2000. Of these 143 stores, as of May 1, 1999, we were negotiating renewals for 137 stores; with respect to these 137 stores, our negotiations had progressed, as of such date, to the final documentation phase for 50 stores. In addition, leases for 70 (or approximately 16%) of our stores are scheduled to expire by January 31, 2001 and leases for 65 (or approximately 15%) of our stores are scheduled to expire by January 31, 2002. Furthermore, as of May 1, 1999, approximately 16% of our stores were leased from a single landlord. See "Business--Properties." Although we believe that our real estate staff has strong relationships with our present landlords, we may be unable to renew one or more of these expiring or expired leases or renew one or more of them for the term we desire or at an attractive rental price or on other acceptable terms. The failure to renew a significant number of these expired or expiring leases could have a material adverse effect on our business, financial condition and results of operations. Single Distribution Facility--We depend on a single distribution facility. We handle our distribution functions for all of our stores from a single facility in North Bergen, New Jersey. Any significant interruption in the operation of this distribution facility would have a material adverse effect on our business, financial condition and results of operations. See "Business-- Distribution and Transportation." 18 Key Suppliers--We may be unable to obtain an adequate amount of inventory because we depend upon outside suppliers with whom we do not have long-term contracts. Our business depends upon our ability to purchase current season apparel at competitive prices. We currently purchase inventory primarily from domestic manufacturers. We do not own any manufacturing facilities. During the first fiscal quarter of fiscal 2000, our top three suppliers accounted for approximately 12.7%, 10.4% and 8.2%, respectively, of our inventory purchases. During fiscal 1999, our top three suppliers accounted for approximately 12.8%, 11.2% and 9.8%, respectively, of our inventory purchases. During the first fiscal quarter of fiscal 2000 and during fiscal 1999, we did not purchase more than 5.0% of our inventory from any one of our other vendors. We do not have long-term contracts with our suppliers and transact business principally on an order-by-order basis. Although we believe that we have strong relationships with our key suppliers, we may be unable to acquire merchandise from such suppliers in sufficient quantities or on favorable terms in the future. The inability or failure of key suppliers to supply us with adequate quantities of desired merchandise, the loss of one or more key suppliers or a material change in our current purchase terms could have a material adverse effect on our business, financial condition and results of operations. Many of our smaller suppliers have limited resources, production capacities and operating histories. Effect of Seasonality--Our results of operations fluctuate based on the seasons; our quarterly results of operations also may fluctuate in the future. Our results of operations fluctuate based on the seasons. Historically, our fourth fiscal quarter has generated the largest percentage of our annual net sales. For example, in fiscal 1999, our fourth fiscal quarter accounted for approximately 29.6% of our annual net sales. In contrast, our first quarter historically has generated the smallest percentage of our annual net sales. A substantial decline in our sales during the fourth fiscal quarter below seasonal norms for any reason may cause our cash on hand to be insufficient to cover payments on the notes. Our quarterly results of operations also may fluctuate significantly as a result of a variety of other factors, including the number and timing of store openings and closings, the level of markdowns taken, and the amount of revenue contributed by new stores. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Seasonality and Quarterly Results." Control by Significant Stockholders--Members of our senior management and affiliates of one investment fund own or control a substantial amount of our parent company's capital stock and therefore may influence our affairs. Currently, members of our senior management and affiliates of Pegasus Investors, L.P., a Connecticut-based private equity investment fund, control our parent company, and accordingly our company, through their ownership of voting common equity in our parent company. See "Principal Stockholders." Circumstances may occur in which the interests of the holders of our parent company's voting common equity could be in conflict with your interests as holders of the notes. In addition, holders of our parent company's voting common equity may desire to pursue acquisitions, divestitures or other transactions that, in their judgment, could enhance their equity investment even though such transactions may subject you, as a holder of notes, to risks. See "Principal Stockholders" and "Management--Directors, Executive Officers and Key Employees of the Company." Regional Concentration--A significant number of our stores are located in Florida, New York, California and Puerto Rico. Although our stores were located in 39 states in the United States, Puerto Rico and the U.S. Virgin Islands as of May 1, 1999, a significant number of our stores are located in Florida, New York, 19 California and Puerto Rico. As of May 1, 1999, we had 49 stores in Florida, 40 stores in New York, 34 stores in California and 41 stores in Puerto Rico. We plan to expand within these markets. As a result, we are susceptible to fluctuations in our business caused by severe weather, natural disasters or adverse economic conditions in one or more of these geographic regions. Such fluctuations could have a material adverse effect on our business, financial condition and results of operations. See "Business--Stores." Year 2000--Year 2000 compliance issues could adversely impact our business. The year 2000 issue concerns the potential exposures related to the automated generation of business and financial misinformation resulting from the fact that certain computer systems and programs use two digits, rather than four, to define the applicable year of business transactions. On January 1, 2000, these systems and programs may recognize the date as January 1, 1900 and may process data incorrectly or stop processing data altogether. We have completed a review of our information technology and non-information technology systems to determine whether they are year 2000 compliant. As a result of this review, we believe that our computer programs should be able to continue to operate effectively after December 31, 1999. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Compliance." However, in addition to our own systems, we rely directly and indirectly on external systems of our suppliers, landlords, banks, utilities providers and other third parties. We are currently in the process of asking our significant suppliers about their year 2000 readiness. To date, we are not aware of any third party year 2000 issues that would materially impact our business, financial condition or results of operations. However, we have no means of ensuring that the third parties with which we deal will be year 2000 compliant. If the systems of any third parties with which we interact experience year 2000 problems, our business, financial condition or results of operations could be materially and adversely affected. We cannot be certain that the systems of third parties with which we interact will not suffer from year 2000 problems. Labor Stoppage--Certain of our distribution center employees are represented by a union which may cause us to be more vulnerable to work stoppages. As of May 1, 1999, approximately 132 of our employees at our distribution center in North Bergen, New Jersey were represented by Local 2326 of the UAW/AFL/CIO. The collective bargaining agreement covering our distribution center employees expires on January 31, 2002. Although we believe that we have good relations with our union employees and never have experienced a work stoppage, we may be subject to work stoppages in the future. Any such work stoppages could have a material adverse effect on our business, financial condition and results of operations. See "Business--Employees." Financing Change of Control Offer--We may not have the ability to raise the funds necessary to finance the change of control offer required by the indenture for the notes. Upon the occurrence of change of control events specified in the indenture for the notes, we will be required to offer to repurchase all outstanding notes. It is possible, however, that we will not have sufficient funds at the time of the change of control to make the required repurchase of notes or that restrictions in our revolving credit facility will not allow such repurchases. In addition, important corporate events such as leveraged recapitalizations and certain other highly leveraged transactions, restructurings or mergers that would increase the level of our indebtedness would not constitute a change of control under the indenture. See "Description of the Notes--Repurchase at the Option of Holders." 20 Original Issue Discount--You will be required to recognize income for federal tax purposes prior to receiving certain cash payments on the notes. The outstanding notes were issued with original issue discount for federal income tax purposes and thus the exchange notes will also have original issue discount for federal income tax purposes. As a result, as a holder of notes you will be required to include the original issue discount in gross income for federal income tax purposes as it accrues in advance of the receipt of cash payments on the notes (regardless of whether you are a cash or accrual basis taxpayer). See "Certain Federal Income Tax Considerations--Other Tax Considerations--United States Holders--Taxation of Original Issue Discount." Fraudulent Conveyance Matters--Our obligations to you under the notes could be voided under federal or state fraudulent transfer laws. Our obligations to you under the notes could be voided under federal or state fraudulent transfer laws if a bankruptcy case or other lawsuit is commenced by or on behalf of any of our creditors and the court in such a case or lawsuit makes the determinations described in the following sentence. Specifically, a court of competent jurisdiction in such a case or lawsuit could void, in whole or in part, the notes or subordinate the notes to our existing and future indebtedness or take other action detrimental to you if, at the time we issued the notes, we either: . issued the notes with the intent to hinder, delay or defraud our existing or future creditors; or . received less than reasonably equivalent value or fair consideration for issuing the notes and we either: . were insolvent at the time of such issuance; . were rendered insolvent by reason of such issuance (and the application of the proceeds of the notes); . were engaged or were about to engage in a business or transaction for which our remaining assets constituted unreasonably small capital to carry on such businesses; or . intended to incur, or believed that we would incur, debts beyond our ability to pay such debts as they mature. The measure of our insolvency for purposes of the foregoing test will vary depending upon the law applied in such case. Generally, however, we would be considered insolvent at a particular time if (1) the sum of our debts, including our contingent liabilities, at that time exceeded the fair saleable value of all of our assets, (2) the present fair saleable value of our assets at that time was less than the amount that would be required to pay the probable liability on our existing debts, including our contingent liabilities, as they become absolute and matured or (3) we could not pay our debts as they become due. Our obligations under the notes will be guaranteed by our domestic subsidiaries and our subsidiaries which guarantee our debt or the debt of another subsidiary of our company. As of May 1, 1999, we had only one subsidiary, a foreign subsidiary, which had no material assets, and which is not a guarantor of the outstanding notes and will not be a guarantor of the exchange notes at the time the exchange offer is consummated. Any guarantee of the notes also may be subject to review under various laws for the protection of creditors, including federal and state fraudulent transfer laws, if a bankruptcy case or a lawsuit is commenced by or on behalf of any creditor of a guarantor or a representative of any such creditors. In such a case, the analysis set forth above would generally apply, except that the guarantee could also be subject to the claim that, since the guarantee was incurred for our benefit (and only indirectly for the benefit of the guarantor), the obligation of the guarantor thereunder was incurred for less than reasonably equivalent value or fair consideration. A court could void a guarantor's obligation under its guarantee of the notes, subordinate the guarantee to other indebtedness of a guarantor, direct that holders of the notes return any amounts paid under a 21 guarantee to the relevant guarantor or to a fund for the benefit of its creditors, or take other action detrimental to the holders of the notes. We issued the outstanding notes, and will issue exchange notes, in good faith and for proper purposes and without the intent to hinder, delay or defraud our creditors. We believe that, after the private placement of the units consisting of the outstanding notes and certain warrants to purchase our parent company's Class D common stock and the application of the proceeds thereof, we were solvent, had sufficient capital for carrying on our business and were able to pay our debts as they matured. However, a court passing on such questions may apply a different standard in making such determination and may disagree with our view. No Public Market for the Exchange Notes--You may find it difficult to transfer the exchange notes due to the lack of a public trading market. The exchange notes are new securities for which there is no existing market. Accordingly, there can be no assurance as to the development or liquidity of any market for the exchange notes. The notes are eligible for trading in the Private Offerings, Resales and Trading Through Automated Linkages (PORTAL) Market. The initial purchasers of the units consisting of the outstanding notes and certain warrants to purchase our parent company's Class D common stock have advised us that they currently intend to make a market in the exchange notes. However, the initial purchasers of the units are not obligated to do so, and any market making with respect to the exchange notes may be discontinued at any time without notice. We do not intend to apply for a listing of the exchange notes on any securities exchange or on any automated dealer quotation system. No assurance can be given to non-exchanging holders of outstanding notes as to the liquidity of the trading market for the outstanding notes following the exchange offer. The liquidity of, and trading market for, the exchange notes also may be adversely affected by general declines in the market for similar securities or by changes in our financial performance. Such a market decline may adversely affect such liquidity and trading markets independent of our financial performance and prospects. Third Party Teen Market Data--We have not independently verified the teen market data contained in this Prospectus; such information may change significantly, which could adversely affect our business. We included in this Prospectus information about the teen market. Such information indicates that the teen market is large and rapidly growing, has significant discretionary income which is increasing and spends a significant percentage of discretionary income on apparel. We obtained this information from Kalorama Information's October 1998 report entitled "The Teen Market," published under the name Packaged Facts(R), and we have not independently verified such information. The teen market may not be as large as reported or growing at the reported rate. In addition, teenagers may not have as much discretionary income as reported and their discretionary income may not be increasing as reported. Furthermore, teenagers may not currently spend or continue to spend the reported amount of their income on apparel. Factors beyond our control such as economic conditions and consumer preferences may cause changes in the teen market information presented in this Prospectus. An adverse change in the size, growth rate, purchasing power or purchasing habits of the teen market could have a material adverse effect on our business, financial condition and results of operations. 22 THE ACQUISITION On August 28, 1998, senior management of the Predecessor, together with an investor group led by affiliates of Pegasus Investors, L.P. ("Pegasus"), a Connecticut-based private equity investment fund, acquired from the Predecessor the junior apparel retail business currently conducted by the Company (the "Acquisition"). The Company and its parent, G&G Retail Holdings, Inc. (the "Parent"), were formed in 1998 to make the Acquisition. The Company acquired substantially all of the Predecessor's assets for $132.0 million in cash, the assumption of certain liabilities and the issuance to the Predecessor of shares of non-voting Class C common stock of the Parent (which shares were subsequently transferred to a liquidating trust as part of Petrie Retail, Inc.'s plan of reorganization). A portion of the cash purchase price was financed with debt including senior bridge notes in the aggregate principal amount of $90.0 million (the "Senior Bridge Notes"). The Senior Bridge Notes were repaid in full with the net proceeds of the private placement of the units consisting of the outstanding notes and certain warrants to purchase the Parent's Class D common stock. See "Use of Proceeds." The Acquisition was made by a transfer of substantially all of the assets of the Predecessor in accordance with Section 363 of the United States Bankruptcy Code and was approved by the United States Bankruptcy Court for the Southern District of New York on August 24, 1998. In October 1995, Petrie Retail, Inc., the Predecessor's parent ("Petrie"), on behalf of itself and its subsidiaries (including the Predecessor), filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. In December 1998, the United States Bankruptcy Court for the Southern District of New York issued an order confirming Petrie's plan of reorganization. The Predecessor's operating performance was strong prior to and during the bankruptcy proceedings. The Predecessor generated aggregate EBITDA as adjusted of $84.1 million and aggregate net income of $27.0 million from the beginning of fiscal 1995 through August 28, 1998. Pegasus, the financial sponsor of the Acquisition, was founded by Craig Cogut, who was a senior principal of Apollo Advisors, L.P. Pegasus makes control investments in middle market companies, with a focus on complex transactions such as bankruptcies and restructurings. Pegasus typically invests in companies with strong management teams with whom they partner to grow and strategically develop the companies' businesses. Pegasus currently manages $220.0 million in committed capital and has participated in 15 acquisitions and investments. 23 USE OF PROCEEDS We will not receive any cash proceeds from the issuance of the exchange notes. In consideration for issuing the exchange notes as contemplated in this Prospectus, we will receive in exchange a like principal amount of outstanding notes, the terms of which are identical in all material respects to the exchange notes. The outstanding notes surrendered in exchange for the exchange notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the exchange notes will not result in any change in our capitalization. The net proceeds from the sale of the units consisting of the outstanding notes and certain warrants to purchase the Parent's Class D common stock were approximately $94.7 million (after deducting discounts and commissions, transaction fees and expenses of the private placement.) Of those net proceeds, $90.6 million was used by the Company to repay in full and retire all of its outstanding indebtedness (including interest accrued through the date of repayment) under the Senior Bridge Notes. The Company expects to use the balance of those net proceeds for general corporate purposes. The Senior Bridge Notes were issued by the Company in August 1998 to fund a portion of the purchase price for the Acquisition. See "The Acquisition." The Senior Bridge Notes accrued interest at one-month London Inter-Bank Offered Rate ("LIBOR") plus 6%, (10.92% as of May 17, 1999, the date on which they were repaid) which was payable monthly in cash. 24 CAPITALIZATION The following table sets forth as of May 1, 1999 the actual capitalization of the Company and the pro forma capitalization of the Company as adjusted to give effect to the private placement of the units consisting of the outstanding notes and certain warrants to purchase the Parent's Class D common stock. This table should be read in conjunction with the "Selected Financial and Operating Data" and "Unaudited Pro Forma Consolidated Financial Statements" and the historical combined and consolidated financial statements of the Predecessor and the Company and notes related thereto included elsewhere in this Prospectus.
May 1, 1999 ----------------- Pro Actual Forma (Dollars in thousands) -------- -------- Cash......................................................... $ 5,332 $ 9,992 ======== ======== Long-term debt: Revolving Credit Facility(1)............................... $ -- $ -- Senior Bridge Notes(2)..................................... 90,000 -- 11% Senior Notes due 2006(2)(3)............................ -- 98,960 -------- -------- Total long-term debt..................................... 90,000 98,960 Redeemable Equity............................................ -- -- Stockholder's equity(4)(5)................................... 51,444 51,694 -------- -------- Total capitalization..................................... $141,444 $150,654 ======== ========
- -------- (1) The revolving credit facility provides for revolving loans in the aggregate principal amount of up to $20.0 million (including a sublimit of $10.0 million for letters of credit) and matures in October 2001. As of May 1, 1999, the Company had no borrowings outstanding under the revolving credit facility, but had $681,000 of letters of credit outstanding thereunder, and $15.5 million of availability thereunder. (2) The net proceeds from the sale of the units were used to repay in full and retire all of the outstanding Senior Bridge Notes. See "Use of Proceeds." (3) Net of original issue discount and the value assigned to the warrants of the Parent comprising the units. (4) The deferred financing costs (net of tax) associated with the Senior Bridge Notes have been written off and reflected as an adjustment to stockholder's equity in the pro forma capitalization of the Company. (5) Stockholder's equity reflects the capital contribution by the Parent totalling $700,000 in connection with the issuance of the warrants of the Parent comprising the units. 25 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The Unaudited Pro Forma Consolidated Financial Statements are based on the historical combined financial statements of the Predecessor and the historical consolidated financial statements of the Company as adjusted to illustrate the estimated effects of the Acquisition and the sale of the units (consisting of the outstanding notes and certain warrants to purchase the Parent's Class D common stock). The Company acquired substantially all of the assets and assumed certain liabilities of the Predecessor in the Acquisition on August 28, 1998. See "The Acquisition." The Company and the Parent completed the private offering of the units on May 17, 1999. See "Summary of the Exchange Offer." The following Unaudited Pro Forma Consolidated Balance Sheet as of May 1, 1999 gives effect to the sale of the units as if it had occurred on such date. The following Unaudited Pro Forma Consolidated Statement of Income for the year ended January 30, 1999 gives effect to the Acquisition and the sale of the units as if each had occurred on February 1, 1998. The following Unaudited Pro Forma Consolidated Statement of Income for the three months ended May 1, 1999 gives effect to the sale of the units as if it had occurred on January 31, 1999. The following Unaudited Pro Forma Consolidated Statements of Income for the year ended January 30, 1999 and the three months ended May 1, 1999 do not reflect the write-off of the unamortized portion of the financing costs (net of tax) related to the financing of the Acquisition. This write-off will be treated as an extraordinary item in the Company's financial statements for the second quarter of fiscal 2000. The Unaudited Pro Forma Consolidated Statements of Income and the Unaudited Pro Forma Consolidated Balance Sheet do not purport to represent what the Company's results of operations or financial condition would have been if the Acquisition (as applicable) and the sale of the units had occurred as of the dates indicated or what such results or financial condition will be for any future periods. The Unaudited Pro Forma Consolidated Financial Statements are based upon assumptions the Company believes are reasonable and should be read in conjunction with the historical combined and consolidated financial statements of the Predecessor and the Company and the notes related thereto included elsewhere in this Prospectus. 26 G+G Retail, Inc. Unaudited Pro Forma Consolidated Balance Sheet May 1, 1999
Pro Forma Historical Adjustments Pro Forma (Dollars in thousands) ---------- ----------- --------- Assets Current assets: Cash...................................... $ 5,332 $99,660 (a) $ 9,992 (90,000)(a) (5,000)(b) Accounts receivable....................... 452 452 Inventories............................... 21,897 21,897 Prepaid expenses.......................... 3,253 3,253 Deferred tax assets....................... 645 645 -------- ------- -------- Total current assets........................ 31,579 4,660 36,239 Property and equipments, net................ 23,590 23,590 Intangible assets........................... 115,489 (804)(c) 119,685 5,000 (b) Deferred tax assets......................... 785 785 Other assets................................ 207 207 -------- ------- -------- Total assets................................ $171,650 $ 8,856 $180,506 ======== ======= ======== Liabilities and stockholder's equity Current liabilities: Accounts payable.......................... $15,852 $15,852 Accrued expenses.......................... 13,132 13,132 Income taxes payable...................... 1,222 (354)(c) 868 -------- ------- -------- Total current liabilities................... 30,206 (354) 29,852 Long-term debt.............................. 90,000 (90,000)(a) 98,960 107,000 (a) (7,340)(a) (700)(d) -------- ------- -------- Total liabilities........................... 120,206 8,606 128,812 Commitments and contingencies Stockholder's equity: Common stock, par value $.01 per share, 1,000 shares authorized, 10 shares issued and outstanding.......................... -- -- Additional paid-in capital................ 49,828 700 (d) 50,528 Retained earnings......................... 1,616 (450)(c) 1,166 -------- ------- -------- Total stockholder's equity.................. 51,444 250 51,694 -------- ------- -------- Total liabilities and stockholder's equity.. $171,650 $ 8,856 $180,506 ======== ======= ========
See Notes to Unaudited Pro Forma Consolidated Balance Sheet. 27 Notes to Unaudited Pro Forma Consolidated Balance Sheet (a) Records the offering of the units, net of the original issue discount, and repayment of the Senior Bridge Notes. (b) Records deferred financing costs associated with the units. (c) Eliminates deferred financing costs associated with the Senior Bridge Notes and records the related tax adjustment. (d) Capital contribution by the Parent in connection with warrants issued by the Parent to note holders. 28 G+G Retail, Inc. Unaudited Pro Forma Consolidated Statement of Income for the Year Ended January 30, 1999
Predecessor Company ---------------- ---------------- February 1, 1998 August 29, 1998 Pro Forma to to Pro Forma Fiscal August 28, 1998 January 30, 1999 Adjustments Year 1999 ---------------- ---------------- ----------- --------- (Dollars in thousands) Net sales............... $162,823 $131,567 $294,390 Cost of sales (including occupancy costs)....... 106,056 79,267 185,323 -------- -------- -------- Gross margin............ 56,767 52,300 109,067 Selling, general, administrative and buying expenses.... 49,330(a) 36,170 $(3,300)(b) 81,188 (1,012)(c) Depreciation and amortization expense... 2,845 5,141 820 (d) 11,074 2,268 (e) -------- -------- ------- -------- Operating income........ 4,592 10,989 (1,224) 16,805 Interest expense, net... -- 7,395 8,400 (f) 13,794 (1,715)(g) 1,400 (h) (2,400)(i) 714 (j) -------- -------- ------- -------- Income (loss) before provision for income taxes........... 4,592 3,594 (5,175) 3,011 Provision (benefit) for income taxes........... 1,892 1,581 (2,151)(k) 1,322 -------- -------- ------- -------- Net income.............. $ 2,700 $ 2,013 $(3,024) $ 1,689 ======== ======== ======= ========
See Notes to Unaudited Pro Forma Consolidated Statement of Income. 29 Notes to Unaudited Pro Forma Consolidated Statement of Income for the Year Ended January 30, 1999 (a) Includes royalty expense (see Note (c) below) and store closing expenses. (b) Eliminates a success fee paid to Jay Galin, the Company's Chairman of the Board and Chief Executive Officer, and Scott Galin, the Company's President and Chief Operating Officer, in connection with their assistance in the sale of the junior apparel retail business conducted by the Predecessor prior to August 28, 1998. (c) Eliminates royalty expenses charged by Petrie for the use of certain trademarks which were owned by Petrie. In connection with the Acquisition, the Company purchased these trademarks. (d) Records the additional depreciation associated with step-up in value of property and equipment as if the Acquisition had occurred on February 1, 1998. (e) Records the additional amortization of the goodwill associated with the Acquisition as if the Acquisition had occurred on February 1, 1998. (f) Records additional interest, and quarterly fees based on the aggregate principal amount, on the Senior Bridge Notes as if they were outstanding as of February 1, 1998. (g) Records a reduction to interest expense to reflect the lower interest rate on the notes, and elimination of quarterly fees on the Senior Bridge Notes, as if the notes had replaced the Senior Bridge Notes as of February 1, 1998. Pro forma interest expense includes the amortization of the original issue discount with respect to the notes and the discount for the assigned value of the warrants issued as part of the units. A 1/8% change in interest rate would have resulted in a difference of approximately $133,750 in interest costs for the year ended January 30, 1999. (h) Records the additional amortization of the deferred financing costs related to the Senior Bridge Notes as if they were outstanding on February 1, 1998. (i) Eliminates the amortization of the deferred financing costs related to the Senior Bridge Notes. The unamortized portion of deferred financing costs (net of tax) will be written off and will be treated as an extraordinary item in the Statement of Income in the second quarter of fiscal 2000 when the proceeds of the outstanding notes were used to repay the Senior Bridge Notes. (j) Records the amortization of the deferred financing costs as if the notes were outstanding on February 1, 1998. (k) Records income tax provision based on the Company's effective tax rate. 30 G+G Retail, Inc. Unaudited Pro Forma Consolidated Statement of Income for the Three Months Ended May 1, 1999
Pro Forma First January 31, 1999 Fiscal to Pro Forma Quarter May 1, 1999 Adjustments 2000 ---------------- ----------- --------- (Dollars in thousands) Net sales............................. $72,733 $72,733 Cost of sales (including occupancy costs)..................... 46,374 46,374 ------- ------- Gross margin.......................... 26,359 26,359 Selling, general, administrative and buying expenses.................. 20,728 20,728 Depreciation and amortization expense.............................. 3,173 3,173 ------- ----- ------- Operating income...................... 2,458 2,458 Interest expense, net................. 3,168 $ 460 (a) 3,200 (607)(b) 179 (c) ------- ----- ------- Loss before provision for income taxes......................... (710) (32) (742) Benefit for income taxes.............. (313) (14)(d) (327) ------- ----- ------- Net loss.............................. $ (397) $ (18) $ (415) ======= ===== =======
Notes to Unaudited Pro Forma Consolidated Statement of Income for the Three Months Ended May 1, 1999 (a) Records an increase in interest expense to reflect a higher interest rate on the notes, as if the notes had replaced the Senior Bridge Notes as of January 31, 1999. Pro forma interest expense includes the amortization of the original issue discount with respect to the notes and the discount for the assigned value of the warrants issued as part of the units. A 1/8% change in interest rate would have resulted in a difference of approximately $33,438 in interest costs for the quarter ended May 1, 1999. (b) Eliminates the amortization of the deferred financing costs related to the Senior Bridge Notes. The unamortized portion of deferred financing costs (net of tax) will be written off and will be treated as an extraordinary item in the Statement of Income in the second quarter of fiscal 2000 when the proceeds of the notes were used to repay the Senior Bridge Notes. (c) Records the additional amortization of the deferred financing costs related to the Senior Bridge Notes as if they were outstanding on January 31, 1999. (d) Records income tax provision based on the Company's effective tax rate. 31 SELECTED FINANCIAL AND OPERATING DATA The following selected financial and operating data (except number of stores) for (1) the combined balance sheets of the Predecessor as of January 28, 1995 and February 3, 1996 and the related combined statements of operations and cash flows for the year ended January 28, 1995 have been derived from unaudited financial statements of the Predecessor, (2) the combined balance sheets of the Predecessor as of February 1, 1997 and January 31, 1998 and the related combined statements of operations and cash flows for the three years ended January 31, 1998 and the seven months ended August 28, 1998 have been derived from the audited financial statements of the Predecessor, (3) the combined balance sheet of the Predecessor as of May 2, 1998 and the related combined statements of operations and cash flows for the three months ended May 2, 1998 have been derived from unaudited financial statements of the Predecessor, (4) the consolidated balance sheet of the Company as of January 30, 1999 and the related consolidated statements of income and cash flows for the five months ended January 30, 1999 have been derived from the audited financial statements of the Company and (5) the consolidated balance sheet of the Company as of May 1, 1999 and the related consolidated statements of income and cash flows for the three months ended May 1, 1999 have been derived from unaudited financial statements of the Company. The Predecessor's combined financial statements contain the accounts of the Predecessor and certain store assets owned by subsidiaries of Petrie. The following unaudited pro forma financial and operating data of the Company for the year ended January 30, 1999 give effect to the Acquisition and the sale of units (consisting of the outstanding notes and certain warrants to purchase the Parent's Class D common stock) as if such transactions occurred on February 1, 1998. The following unaudited pro forma financial and operating data of the Company for the three months ended May 1, 1999 give effect to the sale of the units as if such transaction occurred on January 31, 1999. The following unaudited pro forma balance sheet data of the Company as of May 1, 1999 gives effect to the sale of units as if such transaction occurred on May 1, 1999. The following unaudited pro forma statements of operations data of the Company for the year ended January 30, 1999 and the three months ended May 1, 1999 do not reflect the write-off of the unamortized portion of the financing costs (net of tax) related to the financing of the Acquisition. This write-off will be treated as an extraordinary item in the Company's financial statements for the second quarter of fiscal 2000. The historical and pro forma financial and operating data for the year ended January 30, 1999 and the three months ended May 1, 1999 are not necessarily an indication of the results to be expected for future years. The Company did not conduct operations from the date of its incorporation on June 26, 1998 to August 28, 1998. The Company acquired substantially all of the assets and assumed certain liabilities of the Predecessor on August 28, 1998. See "The Acquisition." The Company and the Parent completed the private offering of the units on May 17, 1999. See "Summary of the Exchange Offer." The selected financial and operating data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the pro forma financial statements of the Company and the historical combined and consolidated financial statements and notes thereto of the Predecessor and the Company included elsewhere in this Prospectus. 32 G+G Retail, Inc. Selected Financial and Operating Data
Predecessor Company --------------------------------------------------- ------------------------ February 1, August 29, Fiscal Year 1998 to 1998 to Pro Forma -------------------------------------- August 28, January 30, Fiscal Year 1995 1996(1) 1997 1998 1998 1999(2) 1999 -------- -------- -------- -------- ----------- ----------- ----------- (Dollars in thousands)* Statement of Operations Data: Net sales........ $237,680 $243,583 $266,362 $286,938 $162,823 $131,567 $294,390 Cost of sales (including occupancy costs).. 155,940 159,262 166,636 177,765 106,056 79,267 185,323 -------- -------- -------- -------- -------- -------- -------- Gross margin..... 81,740 84,321 99,726 109,173 56,767 52,300 109,067 Selling, general, administrative and buying expenses(3)..... 75,526 78,128 76,684 79,702 49,330 36,170 81,188 Depreciation and amortization expense(4)...... 8,905 5,148 4,526 4,489 2,845 5,141 11,074 -------- -------- -------- -------- -------- -------- -------- Operating income (loss).......... (2,691) 1,045 18,516 24,982 4,592 10,989 16,805 Interest expense, net............. -- -- -- -- -- 7,395 13,794 -------- -------- -------- -------- -------- -------- -------- Income before provision for (benefit from) income taxes.... (2,691) 1,045 18,516 24,982 4,592 3,594 3,011 Provision for (benefit from) income taxes.... (1,109) 431 7,629 10,293 1,892 1,581 1,322 -------- -------- -------- -------- -------- -------- -------- Net income (loss).......... $ (1,582) $ 614 $ 10,887 $ 14,689 $ 2,700 $ 2,013 $ 1,689 ======== ======== ======== ======== ======== ======== ======== Other Operating Data: Sales per gross square foot..... $ 222 $ 238 $ 277 $ 295 $ 160 $ 130 $ 290 Inventory turnover(5)..... 5.1x 5.4x 6.4x 6.6x 6.0x 6.5x 6.2x Same store sales increase (decrease)(6)... 3.1% 5.5% 13.0% 4.5% (3.0%) (1.1%) (2.2%) Capital expenditures: New stores...... $ 940 $ 835 $ 829 $ 2,972 $ 1,299 $ 1,027 $ 2,326 Remodels........ 887 1,780 892 3,320 1,809 1,341 3,150 Non-store assets and systems.... 576 205 231 713 292 411 703 -------- -------- -------- -------- -------- -------- -------- Total capital expenditures... $ 2,403 $ 2,820 $ 1,952 $ 7,005 $ 3,400 $ 2,779 $ 6,179 ======== ======== ======== ======== ======== ======== ======== Number of stores: Beginning balance........ 465 441 416 395 408 415 408 New stores opened......... 5 6 11 25 9 13 22 Existing stores closed......... 29 31 32 12 2 6 8 -------- -------- -------- -------- -------- -------- -------- Ending balance.. 441 416 395 408 415 422 422 ======== ======== ======== ======== ======== ======== ======== Other Financial Data: EBITDA as adjusted(7)..... $ 9,721 $ 9,802 $ 24,791 $ 31,305 $ 8,449 $ 16,130 $ 27,879 EBITDA margin as adjusted(8)..... 4.1% 4.0% 9.3% 10.9% 5.2% 12.3% 9.5% Gross margin percentage...... 34.4% 34.6% 37.4% 38.0% 34.9% 39.8% 37.0% Royalty expense(9)...... $ 3,507 $ 3,609 $ 1,749 $ 1,834 $ 1,012 $ -- $ -- Ratio of earnings to fixed charges(10).. -- 1.2x 3.7x 4.5x 2.1x 1.3x 1.1x Ratio of earnings as adjusted to fixed charges(11).............................................. 1.3x Ratio of EBITDA as adjusted to interest expense(12)............................................. 2.2x Ratio of net debt to EBITDA as adjusted(13)..................................................... 3.0x
Predecessor Company ----------- ------------------- Pro Forma First First First Fiscal Fiscal Fiscal Quarter Quarter Quarter 1999 2000 2000 ----------- --------- --------- (Dollars in thousands)* Statement of Operations Data: Net sales........ $66,398 $72,733 $72,733 Cost of sales (including occupancy costs).. 42,594 46,374 46,374 ----------- --------- --------- Gross margin..... 23,804 26,359 26,359 Selling, general, administrative and buying expenses(3)..... 19,338 20,728 20,728 Depreciation and amortization expense(4)...... 1,225 3,173 3,173 ----------- --------- --------- Operating income (loss).......... 3,241 2,458 2,458 Interest expense, net............. -- 3,168 3,200 ----------- --------- --------- Income before provision for (benefit from) income taxes.... 3,241 (710) (742) Provision for (benefit from) income taxes.... 1,335 (313) (327) ----------- --------- --------- Net income (loss).......... $ 1,906 $ (397) $ (415) =========== ========= ========= Other Operating Data: Sales per gross square foot..... $ 67 $ 70 $ 70 Inventory turnover(5)..... 5.8x 6.0x 6.0x Same store sales increase (decrease)(6)... (4.7%) 3.4% 3.4% Capital expenditures: New stores...... $ 714 $ 1,054 $ 1,054 Remodels........ 736 1,888 1,888 Non-store assets and systems.... 108 304 304 ----------- --------- --------- Total capital expenditures... $ 1,558 $ 3,246 $ 3,246 =========== ========= ========= Number of stores: Beginning balance........ 408 422 422 New stores opened......... 7 6 6 Existing stores closed......... -- -- -- ----------- --------- --------- Ending balance.. 415 428** 428** =========== ========= ========= Other Financial Data: EBITDA as adjusted(7)..... $ 4,874 $ 5,631 $ 5,631 EBITDA margin as adjusted(8)..... 7.3% 7.7% 7.7% Gross margin percentage...... 35.9% 36.2% 36.2% Royalty expense(9)...... $ 408 $ -- $ -- Ratio of earnings to fixed charges(10)..... 2.7x -- -- Ratio of earnings as adjusted to fixed charges(11)....1.0x Ratio of EBITDA as adjusted to interest expense(12)...1.8x Ratio of net debt to EBITDA as adjusted(13)..........16.3x
Predecessor Company Predecessor Company ----------------------------------------------- ----------- ----------- ------------------ Pro Forma January 28, February 3, February 1, January 31, January 30, May 2, May 1, May 1, 1995 1996 1997 1998 1999 1998 1999 1999 ----------- ----------- ----------- ----------- ----------- ----------- -------- --------- (Dollars in thousands) Balance Sheet Data: Total assets............ $31,746 $29,218 $25,818 $28,157 $167,664 $36,665 $171,650 $180,506 Total long-term debt.... 7,623 12,364 20,591 20,866 90,000 20,886 90,000 98,960
- ------- * Other than sales per gross square foot. **Does not include 13 stores for which the Company has executed leases, but which were not open as of May 1, 1999. 33 Notes to Selected Financial and Operating Data (1) The year ended February 3, 1996 consisted of 53 weeks. (2) The Company was inactive from the date of its incorporation on June 26, 1998 to August 28, 1998, the date on which the Acquisition was completed. (3) Selling, general, administrative and buying expenses include royalty expense (see Note 9 below) and store closing expenses. (4) In November 1994, Petrie was acquired. This acquisition was a bargain purchase and, accordingly, the fixed assets were written down. This write-down of assets caused the substantial decrease in depreciation and amortization for fiscal years 1996, 1997 and 1998. (5) Inventory turnover is calculated by dividing the sum of monthly net sales (at retail) by average monthly retail inventory. (6) A store becomes comparable after it is open twelve full months. (7) EBITDA is defined by the Company as operating income plus depreciation and amortization. In addition, the Company has further adjusted EBITDA to add back royalty expense (see Note 9 below). EBITDA as adjusted is not intended to represent cash flow from operations and should not be considered as an alternative to operating or net income computed in accordance with generally accepted accounting principles ("GAAP") as an indicator of the Company's operating performance, as an alternative to cash from operating activities (as determined in accordance with GAAP) or as a measure of liquidity. The Company believes that EBITDA is a standard measure commonly reported and widely used by analysts, investors and other interested parties in the retail industry. Accordingly, this information is presented to permit a more complete comparative analysis of the Company's operating performance relative to other companies in the industry. However, not all companies calculate EBITDA using the same methods; therefore, the EBITDA as adjusted figures presented herein may not be comparable to EBITDA reported by other companies. (8) Computed by dividing EBITDA as adjusted by net sales. (9) Royalty expense represents an amount charged by Petrie for the use of certain trademarks which it owned. The Company purchased these trademarks in connection with the Acquisition. (10) Computed by dividing (i) the sum of (a) earnings before income taxes and (b) fixed charges, by (ii) fixed charges. Fixed charges consist of interest on debt, amortization of debt issuance costs, amortization of original issue discount with respect to the outstanding notes and the value assigned to the outstanding warrants of the Parent issued as part of the units and the estimated interest component of rental expense. For 1995 and the three months ended May 1, 1999, earnings were insufficient to cover fixed charges by $2.7 million and $710,000, respectively. (11) Computed by dividing (i) the sum of (a) earnings before income taxes, (b) amortization of goodwill and (c) fixed charges, by (ii) fixed charges. Fixed charges consist of interest on debt, amortization of debt issuance costs, amortization of original issue discount with respect to the outstanding notes and the value assigned to the outstanding warrants of the Parent issued as part of the units and the estimated interest component of rental expense. Ratio of earnings as adjusted to fixed charges is not intended as a substitute for the ratio of earnings to fixed charges. The Company believes this ratio is meaningful information for analysts, investors and other interested parties. (12) Computed by dividing EBITDA as adjusted by interest expense including the amortization of the original issue discount with respect to the outstanding notes and the value assigned to the outstanding warrants of the Parent issued as part of the units (excluding amortization of deferred financing costs). (13) Computed by dividing (i) total debt less excess cash, where excess cash is defined as the cash balance less $3.0 million, the amount estimated by management as the minimum average balance required for operations, by (ii) EBITDA as adjusted. 34 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with "Selected Financial and Operating Data," "Unaudited Pro Forma Consolidated Financial Statements" and the historical combined and consolidated financial statements of the Predecessor and the Company and the related notes thereto included elsewhere in this Prospectus. The Company acquired substantially all of the assets and assumed certain liabilities of the Predecessor on August 28, 1998. See "The Acquisition." The Company's (as did the Predecessor's) fiscal year ends on the Saturday nearest January 31 in the same calendar year. Accordingly, fiscal 1997 ended on February 1, 1997, fiscal 1998 ended on January 31, 1998 and fiscal 1999 ended on January 30, 1999. Overview The Company is a leading national mall-based retailer of popular price apparel for young women principally between the ages of 13 and 19 years old. As of May 1, 1999, the Company had 441 stores (of which 428 were in operation) throughout the United States, Puerto Rico and the U.S. Virgin Islands. Since early 1995, the Company has implemented an ongoing program to open new stores in locations that it believes are favorable for its business and close underperforming stores. Between October 31, 1995 and January 30, 1999, the Company opened 59 new stores and closed 70 stores. The Company intends to grow its sales and EBITDA by continuing to implement its strategy of opening new stores in locations that it believes are favorable for its business. The Company opened six new Rave stores in the period from January 31, 1999 to May 1, 1999 and anticipates opening approximately 24 new Rave stores in the remainder of fiscal 2000. The Company also anticipates opening six new Rave Girl stores in fiscal 2000. The Company achieved positive same store sales on an annual basis in each of fiscal 1995, 1996, 1997 and 1998. Same store sales growth was 3.1% during fiscal 1995, 5.5% during fiscal 1996, 13.0% during fiscal 1997 and 4.5% during fiscal 1998. However, the Company experienced a 2.2% decline in same store sales in fiscal 1999. The Company believes that same store sales in fiscal 1999 were adversely affected by the significant time and attention required to be spent by management in connection with the sale by the Predecessor of its junior apparel retail business to the Company (an approximately ten-month process), the complications of Petrie's bankruptcy proceedings described below and the liquidity problems faced by the Predecessor as a result of Petrie using substantially all of the Predecessor's excess cash to fund Petrie's own cash needs. As a result of same store sales growth in fiscal 1995, 1996, 1997 and 1998 and the Company's store expansion program, the Company's sales per gross square foot improved from $222 in fiscal 1995 to $290 in fiscal 1999 and the Company's EBITDA as adjusted increased from $9.7 million in fiscal 1995 to $27.9 million in pro forma fiscal 1999. On August 28, 1998, the Company completed its acquisition of its junior apparel retail business from the Predecessor by means of an asset transfer pursuant to Section 363 of the United States Bankruptcy Code. See "The Acquisition." In October 1995, Petrie, the Predecessor's parent, on behalf of itself and its subsidiaries (including the Predecessor), filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. In December 1998, the United States Bankruptcy Court for the Southern District of New York issued an order confirming Petrie's plan of reorganization. The Predecessor's operating performance was strong prior to and during the bankruptcy proceedings. The Predecessor generated aggregate EBITDA as adjusted of $84.1 million and aggregate net income of $27.0 million from the beginning of fiscal 1995 through August 28, 1998. Management of the Company believes that the Company's independence from Petrie and Petrie's recent Chapter 11 proceedings will improve the Company's liquidity position by, among other things, improving the Company's ability to purchase on credit and will enable the Company to enter into longer term leases for its stores. 35 The Acquisition was consummated on August 28, 1998 and funded by a net capital contribution by the Parent to the Company of $49.8 million and $90.0 million of borrowings under the Senior Bridge Notes, which were repaid out of the proceeds of the units. The Acquisition was accounted for under the purchase method of accounting. Accordingly, the Company's pro forma financial statements for fiscal 1999 reflect the effects of purchase accounting adjustments (including increased depreciation expense and amortization of goodwill). Prior to the Acquisition, Petrie provided the Predecessor with payroll administration and legal services, tax, real estate and employee benefits support and insurance coverage. An estimate for the costs of these services has been reflected in the financial statements of the Predecessor included elsewhere herein. The Company no longer pays royalties that the Predecessor paid to Petrie for the use of certain trademarks ($1.8 million in fiscal 1998), since the Company purchased these trademarks in connection with the Acquisition. The Predecessor obtained rent concessions during its bankruptcy proceedings. Approximately $700,000 of these rent concessions remained available to the Company at May 1, 1999, but may not continue to be available to the Company in the future. The Company intends to finance its future operations, including its expansion plans, through cash flow from operations, borrowings under its revolving credit facility and capitalized leases. Statement of Income The table below sets forth selected statement of income data of (1) the Predecessor for fiscal 1997 and fiscal 1998, the period from February 1, 1998 to August 28, 1998 and the three months ended May 2, 1998 and (2) the Company for the period from August 29, 1998 through January 30, 1999, pro forma fiscal 1999, the three months ended May 1, 1999 and pro forma three months ended May 1, 1999, expressed as a percentage of net sales.
Predecessor Company Predecessor Company ------------------------- --------------------- ----------- -------------------- February 1, August 29, First First Fiscal Year 1998 to 1998 to Pro Forma Fiscal Fiscal Pro Forma ------------ August 28, January 30, Fiscal Quarter Quarter First Fiscal 1997 1998 1998 1999 Year 1999 1999 2000 Quarter 2000 ----- ----- ----------- ----------- --------- ----------- ------- ------------ Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Gross margin............ 37.4 38.0 34.9 39.8 37.0 35.9 36.2 36.2 Selling, general, administrative and buying expenses.... 28.8 27.8 30.3 27.5 27.6 29.1 28.5 28.5 Depreciation and amortization expense... 1.7 1.6 1.7 3.9 3.8 1.8 4.4 4.4 Operating income........ 6.9 8.6 2.9 8.4 5.6 5.0 3.3 3.3 Interest expense, net... -- -- -- 5.6 4.7 -- 4.4 4.4 Income (loss) before provision for income taxes.................. 6.9 8.6 2.9 2.8 0.9 5.0 (1.1) (1.1) Net income (loss)....... 4.1 5.1 1.7 1.5 0.6 2.9 (0.5) (0.6) EBITDA as adjusted...... 9.3 10.9 5.2 12.3 9.5 7.3 7.7 7.7
Comparison of First Fiscal Quarter 2000 and First Quarter 1999 The historical statement of income data for the three months ended May 1, 1999 is substantially the same as the pro forma statement of income data for such period except for net interest expense and the related tax effect. The difference in net interest expense is due to the fact that the historical data reflects interest expense associated with the Senior Bridge Notes whereas the pro forma data reflects interest expense associated with the notes, which were issued in replacement of the Senior Bridge Notes. 36 Net sales increased approximately $6.3 million, or 9.5%, to $72.7 million in the first quarter of fiscal 2000 as compared to $66.4 million in the first quarter of fiscal 1999. The increase in net sales was due to the opening of new stores which contributed $4.1 million to net sales in the first quarter of fiscal 2000 and a $2.2 million, or 3.4%, increase in same store sales compared to the first quarter of fiscal 1999. Average sales per gross square foot increased 4.5% to $70 in the first quarter of fiscal 2000 from $67 in the first quarter fiscal 1999. The Company operated 428 stores at the end of the first quarter of fiscal 2000 as compared to 415 stores at the end of the first quarter of fiscal 1999, as a result of closing eight stores and opening 21 new stores. Gross margin after giving effect to occupancy costs increased approximately 10.9% to $26.4 million in the first quarter of fiscal 2000 from $23.8 million in the first quarter of fiscal 1999. As a percentage of net sales, gross margin increased from 35.9% in fiscal 1999 to 36.2% in the first quarter of fiscal 2000. This 0.3% increase resulted from a 0.4% increase in net merchandise margins offset by a 0.1% increase in occupancy costs. The increase in the merchandise margins as a percentage of net sales was due to an increase in the initial mark-on which was partially offset by an increase in markdowns and a reduction in vendor allowances. The increase in occupancy costs resulted primarily from an increase in same store occupancy costs. Selling, general, administrative and buying expenses increased 7.2%, from $19.3 million in the first quarter of fiscal 1999 to $20.7 million in the first quarter of fiscal 2000. As a percentage of net sales, these expenses decreased to 28.5% in the first quarter of fiscal 2000 as compared to 29.1% in the first quarter of fiscal 1999. The $1.4 million increase resulted from additional selling costs related to new store openings, an increase in same store selling expenses and an increase in administrative costs partially offset by the elimination of royalty expense in the first quarter of fiscal 2000 as compared to approximately $400,000 of royalty expense in the first quarter of fiscal 1999. Fiscal 1999 royalty expense was a charge from Petrie for the use of certain trademarks which were owned by Petrie. The Company purchased these trademarks in connection with the Acquisition. Depreciation and amortization expense for the first quarter of fiscal 2000 was $3.2 million as compared to $1.2 million for the first quarter of fiscal 1999. The increase of $2.0 million is attributable to the additional depreciation and amortization related to the incremental value assigned to the property and equipment and goodwill resulting from the Acquisition. Net interest expense was $3.2 million, and as a percentage of net sales was 4.4%, for the first quarter of fiscal 2000 and pro forma first quarter of fiscal 2000. The first quarter of fiscal 2000 interest expense reflects the interest on the Senior Bridge Notes and the amortization of the related issuance costs. The pro forma interest expense assumes the notes were outstanding for the full quarter and assumes the amortization of the original issue discount, the value assigned to the warrants issued as part of the units and deferred financing costs. In the first quarter of fiscal 1999, the Company did not have borrowings. Income tax benefit for pro forma first quarter of fiscal 2000 was $327,000 compared to income tax expense of $1.3 million in the first quarter of fiscal 1999. The tax benefit in pro forma first quarter of fiscal 2000 compared to tax expense in the first quarter of fiscal 1999 was due to a pre-tax loss in pro forma first quarter of fiscal 2000 resulting from the interest expense on the notes and the amortization of intangible assets. The income tax benefit rate for pro forma first quarter of fiscal 2000 was 44.0% as compared to 41.2% for the first quarter of fiscal 1999. The higher rate in pro forma first quarter of fiscal 2000 was principally attributable to the fact that the Company has a different legal structure relative to its Puerto Rico operations from the Predecessor. Net income decreased from $1.9 million in the first quarter of fiscal 1999 to a loss of $415,000 in pro forma first quarter of fiscal 2000 due to the factors discussed above. 37 Comparison of Fiscal 1999 Year and Fiscal 1998 Year The statement of income data for the seven-month period ended August 28, 1998 and the five-month period ended January 30, 1999 on a combined basis are the same as the pro forma statement of income data for fiscal 1999 except for (1) the increased depreciation and amortization resulting from the Acquisition as if it occurred on February 1, 1998, (2) the additional interest expense resulting from the notes as if the sale of the units including the notes occurred on February 1, 1998 and (3) the related tax effect of each of these pro forma adjustments. Net sales increased approximately $7.5 million, or 2.6%, to $294.4 million in fiscal 1999 as compared to $286.9 million in fiscal 1998. The increase in net sales was due to the opening of new stores which contributed $13.6 million to net sales in fiscal 1999, partially offset by a $6.1 million, or 2.2%, decrease in same store sales. Average sales per gross square foot decreased 1.7% from $295 in fiscal 1998 to $290 in fiscal 1999. Same store sales and average sales per gross square foot in fiscal 1999 were adversely affected by the ten-month sale process of the Predecessor's junior apparel retail business, Petrie's bankruptcy proceedings and liquidity problems faced by the Predecessor as a result of Petrie's operations. See "--Overview." The Company had 422 stores at the end of fiscal 1999 as compared to 408 stores at the end of fiscal 1998, as a result of closing eight underperforming stores and opening 22 new stores. Gross margin after giving effect to occupancy costs decreased from $109.2 million in fiscal 1998 to $109.1 million in fiscal 1999. As a percentage of net sales, gross margin decreased from 38.0% in fiscal 1998 to 37.0% in fiscal 1999. This 1.0% decrease resulted from a 0.3% decrease in net merchandise margins and a 0.7% increase in occupancy costs as a percentage of sales. The net decrease in the merchandise margin was due to an overall increase in markdowns offset by a slight increase in the initial mark-on. The occupancy cost increase resulted primarily from a decrease of $534,000 in rent concessions which were available to the Predecessor in 1998 as a result of its bankruptcy proceedings and an overall increase in store occupancy costs primarily related to new store openings. Selling, general, administrative and buying expenses increased 1.9%, from $79.7 million in fiscal 1998 to $81.2 million in fiscal 1999. As a percentage of net sales, these expenses decreased to 27.6% in fiscal 1999 as compared to 27.8% in fiscal 1998. The $1.5 million increase resulted from additional selling costs related to new store openings, a marginal increase in same store selling expenses and an increase in administrative costs, partially offset by the elimination of royalty expense in fiscal 1999, as compared to $1.8 million of royalty expense in fiscal 1998. Fiscal 1998 royalty expense was a charge from Petrie for the use of certain trademarks which were owned by Petrie. The Company purchased these trademarks in connection with the Acquisition. Depreciation and amortization for the seven-month period ended August 28, 1998 and the five-month period ended January 30, 1999 on a combined basis was $8.0 million as compared to $4.5 million for fiscal 1998. The increase of $3.5 million was attributable to the additional depreciation and amortization in the five-month period ended January 30, 1999 related to the incremental value assigned to the property and equipment and goodwill resulting from the Acquisition. Depreciation and amortization expense for pro forma fiscal 1999 was $11.1 million as compared to $4.5 million for fiscal 1998. The increase of $6.6 million was attributable to the additional depreciation and amortization related to the incremental value assigned to the property and equipment and goodwill resulting from the Acquisition, as if the Acquisition occurred on February 1, 1998. Net interest expenses was $7.4 million, and as a percentage of net sales was 2.5%, for the seven-month period ended August 28, 1998 and the five-month period ended January 30, 1999 on a combined basis. The interest expense primarily reflects the interest on, and amortization of debt issuance costs with respect to, the Senior Bridge Notes. Net interest expense was $13.8 million, and as a percentage of net sales was 4.7%, for pro forma fiscal 1999. The pro forma interest expense assumes the notes were outstanding for all of fiscal 1999 and assumes the amortization of associated deferred financing costs of $1.1 million. In fiscal 1998, the Company did not have any borrowings. 38 Income tax expense for pro forma fiscal 1999 was $1.3 million compared to income tax expense of $10.3 million for fiscal 1998. The decrease in tax expense is primarily due to lower pre-tax income resulting from the pro forma fiscal 1999 interest expense associated with the notes and amortization of intangible assets. The effective income tax rate for pro forma fiscal 1999 was 43.9% as compared to 41.2% for 1998. The higher effective tax rate in pro forma fiscal 1999 was principally attributable to the fact that the Company has a different legal structure relative to its Puerto Rico operations from the Predecessor. Net income decreased $13.0 million to $1.7 million in pro forma fiscal 1999 from $14.7 million in fiscal 1998 due to the factors discussed above. Comparison of Fiscal 1998 Year and Fiscal 1997 Year Net sales increased approximately $20.5 million, or 7.7%, to $286.9 million in fiscal 1998 as compared to $266.4 million in fiscal 1997. The increase in net sales was due to the opening of new stores which contributed $9.0 million to net sales in fiscal 1998 and an $11.5 million, or 4.5%, increase in same store sales compared to fiscal 1997. Average sales per gross square foot increased 6.5% from $277 in fiscal 1997 to $295 in fiscal 1998. The Company had 408 stores at the end of fiscal 1998 as compared to 395 stores at the end of fiscal 1997, as a result of closing 12 underperforming stores and opening 25 new stores. Gross margin after giving effect to occupancy costs increased approximately 9.5% to $109.2 million in fiscal 1998 from $99.7 million in fiscal 1997. As a percentage of net sales, gross margin increased from 37.4% in fiscal 1997 to 38.0% in fiscal 1998. This 0.6% increase resulted from a 0.2% increase in net merchandise margins and a 0.4% decrease in occupancy costs. The increase in the merchandise margin as a percentage of net sales was due to a decrease in markdowns, and an increase in vendor allowances, which was slightly offset by a decrease in the initial mark-on. The occupancy cost decrease, as a percentage of net sales, resulted primarily from an increase in same store sales. Selling, general, administrative and buying expenses increased 3.9%, from $76.7 million in fiscal 1997 to $79.7 million in fiscal 1998. As a percentage of net sales, these expenses decreased to 27.8% in fiscal 1998 as compared to 28.8% in fiscal 1997. The $3.0 million increase resulted from additional selling costs related to new store openings and cost increases that were offset by lower store closing costs due to closing 12 stores in fiscal 1998 versus closing 32 stores in fiscal 1997. Depreciation and amortization expense for fiscal 1998 was 1.6% of net sales as compared to 1.7% in fiscal 1997, and was approximately $4.5 million in both years. Income tax expense for fiscal 1998 was $10.3 million compared to income tax expense of $7.6 million for fiscal 1997. The effective income tax rate was 41.2% for both fiscal years. Net income increased $3.8 million to $14.7 million in fiscal 1998 from $10.9 million in fiscal 1997 due to the factors discussed above. Liquidity and Capital Resources The Company's primary sources of liquidity are cash flow from operating activities and borrowings under its revolving credit facility. The Company's primary cash requirements are for (i) working capital, (ii) the construction of new stores, (iii) the remodeling or upgrading of existing stores as necessary and (iv) upgrading and maintaining computer systems. Net cash used by operating activities in the first quarter of fiscal 2000 was $4.2 million as compared to net cash provided by operating activities of $378,000 in the first quarter of fiscal 1999. The decrease in net cash provided by operating activities was principally due to the fact that accounts payable and 39 accrued expenses increased $3.4 million more during the first quarter of fiscal 1999 as compared to the first quarter of fiscal 2000 because Petrie used substantially all of the Predecessor's excess cash to fund Petrie's own cash needs. Fiscal 1999 net cash provided by operating activities totaled $27.7 million, an increase of $2.1 million as compared to fiscal 1998. This increase was principally due to the payment of $7.8 million in liabilities by the Predecessor in connection with the Acquisition. Capital expenditures for the first quarter of fiscal 2000, the first quarter of fiscal 1999 and fiscal 1999, 1998 and 1997 were $3.2 million, $1.6 million, $6.2 million, $7.0 million and $2.0 million, respectively. Management estimates that capital expenditures for the remaining three quarters of fiscal 2000 will be approximately $13.8 million, which will be used primarily to fund new point of sale equipment and software (approximately $6.5 million), the opening of an estimated 36 new stores (six of which have been opened as of May 1, 1999), including six Rave Girl stores (approximately $4.7 million), and the upgrading of existing stores (approximately $2.6 million). The Company has received approval from a lending institution for $5.0 million of lease financing for the purchase of the point of sale equipment and software. As of May 1, 1999, no lease financing was incurred under this arrangement. The Company reviews the operating performance of its stores on an ongoing basis to determine which stores, if any, to expand or close. The Company closed eight stores in fiscal 1999 and anticipates closing approximately 12 stores during fiscal 2000. No stores were closed during the first quarter of fiscal 2000. Fiscal 1999 net cash provided by financing activities (excluding net distributions to the Predecessor's parent) was $137.0 million, reflecting the contribution of capital and the financing used for the Acquisition and associated fees and expenses. As of May 1, 1999, there were $90.0 million of Senior Bridge Notes outstanding. Prior to their repurchase (as described below), the Senior Bridge Notes accrued interest at one-month LIBOR plus 6% (10.92% as of May 1, 1999) which was payable monthly in cash. On May 17, 1999, the Company and the Parent issued 107,000 units, each consisting of $1,000 principal amount of the Company's 11% Senior Notes due 2006 and one warrant to initially purchase 0.07672 shares of the Parent's Class D common stock. The units were issued at a price equal to $931.40 per unit, for a total price of approximately $99.7 million. Net proceeds of approximately $94.7 million from the private placement of the units were used primarily to repay in full and retire all of the Company's indebtedness under the Senior Bridge Notes. See "Use of Proceeds." On a pro forma basis, as of May 1, 1999, after giving effect to the sale of the units, the Company's total debt would have been $99.0 million. See "Capitalization" and "Description of the Notes." As of May 1, 1999, the Company had $5.3 million in cash of which $7.0 million was invested in a United States Treasury money market fund. The investment exceeded the net cash balance due to cash float. The Company has historically maintained negligible accounts receivable balances since the Company's customers primarily pay for their purchases with cash, checks and third party credit cards which are promptly converted to cash. The Company's revolving credit facility (the "Revolving Credit Facility") provides for a line of credit in an amount of up to $20.0 million (including a sublimit of $10.0 million for letters of credit) and matures in October 2001. The Revolving Credit Facility may be used for general operating, working capital and other proper corporate purposes. Amounts available under the Revolving Credit Facility are subject to the value of the Company's eligible inventory (as defined in the Revolving Credit Facility) and to the satisfaction of certain conditions. The borrowing base provides for seasonal fluctuations in inventory. Peak borrowing periods occur in July, August, October and November. Interest on 40 outstanding borrowings under the Revolving Credit Facility is payable at 1.75% over the adjusted Eurodollar Rate or at the Prime Rate. The Revolving Credit Facility subjects the Company to a minimum tangible net worth (as defined in the Revolving Credit Facility) covenant of $39.0 million and other customary restrictive covenants. The Company's obligations under the Revolving Credit Facility are secured by a lien on all or substantially all of the Company's assets. See "Description of Revolving Credit Facility." As of May 1, 1999, the Company had no borrowings outstanding under the Revolving Credit Facility, but had $681,000 of letters of credit outstanding thereunder, and $15.5 million of availability thereunder. In addition to the covenants in the Revolving Credit Facility, the Company is subject to customary restrictive covenants in the indenture for the notes. See "Description of the Notes--Certain Covenants." The Company has minimum annual rental commitments of approximately $18.5 million in fiscal 2000 under existing store leases and the leases for its corporate headquarters and distribution center. The Company is not aware of any material environmental liabilities relating to either past or current properties owned, operated or leased by it. There can be no assurance that such liabilities do not currently exist or will not exist in the future. Management believes that the Company's cash flow from operating activities, cash on hand and borrowings under the Revolving Credit Facility will be sufficient to meet the Company's operating and capital expenditure requirements through the end of fiscal 2000. In addition, the Company believes that cash flow from operations will be sufficient to cover the interest expense arising from the Revolving Credit Facility and the notes. However, the Company's ability to meet its operating and capital expenditure requirements depends upon its future performance, which in turn, is subject to general economic conditions and financial, business and other factors affecting the operations of the Company, including factors beyond its control. See "Risk Factors." Accordingly, there can be no assurance that cash flow from operations and cash on hand will be sufficient to meet the Company's debt service obligations or that cash flow from operations, cash on hand and borrowings under the Revolving Credit Facility will be sufficient to meet the Company's other operating and capital expenditure obligations. In addition, upon a change of control of the Parent or the requirement that the Parent pay cash dividends on its preferred stock, the Parent may not have sufficient funds to pay such payments or redeem the preferred stock on a change of control unless the Company pays a dividend of such amount to the Parent. See "Principal Stockholders." Seasonality and Quarterly Results Due to the seasonal nature of the Company's business, working capital requirements increase as inventory levels peak in anticipation of the back-to- school and Christmas shopping seasons. Working capital at May 1, 1999 was $1.4 million compared to a negative $10.9 million at May 2, 1998. Working capital at January 30, 1999 was $2.0 million as compared to negative working capital of $13.1 million and $6.9 million, respectively, at January 31, 1998 and February 1, 1997. The negative working capital at May 2, 1998, January 31, 1998 and February 1, 1997 was due to the Predecessor transferring all of its excess cash to Petrie. The Company's fourth fiscal quarter historically accounts for the largest percentage of the Company's annual net sales. The Company's first fiscal quarter historically accounts for the smallest percentage of annual net sales. In fiscal 1999, the Company's fourth quarter accounted for approximately 29.6% of the Company's annual net sales. The Company's quarterly results of operations may also fluctuate significantly as a result of a variety of factors, including the timing of store openings, the amount of revenue contributed by new stores, changes in the mix of products sold, the timing and level of markdowns, the timing of store closings and expansions, competitive factors and general economic conditions. 41 The following table sets forth (1) certain statement of operations and operating data for the Predecessor for each fiscal quarter in fiscal 1998 and (2) certain pro forma statement of operations and operating data for the Company for each fiscal quarter in fiscal 1999 and the first fiscal quarter in fiscal 2000. This quarterly data was derived from unaudited financial statements of the Predecessor and the Company, which in the opinion of management of the Company contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof.
Pro Forma Fiscal 1998 Pro Forma Fiscal 1999 Fiscal 2000 ------------------------------- ---------------------------------- ----------- First Second Third Fourth First Second Third Fourth First Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter (Dollars in thousands) ------- ------- ------- ------- ------- ------- ------- ------- ------- Net sales............... $66,043 $69,961 $66,840 $84,094 $66,398 $71,634 $69,248 $87,110 $72,733 Net income (loss)....... 2,713 2,967 1,720 7,289 (745) (1,257) (1,065) 4,756 (415) EBITDA as adjusted...... 6,168 6,629 4,459 14,049 4,874 4,008 4,307 14,690 5,631
Year 2000 Compliance The Company has completed a review of its own information technology and non- information technology systems to determine whether they are year 2000 compliant. The Company's merchandise system, which includes purchase order management, open order reporting, allocation and distribution, material handling, price management and inventory reporting, is written in an application that provides four digits rather than two digits to define the year end, accordingly, is inherently year 2000 compliant. The Company's financial systems, which include sales audit, inventory control and accounts payable, are written in the same application language as its merchandise system. The Company's general ledger system was recently purchased and has been certified by the software vendor to be year 2000 compliant. An outside service provides payroll and payroll related tax services and, based on the documentation obtained from this vendor, these systems are compliant with the year 2000. The Company plans to install new point of sale equipment in all of its stores during fiscal 2000 and fiscal 2001. In the event the Company is not successful with this implementation, the Company believes that its current point of sales terminals will continue to adequately support the Company's store operations, including the ability to obtain authorization of third party credit cards in the year 2000. The Company's current point of sale devices are unsophisticated terminals and the current date must be entered manually each day. The Company is in the process of asking its significant suppliers the status of their year 2000 readiness. To date, the Company is not aware of any third party year 2000 issue that would materially impact the Company's business, financial condition or results of operations. However, the Company has no means of ensuring that its suppliers will be year 2000 compliant. The inability of suppliers to complete their year 2000 resolution process in a timely fashion could materially impact the Company. The Company is unable to determine the effect of non-compliance by its suppliers. In addition, there can be no assurance that the systems of other third parties with which the Company interacts will not suffer from year 2000 problems, or that such problems would not have a material adverse effect on the Company's business, financial condition or results of operations. In particular, year 2000 problems that have been or may in the future be identified with respect to information technology and non-information technology systems of third parties having widespread national and international interactions with persons and entities generally (for example, governmental agencies, utilities and information and financial networks) could have a material adverse impact on the Company's business, financial condition or results of operations. 42 Inflation The Company does not believe that inflation has had a material effect on the results of operations during the past three fiscal years. However, there can be no assurance that the Company's business will not be affected by inflation in the future. New Accounting Pronouncements In 1998, the Company adopted Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131 superseded SFAS 14, Financial Reporting for Segments of a Business Enterprise. The adoption of SFAS 131 did not affect the results of the Company's operations or financial position. The Company conducts business in one operating segment. The Company determined its operating segment based on individual stores that the chief operating decision maker reviews for purposes of assessing performance and making operational decisions. These individual operations have been aggregated into one segment because the Company believes it helps the users to understand the Company's performance. The combined operations have similar economic characteristics and each operation has similar products, services, customers and distribution network. 43 BUSINESS General The Company is a leading national mall-based retailer of popular price female junior apparel. For over 30 years, the Company has built a reputation for providing fashion apparel and accessories distinctly targeted at teenaged women. The Company closely monitors the fashion trends of its core customers, young women principally between the ages of 13 to 19 years old, who, together with male teenagers, represent the fastest growing segment of the consumer market. The Company sells substantially all of its merchandise under private label names including Rave, Rave Up and In Charge, which provide the Company's customers with fashionable, quality apparel and accessories at lower prices than brand name merchandise. The Company's emphasis on sourcing merchandise domestically and its efficient distribution system provide it with short inventory lead times, which enable the Company to respond quickly to the latest fashion trends and thereby achieve high inventory turns and reduce markdowns. The Company's pricing strategy, which emphasizes delivering consistent value to its customers rather than driving sales with periodic promotions, also contributes to reducing markdowns. As of May 1, 1999, the Company had 441 stores, generally in major enclosed regional shopping malls, throughout the United States, Puerto Rico and the U.S. Virgin Islands primarily under the G+G and Rave names. The Company uses the same store format for both its G+G and Rave stores and applies this format in all of its markets. The Company's stores average approximately 2,400 gross square feet with approximately 25 feet of mall frontage and are designed to create a lively and exciting shopping experience for the Company's teenaged customers. The Company's sales per gross square foot increased from $222 in fiscal 1995 to $290 in fiscal 1999 (representing a compound annual growth rate of 6.9%) and EBITDA as adjusted increased from $9.7 million in fiscal 1995 to $27.9 million in pro forma fiscal 1999 (representing a compound annual growth rate of 30.1%). In addition, from fiscal 1995 to fiscal 1999 the Company's same store sales (based on 359 stores open throughout this period) grew 23.6%. The retail business conducted by the Company was founded in the 1930s by Jay Galin's father and uncle. The first stores offered only lingerie and hosiery for sale. In 1969, the business opened its first mall-based store and introduced female junior sportswear. Due to the success of its mall-based stores offering sportswear, the business began focusing exclusively on opening mall-based stores and selling sportswear in these stores. In 1969, an initial public offering of common stock was completed. In 1980, the business was acquired by Petrie Stores, Inc. In October 1995, Petrie, the Predecessor's parent, on behalf of itself and its subsidiaries (including the Predecessor), filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. In December 1998, the United States Bankruptcy Court for the Southern District of New York issued an order confirming Petrie's plan of reorganization. The Predecessor's operating performance was strong prior to and during the bankruptcy proceedings. The Predecessor generated aggregate EBITDA as adjusted of $84.1 million and aggregate net income of $27.0 million from the beginning of fiscal 1995 through August 28, 1998. On August 28, 1998, senior management, together with an investor group led by affiliates of Pegasus, acquired the business currently conducted by the Company from the Predecessor by means of an asset transfer pursuant to Section 363 of the United States Bankruptcy Code. The Company was incorporated in the State of Delaware on June 26, 1998. The Parent was incorporated in the State of Delaware on August 24, 1998 and acquired 100% of the outstanding capital stock of the Company on August 27, 1998 to effectuate the Acquisition. The Parent's only material asset is shares of the Company's common stock, and it conducts no business other than owning shares of the Company's common stock. Business Strategy The Company's business strategy is to expand its operations and increase its sales and EBITDA through the opening of new Rave stores (including through the acquisition of groups of or individual 44 leases) primarily in mall locations that it believes are favorable for its business. The Company opened 22 new stores in fiscal 1999 and six new stores in the period from January 31, 1999 to May 1, 1999; the Company anticipates opening approximately 24 new stores during the remainder of fiscal 2000. The Company believes that its strong relationships with its existing landlords, coupled with the fact that it no longer is hampered by the Predecessor's recent bankruptcy proceedings, provide it with a good opportunity to negotiate favorable leases in new locations. The Company believes that at least 200 locations exist at where the opening of new stores would be attractive. The Company believes that its current distribution infrastructure can support a total of 700 stores without a material increase in cost. In addition, the Company intends to test the market for sales to 8- to 12-year- old girls by opening approximately six mall stores under the name Rave Girl during fiscal 2000. The Company believes that the market for the sale of popularly priced fashion apparel to this age group is currently under-served. The Company intends to enter this market at a relatively low incremental cost by leveraging its existing administrative, distribution and marketing infrastructure. The Company's prototype Rave Girl store is approximately 1,500 square feet with a design aimed at appealing to 8- to 12-year-old girls. If this market test succeeds, the Company will seek to opportunistically open additional Rave Girl stores. The Company recently launched, and is in the process of expanding, an Internet web site that provides information about the Company's merchandise offerings, promotions and store sites. The address of this web site is www.gorave.com. The Company intends to actively monitor the popularity of this web site and its potential for additional applications. Merchandising and Marketing Merchandising Strategy The Company's merchandising strategy is to deliver the latest fashions to its teenaged customers more quickly and at lower prices than its competitors. The Company's merchandise is designed primarily to appeal to young women between the ages of 13 and 19 years old who desire fashion, quality and value. Due to the Company's merchandise and its geographic diversity, over the past few years the Company's stores also have increasingly attracted the 20- to 30-year-old female customer. Substantially all of the Company's merchandise is private label that is manufactured to the Company's specifications, which gives the Company tighter control over apparel production and delivery than it would have if it purchased and sold brand name merchandise. The Company's stores offer the latest fashion in both apparel and accessories in stores that are designed to be bright, energetic and welcoming to create a fun and enjoyable shopping experience. The Company's apparel offerings include tops, bottoms, dresses, lingerie, coordinates and outerwear. The Company utilizes an everyday value pricing strategy as opposed to offering discounts on marked-up merchandise. During fiscal 1999, the average selling price of the items the Company sold was $10.50. During fiscal 1997, 1998 and 1999 and the first fiscal quarter of fiscal 2000, tops, bottoms and dresses each accounted for more than 10% of the Company's net sales (except for dresses in fiscal 1999 and the first fiscal quarter of fiscal 2000, which accounted for 9.1% and 5.8%, respectively), as indicated in the table presented below. No other category of merchandise sold by the Company accounted for more than 10% of the Company's net sales in fiscal 1997, 1998 or 1999 or the first fiscal quarter of fiscal 2000.
Percentage of Net Sales ------------------------------------------------ First Fiscal Merchandise Category Fiscal 1997 Fiscal 1998 Fiscal 1999 Quarter 2000 - -------------------- ----------- ----------- ----------- ------------ Tops........................... 42.3% 46.9% 47.4% 45.7% Bottoms........................ 18.8 21.0 21.5 29.6 Dresses........................ 14.7 11.0 9.1 5.8
45 In order to react quickly to teenagers' changing tastes and keep stores stocked with current fashions, the Company sources approximately 90% of its merchandise domestically. Maintaining current merchandise allows the Company to achieve high inventory turns and sales per square foot while improving profitability. The speed of the Company's merchandising and product sourcing capability enables the Company to change its product mix in season and respond immediately to, rather than try to anticipate, teenaged fashion trends. From fiscal 1995 through fiscal 1999, the Company's inventory turns increased from 5.1x to 6.2x and its sales per gross square foot improved from $222 to $290. The Company's merchandising strategy is established by the collective efforts of its six divisional merchandise managers who report to Jay Galin, the Company's Chairman of the Board and Chief Executive Officer. These managers identify and target fashion trends and customer demand by, among other things, shopping the better domestic and European markets, reviewing magazines and catalogs and viewing television shows and movies directed to the Company's customers, monitoring sell-through trends and attending certain fashion shows. The Company also maintains an office in California to ensure proper coverage of the trend-setting West Coast market. Inventory levels are constantly reviewed and planned on a store-by-store basis by the Company's planning and distribution staff whose main responsibility is matching the fashion desires of the Company's customers, who are primarily young and in demand of the latest fashion trends. Visual Presentation and Advertising The Company believes that effective and strong visual merchandising is critical in order to capture a customer's interest in the few seconds she is exposed to the store front. At G+G and Rave, presentation is a product of store design, use of fixtures and in-store marketing which complement the merchandise offering. The merchandise floorset, which is integral to a store's merchandise presentation, is jointly executed in a store by the merchants and the marketing department. Once approved, a consistent floor set is communicated to all of the stores in the chain through a formal floorset layout. The floorsets are finalized based on seasonal and climatic differences among the Company's regional markets. Major floorsets are prepared for each major selling season and sale period. Modifications to the floorset are forwarded to the stores on a bi-weekly basis. The Company primarily advertises in its stores, stressing fashion, quality and value in support of its everyday value pricing strategy. The marketing department creates a seasonal sign package that accentuates the merchandise presentation. Each season, key items are selected and highlighted with a comprehensive in-store poster and signage program. The sign package reflects new merchandise colors and fashion trends to keep the stores looking current and visually stimulating. The merchandise package also targets the customer with hard-hitting value pricing slogans in the form of large store-spanning banners and rack-top signage. Store bags, boxes, name badges and other store peripherals all emphasize fashion and value. Merchandise Planning The Company's seasonal merchandise plans are prepared by the Company's financial division and are approved by senior management. The monthly corporate merchandise plan is then allocated by merchandise department based on historical and current trends. The preparation and monitoring of merchandise plans independently of purchasing functions is essential for controlling inventory levels. The Company monitors its inventory through a perpetual inventory system. The Company uses four merchandise seasons each year, which enables it to identify inventory age. The Company maintains a current base of inventory, which is extremely important in ensuring a proper mix of seasonal inventory to match customer buying patterns and a profitable sell-down at the end of a season. Based on the Company's ability to procure the majority of its merchandise within two to four weeks from delivery of a purchase order, the Company purchases seasonal merchandise within the season and is able to quickly identify, address and correct any negative sales trends or to quickly react and 46 capitalize on positive sales trends. This fluid purchasing practice prevents significant over-inventoried positions which could adversely affect the Company's profitability and cash flow. The table below reflects average store inventory and average annual inventory turn over the last five fiscal years.
Average Store Average Annual Fiscal Year Retail Inventory Inventory Turn - ----------- ---------------- -------------- 1995............................................ $102,900 5.1x 1996............................................ 103,400 5.4 1997............................................ 102,800 6.4 1998............................................ 107,300 6.6 1999............................................ 113,100 6.2
Sourcing and Suppliers All of the Company's inventory is purchased from third-party suppliers or manufacturers. The Company owns no manufacturing facilities. Approximately 90% of the Company's private label merchandise is manufactured domestically, with the remainder manufactured overseas. The Company supplies the design and the specifications to the manufacturers. The Company's manufacturers continually consult with the Company regarding developing fashion trends so that they can respond quickly to the Company's merchandise orders. Prior to delivery, the Company regularly inspects samples of its manufactured goods for quality based on materials, color, sizing specifications and shrinkage. The Company's merchants also routinely inspect the factories of the Company's suppliers to ensure that the Company's goods are of high quality. The Company believes that it has established relationships with an adequate number of suppliers to meet its ongoing inventory needs and that it has strong relationships with these suppliers. During fiscal 1999, the Company purchased its inventory from more than 300 suppliers. The Company has purchased inventory from its top three suppliers for more than five years. The Company has no long- term contracts with its suppliers and transacts business principally on an order-by-order basis. During the first fiscal quarter of fiscal 2000, the Company's top three suppliers accounted for 12.7%, 10.4% and 8.2% of the Company's inventory purchases. During fiscal 1999, the Company's top three suppliers accounted for 12.8%, 11.2% and 9.8% of the Company's inventory purchases. During the first fiscal quarter of fiscal 2000 and during fiscal 1999, no other single supplier accounted for more than 5.0% of the Company's inventory purchases. Distribution and Transportation The Company maintains a 165,000 square foot leased distribution center in North Bergen, New Jersey. All of the Company's vendors ship the purchased merchandise to the Company's distribution center, which then ships such merchandise to the Company's stores. Merchandise allocation begins the day before a vendor's delivery, with the vendor making a receiving appointment. This pre-allocation process allows the merchandise to be shipped to stores generally within 24 hours from receipt. To expedite delivery, the Company's vendors which are located on the West Coast ship merchandise by air to the distribution center. The Company employs an in-house developed allocation system which interfaces with the Company's store cash registers, as well as the Company's order and receiving system and distribution system. The allocation system maintains unit inventory and sales data by store at the style level, which enables the Company to identify specific store needs for replenishment. 47 The Company uses national and regional package carriers to ship merchandise to its stores and also uses air freight to ship merchandise to stores in certain regions. Transit time to stores generally is two to three days and merchandise is available for sale by stores the same day it is received. Accordingly, the time period from receipt of goods at the distribution center to display in the Company's stores generally is less than five days. During fiscal 1999, the Company estimates that more than 50% of merchandise coming into the distribution center was pre-ticketed and a substantial portion of merchandise coming into the distribution center was vendor pre-packed. Pre- ticketing and pre-packing save time, reduce labor costs and enhance inventory management. The Company's distribution and allocation operations are managed by the Vice President-Warehouse and Distribution. On the distribution side, the Vice President-Warehouse and Distribution supervises the distribution center manager who in turn oversees supervisors for receiving, packing and shipping. On the allocation side, the Vice President-Warehouse and Distribution supervises planners and distributors who prepare store merchandise allocations. Management of the Company believes that the Company's current distribution infrastructure can support a total of 700 stores. Stores Store Locations As of May 1, 1999, the Company had 441 stores in 39 states in the United States, Puerto Rico and the U.S. Virgin Islands. The following chart shows the number of stores that the Company had in each state, Puerto Rico and the U.S. Virgin Islands as of May 1, 1999.
Number State/Territory of Stores - --------------- --------- Alabama................. 9 Arkansas................ 2 Arizona................. 4 California.............. 34 Colorado................ 6 Connecticut............. 7 Delaware................ 1 Florida................. 49 Georgia................. 12 Hawaii.................. 1 Idaho................... 1 Illinois................ 17 Indiana................. 5 Kentucky................ 2 Louisiana............... 13 Maine................... 1 Maryland................ 17 Massachusetts........... 17 Michigan................ 20 Missouri................ 6 Mississippi............. 3
Number State/Territory of Stores - --------------- --------- Nebraska................ 1 Nevada.................. 1 New Hampshire........... 4 New Jersey.............. 13 New Mexico.............. 2 New York................ 40 North Carolina.......... 9 Ohio.................... 16 Oregon.................. 2 Pennsylvania............ 22 Puerto Rico............. 41 Rhode Island............ 2 South Carolina.......... 2 Tennessee............... 8 Texas................... 27 Virginia................ 8 Virgin Islands.......... 2 Washington.............. 9 Wisconsin............... 3 West Virginia........... 2
48 Store Format The Company uses the same store format for both its G+G and Rave stores and consistently applies its store format in all the markets served by the Company. In general, the G+G name is used in the New York, New Jersey and Connecticut markets and the Rave name is used in the other markets served by the Company. The Company's stores are predominantly located in major enclosed regional shopping malls, including Roosevelt Field in Garden City, New York and Florida Mall in Orlando, Florida. Within malls, the Company seeks locations in proximity to stores and areas having high teen traffic flow such as music stores, shoe stores and food courts. Each store is typically 2,400 gross square feet in size with approximately 25 feet of mall frontage. The Company's stores are designed to create a lively and exciting shopping experience for the Company's teenaged customer. The stores are fitted with various fixtures to display the merchandise in the appropriate fashion. Approximately 15% of a store's total space is committed to fitting rooms and storage space. The store layout and merchandise placement is centrally controlled by the Company's merchandising staff. Store and merchandise layouts are updated approximately every six weeks, or sooner when necessary, to stay current with the seasons and fashion trends. The clean design of the Company's stores allows the Company to enjoy a relatively low level of maintenance expenditures ($3.2 million in fiscal 1999) while retaining an attractive, well-maintained store base. Sales have been evenly balanced among the Company's store base, with its highest volume store accounting for less than 1.0% of gross sales during fiscal 1999. Store Operations All aspects of store operations (other than purchasing) are managed by district/area managers, each of whom is responsible for six to ten stores. Each district/area manager reports to a regional manager who oversees seven to eight district/area managers, and the regional managers report to the Vice President- Store Operations. Generally, each store employs five to ten employees, consisting of a store manager, who is in charge of all aspects of operations including recruiting, training, customer service and merchandising, two assistant managers and sales employees. Store managers report to a district/area manager and assistant managers and sales employees report to a store manager. The Company seeks to hire sales employees who have prior retail sales experience and an entrepreneurial spirit. Sales personnel are knowledgeable about the merchandise. The Company's sales personnel and assistant store managers are trained by experienced store managers, and the Company's store managers are trained by experienced district/area managers, in each case to offer the customer courteous and knowledgeable service. The Company's customers may pay for merchandise with cash, checks or third party credit cards. During fiscal 1999, 80% of purchases were made with cash or checks and 20% were made with credit cards. The Company's merchandise return policy permits returns if made within 30 days from the date of purchase. A refund will be given if the customer has a receipt; otherwise a store credit will be issued. Store Openings and Closings Since 1995, the Company has implemented an ongoing program to open new stores in locations that it believes are favorable for its business and close underperforming stores through negotiations with 49 landlords. Between October 31, 1995 and January 30, 1999, the Company opened 59 new stores. During this same period, the Company closed 70 underperforming stores. This program benefitted from the legal protections available to the Predecessor under the United States Bankruptcy Code after it filed for relief under Chapter 11 in October 1995. This program has improved the quality of the Company's store base and store productivity as measured by sales per gross square foot which increased from $222 in fiscal 1995 to $290 in fiscal 1999. The Company opened six new Rave stores in the period from January 31, 1999 to May 1, 1999 and plans to open approximately 24 new Rave stores by the end of fiscal 2000. The Company believes that its strong relationships with its existing landlords, coupled with the fact that its business is no longer hampered by the Predecessor's recent bankruptcy proceedings, provide it with a good opportunity to negotiate favorable leases in new locations. The Company anticipates closing approximately 12 stores by the end of fiscal 2000. In deciding whether to open or close a store, the Company considers several factors, including (i) the extent of competition from other mall tenants, (ii) the location of the store in the mall, (iii) the rental rate for the property where the store is or will be located, (iv) the performance of other apparel retail stores in the mall (which information is often made available to the Company from mall owners), (v) whether the mall's environment is suitable for the store, (vi) the anticipated return on investment and (vii) the quality of anchor stores in the mall in which the store is or will be located. The opening of a new store requires an investment in leasehold improvements and fixtures (an average of approximately $110,000 in fiscal 1999) plus the cost of inventory (approximately $62,500 in fiscal 1999). Furthermore, the Company intends to test the market for sales to 8- to 12-year- old girls by opening approximately six mall stores under the name Rave Girl during fiscal 2000. The Company believes that the market for the sale of popularly priced fashion apparel to this age group is currently under-served. The Company intends to enter this market at a relatively low incremental cost by leveraging its existing administrative, distribution and marketing infrastructure. The Company's prototype Rave Girl store is approximately 1,500 square feet with a design aimed at appealing to 8- to 12-year-old girls. If this market test succeeds, the Company will seek to opportunistically open additional Rave Girl stores. Teen Market Teenagers represent both a growing part of the U.S. population and an increasing source of purchasing power. The teenaged population reached approximately 31 million in 1998 and is projected to grow to approximately 34 million by 2005, representing a projected average annual growth rate nearly twice that of the overall United States population. This rapid growth is primarily the result of the growing up of the children of the baby boomers. In addition to the growing number of teenagers, teen purchasing power is also growing. Income for teens reached a record $119.9 billion in 1998, up from $75.0 billion in 1995, and is expected to grow at a compound annual growth rate of approximately 4.4% to reach $148.5 billion in 2003. Teen income stems from three main sources: (1) part- and full-time employment, comprising approximately 22% of teenagers' total income; (2) allowances, comprising approximately 30% of teenagers' total income; and (3) gifts and occasional odd jobs, comprising the remaining approximately 48% of teenagers' total income. Teenage income from employment is expected to rise as a result of teens having an easier time finding jobs in such fields as retail, foodservice, and construction and recent raises in the federal minimum wage. On October 1, 1996, the minimum wage increased to $4.75 or 12.0% over the previous level of $4.25, and on September 1, 1997, the minimum wage was raised an additional 8.4% to $5.15. Teen purchasing power is further bolstered by parents from whom most teens (84%) receive money when needed. The buying power of today's teenager is also aided by easier 50 access to cash via credit cards, whether their own or those of their parents. With rising wages and increasing parental support, teens are predicted to have more spending money in the future. The bulk of teenagers' income is discretionary since most teenagers live with their parents. Teenage girls spend the largest percentage of their total income, approximately 42%, on clothing and jewelry. Malls serve as social centers for teenagers. Teens go to malls 40% more frequently than older shoppers, with approximately 63% of teens shopping at a mall at least once a week. In general, teens choose malls as their favorite shopping destination, with teenage girls tending to shop at mall specialty clothing and beauty stores. Each mall trip averages 90 minutes with 56% of teens making purchases averaging $35. Teens have become increasingly fashion conscious. In addition, teens alter their wardrobes more frequently than adults. Competition The junior apparel retail business is highly competitive, with fashion, quality, price, location, store environment and customer service being the principal competitive factors. While the Company believes that it is able to compete favorably with respect to each of these factors, the Company believes it competes primarily on the basis of fashion, price and quality. The Company competes with a number of mall-based popular priced junior fashion retailers, but has few direct competitors in its price points and levels of fashion and quality. The Company's competitors include Wet Seal/Contempo Casual, a mall-based junior apparel retailer based in Irvine, California which offers current fashions at higher price points than the Company. In addition, the Company competes with several discount department stores and local and regional department store chains which overlap with the Company's merchandise offerings and price points. Some of the Company's competitors are larger and may have greater financial, marketing and other resources than the Company. In addition, the Company competes for favorable site locations and lease terms in shopping malls. In the future, the Company may experience increased competition from catalog and Internet retailers. Properties As of May 1, 1999, the Company had 441 stores in 39 states in the United States, Puerto Rico and the U.S. Virgin Islands. All of the Company's store sites are leased. As of May 1, 1999, the average remaining lease term of the Company's stores (excluding stores with month-to-month leases) was approximately 40 months, assuming renewal options are not exercised (or approximately 52 months, assuming renewal options are exercised). The table below reflects the fiscal years in which the leases on the Company's stores, as of May 1, 1999, expire (assuming renewal options are not exercised):
Number of Fiscal Year Leases Expiring* ----------- ---------------- 2000..................................................... 98** 2001..................................................... 70 2002..................................................... 65 2003..................................................... 45 2004 and thereafter...................................... 118 --- 396 ===
- -------- * As of May 1, 1999, the Company also had 45 stores with expired leases; the Company occupies such premises on a month-to-month basis. ** Does not include leases for eight stores which expired in the period between January 31, 1999 and May 1, 1999; the Company occupies such premises on a month-to-month basis (see * above). 51 The Company believes that its real estate staff has strong relationships with the Company's present landlords. The Company believes that the strength of these relationships is based, among other things, upon the credibility established from the many years of the Company doing business with the key leasing personnel at its major landlords, the Company's long history in the female junior apparel business, the national scope of the Company's business, the Company's consistent financial results, the attractive tenant use offered by the Company's stores and the Company's expansion strategy. As of May 1, 1999, the Company's two largest landlords leased the Company 16% and 7.7%, respectively, of its stores. However, despite these factors and its relationships with landlords, during the Predecessor's Chapter 11 proceedings, the Company often was unable to negotiate long-term leases. Now that the Company is independent from Petrie, it believes that it will be able to negotiate longer and more favorable store leases. However, no assurance can be given that the Company can renew existing leases on favorable terms. Between August 28, 1998 (the date on which the Acquisition was consummated) and May 1, 1999, the Company renewed leases for 78 stores and entered into leases for 29 new stores. In addition, as of May 1, 1999, the Company was negotiating renewals for 137 of the 143 stores which have leases expiring during fiscal 2000 or expired leases; with respect to these 137 stores, the Company's negotiations had progressed, as of such date, to the final documentation phase for 50 stores. The Company leases its distribution center located in North Bergen, New Jersey. The lease expires in August 2004. The Company has one five-year renewal option pursuant to which the rent will be equal to 90% of the fair market value of the premises. The Company's headquarters are located in New York City and consist of 35,000 square feet of leased office space. From the Company's headquarters, the Company administers its purchasing, merchandising, finance, store operations, management information systems, marketing, real estate, human resources and store construction functions. The lease for the Company's headquarters will expire in January 2000 unless extended pursuant to the Company's three-year renewal option. The Company's chief executive office is located at 520 Eighth Avenue, New York, NY 10018 and its telephone number is (212) 279-4961. Management Information Systems The Company has a computer system that is fully integrated using an IBM RISC 6000 computer. The Company's management information and control systems provide management, buyers, planners and distributors information by the next business day to identify sales trends, replenish depleted store inventories, re-price merchandise and monitor merchandise mix. The automated and integrated allocation and material handling systems enable the Company to move the majority of its merchandise through its distribution center within 24 hours of receipt. All of the Company's stores have point of sales terminals that record sales at the style level, markdowns, distribution center receipts, inter-store transfers and store payroll. This information is transmitted daily to the Company's host systems. During fiscal 2000 and 2001, the Company intends to replace its existing point of sale equipment and software with new state-of-the-art PC- based, point of sale equipment and software, which will give the Company the capability of bar code scanning, price look-up and inventory tracking and will enhance store productivity and reporting. The Company estimates the cost of the upgrade to be approximately $6.8 million and expects to finance a substantial portion of the upgrade with capital leases. The Company has already begun the pilot phase for this project. Trademarks and Service Marks The Company owns numerous trademarks, service marks and trade names which are used in its business. G+G and In Charge are registered on the federal principal trademark register for use in 52 connection with retail services and items of apparel. Rave and Rave Up are registered under the laws of the states in which the Company transacts business for use in connection with retail services and items of apparel. These registrations are renewable indefinitely so long as the marks are used by the Company. The Company intends to maintain its marks and the related registrations. The Company is not aware of any claims of infringement or other challenges to the Company's right to use its marks in the United States. Employees As of May 1, 1999, the Company had a total of 3,901 employees, consisting of 778 full-time salaried employees, 1,316 full-time hourly employees and 1,807 part-time hourly employees. The number of part-time hourly employees fluctuates due to the seasonal nature of the Company's business. As of May 1, 1999, the Local 2326 of the UAW/AFL/CIO represented 132 hourly employees in the Company's distribution center. The collective bargaining agreement covering these employees expires on January 31, 2002. None of the Company's other employees are members of a union. The Company has never had a strike or work stoppage. The Company considers its relations with both its union and non-union employees to be favorable. The Company believes that its employees are paid competitively with current standards in the industry. Despite the Predecessor's recent Chapter 11 case, the Company has experienced little turnover among its regional managers and district/area managers. Litigation From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. As of the date of this Prospectus, the Company was not engaged in any legal proceedings which are expected, individually or in the aggregate, to have a material adverse effect on the Company. 53 MANAGEMENT Directors, Executive Officers and Key Employees of the Company The Company's directors, executive officers and key employees, each of whom assumed his or her position with the Company on August 31, 1998, are as follows as of June 15, 1999:
Name Age Position - ---- --- -------- Jay Galin......................... 63 Chairman of the Board of Directors and Chief Executive Officer Scott Galin....................... 40 President, Chief Operating Officer and Director Craig Cogut....................... 45 Director Donald D. Shack................... 70 Director Lenard B. Tessler................. 47 Director Michael Kaplan.................... 45 Vice President, Chief Financial Officer, Treasurer and Secretary James R. Dodd..................... 57 Vice President-Store Operations Robert W. Tinbergen............... 51 Vice President-Warehouse and Distribution Jeffrey Galin..................... 37 Vice President/Divisional Merchandise Manager Donna D'Angelo.................... 43 Divisional Merchandise Manager Carol J. Harren................... 54 Divisional Merchandise Manager Robert B. Lembersky............... 43 Divisional Merchandise Manager Denise Vazquez.................... 46 Divisional Merchandise Manager Joshua S. Podell.................. 29 Director of Real Estate
Jay Galin worked for the Predecessor for over 40 years and served as President of the Predecessor from 1972 to August 1998. Mr. Galin was responsible for developing the Company from a lingerie and hosiery shop into a women's specialty retailer. Mr. Galin also served as Senior Vice President of Petrie Retail, Inc. from 1981 to 1990. Mr. Galin served as Executive Vice President of Petrie Stores Corporation/Petrie Retail, Inc. from 1990 to 1995. Mr. Galin held various management and executive positions with the Predecessor from 1956 to 1972. Mr. Galin served as a board member of Petrie Stores Corporation (Petrie's predecessor) from 1980 to 1995 and is a member of the board of directors of Ark Restaurants Corp. Mr. Galin is the father of Scott Galin and Jeffrey Galin. Scott Galin served as Executive Vice President and Chief Operating Officer of the Predecessor from 1992 to August 1998. From 1985 to 1992, Mr. Galin served as a Senior Vice President of the Predecessor and held executive positions in real estate, finance and store operations. Mr. Galin served as Senior Vice President of Petrie Stores/Petrie Retail, Inc. from 1985 to 1995. From 1980 to 1984, Mr. Galin held various buying and merchandising positions at the Predecessor. From 1977 to 1980, Mr. Galin held various part-time and training positions with the Predecessor. Scott Galin is the son of Jay Galin and the brother of Jeffrey Galin. Craig Cogut is a senior founding principal of Pegasus Investors, L.P., a partnership which was formed in 1996 and manages $220.0 million in equity capital. From 1990 to 1995, Mr. Cogut was a senior principal of Apollo Advisors, L.P. and Lion Advisors, L.P., partnerships which managed several billion dollars of equity capital for investment partnerships and private accounts. From 1984 to 1990, Mr. Cogut served as a consultant and advisor to Drexel Burnham Lambert Incorporated and associated entities. From 1979 to 1984, Mr. Cogut practiced law with Irell & Manella in Los Angeles, California. Mr. Cogut serves as a member of the board of directors of Vail Resorts, Inc. Mr. Cogut received a J.D. from Harvard Law School and a B.A. from Brown University. Donald D. Shack is a founding director of the law firm of Shack & Siegel, P.C., general counsel to the Company and the Parent. Prior to the formation of Shack & Siegel, P.C. in April 1993, Mr. Shack was 54 a member of the law firm of Whitman and Ransom from January 1990 to April 1993. Mr. Shack received a B.A. (1948) from Williams College and an LLB (1951) from Harvard Law School. He completed service with the U.S. Army in Korea in 1953 when he joined the law firm of Golenbock and Barell, becoming a partner in 1959. Mr. Shack is a member of the board of directors of Ark Restaurants Corp., the Andover Apparel Group, Inc., Just Toys, Inc. and International Citrus, Inc. Lenard B. Tessler is a founding principal of TGV Partners, a private investment partnership which was formed in April 1990. Mr. Tessler served as Chairman of the Board of Empire Kosher Poultry from 1994 to 1997, after serving as its President and Chief Executive Officer from 1992 to 1994. Before founding TGV Partners, Mr. Tessler was a founding partner of Levine, Tessler, Leichtman & Co., a leveraged buyout firm formed in 1987. From 1982 to 1987, Mr. Tessler was a founder, director and executive vice president of Walker Energy Partners, a publicly traded master limited partnership in the oil and gas industry, and subsequently he served as an independent financial consultant to financially troubled companies in that industry. Prior thereto, Mr. Tessler practiced accounting in New York as a certified public accountant, specializing in tax. Mr. Tessler received an M.B.A. from Fairleigh Dickinson University and a B.B.A. from the University of Miami. Mr. Tessler currently serves as a member of the board of directors of Opinion Research Corporation, and Garfield & Marks Designs Ltd., Inc. Michael Kaplan served as Vice President and Chief Financial Officer of the Predecessor from 1988 to August 1998. From 1986 to 1988, Mr. Kaplan was employed as controller for Brooks Fashions Stores, Inc. From 1983 to 1985, he was a consultant for Deloitte & Touche, LLP. From 1980 to 1983, he served as corporate controller for Ormond Shops Inc. Mr. Kaplan is a certified public accountant and from 1976 to 1980 held various auditing positions with Ernst & Young LLP. James R. Dodd served as Vice President of Store Operations of the Predecessor from April 1998 to August 1998. From 1995 to 1998, he was Vice President-Retail Division for JH Collectibles in Milwaukee, Wisconsin. On October 4, 1996, JH Collectibles filed a voluntary petition pursuant to Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the Eastern District of Wisconsin-Milwaukee; as of March 31, 1999, the plan of liquidation, which was confirmed and has become effective, was substantially consummated. From 1990 to 1995, he was Vice President of Operations for several companies including Tommy Hilfiger, London Fog and Cape Island Knitters. From 1982 to 1990, he held several positions with The Limited, Inc., including Vice President of Operations for Lane Bryant from 1988 to 1990. From 1974 to 1982, he was employed by Damschroders, Inc., a midwestern retailer where he held several positions, including Vice President of Operations. In the early 1970's, he was associated with The Limited, Inc., and before that he was employed by International Business Machines Corporation. Robert W. Tinbergen served as Vice President of Planning and Distribution of the Predecessor from 1988 to August 1998. From 1982 to 1987, he served as director of distribution for Orbachs. From 1980 to 1982, Mr. Tinbergen was employed as a senior consulting manager for Ernst & Whinney in their retailing group. From 1973 to 1980, Mr. Tinbergen served as the manager of planning and distribution for K-Mart Apparel Corp. Jeffrey Galin served as Divisional Merchandise Manager of the Predecessor from 1991 to August 1998. From 1989 to 1991, Mr. Galin was employed as a sales associate for Bergdorf Goodman. From 1985 to 1988, Mr. Galin served as a commercial real estate salesperson. Mr. Galin started his career as an associate buyer of the Predecessor from 1983 to 1984. Jeffrey Galin is the son of Jay Galin and the brother of Scott Galin. Donna D'Angelo served as Divisional Merchandise Manager of the Predecessor from 1986 to August 1998. From 1981 to 1986, Ms. D'Angelo was employed as a buyer for the Predecessor. From 1975 to 1981, she was a buyer for Felix Lilenthal & Company. 55 Carol J. Harren served as Divisional Merchandise Manager of the Predecessor from 1992 to August 1998. From 1989 to 1991, Ms. Harren was employed as a buyer for Weathervane Stores. From 1986 to 1989, she served as head of merchandising for Sebo Knitwear. Ms. Harren served as vice president of merchandise for Brooks Fashion Stores from 1984 to 1986. From 1980 to 1984, she was the merchandise manager for Lane Bryant Stores. From 1972 to 1980, Ms. Harren was a buyer for Gimbels New York. Ms. Harren was also a buyer for R.H. Macy & Co. from 1966 to 1972. Robert B. Lembersky served as Divisional Merchandise Manager of the Predecessor from 1993 to August 1998. From 1990 to 1992, Mr. Lembersky held various positions at Networks, a division of Worth Stores, including Vice President, merchandise manager and divisional merchandise manager. From 1984 to 1990, Mr. Lembersky was employed as sales manager and executive vice president of Barefoot Miss. Denise Vazquez served as buyer and Divisional Merchandise Manager of the Predecessor for the Puerto Rico Division from 1988 to August 1998. From 1981 to 1988, Mrs. Vazquez was employed as a buyer for Goldrings. From 1979 to 1981, Mrs. Vazquez was a buyer for Melburn Shops. From 1969 to 1979, Mrs. Vazquez held various positions for Gimbels New York, including executive training, assistant buyer, buyer and department manager. Joshua S. Podell served as Director of Real Estate of the Predecessor from August 1997 to August 1998, and as real estate manager of the Predecessor from January 1997 to August 1997. From January 1996 to January 1997, Mr. Podell served as director of real estate for Speedo Authentic Fitness Stores. From January 1994 to January 1996, Mr. Podell held various positions at The Greenberg Group, Inc., including retail tenant consultant, site analyst and retail real estate broker. From January 1992 to December 1993, Mr. Podell was employed as an advertising salesperson at K-III Corporation. The Company's Board of Directors consists of five members. All of the Company's directors hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified. Pursuant to the Parent's certificate of incorporation, so long as the Parent controls the Company, the Parent is required to cause the Company's Board of Directors to be identical to the Parent's Board of Directors. The Parent's Board of Directors consists of five members. Holders of shares of Class A common stock of the Parent ("Class A Common Stock") are currently entitled to elect three directors and holders of shares of Class B common stock of the Parent ("Class B Common Stock") are currently entitled to elect two directors. Jay Galin, Scott Galin and Donald D. Shack were elected to the Parent's Board of Directors by the Class A Common Stock holders and Craig Cogut and Lenard Tessler were elected to the Parent's Board of Directors by the Class B Common Stock holders. As of March 31, 1999, Jay and Scott Galin collectively owned (assuming the exercise of their stock options exercisable as of March 31, 1999) approximately 81% of the issued and outstanding Class A Common Stock and affiliates of Pegasus owned 100% of the Class B Common Stock. See "Principal Stockholders." Upon the occurrence of certain events, holders of shares of Class A Common Stock will be entitled to elect two directors and holders of shares of Class B Common Stock will be entitled to elect three directors. Such events include (1) the Parent's consolidated earnings before interest, taxes, depreciation and amortization for the twelve most recent full months being less than $15.0 million, (2) the occurrence of certain defaults under any of the Parent's or the Company's debt facilities, (3) termination of the employment of either of Jay or Scott Galin by the Company for "cause" or by such employee without "good reason" (as such terms are defined in such executive's employment agreement) and (4) the failure of the Parent to perform certain obligations to the holders of its Series B Preferred Stock. From and after such time as there are no longer any shares of Class B Common Stock or Class C common stock or Class D common stock of the Parent outstanding, the Parent's Board of Directors will be elected at each annual meeting of stockholders of the Parent by a plurality of the votes cast by holders of Class A Common Stock. 56 Pursuant to an agreement dated August 28, 1998, Pegasus G&G Retail, L.P., Pegasus Partners, L.P. and Pegasus Related Partners, L.P. (the "Pegasus Group") have agreed that, for so long as (1) TGV/G+G Investors LLC, an affiliate of TGV Partners, of which Lenard Tessler is a principal, is a limited partner of Pegasus G&G Retail, L.P. and (2) the Pegasus Group has the power to elect at least two directors to the Board of Directors of the Parent, they will elect Lenard Tessler as one of such directors. See "Principal Stockholders." In the event that Lenard Tessler votes, or after inquiry indicates his intention to vote, on any issue brought before the Board of Directors of the Parent differently from the other director elected by the Pegasus Group, then the Pegasus Group's obligation to elect Lenard Tessler to the Parent's Board of Directors will terminate, Lenard Tessler will immediately resign from the Board of Directors of each of the Parent and the Company and the Pegasus Group will be entitled to elect a new director to replace Lenard Tessler. In such event, the Pegasus Group will appoint Lenard Tessler or another individual acceptable to the Pegasus Group as an observer at meetings of the Parent's Board of Directors until such time as their obligation to elect Lenard Tessler as a director would otherwise have terminated. The executive officers of the Company were elected to serve in such capacities until the next annual meeting of the Board of Directors and until their respective successors are elected and qualified or until their earlier resignation or removal. In addition, Jay Galin and Scott Galin are employed by the Company pursuant to employment agreements. See "--Employment Contracts and Severance Agreements." See "Certain Relationships and Related Transactions" for descriptions of certain agreements relating to the stock ownership and management of the Company. Compensation of Directors As of the date of this Prospectus, the directors of the Company do not receive any compensation for their services as directors. 57 Executive Compensation The table below sets forth information concerning the annual and long-term compensation for services in all capacities to the Predecessor from February 1, 1998 to August 28, 1998 and to the Company from August 31, 1998 to January 30, 1999 of those persons (collectively, the "Named Officers") who served as Chief Executive Officer and the four next most highly compensated executive officers of the Company during the fiscal year ended January 30, 1999. In connection with the Acquisition, the Named Officers terminated their employment with the Predecessor and became officers of the Company. Summary Compensation Table For 1999 Fiscal Year
Annual Compensation -------------------------------------- Name and Principal Other Annual All Other Position Salary Bonus Compensation Compensation(1) - ------------------ ---------- ----------- ------------ --------------- Jay Galin............... $1,116,666(2) -- $152,987(3) $15,460(4) Chairman of the Board and Chief Executive Officer Scott Galin............. $ 502,884(5) -- $150,163(3) $15,460(4) President and Chief Operating Officer Michael Kaplan.......... $ 259,325(6) $ 26,500(7) -- $11,401 Vice President, Chief Financial Officer, Treasurer and Secretary Jeffrey Galin........... $ 194,326(8) $ 20,500(7) -- $ 8,718 Vice President/Divisional Merchandise Manager Robert W. Tinbergen..... $ 149,182(9) $ 15,000(7) -- $10,768 Vice President- Warehouse and Distribution
- -------- (1) Reflects actual premiums paid under the Executive Medical Reimbursement Plan by the Company and estimates of premiums paid by the Predecessor under this plan, which estimates assume that the premiums paid by the Predecessor were identical to the premiums paid by the Company because both companies offered the same plan. The plan, which is available to full-time employees at or above the assistant director level, reimburses covered employees for medical, dental, vision and deductible expenses not covered by the Company's primary healthcare plan, which is available to all of the Company's full-time employees. The premiums paid under the plan for each of the Named Officers were as follows: Jay Galin ($8,118), Scott Galin ($8,118), Michael Kaplan ($4,059), Jeffrey Galin ($1,376) and Robert W. Tinbergen ($4,059). Also includes contributions to the G+G Retirement Plan and Trust made by the Company for the benefit of the Named Officers as follows: Jay Galin ($7,342), Scott Galin ($7,342), Michael Kaplan ($7,342), Jeffrey Galin ($7,342) and Robert W. Tinbergen ($6,709). (2) $679,166 for service to the Predecessor and $437,500 for service to the Company. (3) For each of Jay Galin and Scott Galin, represents $143,278 of personal legal fees and disbursements incurred in connection with the Acquisition reimbursed by Petrie ($17,205), the Predecessor ($32,795) and the Company ($93,278). Also includes reimbursement for automobile-related expenses and commuting expenses. (4) Each of these Named Officers also received a success fee equal to $1,378,000 in cash and a note payable by the Company in the amount of $272,000 in connection with their assistance in the sale of the junior apparel retail business conducted by the Predecessor prior to August 28, 1998. See "Certain Relationships and Related Transactions--Purchase of Stock in Parent; Success Fees; Loans From Company." (5) $274,519 for service to the Predecessor and $228,365 for service to the Company. (6) $143,654 for service to the Predecessor and $115,671 for service to the Company. (7) Reflects a bonus earned by each of these Named Officers during fiscal 1999 and prior fiscal years during which the Predecessor operated under the protection of Chapter 11 of the United States Bankruptcy Code as a reward for remaining with the Predecessor during the pendency of its Chapter 11 case. The Company paid these bonuses on or about March 15, 1999. (8) $109,615 for service to the Predecessor and $84,711 for service to the Company. (9) $84,115 for service to the Predecessor and $65,067 for service to the Company. 58 Employment Contracts and Severance Agreements Jay Galin is employed by the Company as its Chairman of the Board and Chief Executive Officer pursuant to an employment agreement which expires on August 28, 2000. Under his employment agreement, Jay Galin is entitled to receive a base salary of $1,050,000 per year, which increases to $1,075,000 per year on August 28, 1999, and a bonus pursuant to the Bonus Plan for Senior Management Employees of the Company. See "--Bonus Plan." At any time during the term of his employment agreement, Jay Galin may, upon three months prior written notice to the Company, terminate his employment agreement and enter into a three-year consulting agreement with the Company. The consulting agreement would require Jay Galin to provide consulting services to the Company for up to half normal working time, in exchange for annual consulting fees equal to one-half of his annual salary at the time of termination of his employment agreement. Scott Galin is employed by the Company as its President and Chief Operating Officer pursuant to an employment agreement which expires on August 28, 2003. Under his employment agreement, Scott Galin is entitled to receive a base salary of $525,000 per year, which increases by $25,000 on an annual basis, and a bonus pursuant to the Bonus Plan for Senior Management Employees of the Company. See "--Bonus Plan." In addition, in the event Jay Galin's employment is terminated for any reason (including the exercise of his consulting option described above), Scott Galin will serve as Chief Executive Officer of the Company for the remaining term of his employment agreement, and his base salary initially will be increased to $750,000 per year (subject to further annual increases of $25,000). In the event the employment of Jay or Scott Galin is terminated by the Company without "cause" or by such executive for "good reason" (as such terms are defined in the employment agreements), such executive is entitled to receive, as severance, the salary, bonus and benefits to which he would have been entitled for the remainder of the employment term. In the event the employment of Jay or Scott Galin is terminated upon "disability" (as defined in the employment agreements), such executive will receive his full salary and benefits for one year and 50% of his salary and full benefits for an additional six months. Upon the death of Jay or Scott Galin, the Company is required to pay to such executive's designated beneficiary his salary and bonus for one year following his death, provided that the Company has obtained key-man life insurance covering such executive at a reasonable cost. In the event Jay Galin exercises his consulting option described above, his consulting agreement would include termination provisions substantially similar to those contained in his employment agreement. Each employment agreement also contains covenants precluding the executive from, among other things, competing with the Company or soliciting its customers or employees until the earlier of (i) the expiration of the initial term of the employment agreement or (ii) the date which is 18 months after the termination of his employment with the Company. In the event Jay Galin exercises his consulting option, his consulting agreement would contain substantially similar covenants not to compete or solicit. The Company has also entered into separate agreements with Michael Kaplan, a Vice President and the Chief Financial Officer of the Company, and Jeffrey Galin, Vice President/Divisional Merchandise Manager of the Company, which provide for severance payments in the event the Company terminates the executive's employment without "cause" (as such term is defined in the severance agreement). These severance payments consist of the executive's base salary for one year and, if the executive elects to continue coverage under the Company's medical insurance, the payment of a portion of the premiums for such insurance equal to the portion which would have been paid had he remained in the Company's employ for up to one year. Bonus Plan The Company's Board of Directors adopted a Bonus Plan for Senior Management Employees of the Company (the "Bonus Plan") which became effective on February 2, 1999. Participants in the Bonus 59 Plan include Jay Galin, the Company's Chairman of the Board and Chief Executive Officer, and Scott Galin, the Company's President and Chief Operating Officer, and other members of the Company's senior management selected by the Company's Chairman of the Board/Chief Executive Officer and President/Chief Operating Officer. Under the Bonus Plan, participants are eligible to receive annual cash bonuses in addition to their base salaries. The payment of bonus awards for each fiscal year is based upon the Company's financial performance for such fiscal year measured by the Company's earnings before interest, taxes, depreciation and amortization ("EBITDA") for such fiscal year. The Bonus Plan provides for several Company performance levels, each of which is based on (i) a percentage of the Company's projected EBITDA for the relevant fiscal year established by the Company's Board of Directors and (ii) the dollar amount of bonuses payable to participants in the Bonus Plan for the relevant fiscal year at such performance level. The dollar amount of bonus awards is based on a percentage of each participant's base salary and ranges from 0% to 40% of a participant's salary (or, for the Chairman of the Board/Chief Executive Officer or the President/Chief Operating Officer, 0% to 65% of such participant's salary) based on the performance level attained by the Company. The Bonus Plan is administered by the Company's Board of Directors. The Bonus Plan may be amended or terminated at any time upon the recommendation of the Company's Chairman of the Board/Chief Executive Officer and President/Chief Operating Officer. Stock Option Plan Effective as of March 15, 1999, the Parent adopted its 1999 Stock Option Plan (the "Option Plan") providing for the granting of options to purchase shares of its Class A Common Stock to its employees and employees of its subsidiaries. The Option Plan is administered by the Board of Directors of the Parent, which is authorized to grant incentive stock options and/or non-qualified stock options to purchase up to 7,000 shares of Class A Common Stock. The Board of Directors of the Parent will determine the number of shares subject to each option, the time(s) when the options will be granted, the time(s) when each option may be exercised, and any other matters which it deems appropriate. The exercise price of the options is $300.00 per share; however, for incentive stock options, the exercise price per share may not be less than 100% of the fair market value of one share of the Class A Common Stock at the time the option is granted, nor less than 110% of the fair market value of one share of the Class A Common Stock at the time the option is granted if the option is granted to an employee who owns more than ten percent of all voting stock of the Parent. Each option will terminate on the date specified by the Board of Directors of the Parent, but in no event later than ten years from the date on which the option was granted. However, if an incentive stock option is granted to an employee who owns more than ten percent of all voting stock of the Parent, the option must terminate no later than five years from the date of grant. The Board of Directors of the Parent will determine whether each option granted shall be an incentive stock option or a non-qualified stock option. However, if, at the time of grant, the fair market value of the Class A Common Stock underlying the incentive stock options to be granted exceeds $100,000 on the date they first become exercisable, such options shall be treated as non- qualified stock options to the extent of such excess. The incentive stock options are non-transferrable other than by will or the laws of descent and distribution. The non-qualified stock options may not be transferred other than by will or the laws of descent and distribution, unless transfer is permitted by the Board of Directors of the Parent and set forth in the option instrument. The Option Plan will terminate on March 14, 2009, unless terminated earlier by the Board of Directors of the Parent. Termination of the Option Plan will not terminate any option that was granted prior to termination. 60 Effective as of March 15, 1999, the Parent granted under the Option Plan options to purchase 5,000 shares of its Class A Common Stock, of which 1,250 are currently exercisable. These options, which are non-qualified stock options, were granted to Jay Galin, the Company's Chairman of the Board and Chief Executive Officer, and Scott Galin, the Company's President and Chief Operating Officer (2,500 options each). Pursuant to the Option Plan, an aggregate of 5,000 options may be granted to Jay Galin and Scott Galin. Retirement Plans The Company currently maintains three tax-qualified retirement plans. The G+G Retirement Plan and Trust (the "G+G Retirement Plan") and the G+G Retail, Inc. 401(k) Savings Plan (the "G+G 401(k) Plan") cover all employees, except those covered under a collective bargaining agreement or, with respect to the G+G 401(k) Plan, those employed in Puerto Rico. The G+G Retail-UAW Local Collectively Bargained 401(k) Plan (the "Local 2326 401(k) Plan") covers employees employed under a collective bargaining agreement with Local 2326 of the UAW. Each of these plans is a "defined contribution plan" under applicable pension laws and, as such, the Company's only obligation to them is to make any contribution required by their terms. The Company can have no contingent liability to such plans based on poor investment returns or other factors. The Company has the discretion, but not the obligation, to make a contribution in any year to the G+G Retirement Plan. The Company has no obligation make a contribution to the G+G 401(k) Plan. The Company is obligated to make a contribution to the Local 2326 401(k) Plan equal to 2% of each participant's compensation, up to a maximum of $30,000 in compensation; the Company also must "match" 50% of a participant's contribution to the plan, up to a maximum matching contribution of the lesser of 1% of the participant's compensation or $300. The Company intends to establish a 401(k) plan for employees in Puerto Rico during fiscal 2000 but does not expect to have a contribution obligation to such plan. Indemnification Agreements The Company has entered into separate, identical indemnification agreements with each of the directors of the Company. Pursuant to each indemnification agreement, the Company agreed to hold harmless and indemnify, to the fullest extent provided by Sections 145(a) and (b) of the Delaware General Corporation Law, the director against all expenses, judgments, fines and amounts paid in settlement reasonably incurred by the director in connection with any threatened, pending or completed civil or criminal action, suit or proceeding (including derivative actions) to which the director is, was or becomes a party, or is threatened to be made a party, as a result of being a director or former director of the Company. The obligation of the Company to indemnify a director is subject to the conditions that the director acted in good faith and in a manner he reasonably believed to be in the best interest of and not opposed to the Company and, with respect to a criminal proceeding, had no reason to believe such conduct was unlawful. In addition, the obligation of the Company to indemnify a director is subject to certain limited exclusions set forth in the indemnification agreement. Pursuant to each indemnification agreement, a director also is entitled to receive from the Company an advance for expenses incurred by such director in defending any action, suit or proceeding, which advance is subject to repayment if a court ultimately determines that the director was not entitled to be indemnified. 61 PRINCIPAL STOCKHOLDERS The Parent owns all of the outstanding capital stock of the Company. The following table sets forth certain information concerning the beneficial ownership of shares of the Parent's capital stock on May 1, 1999 by (i) each person known by the Company to beneficially own more than 5% of the outstanding shares of the Parent's voting securities, (ii) each director of the Company, (iii) each Named Officer and (iv) all directors and executive officers of the Company as a group.
Percentage Percent of Percentage Percentage Ownership Vote of all Number of Ownership Number of Ownership Number of all Classes of Shares of of Shares of of of Shares of Classes of Voting Series A Series A Series B Series B Name of Beneficial Common Common Common Preferred Preferred Preferred Preferred Owner(1)(2) Stock(3) Stock Stock Stock(4) Stock Stock (5) Stock - ------------------ ------------ ---------- ----------- ---------- ---------- ---------- ---------- Pegasus Related Partners, L.P.......... 26,362(6) 39.0% 25.2% -- -- 15,724.459 49.4% Paul Gunther, as Liquidating Trustee under Liquidating Trust Agreement dated as of December 18, 1998...... 15,000(7) 30.0% -- -- -- -- -- Cerberus G&G Company, L.L.C.................. 14,000(8) 21.9% -- 18,855.749 100.0% -- -- Pegasus G&G Retail, L.P.................... 11,924(9) 20.6% 11.4% -- -- 7,112.637 22.3% Pegasus Partners, L.P... 10,137(10) 17.9% 9.7% -- -- 6,045.582 19.0% Jay Galin............... 7,465(11) 14.7% 21.0% -- -- -- -- Scott Galin............. 7,465(11) 14.7% 21.0% -- -- -- -- Pegasus G&G Retail II, L.P.................... 4,977(12) 9.3% 4.8% -- -- 2,969.703 9.3% Donald D. Shack......... 20(13) * * -- -- -- -- Craig Cogut (14)........ -- -- -- -- -- -- -- Lenard Tessler.......... -- -- -- -- -- -- -- Michael Kaplan.......... 600(15) 1.2% 1.7% -- -- -- -- Jeffrey Galin........... 1,420(16) 2.8% 4.1% -- -- -- -- Robert Tinbergen........ 150(13) * * -- -- -- -- All directors and executive officers as a group (9 individuals).. 17,270 33.7% 47.6% -- -- -- --
- -------- * Less than 1%. (1) Except as otherwise indicated, each beneficial owner has the sole power to vote and dispose of all shares beneficially owned by it. (2) Beneficial ownership is determined in accordance with the rules and regulations of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage of ownership of that person, shares of the Parent's capital stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of May 1, 1999 are deemed outstanding. Such shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. (3) The Parent has four authorized classes of common stock, par value $.001 per share (the "Common Stock"). Except with respect to the election of directors, holders of shares of Class A Common Stock and Class B Common Stock vote together as a single class on all matters submitted to the stockholders for action. Holders of shares of Class A Common Stock are currently entitled to elect three directors of the Parent and holders of shares of Class B Common Stock are currently entitled to elect two directors of the Parent. From and after the occurrence of certain events, holders of shares of Class A Common Stock will be entitled to elect two directors of the Parent and holders of shares of Class B Common Stock will be entitled to elect three directors of the Parent. See "Management-- Directors, Executive Officers and Key Employees of the Company." In addition, the Parent and the Company are prohibited from taking certain actions without the affirmative vote or written consent of holders of a majority of the issued and outstanding shares of Class B Common Stock. Such restricted actions include, among other things, issuance or redemption of securities, incurrence of indebtedness in excess of specified amounts, effecting a liquidation or sale of the Parent or the Company or initiating a public offering (subject to limited exceptions). Except as required by the Delaware General Corporation Law, holders of shares of Class C common stock ("Class C Common Stock") and Class D 62 common stock ("Class D Common Stock") do not have the right to vote on any matter. Upon the occurrence of a public offering after the consummation of which at least 20% of the Common Stock is listed or admitted for trading on a national securities exchange or quoted on the Nasdaq Stock Market, each share of Class B Common Stock, Class C Common Stock and Class D Common Stock then issued and outstanding will automatically be converted into one share of Class A Common Stock. (4) Holders of shares of Series A Exchangeable Preferred Stock ("Series A Preferred Stock") are entitled to receive dividends at an annual rate of 15%, which increases to 17% upon the occurrence of certain triggering events. The Parent is prohibited from taking certain actions without the affirmative vote or written consent of holders of a majority of the shares of Series A Preferred Stock. Otherwise, except as required by the Delaware General Corporation Law, holders of shares of Series A Preferred Stock do not have the right to vote on any matter. The holders of shares of Series A Preferred Stock are exchangeable at the option of the Parent for notes which contain terms which are substantially similar to the terms of the Series A Preferred Stock. (5) Holders of shares of Series B Exchangeable Preferred Stock ("Series B Preferred Stock") are entitled to receive dividends at an annual rate of 12%, which increases to 17% upon the occurrence of certain triggering events. Except as required by the Delaware General Corporation Law, holders of shares of Series B Preferred Stock do not have the right to vote on any matter. The shares of Series B Preferred Stock are exchangeable at the option of the Parent for notes which contain terms which are substantially similar to the terms of the Series B Preferred Stock. (6) Includes 8,837 shares of Class B Common Stock (49.4% of the issued and outstanding Class B Common Stock) and warrants to purchase 17,525 shares of Class D Common Stock. The address of this stockholder is c/o Pegasus Investors, L.P., 99 River Road, Cos Cob, Connecticut 06807. (7) Class C Common Stock. These shares were issued to the Predecessor in connection with the Acquisition and were transferred to the Liquidating Trustee in the bankruptcy proceedings for Petrie and its subsidiaries. The address of this stockholder is c/o Petrie Retail, Inc., 150 Meadowlands Parkway, Secaucus, New Jersey 07094. (8) Warrants to purchase Class D Common Stock. The address of this stockholder is c/o Cerberus Partners, 450 Park Avenue, 28th Floor, New York, New York 10022. (9) Includes 3,997 shares of Class B Common Stock (22.3% of the issued and outstanding Class B Common Stock) and warrants to purchase 7,927 shares of Class D Common Stock. The address of this stockholder is c/o Pegasus Investors, L.P., 99 River Road, Cos Cob, Connecticut 06807. (10) Includes 3,398 shares of Class B Common Stock (19.0% of the issued and outstanding Class B Common Stock) and warrants to purchase 6,739 shares of Class D Common Stock. The address of this stockholder is c/o Pegasus Investors, L.P., 99 River Road, Cos Cob, Connecticut 06807. (11) Class A Common Stock. Includes options to purchase 625 shares of Class A Common Stock which are currently exercisable. Assuming these options were exercised, these shares represent 42.1% of the issued and outstanding Class A Common Stock. The address of this stockholder is c/o G+G Retail, Inc., 520 Eighth Avenue, New York, New York 10018. (12) Includes 1,668 shares of Class B Common Stock (9.3% of the issued and outstanding Class B Common Stock) and warrants to purchase 3,309 shares of Class D Common Stock. The address of this stockholder is c/o Pegasus Investors, L.P., 99 River Road, Cos Cob, Connecticut 06807. (13) Class A Common Stock. Represents less than 1% of the issued and outstanding Class A Common Stock. (14) Craig Cogut may be deemed to beneficially own 17,900 shares of Class B Common Stock, 35,500 shares of Class D Common Stock and 31,852.381 shares of Series B Preferred Stock, through his indirect ownership interest in Pegasus Partners, L.P. ("PPLP"), Pegasus Related Partners, L.P. ("PRPLP"), Pegasus G&G Retail, L.P. and Pegasus G&G Retail II, L.P. Craig Cogut beneficially owns 100% of the issued and outstanding capital stock of Pegasus Investors GP, Inc., a Delaware corporation, which is the general partner of Pegasus Investors, L.P., a Delaware limited partnership. Pegasus Investors, L.P. is the general partner of each of PPLP and PRPLP. PPLP and PRPLP collectively own 100% of the issued and outstanding capital stock of Pegasus G&G Retail GP, Inc., a Delaware corporation, which is the general partner of each of Pegasus G&G Retail, L.P. and Pegasus G&G Retail II, L.P. (15) Class A Common Stock. Represents 3.5% of the issued and outstanding Class A Common Stock. (16) Class A Common Stock. Represents 8.3% of the issued and outstanding Class A Common Stock. 63 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Purchase of Stock in Parent; Success Fees; Loans From Company In connection with the Acquisition, affiliates of Pegasus--Pegasus Related Partners, L.P., Pegasus G&G Retail, L.P. and Pegasus Partners, L.P. (collectively, with Pegasus G&G Retail II, L.P., the "Pegasus Affiliates")-- purchased in the aggregate 17,900 shares of, or 100% of the outstanding, Class B Common Stock, 30,000 shares of, or 100% of the outstanding, Series B Preferred Stock and warrants to purchase 35,500 shares of Class D Common Stock for $0.01 per share for an aggregate purchase price equal to $31,346,400. In December 1998, Pegasus Partners, L.P. and Pegasus Related Partners, L.P. transferred certain of their shares of Class B Common Stock, Series B Preferred Stock and warrants to another affiliate of Pegasus, Pegasus G&G Retail II, L.P. From the Acquisition to March 31, 1999, the Pegasus Affiliates have received in the aggregate an additional 1,852.37 shares of Series B Preferred Stock, as dividends on their Series B Preferred Stock. The shares of Class B Common Stock owned by the Pegasus Affiliates represent approximately 51.1% of the voting common equity of the Parent outstanding on May 1, 1999 (or 49.4%, assuming the exercise of stock options exercisable as of May 1, 1999). As a result of their ownership of the Parent, the Pegasus Affiliates have the ability to determine the outcome of most corporate actions which are required to be submitted to the stockholders of the Parent for their approval, other than, currently, the election of a majority of the Parent's board of directors. In addition, as holders of Class B Common Stock, the Pegasus Affiliates have special veto rights which allow them to control the timing and occurrence of certain major corporate transactions by the Parent and the Company. Craig Cogut, a director of the Company and the Parent, has an indirect ownership interest in each of the Pegasus Affiliates. See "Principal Stockholders." TGV Partners, of which Lenard Tessler, a director of the Company and the Parent, is a principal, and certain of its affiliates hold limited partnership interests in Pegasus G&G Retail L.P. and Pegasus G&G Retail II, L.P. Pegasus G&G Retail, L.P. and Pegasus G&G Retail II, L.P. own 22.3% and 9.3%, respectively, of the shares and warrants to purchase shares of the Parent held by the Pegasus Affiliates described above. See "Principal Stockholders." Pursuant to the limited partnership agreement of Pegasus G&G Retail, L.P., in the event the Parent has not consummated an initial public offering of the Common Stock on or prior to August 28, 2003, TGV Partners may require Pegasus G&G Retail, L.P. to exercise its demand registration rights described below. See "--Stockholder Agreements; Management Fees." In connection with the Acquisition, the Company and the Parent assumed the Predecessor's obligation to pay a success fee to Jay Galin, the Chairman of the Board and the Chief Executive Officer of the Company and the Parent, and Scott Galin, the President, Chief Operating Officer and a director of the Company and the Parent. The success fee was payable pursuant to an agreement among Petrie, the Predecessor, Jay Galin and Scott Galin. In that agreement, Jay Galin and Scott Galin agreed, among other things, to provide their full cooperation and assist in the sale of the Predecessor's business, to provide prospective purchasers with information which would enable them to evaluate the Predecessor's assets, to conduct meetings and presentations and, under certain circumstances, to make themselves available on a full-time basis for up to six months after a closing of the sale to a successful purchaser. To satisfy their obligation in respect of the success fee, the Company and the Parent paid to each of Jay Galin and Scott Galin $1,378,000 in cash and issued to each of them a note payable by the Company in the amount of $272,000. These notes were non- interest bearing and were paid in full by the Company on their maturity date, January 4, 1999. In addition, in the agreement providing the success fee, Petrie and the Predecessor agreed to reimburse Jay Galin and Scott Galin for certain professional fees and disbursements incurred by them. An aggregate of $286,555 of such professional fees and disbursements was paid by the Predecessor, Petrie and the Company. 64 In connection with the Acquisition, each of Jay Galin and Scott Galin purchased 7,130 shares of Class A Common Stock for $841,500. Each of Jay Galin and Scott Galin transferred 290 shares of his Class A Common Stock to Jeffrey Galin, the Company's Vice President/Divisional Merchandise Manager and a son of Jay Galin. Of the 290 shares transferred by each of Jay Galin and Scott Galin, 169 shares were given to Jeffrey Galin as a gift and 121 shares were sold to Jeffrey Galin in exchange for a promissory note. The shares of Class A Common Stock owned by Jay and Scott Galin represent approximately 81% of the outstanding shares of Class A Common Stock, and approximately 41.2% of the voting common equity of the Parent, as of March 31, 1999 (assuming the exercise of stock options exercisable as of March 31, 1999). In addition, holders of Class A Common Stock currently are entitled to elect three-fifths of the Parent's Board of Directors. See "Principal Stockholders." In connection with the Acquisition, the Parent afforded Donald D. Shack, a director of the Company, the opportunity to purchase shares of Class A Common Stock. Pursuant to this program, Donald D. Shack and four of his fellow directors in the law firm of Shack & Siegel, P.C., general counsel to the Company and the Parent, each purchased 20 shares of Class A Common Stock for a total purchase price of $11,822. See "Principal Stockholders." In connection with the Acquisition, the Parent also afforded the following officers of the Company the opportunity to purchase shares of Class A Common Stock: Michael Kaplan, a Vice President and Chief Financial Officer, Jeffrey Galin, Vice President/Divisional Merchandise Manager, James Dodd, Vice President-Store Operations, and Robert Tinbergen, Vice President-Warehouse and Distribution. Pursuant to this program, (1) Michael Kaplan purchased 600 shares of Class A Common Stock for a total purchase price of $70,813, (2) Jeffrey Galin purchased 840 shares of Class A Common Stock for a total purchase price of $99,138, (3) James Dodd purchased 150 shares of Class A Common Stock for a total purchase price of $17,703, and (4) Robert Tinbergen purchased 150 shares of Class A Common Stock for a total purchase price of $17,703. To fund the purchase of stock, each of these officers borrowed from the Parent, on a full recourse basis, an amount of money equal to the total purchase price of the stock purchased, less the par value of the stock ($.001 per share) which was paid in cash. The total principal amount of each officer's loan is due on the earlier of (1) the fifth anniversary of the date of the loan and (2) 30 days following the date on which the officer is no longer an officer of the Parent or any subsidiary of the Parent. The outstanding principal amount of each loan bears interest at the prime rate announced in New York City by Citibank, N.A. from time to time, payable on a quarterly basis. Each of these loans is secured by a pledge of the stock purchased with the proceeds of the loan. Acquisition Closing Fees In connection with the closing of the Acquisition, TGV Partners, of which Lenard Tessler, a director of the Company and the Parent, is a principal, received a closing fee in the amount of $1,250,000. The closing fee constituted consideration for TGV Partners' financial advisory services in connection with the Acquisition. Private Placement Fee The Company paid Pegasus a $1.0 million fee in consideration for financial advisory services provided by Pegasus to the Company in connection with the private placement of the units. Stockholder Agreements; Management Fees The Pegasus Affiliates are parties to a stockholders agreement with Jay and Scott Galin, certain other management stockholders of the Parent (together with Jay and Scott Galin, the "Management Stockholders") and the Parent (the "Stockholders Agreement"). Pursuant to the Stockholders Agreement, each Management Stockholder is prohibited from transferring shares of Class A Common 65 Stock on or prior to August 28, 2002 without the consent of holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, except in limited circumstances. After August 28, 2002, all transfers of shares of Class A Common Stock by Management Stockholders are subject to a right of first refusal in favor of the Parent and the Pegasus Affiliates. In addition, in the event the Pegasus Affiliates propose to sell at least 80% of the common equity of the Parent held by them, the Management Stockholders may be required by the Pegasus Affiliates to sell shares of Class A Common Stock in the same sale to the purchaser of the shares held by the Pegasus Affiliates, on the same terms as are applicable to such shares. In addition, in the event one or more Pegasus Affiliates proposes to sell common equity which would constitute at least 5% of the common equity of the Parent, Management Stockholders are entitled to sell the same percentage of their shares of Class A Common Stock in such sale, on the same terms as are applicable to the shares of Common Stock sold by the Pegasus Affiliates. In addition, pursuant to the Stockholders Agreement, Jay and Scott Galin made certain representations and warranties to the Pegasus Affiliates relating to the representations and warranties made by the Predecessor to the Company in connection with the Acquisition and agreed to indemnify the Pegasus Affiliates for damages in excess of $1,750,000 resulting from any breach of such representations and warranties, provided the aggregate amount of damages exceeds $3,500,000. The Parent has granted the Pegasus Affiliates preemptive rights in connection with equity issuances by the Parent, other than certain specified issuances. The Pegasus Affiliates waived such preemptive rights with respect to the warrants issued with the outstanding notes as units on May 17, 1999. The Parent has also granted to the Pegasus Affiliates and the Management Stockholders certain demand and piggyback registration rights. Holders of at least 33% of the outstanding Common Stock held by the Pegasus Affiliates or the Management Stockholders are entitled to demand registration of their shares following the occurrence of a public offering of Common Stock after the consummation of which at least 20% of the then outstanding shares of Common Stock are publicly held and the Common Stock is listed or admitted for trading on a national securities exchange or quoted on the Nasdaq Stock Market (a "Qualified Public Offering"). Holders of at least 33% of the outstanding Common Stock held by the Pegasus Affiliates are also entitled to demand registration of their shares beginning on August 28, 2002. Any demand registration must reasonably be expected to yield aggregate gross proceeds of at least $20,000,000 to the stockholders exercising such registration rights. The Pegasus Affiliates as a group are entitled to two demand registrations, and the Management Stockholders as a group are entitled to one demand registration. The Pegasus Affiliates and the Management Stockholders are each entitled to piggyback registration rights in connection with any registration statement filed by the Parent (with limited exceptions). In addition to their rights to elect directors, pursuant to the Stockholders Agreement, the Pegasus Affiliates have been granted the right to appoint an observer for meetings of the Parent's Board of Directors in certain circumstances. See "Management--Directors, Executive Officers and Key Employees of the Company." Pursuant to the Stockholders Agreement, in the event the employment of any Management Stockholder with the Company is terminated by the Company for cause or by such Management Stockholder without good reason, each of the Parent and the Pegasus Affiliates have the right to purchase the shares of Class A Common Stock held by such Management Stockholder at a purchase price per share equal to the lower of such Management Stockholder's initial purchase price per share and the fair market value per share on the effective date of termination. Such rights to purchase Jay Galin's shares terminate upon the earlier of (1) the consummation of a Qualified Public Offering or (2) August 28, 2000. Such rights to purchase Scott Galin's shares terminate upon the earlier of (1) the consummation of a Qualified Public Offering or (2) August 28, 2003. Such rights to purchase shares of any Management Stockholder other than Jay or Scott Galin terminate upon the consummation of a Qualified Public Offering. 66 The Pegasus Affiliates and the Parent are also parties to a stockholders agreement with the Predecessor, pursuant to which the Predecessor and its permitted assigns (the "Class C Holders") are required to first offer to sell to the Parent and the Pegasus Affiliates, on specified terms, any shares of Class C Common Stock which the Class C Holders desire to sell. In the event the Parent and the Pegasus Affiliates do not elect to purchase such shares, the Class C Holders may sell them to a third party on terms no more favorable to such third party than the terms proposed to the Parent and the Pegasus Affiliates. In the event the proposed third party purchaser is primarily in the retail apparel business but is not primarily in the girls' and/or women's retail apparel business (including shoes), the Class C Holders must again offer to sell the shares of the Parent and the Pegasus Affiliates. In the event the Parent and the Pegasus Affiliates do not elect to purchase such shares, the Class C Holders may sell them to the proposed third party on terms no more favorable to such third party than the proposed terms. In the event the Pegasus Affiliates propose to sell at least 50% of the common equity of the Parent held by them, the Class C Holders may be required by the Pegasus Affiliates to sell shares of Class C Common Stock in the same sale to the purchaser of the shares held by the Pegasus Affiliates, on the same terms as are applicable to such shares. In addition, in the event one or more Pegasus Affiliates proposes to sell common equity which would constitute at least 15% of the common equity of the Parent, Class C Holders are entitled to sell the same percentage of their shares of Class A Common Stock in such sale, on the same terms as are applicable to the shares of Common Stock sold by the Pegasus Affiliates. The Class C Holders are also entitled to certain demand and piggyback registration rights. Holders of at least 50% of the outstanding Class C Common Stock are entitled to demand registration of their shares following the earlier to occur of (1) a Qualified Public Offering and (2) August 28, 2003, subject to certain limitations. The Class C Holders as a group are entitled to one demand registration. The Class C Holders are also entitled to piggyback registration rights in connection with any registration statement filed by the Parent (with limited exceptions). In connection with the Parent's initial public offering, the Class C Holders are entitled to include in such registration up to one third of the registrable shares held by such holders on a priority basis ahead of the other holders of the Parent's equity securities (subject to certain limitations). In addition, the Parent may not, without the consent of a majority of the Class C Holders, grant any demand or piggyback registration rights which have priority over or are inconsistent with the registration rights granted to the Class C Holders. Employment and Severance Agreements and Other Compensation Arrangements Jay Galin, the Chairman of the Board and the Chief Executive Officer of the Company, and Scott Galin, the President, the Chief Operating Officer and a director of the Company, are employed by the Company pursuant to employment agreements expiring on August 28, 2000 and August 28, 2003, respectively. See "Management--Employment Contracts and Severance Agreements." Michael Kaplan, a Vice President and the Chief Financial Officer of the Company, and Jeffrey Galin, Vice President/Divisional Merchandise Manager of the Company, entered into severance agreements with the Company. See "Management--Employment Contracts and Severance Agreements." Jay Galin, the Chairman of the Board and the Chief Executive Officer of the Company, and Scott Galin, the President, the Chief Operating Officer and a director of the Company, are participants in the Bonus Plan, and pursuant thereto may receive bonus awards ranging from 0% to 65% of their base salaries. Other executive officers of the Company may be eligible to participate in the Bonus Plan and receive bonus awards ranging from 0% to 40% of their base salaries. See "Management--Bonus Plan." On March 15, 1999, the Parent granted to each of Jay Galin and Scott Galin an option to purchase 2,500 shares of its Class A Common Stock at an exercise price of $300.00 per share pursuant to the 67 Option Plan. The options are currently exercisable with respect to 25% of the shares and will become exercisable with respect to an additional 25% of the shares on each of the three succeeding anniversary dates of the date of grant. The options expire on March 14, 2009. See "Management--Stock Option Plan." Indemnification Agreements Each of the directors of the Company is party to a separate indemnification agreement with the Company. See "Management--Indemnification Agreements." 68 DESCRIPTION OF REVOLVING CREDIT FACILITY The Revolving Credit Facility provides the Company with a line of credit of up to $20.0 million (including a sublimit of $10.0 million for letters of credit) and matures in October 2001. The facility may be used for general operating, working capital and other proper corporate purposes. The ability of the Company to borrow and obtain letters of credit under the Revolving Credit Facility is subject to compliance with a borrowing base (calculated as 80% or, during peak borrowing periods, 85% of eligible inventory) and other customary conditions precedent, including accuracy of representations and warranties, compliance with covenants, and absence of defaults. Interest on amounts advanced under the Revolving Credit Facility accrues at a rate equal to 1.75% over the adjusted Eurodollar Rate or at the Prime Rate. The Revolving Credit Facility contains a minimum tangible net worth (as defined in the Revolving Credit Facility) covenant of $39.0 million and other customary covenants, including limitations on change of ownership, transactions with affiliates, dividends, additional indebtedness, creation of liens, asset sales, acquisitions, conduct of business and capital expenditures. The Revolving Credit Facility also contains customary events of default, including defaults on the Company's other indebtedness (which includes the notes). The Company's obligations under the Revolving Credit Facility are secured by a lien on all or substantially all of the Company's assets. If the Revolving Credit Facility is terminated prior to its stated maturity, a termination fee may be payable. The fee payable for a termination on or prior to October 1999 would be $150,000, on or prior to October 2000 would be $100,000 and prior to October 2001 would be approximately $67,000. 69 THE EXCHANGE OFFER Purpose and Effect of the Exchange Offer The Company entered into a registration rights agreement with the initial purchasers of the units (consisting of the outstanding notes and certain warrants to purchase the Parent's Class D common stock) in which the Company agreed, under certain circumstances, to file a registration statement relating to an offer to exchange the outstanding notes for exchange notes. The Company also agreed to use its reasonable best efforts to cause such offer to be consummated within 30 business days following the date on which the registration statement is declared effective. The exchange notes will have terms substantially identical to the outstanding notes except that the exchange notes will not contain terms with respect to transfer restrictions, registration rights and additional interest for failure to observe certain obligations in the registration rights agreement. The outstanding notes were issued on May 17, 1999. Pursuant to the registration rights agreement, under the circumstances set forth below the Company also will use its reasonable best efforts to cause the Securities and Exchange Commission (the "Commission") to declare effective a shelf registration statement with respect to the resale of the outstanding notes and keep the statement effective for at least two years after the issuance of the outstanding notes or until all of the outstanding notes have been sold. These circumstances include: . if applicable law does not permit the Company to effect the exchange offer as contemplated by the registration rights agreement; . if any holder of outstanding notes notifies the Company within 20 business days after the deadline for consummating the exchange offer that such holder is prohibited by law or Commission policy from participating in the exchange offer; . if any holder of outstanding notes notifies the Company within 20 business days after the deadline for consummating the exchange offer that such holder may not resell the exchange notes acquired by it in the exchange offer to the public without delivering a prospectus, and this Prospectus is not appropriate or available for such resales by such holder; or . if any holder of outstanding notes notifies the Company within 20 business days after the deadline for consummating the exchange offer that such holder is a broker-dealer and holds outstanding notes acquired directly from the Company or any of its affiliates (as defined in Rule 144 of the Securities Act of 1933, as amended (the "Securities Act")). If the Company fails to comply with certain obligations under the registration rights agreement, the Company will be required to pay liquidated damages to holders of the outstanding notes. Please read the section captioned "Registration Rights Agreement" for more details regarding the registration rights agreement. Each holder of outstanding notes that wishes to exchange such outstanding notes for transferable exchange notes in the exchange offer will be required to make the following representations: . any exchange notes will be acquired in the ordinary course of such holder's business; . such holder is not engaged in, does not intend to engage in, and has no arrangement with any person to participate in, a distribution of the exchange notes; and . such holder is not an "affiliate" (as defined in Rule 144 of the Securities Act) of the Company or, if it is an affiliate of the Company, that it will comply with applicable registration and prospectus delivery requirements of the Securities Act. Resale of Exchange Notes Based on interpretations of the Commission staff set forth in no-action letters issued to unrelated third parties, the Company believes that exchange notes issued under the exchange offer in exchange for outstanding notes may be offered for resale, resold and otherwise transferred by any exchange note 70 holder without compliance with the registration and prospectus delivery provisions of the Securities Act, if: . such holder is not an "affiliate" of the Company within the meaning of Rule 144 under the Securities Act; . such exchange notes are acquired in the ordinary course of the holder's business; and . the holder is not engaged in, does not intend to engage in, and has no arrangement with any person to participate in, the distribution of such exchange notes. Any holder who tenders in the exchange offer with the intention of participating in any manner in a distribution of the exchange notes, and any holder who is an "affiliate" of the Company within the meaning of Rule 144 under the Securities Act: . cannot rely on the position of the staff of the Commission enunciated in "Morgan Stanley and Co., Inc.," "Exxon Capital Holdings Corporation" or similar interpretive letters; and . must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction and such secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S- K. This Prospectus may be used for an offer to resell, resale or other retransfer of exchange notes only as specifically set forth in this Prospectus. With regard to broker-dealers, only broker-dealers that acquired the outstanding notes as a result of market-making activities or other trading activities may participate in the exchange offer. Each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes, where such outstanding notes were acquired by such broker-dealer as a result of market- making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. Please read the section captioned "Plan of Distribution" for more details regarding the transfer of exchange notes. Terms of the Exchange Offer Upon the terms and subject to the conditions set forth in this Prospectus and in the letter of transmittal (a copy of which is attached as an exhibit to the registration statement of which this Prospectus is a part) the Company will accept for exchange any outstanding notes properly tendered and not withdrawn prior to the expiration date. The Company will issue $1,000 principal amount of exchange notes in exchange for each $1,000 principal amount of outstanding notes surrendered under the exchange offer. Outstanding notes may be tendered only in integral multiples of $1,000. The form and terms of the exchange notes will be substantially identical to the form and terms of the outstanding notes except the exchange notes will be registered under the Securities Act, will not bear legends restricting their transfer and will not provide for any liquidated damages upon failure of the Company to fulfill its obligations under the registration rights agreement to file, and cause to be effective, a registration statement. The exchange notes will evidence the same debt as the outstanding notes. The exchange notes will be issued under and entitled to the benefits of the same indenture that authorized the issuance of the outstanding notes. Consequently, both series of notes will be treated as a single class of debt securities under that indenture. For a description of the indenture, see "Description of Notes" below. The exchange offer is not conditioned upon any minimum aggregate principal amount of outstanding notes being tendered for exchange. Solely for administrative reasons, the Company has fixed the close of business on , 1999 as the record date for the exchange offer for the purpose of determining the persons to whom this Prospectus and the letter of transmittal will be mailed initially. There will be, however, no fixed record date for determining registered holders of the outstanding notes entitled to participate in the exchange offer. 71 As of the date of this Prospectus, $107.0 million aggregate principal amount of the outstanding notes is outstanding. This Prospectus and the letter of transmittal are being sent to all registered holders of outstanding notes. The Company intends to conduct the exchange offer in accordance with the provisions of the registration rights agreement, the applicable requirements of the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations of the Commission. Outstanding notes that are not tendered for exchange in the exchange offer will remain outstanding and continue to accrue interest and will be entitled to the rights and benefits such holders have under the indenture relating to the outstanding notes. The Company will be deemed to have accepted for exchange properly tendered outstanding notes when it has given oral or written notice of the acceptance to the exchange agent. The exchange agent will act as agent for the tendering holders for the purposes of receiving the exchange notes from the Company and delivering the exchange notes to such holders. Subject to the terms of the registration rights agreement, the Company expressly reserves the right to amend or terminate the exchange offer, and not to accept for exchange any outstanding notes not previously accepted for exchange, upon the occurrence of any of the conditions specified below under the caption "--Certain Conditions to the Exchange Offer." Holders who tender outstanding notes in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of outstanding notes. The Company will pay all charges and expenses, other than certain applicable taxes described below, in connection with the exchange offer. It is important that you read the section labeled "--Fees and Expenses" below for more details regarding fees and expenses incurred in the exchange offer. Expiration Date; Extensions; Amendments The exchange offer will expire at 5:00 p.m., New York City time on , 1999, unless the Company, in its sole discretion, extends it, but in no event will the exchange offer expire later than 30 business days after the registration statement becomes effective. In order to extend the exchange offer, the Company will notify the exchange agent orally or in writing of any extension. The Company will notify the registered holders of outstanding notes of the extension no later than 9:00 a.m., New York City time, on the business day after the previously scheduled expiration date. The Company reserves the right, in its sole discretion: . to delay accepting for exchange any outstanding notes; . to extend the exchange offer or to terminate the exchange offer and to refuse to accept outstanding notes not previously accepted if any of the conditions set forth below under "--Certain Conditions to the Exchange Offer" have not been satisfied, by giving oral or written notice of such delay, extension or termination to the exchange agent; or . subject to the terms of the registration rights agreement, to amend the terms of the exchange offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders of outstanding notes. If the Company amends the exchange offer in a manner that it determines to constitute a material change, the Company will promptly disclose such amendment in a manner reasonably calculated to inform the holders of outstanding notes of such amendment. Without limiting the manner in which it may choose to make public announcements of any delay in acceptance, extension, termination or amendment of the exchange offer, the Company shall have no 72 obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to a financial news service. Certain Conditions to the Exchange Offer Despite any other term of the exchange offer, the Company will not be required to accept for exchange, or exchange any exchange notes for, any outstanding notes, and the Company may terminate the exchange offer as provided in this Prospectus before accepting any outstanding notes for exchange if in the Company's reasonable judgment: . the exchange offer, or the making of any exchange by a holder of outstanding notes, would violate applicable law or any applicable interpretation of the staff of the Commission; or . any action or proceeding has been instituted or threatened in any court or by or before any governmental agency with respect to the exchange offer that, in the Company's judgment, would reasonably be expected to impair the ability of the Company to proceed with the exchange offer. In addition, the Company will not be obligated to accept for exchange the outstanding notes of any holder that has not made to the Company: . the representations described under the captions "--Purpose and Effect of the Exchange Offer" and "--Procedures for Tendering"; and . such other representations as may be reasonably necessary under applicable Commission rules, regulations or interpretations to make available to the Company an appropriate form for registration of the exchange notes under the Securities Act. The Company expressly reserves the right, at any time or at various times, to extend the period of time during which the exchange offer is open, but in no event shall the exchange offer be open for less than 20 business days nor more than 30 business days. Consequently, the Company may delay acceptance of any outstanding notes by giving oral or written notice of such extension to their holders. During any such extensions, all outstanding notes previously tendered will remain subject to the exchange offer, and the Company may accept them for exchange. The Company will return any outstanding notes that it does not accept for exchange for any reason without expense to their tendering holder as promptly as practicable after the expiration or termination of the exchange offer. The Company expressly reserves the right to amend or terminate the exchange offer, and to reject for exchange any outstanding notes not previously accepted for exchange, upon the occurrence of any of the conditions of the exchange offer specified above. The Company will give oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the outstanding notes as promptly as practicable. In the case of any extension, such notice will be issued no later than 9:00 a.m., New York City time, on the business day after the previously scheduled expiration date. These conditions are solely for the benefit of the Company and the Company may assert them regardless of the circumstances that may give rise to them or waive them in whole or in part at any or at various times in the Company's sole discretion. If the Company fails at any time to exercise any of the foregoing rights, this failure will not constitute a waiver of such right. Each such right will be deemed an ongoing right that the Company may assert at any time or at various times. In addition, the Company will not accept for exchange any outstanding notes tendered, and will not issue exchange notes in exchange for any such outstanding notes, if at such time the registration 73 statement contains a material misstatement or any stop order is issued with respect to the registration statement of which this Prospectus constitutes a part or the qualification of the indenture under the Trust Indenture Act of 1939. Procedures for Tendering Only a holder of outstanding notes may tender such outstanding notes in the exchange offer. To tender in the exchange offer, a holder must: . complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal; have the signature on the letter of transmittal guaranteed if the letter of transmittal so requires; and mail or deliver such letter of transmittal or facsimile to the exchange agent prior to the expiration date; or . comply with The Depository Trust Company's ("DTC") Automated Tender Offer Program procedures described below. In addition, either: . the exchange agent must receive outstanding notes along with the letter of transmittal; or . the exchange agent must receive, prior to the expiration date, a timely confirmation of book-entry transfer of such outstanding notes into the exchange agent's account at DTC according to the procedure for book- entry transfer described below or a properly transmitted agent's message; or . the holder must comply with the guaranteed delivery procedures described below. To be tendered effectively, the exchange agent must receive any physical delivery of the letter of transmittal and other required documents at the address set forth below under "--Exchange Agent" prior to the expiration date. The tender by a holder that is not withdrawn prior to the expiration date will constitute an agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth in this Prospectus and in the letter of transmittal. The method of delivery of outstanding notes, the letter of transmittal and all other required documents to the exchange agent is at the holder's election and risk. Rather than mail these items, the Company recommends that holders use an overnight or hand delivery service. In all cases, holders should allow sufficient time to assure delivery to the exchange agent before the expiration date. Holders should not send the letter of transmittal or outstanding notes to the Company. Holders may request their respective brokers, dealers, commercial banks, trust companies or other nominees to effect the above transactions for them. Delivery will be deemed made only when actually received or confirmed by the Exchange Agent. Any beneficial owner whose outstanding notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct it to tender on the owner's behalf. If such beneficial owner wishes to tender on its own behalf, it must, prior to completing and executing the letter of transmittal and delivering its outstanding notes, either: . make appropriate arrangements to register ownership of the outstanding notes in such owner's name; or . obtain a properly completed bond power from the registered holder of outstanding notes. The transfer of registered ownership may take considerable time and may not be completed prior to the expiration date. 74 Signatures on a letter of transmittal or a notice of withdrawal described below must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or another "eligible institution" within the meaning of Rule 17Ad-15 under the Exchange Act, unless the outstanding notes tendered pursuant thereto are tendered: . by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal; or . for the account of an eligible institution. If the letter of transmittal is signed by a person other than the registered holder of any outstanding notes listed on the outstanding notes, such outstanding notes must be endorsed or accompanied by a properly completed bond power. The bond power must be signed by the registered holder as the registered holder's name appears on the outstanding notes and an eligible institution must guarantee the signature on the bond power. If the letter of transmittal or any outstanding notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing. Unless waived by the Company, they should also submit evidence satisfactory to the Company of their authority to deliver the letter of transmittal. The exchange agent and DTC have confirmed that any financial institution that is a participant in DTC's system may use DTC's Automated Tender Offer Program to tender. Participants in the program may, instead of physically completing and signing the letter of transmittal and delivering it to the exchange agent, transmit their acceptance of the exchange offer electronically. They may do so by causing DTC to transfer the outstanding notes to the exchange agent in accordance with its procedures for transfer. DTC will then send an agent's message to the exchange agent. The term "agent's message" means a message transmitted by DTC, received by the exchange agent and forming part of the book-entry confirmation, to the effect that: . DTC has received an express acknowledgment from a participant in its Automated Tender Offer Program that is tendering outstanding notes that are the subject of such book-entry confirmation; . such participant has received and agrees to be bound by the terms of the letter of transmittal (or, in the case of an agent's message relating to guaranteed delivery, that such participant has received and agrees to be bound by the applicable notice of guaranteed delivery); and . the agreement may be enforced against such participant. The Company will determine in its sole discretion all questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered outstanding notes. The Company's determination will be final and binding. The Company reserves the absolute right to reject any outstanding notes not properly tendered or any outstanding notes the acceptance of which would, in the opinion of the Company's counsel, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular outstanding notes. The Company's interpretation of the terms and conditions of the exchange offer (including the instructions in the letter of transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of outstanding notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of outstanding notes, neither the Company, the exchange agent nor any other person will incur any liability for failure to give such notification. Tenders of outstanding notes will not be deemed made until such defects or irregularities have been cured or waived. Any outstanding notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not 75 been cured or waived will be returned to the exchange agent without cost to the tendering holder, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date. In all cases, the Company will issue exchange notes for outstanding notes that the Company has accepted for exchange under the exchange offer only after the exchange agent timely receives: . outstanding notes or a timely book-entry confirmation of such outstanding notes into the exchange agent's account at DTC; and . a properly completed and duly executed letter of transmittal and all other required documents or a properly transmitted agent's message. By signing the letter of transmittal, each tendering holder of outstanding notes will represent to the Company that, among other things: . any exchange notes that the holder receives will be acquired in the ordinary course of its business; . the holder has no arrangement or understanding with any person or entity to participate in the distribution of the exchange notes; . if the holder is not a broker-dealer, it is not engaged in and does not intend to engage in the distribution of the exchange notes; . if the holder is a broker-dealer that will receive exchange notes for its own account in exchange for outstanding notes that were acquired as a result of market-making activities or other trading activities, it will deliver a prospectus, as required by law, in connection with any resale of such exchange notes (see "Plan of Distribution"); and . the holder is not an "affiliate," as defined in Rule 144 of the Securities Act, of the Company or, if the holder is an affiliate, it will comply with any applicable registration and prospectus delivery requirements of the Securities Act. Book-Entry Transfer The exchange agent will make a request to establish an account with respect to the outstanding notes at DTC for purposes of the exchange offer promptly after the date of this Prospectus; and any financial institution participating in DTC's system may make book-entry delivery of outstanding notes by causing DTC to transfer such outstanding notes into the exchange agent's account at DTC in accordance with DTC's procedures for transfer. Holders of outstanding notes who are unable to deliver confirmation of the book-entry tender of their outstanding notes into the exchange agent's account at DTC or all other documents required by the letter of transmittal to the exchange agent on or prior to the expiration date must tender their outstanding notes according to the guaranteed delivery procedures described below. Guaranteed Delivery Procedures Holders wishing to tender their outstanding notes but whose outstanding notes are not immediately available or who cannot deliver their outstanding notes, the letter of transmittal or any other required documents to the exchange agent or comply with the applicable procedures under DTC's Automated Tender Offer Program prior to the expiration date may tender if: . the tender is made through an eligible institution; . prior to the expiration date, the exchange agent receives from such eligible institution either a properly completed and duly executed notice of guaranteed delivery (by facsimile 76 transmission, mail or hand delivery) or a properly transmitted agent's message and notice of guaranteed delivery: . setting forth the name and address of the holder, the registered number(s) of such outstanding notes and the principal amount of outstanding notes tendered; . stating that the tender is being made thereby; and . guaranteeing that, within three (3) New York Stock Exchange trading days after the expiration date, the letter of transmittal (or facsimile thereof) together with the outstanding notes or a book- entry confirmation, and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and . the exchange agent receives such properly completed and executed letter of transmittal (or facsimile thereof), as well as all tendered outstanding notes in proper form for transfer or a book-entry confirmation, and all other documents required by the letter of transmittal, within three (3) New York Stock Exchange trading days after the expiration date. Upon request to the exchange agent, a notice of guaranteed delivery will be sent to holders who wish to tender their outstanding notes according to the guaranteed delivery procedures set forth above. Withdrawal of Tenders Except as otherwise provided in this Prospectus, holders of outstanding notes may withdraw their tenders at any time prior to the expiration date. For a withdrawal to be effective: . the exchange agent must receive a written notice (which may be by facsimile transmission or letter) of withdrawal at one of the addresses set forth below under the caption "--Exchange Agent"; or . holders must comply with the appropriate procedures of DTC's Automated Tender Offer Program system. Any such notice of withdrawal must: . specify the name of the person who tendered the outstanding notes to be withdrawn; . identify the outstanding notes to be withdrawn (including the principal amount of such outstanding notes); and . where certificates for outstanding notes have been transmitted, specify the name in which such outstanding notes were registered, if different from that of the withdrawing holder. If certificates for outstanding notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of such certificates, the withdrawing holder must also submit: . the serial numbers of the particular certificates to be withdrawn; and . a signed notice of withdrawal with signatures guaranteed by an eligible institution unless such holder is an eligible institution. If outstanding notes have been tendered pursuant to the procedure for book- entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn outstanding notes and otherwise comply with the procedures of such facility. The Company will determine all questions as to the validity, form and eligibility (including time of receipt) of such notices, and its determination shall be final and binding on all parties. The Company will deem any outstanding notes so withdrawn not to have been validity tendered for 77 exchange for purposes of the exchange offer. Any outstanding notes that have been tendered for exchange but that are not exchanged for any reason will be returned to their holder without cost to the holder (or, in the case of outstanding notes tendered by book-entry transfer into the exchange agent's account at DTC according to the procedures described above, such outstanding notes will be credited to an account maintained with DTC for outstanding notes) as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn outstanding notes may be retendered by following one of the procedures described under the caption "--Procedures for Tendering" above at any time on or prior to the expiration date. Exchange Agent U.S. Bank Trust National Association has been appointed as exchange agent for the exchange offer. You should direct questions and requests for assistance, requests for additional copies of this Prospectus or of the letter of transmittal and requests for the notice of guaranteed delivery to the exchange agent addressed as follows: For Delivery by Registered or For Overnight Delivery Only or By Certified Mail: Hand: U.S. Bank Trust National Association U.S. Bank Trust National Association P.O. Box 64485 Fourth Floor--Bond Drop Window St. Paul, Minnesota 55164-9549 180 East 5th Street Attn: Specialized Finance St. Paul, Minnesota 55101 Attn: Specialized Finance By Facsimile Transmission (for eligible institutions only): U.S. Bank Trust National Association (651) 244-1537 Attn: Specialized Finance DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL. Fees and Expenses The Company will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, the Company may make additional solicitations by telegraph, telephone or in person by its officers and regular employees and those of its affiliates. The Company has not retained any dealer-manager in connection with the exchange offer and will not make any payments to broker-dealers or others soliciting acceptances of the exchange offer. The Company will, however, pay the exchange agent reasonable and customary fees for its services and reimburse it for its related reasonable out-of-pocket expenses. The Company will pay the cash expenses to be incurred in connection with the exchange offer. The expenses are estimated in the aggregate to be approximately $ . They include: . Commission registration fees; . fees and expenses of the exchange agent and trustee; . accounting and legal fees and printing costs; and . related fees and expenses. 78 Transfer Taxes The Company will pay all transfer taxes, if any, applicable to the exchange of outstanding notes under the exchange offer. The tendering holder, however, will be required to pay any transfer taxes (whether imposed on the registered holder or any other person) if: . certificates representing outstanding notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of outstanding notes tendered; . tendered outstanding notes are registered in the name of any person other than the person signing the letter of transmittal; or . a transfer tax is imposed for any reason other than the exchange of outstanding notes under the exchange offer. If satisfactory evidence of payment of such taxes is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed to that tendering holder. Consequences of Failure to Exchange Holders of outstanding notes who do not exchange their outstanding notes for exchange notes under the exchange offer will remain subject to the restrictions on transfer of such outstanding notes: . as set forth in the legend printed on the outstanding notes as a consequence of the issuance of the outstanding notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws; and . otherwise set forth in the Offering Memorandum distributed in connection with the private offering of the units consisting of the outstanding notes and certain warrants to purchase shares of the Parent's Class D common stock. In general, you may not offer or sell the outstanding notes unless they are registered under the Securities Act, or if the offer or sale is exempt from registration under the Securities Act and applicable state securities laws. Except as required by the registration rights agreement, the Company does not intend to register resales of the outstanding notes under the Securities Act. Based on interpretations of the Commission staff, exchange notes issued pursuant to the exchange offer may be offered for resale, resold or otherwise transferred by their holders (other than any such holder that is the Company's "affiliate" within the meaning of Rule 144 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that the holders acquired the exchange notes in the ordinary course of the holders' business and the holders have no arrangement or understanding with respect to the distribution of the exchange notes to be acquired in the exchange offer. Any holder who tenders in the exchange offer for the purpose of participating in a distribution of the exchange notes: . cannot rely on the applicable interpretations of the Commission; and . must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. Accounting Treatment The Company will record the exchange notes in its accounting records at the same carrying value as the outstanding notes, which is the aggregate principal amount net of the original issue discount, as reflected in the Company's accounting records on the date of exchange. Accordingly, the Company will not recognize any gain or loss for accounting purposes in connection with the exchange offer. The expenses of the exchange offer will be amortized over the term of the exchange notes. 79 Other Participation in the exchange offer is voluntary, and you should carefully consider whether to accept. You are urged to consult your financial and tax advisors in making your own decision on what action to take. The Company may in the future seek to acquire untendered outstanding notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. The Company has no present plans to acquire any outstanding notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any untendered outstanding notes. 80 DESCRIPTION OF THE NOTES You can find the definitions of certain terms used in this description under the subheading "Certain Definitions." In this description, the word "Company" refers only to G+G Retail, Inc. and not to any of its subsidiaries. The Company issued the outstanding notes and will issue the exchange notes under an Indenture (the "Indenture") between itself and U.S. Bank Trust National Association, as trustee (the "Trustee"), a copy of which has been filed as an exhibit to the registration statement of which this Prospectus is a part. The terms of the notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following description is a summary of the material provisions of the Indenture. It does not restate the Indenture in its entirety. We urge you to read the Indenture and the registration rights agreement, a summary of which follows this "Description of the Notes" and a copy of which has been filed as an exhibit to the registration statement of which this Prospectus is a part, because they, and not this description, define your rights as holders of the notes. Certain defined terms used in this description but not defined below under "--Certain Definitions" have the meanings assigned to them in the Indenture. Brief Description of the Notes and the Guarantees The Notes The notes: . are general unsecured obligations of the Company; . are pari passu in right of payment with all existing and future senior Indebtedness of the Company; . are senior in right of payment to all existing and future subordinated Indebtedness of the Company; and . will be unconditionally guaranteed by the Guarantors. The Guarantees The notes will be guaranteed by each domestic Restricted Subsidiary of the Company and each foreign Restricted Subsidiary that guarantees any other Indebtedness of the Company or a Guarantor. Each Guarantee of the notes: . will be a general unsecured obligation of the Guarantor; . will be pari passu in right of payment with all existing and future senior Indebtedness of the Guarantor; and . will be senior in right of payment to all existing and future subordinated Indebtedness of the Guarantor. As of the date of this Prospectus, the Company has only one subsidiary, G & G Retail of Puerto Rico, Inc., which is organized under the laws of Puerto Rico, and accordingly which does not guarantee the outstanding notes and will not guarantee the exchange notes at the time the exchange offer is consummated. In the event of a bankruptcy, liquidation or reorganization of any of our Unrestricted Subsidiaries that are not Guarantors, such Unrestricted Subsidiaries will pay the holders of their debts and their trade creditors before they will be able to distribute any of their assets to us. 81 As of the date of the Indenture, all of our subsidiaries were Restricted Subsidiaries. However, under the circumstances described below under the subheading "--Certain Covenants--Designation of Restricted and Unrestricted Subsidiaries," we will be permitted to designate certain of our subsidiaries as "Unrestricted Subsidiaries." Our Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the Indenture. Our Unrestricted Subsidiaries will not guarantee the notes. Principal, Maturity and Interest The Indenture provides for the issuance by the Company of notes with a maximum aggregate principal amount of $107.0 million. The Company issued the outstanding notes, and will issue the exchange notes, in denominations of $1,000 and integral multiples of $1,000. The notes will mature on May 15, 2006. Interest on the notes will accrue at the rate of 11% per annum and will be payable semi-annually in arrears on May 15 and November 15, commencing on November 15, 1999. The Company will make each interest payment to the Holders of record on the immediately preceding May 1 and November 1. Interest on the notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Methods of Receiving Payments on the Notes If a Holder has given wire transfer instructions to the Company, the Company will pay all principal, interest and premium and Liquidated Damages, if any, on that Holder's notes in accordance with those instructions. All other payments on notes will be made at the office or agency of the Paying Agent and Registrar within the City and State of New York, unless the Company elects to make interest payments by check mailed to the Holders at their addresses set forth in the register of Holders. Paying Agent and Registrar for the Notes The Trustee currently acts as Paying Agent and Registrar. The Company may change the Paying Agent or Registrar without prior notice to the Holders, and the Company or any of its Subsidiaries may act as Paying Agent or Registrar. Transfer and Exchange A Holder may transfer or exchange notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents, and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any note selected for redemption. Also, the Company is not required to transfer or exchange any note for a period of 15 days before a selection of notes to be redeemed. The registered Holder of a note will be treated as the owner of it for all purposes. Subsidiary Guarantees The Guarantors will jointly and severally guarantee the Company's obligations under the notes. The obligations of each Guarantor under its Subsidiary Guarantee will be limited as necessary to prevent that Subsidiary Guarantee from constituting a fraudulent conveyance under applicable law. See "Risk Factors--Fraudulent Conveyance Matters." 82 A Guarantor may not sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person, other than the Company or another Guarantor, unless: (1) immediately after giving effect to that transaction, no Default or Event of Default exists; and (2) either: (a) the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger assumes all the obligations of that Guarantor under the Indenture, its Subsidiary Guarantee and the Registration Rights Agreement pursuant to a supplemental indenture satisfactory to the Trustee; or (b) the Net Proceeds of such sale or other disposition are applied in accordance with the "Asset Sale" provisions of the Indenture. The Subsidiary Guarantee of a Guarantor will be released: (1) in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) a Subsidiary of the Company, if the Guarantor applies the Net Proceeds of that sale or other disposition in accordance with the "Asset Sale" provisions of the Indenture; (2) in connection with any sale of all of the Capital Stock of a Guarantor to a Person that is not (either before or after giving effect to such transaction) a Subsidiary of the Company, if the Company applies the Net Proceeds of that sale in accordance with the "Asset Sale" provisions of the Indenture; or (3) if the Company properly designates any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary. See "--Repurchase at the Option of Holders--Asset Sales." Optional Redemption At any time prior to May 15, 2002 the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of notes issued under the Indenture at a redemption price of 111% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the redemption date, with the net cash proceeds of one or more Public Equity Offerings; provided that: (1) at least 65% of the aggregate principal amount of notes issued under the Indenture remains outstanding immediately after the occurrence of such redemption (excluding notes held by the Company and its Subsidiaries); and (2) the redemption must occur within 60 days of the date of the closing of such Public Equity Offering. Except pursuant to the preceding paragraph, the notes will not be redeemable at the Company's option prior to May 15, 2003. 83 On or after May 15, 2003, the Company may redeem all or a part of the notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on May 15 of the years indicated below:
Year Percentage ---- ---------- 2003........................................................... 105.50% 2004........................................................... 102.75% 2005 and thereafter............................................ 100.00%
Mandatory Redemption The Company is not required to make mandatory redemption or sinking fund payments with respect to the notes. Repurchase at the Option of Holders Change of Control If a Change of Control occurs, each Holder of notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of that Holder's notes pursuant to a Change of Control Offer on the terms set forth in the Indenture. In the Change of Control Offer, the Company will offer a Change of Control Payment in cash equal to 101% of the aggregate principal amount of notes repurchased plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the date of purchase. Within ten days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase notes on the Change of Control Payment Date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the Indenture by virtue of such conflict. On the Change of Control Payment Date, the Company will, to the extent lawful: (1) accept for payment all notes or portions thereof properly tendered pursuant to the Change of Control Offer; (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all notes or portions thereof so tendered; and (3) deliver or cause to be delivered to the Trustee the notes so accepted together with an Officers' Certificate stating the aggregate principal amount of notes or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each Holder of notes so tendered the Change of Control Payment for such notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new note equal in principal amount to any unpurchased portion of the notes surrendered, if any; provided that each such new note will be in a principal amount of $1,000 or an integral multiple thereof. 84 The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The provisions described above that require the Company to make a Change of Control Offer following a Change of Control will be applicable regardless of whether any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the notes to require that the Company repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction. The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all notes validly tendered and not withdrawn under such Change of Control Offer. The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the properties or assets of the Company and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of notes to require the Company to repurchase such notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its Subsidiaries taken as a whole to another Person or group may be uncertain. The agreements governing the Company's other Indebtedness contain prohibitions of certain events, including events that would constitute a Change of Control. In addition, the exercise by the Holders of notes of their right to require the Company to repurchase the notes upon a Change of Control could cause a default under these other agreements, even if the Change of Control itself does not, due to the financial effect of such repurchases on the Company. The Company's ability to pay cash to the Holders of notes upon a repurchase may be limited by the Company's then existing financial resources. See "Risk Factors--Financing Change of Control Offer." Asset Sales The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: (1) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of; (2) such fair market value is determined by the Company's Board of Directors and evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee; and (3) at least 85% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash. For purposes of this provision, each of the following shall be deemed to be cash: (a) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet) of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the notes or any Subsidiary Guarantee) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability; and (b) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted by the Company or such Subsidiary into 85 cash (to the extent of the cash received in that conversion) within 90 days following the closing of such Asset Sale. Within 180 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply any such Net Proceeds: (1) to repay any Indebtedness under the Credit Facilities to the extent that such Indebtedness is secured by a Lien on the assets and/or Equity Interests so issued or sold or otherwise disposed of in the Asset Sale; (2) to acquire all or substantially all of the assets of, or a majority of the Voting Stock of, another Permitted Business; (3) to make a capital expenditure in a Permitted Business; or (4) to acquire other long-term assets that are used or useful in a Permitted Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph will constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will make an Asset Sale Offer to all Holders of notes and all holders of other Indebtedness that is pari passu with the notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets to purchase the maximum principal amount of notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of principal amount plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of notes and such other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the notes and such other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of notes and such other pari passu Indebtedness tendered. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with each repurchase of notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sales provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of the Indenture by virtue of such conflict. The agreements governing the Company's other Indebtedness contain prohibitions of certain events, including events that would constitute an Asset Sale. In addition, the exercise by the Holders of notes of their right to require the Company to repurchase the notes upon an Asset Sale could cause a default under these other agreements, even if the Asset Sale itself does not, due to the financial effect of such repurchases on the Company. The Company's ability to pay cash to the Holders of notes upon a repurchase may be limited by the Company's then existing financial resources. Selection and Notice If less than all of the notes are to be redeemed at any time, the Trustee will select notes for redemption as follows: 86 (1) if the notes are listed, in compliance with the requirements of the principal national securities exchange on which the notes are listed; or (2) if the notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate. No notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any note is to be redeemed in part only, the notice of redemption that relates to that note shall state the portion of the principal amount thereof to be redeemed. A new note in principal amount equal to the unredeemed portion of the original note will be issued in the name of the Holder thereof upon cancellation of the original note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on notes or portions of them called for redemption. Certain Covenants Restricted Payments The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary of the Company); (2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the notes or the Subsidiary Guarantees, except a payment of interest or principal at the Stated Maturity thereof; or (4) make any Restricted Investment (all such payments and other actions set forth in clauses (1) through (4) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (1) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (2) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock;" and (3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the Indenture (excluding 87 Restricted Payments permitted by clauses (2), (3) and (4) of the next succeeding paragraph), is less than the sum, without duplication, of: (a) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of the Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (b) 100% of the aggregate net cash proceeds received by the Company since the date of the Indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests (other than Disqualified Stock) of the Company or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company), plus (c) to the extent that any Restricted Investment that was made after the date of the Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment, plus (d) in the event that any Unrestricted Subsidiary is designated as a Restricted Subsidiary in accordance with the provisions of the Indenture, the lesser of (i) the aggregate fair market value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in such Subsidiary at the time of such designation or (ii) the aggregate amount of Restricted Investments made in such Unrestricted Subsidiary since the date of the Indenture. So long as no Default has occurred and is continuing or would be caused thereby, the preceding provisions will not prohibit: (1) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (2) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness of the Company or any Guarantor or of any Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (3)(b) of the preceding paragraph; (3) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness of the Company or any Guarantor with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (4) the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; (5) payments to the Parent to enable the Parent to repurchase, redeem or otherwise acquire or redeem for value any Equity Interests of the Parent held by any current or former member of the Company's (or any of its Restricted Subsidiaries') management or any of its current or former directors; provided that the aggregate price paid for all such repurchased, redeemed or acquired Equity Interests shall not exceed $500,000 in any twelve-month period (excluding for purposes of calculating such amounts during any period loans incurred to finance the purchase of such Equity Interests that are repaid); (6) payments to the Parent to enable the Parent to (i) pay franchise taxes and other fees and expenses necessary to maintain its corporate existence, (ii) pay reasonable fees to its directors and 88 (iii) perform accounting, legal, corporate reporting and other administrative functions in the ordinary course of business, provided that such payments do not exceed $500,000 in the aggregate; and (7) payments to the Parent to enable the Parent to fund payments under any plan implemented in the ordinary course of business to compensate management of the Company or any of its Restricted Subsidiaries based on the value of the Parent's common stock. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued to or by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee. The Board of Directors' determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the fair market value exceeds $5.0 million. Incurrence of Indebtedness and Issuance of Preferred Stock The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the Company will not issue any Disqualified Stock and will not permit any of its Subsidiaries to issue any shares of Preferred Stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.5 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (1) the incurrence by the Company and its Restricted Subsidiaries of additional Indebtedness under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Restricted Subsidiaries thereunder) not to exceed the lesser of (x) $30.0 million less the aggregate amount of all Net Proceeds of Asset Sales applied by the Company or any of its Restricted Subsidiaries to repay Indebtedness under a Credit Facility and effect a corresponding commitment reduction thereunder pursuant to the covenant described above under the caption "--Repurchase at the Option of Holders--Asset Sales" and (y) the amount of the Borrowing Base as of the date of such incurrence; (2) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (3) the incurrence by the Company and the Guarantors of Indebtedness represented by the notes and the related Subsidiary Guarantees to be issued on the date of the Indenture and the Exchange Notes and the related Subsidiary Guarantees to be issued pursuant to the Registration Rights Agreement; (4) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount, including all Permitted 89 Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (4), not to exceed $5.0 million at any time outstanding; (5) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price of point of sale equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (5), not to exceed $5.0 million; (6) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred under the first paragraph of this covenant or clauses (2), (3), (4), (5), (6) or (13) of this paragraph; (7) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Wholly Owned Restricted Subsidiaries or a Guarantor; provided, however, that: (a) if the Company or any Guarantor is the obligor on such Indebtedness and the obligor is not a Guarantor or the Company, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the notes, in the case of the Company, or the Subsidiary Guarantee, in the case of a Guarantor; and (b) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Wholly Owned Restricted Subsidiary thereof or a Guarantor and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Restricted Subsidiary thereof or a Guarantor; shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (7); (8) the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging (i) interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding or (ii) currency values with respect to transactions entered into by the Company or a Restricted Subsidiary in the ordinary course of business; (9) the guarantee by the Company or any of the Guarantors of Indebtedness of the Company or a Restricted Subsidiary of the Company to the extent such Indebtedness was permitted to be incurred by another provision of this covenant; (10) the accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant; provided, in each such case, that the amount thereof is included in Fixed Charges of the Company as accrued; (11) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness consisting of performance, bid or advance payment bonds, surety bonds, custom bonds, utility bonds and similar obligations arising in the ordinary course of business; (12) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, in each case incurred or assumed in connection with the disposition of any business, asset or Subsidiary of the Company, provided that the maximum assumable Indebtedness shall at 90 no time exceed the gross proceeds actually received by the Company and its Restricted Subsidiaries in connection with such disposition; and (13) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (13), not to exceed $5.0 million. The Company will not incur any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Company unless such Indebtedness is also contractually subordinated in right of payment to the notes on substantially identical terms; provided, however, that no Indebtedness of the Company shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Company solely by virtue of being unsecured. For purposes of determining compliance with this "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (13) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this covenant. Indebtedness under Credit Facilities outstanding on the date on which notes are first issued and authenticated under the Indenture shall be deemed to have been incurred on such date in reliance on the exception provided by clause (1) of the definition of Permitted Debt. Liens The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, except Permitted Liens. Dividend and Other Payment Restrictions Affecting Subsidiaries The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to the Company or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Company or any of its Restricted Subsidiaries; (2) make loans or advances to the Company or any of its Restricted Subsidiaries; or (3) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of: (1) Existing Indebtedness (including the Credit Agreement) as in effect on the date of the Indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in such Existing Indebtedness (including the Credit Agreement), as in effect on the date of the Indenture; (2) the Indenture, the notes and the Subsidiary Guarantees; 91 (3) applicable law; (4) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred; (5) customary non-assignment provisions in leases and other agreements entered into in the ordinary course of business and consistent with past practices; (6) purchase money obligations (including Capital Lease Obligations) for property acquired in the ordinary course of business that impose restrictions on the property so acquired of the nature described in clause (3) of the preceding paragraph; (7) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition; (8) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (9) Liens securing Indebtedness that limit the right of the debtor to dispose of the assets subject to such Lien; (10) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, assets sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business; and (11) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. Merger, Consolidation or Sale of Assets The Company may not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person; unless: (1) either: (a) the Company is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (2) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, conveyance or other disposition shall have been made assumes all the obligations of the Company under the notes, the Indenture and the Registration Rights Agreement pursuant to agreements reasonably satisfactory to the Trustee; (3) immediately after such transaction no Default or Event of Default exists; and (4) the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition shall have been made: (a) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction; and 92 (b) will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock." In addition, the Company may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. This "Merger, Consolidation or Sale of Assets" covenant will not apply to a sale, assignment, transfer, conveyance, lease or other disposition of assets between or among the Company and any of its Wholly Owned Restricted Subsidiaries. Transactions with Affiliates The Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"), unless: (1) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and (2) the Company delivers to the Trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. The following items shall not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph: (1) any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary; (2) any consulting, advisory or management agreement entered into by the Company or any of its Restricted Subsidiaries; provided that the aggregate compensation paid to affiliates of the Company, its Restricted Subsidiaries or Related Parties under all such agreements (excluding the Jay Galin Consulting Agreement) does not exceed $500,000 in any twelve-month period; (3) transactions between or among the Company and/or its Restricted Subsidiaries; (4) agreements in effect on the date of the Indenture and any modification thereto or any transaction contemplated thereby (including pursuant to any modification thereto) in any replacement agreement therefor so long as such modification or replacement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on the date of the Indenture; (5) the Jay Galin Consulting Agreement; 93 (6) payments to the Parent to enable the Parent to pay, and payments by the Company or any of its Restricted Subsidiaries of, fees and compensation paid to and indemnity provided on behalf of, officers, directors, employees or consultants of the Parent, the Company or any Restricted Subsidiary thereof for their service to the Company or its Restricted Subsidiaries; (7) sales of Equity Interests (other than Disqualified Stock) to Affiliates of the Company; and (8) Restricted Payments that are permitted by the provisions of the Indenture described above under the caption "--Restricted Payments." Additional Subsidiary Guarantees If the Company or any of its Restricted Subsidiaries acquires or creates another domestic Restricted Subsidiary after the date of the Indenture, then that newly acquired or created Restricted Subsidiary must become a Guarantor and execute a supplemental indenture and deliver an Opinion of Counsel to the Trustee within ten Business Days of the date on which it was acquired or created. If any Subsidiary that is not a Guarantor at any time guarantees Indebtedness of the Company or a Guarantor, the Company will cause such Subsidiary to contemporaneously execute and deliver a supplemental indenture providing for the guarantee of the payment of the notes by such Subsidiary. Designation of Restricted and Unrestricted Subsidiaries The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair market value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary so designated will be deemed to be an Investment made as of the time of such designation and will either reduce the amount available for Restricted Payments under the first paragraph of the covenant described above under the caption "--Restricted Payments" or reduce the amount available for future Investments under one or more clauses of the definition of Permitted Investments, as the Company shall determine. That designation will only be permitted if such Investment would be permitted at that time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a Default. Any Subsidiary so designated as a Restricted Subsidiary must become a Guarantor and execute a supplemental indenture and deliver an Opinion of Counsel to the Trustee within ten Business Days of the date on which it was so designated. Sale and Leaseback Transactions The Company will not, and will not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company or any Restricted Subsidiary may enter into a sale and leaseback transaction if: (1) the Company or that Restricted Subsidiary, as applicable, could have incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under the Fixed Charge Coverage Ratio test in the first paragraph of the covenant described above under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock;" (2) the gross cash proceeds of that sale and leaseback transaction are at least equal to the fair market value, as determined in good faith by the Board of Directors and set forth in an Officers' Certificate delivered to the Trustee, of the property that is the subject of that sale and leaseback transaction; and (3) the transfer of assets in that sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, the covenant described above under the caption "-- Repurchase at the Option of Holders--Asset Sales." 94 Limitation on Issuances and Sales of Equity Interests in Wholly Owned Restricted Subsidiaries The Company will not, and will not permit any of its Restricted Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Wholly Owned Restricted Subsidiary of the Company to any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company), unless: (1) (x) such transfer, conveyance, sale, lease or other disposition is of all the Equity Interests in such Wholly Owned Restricted Subsidiary or (y) if such transfer, conveyance, sale, lease or other disposition is of less than all of the Equity Interests in such Wholly Owned Restricted Subsidiary, such transfer, conveyance, sale, lease or other disposition is made in compliance with the covenant described above under the caption "-- Restricted Payments;" and (2) the cash Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the covenant described above under the caption "--Repurchase at the Option of Holders--Asset Sales." In addition, the Company will not permit any Wholly Owned Restricted Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Restricted Subsidiary of the Company. Business Activities The Company will not, and will not permit any Subsidiary to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. Payments for Consent The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the notes unless such consideration is offered to be paid to all Holders of the notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Reports Whether or not required by the Commission, so long as any notes are outstanding, the Company will furnish to the Holders of notes, within the time periods specified in the Commission's rules and regulations: (1) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report on the annual financial statements by the Company's certified independent accountants; and (2) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. In addition, following the consummation of the exchange offer, whether or not required by the Commission, the Company will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, 95 the Company and the Subsidiary Guarantors have agreed that, for so long as any notes remain outstanding, they will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Events of Default and Remedies Each of the following is an Event of Default: (1) default for 30 days in the payment when due of interest on, or Liquidated Damages with respect to, the notes; (2) default in payment when due of the principal of, or premium, if any, on the notes; (3) failure by the Company or any of its Restricted Subsidiaries to comply with the provisions described under the captions "--Repurchase at the Option of Holders--Change of Control," "--Repurchase at the Option of Holders--Asset Sales," "--Certain Covenants--Restricted Payments," "-- Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock" or "--Certain Covenants--Merger, Consolidation or Sale of Assets;" (4) failure by the Company or any of its Significant Subsidiaries for 60 days after notice from the Trustee or Holders of at least 25% of the notes then outstanding to comply with any of the other agreements in the Indenture; (5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Significant Subsidiaries (or the payment of which is guaranteed by the Company or any of its Significant Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, if that default: (a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (b) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (6) failure by the Company or any of its Significant Subsidiaries to pay final judgments aggregating in excess of $5.0 million (net of amounts covered by insurance policies issued by insurers rated at least "A" by A.M. Best Company that have not denied or disclaimed coverage and with respect to which an enforcement proceeding has not been commenced), which judgments are not paid, discharged or stayed within 60 days; (7) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (8) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Significant Subsidiary thereof or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, 96 the Trustee or the Holders of at least 25% in principal amount of the then outstanding notes may declare all the notes to be due and payable immediately. Holders of the notes may not enforce the Indenture or the notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest or Liquidated Damages) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or Liquidated Damages on, or the principal of, the notes. In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the notes. If an Event of Default occurs prior to May 15, 2003, by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the notes prior to May 15, 2003, then the premium specified in the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture. Upon becoming aware of any Default or Event of Default, the Company is required to deliver to the Trustee a statement specifying such Default or Event of Default. No Personal Liability of Directors, Officers, Employees and Stockholders No director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or the Guarantors under the notes, the Indenture, the Subsidiary Guarantees, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes. The waiver may not be effective to waive liabilities under the federal securities laws. Legal Defeasance and Covenant Defeasance The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding notes and all obligations of the Guarantors discharged with respect to their Subsidiary Guarantees ("Legal Defeasance") except for: (1) the rights of Holders of outstanding notes to receive payments in respect of the principal of, or interest or premium and Liquidated Damages, if any, on such notes when such payments are due from the trust referred to below; (2) the Company's obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust; (3) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's and the Guarantor's obligations in connection therewith; and (4) the Legal Defeasance provisions of the Indenture. 97 In addition, the Company may, at its option and at any time, elect to have the obligations of the Company and the Guarantors released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with those covenants shall not constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the notes. In order to exercise either Legal Defeasance or Covenant Defeasance: (1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, or interest and premium and Liquidated Damages, if any, on the outstanding notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the notes are being defeased to maturity or to a particular redemption date; (2) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (3) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that the Holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (4) no Default or Event of Default shall have occurred and be continuing either: (a) on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit); or (b) insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (6) the Company must have delivered to the Trustee an Opinion of Counsel to the effect that, assuming no intervening bankruptcy of the Company or any Guarantor between the date of deposit and the 91st day following the deposit and assuming that no Holder is an "insider" of the Company under applicable bankruptcy law, after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (7) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and 98 (8) the Company must deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Amendment, Supplement and Waiver Except as provided in the next succeeding paragraphs, the Indenture or the notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes), and any existing default or compliance with any provision of the Indenture or the notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any notes held by a non-consenting Holder): (1) reduce the principal amount of notes whose Holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any note or alter the provisions with respect to the redemption of the notes (other than provisions relating to the covenants described above under the caption "--Repurchase at the Option of Holders"); (3) reduce the rate of or change the time for payment of interest on any note; (4) waive a Default or Event of Default in the payment of principal of, or interest or premium, or Liquidated Damages, if any, on the notes (except a rescission of acceleration of the notes by the Holders of at least a majority in aggregate principal amount of the notes and a waiver of the payment default that resulted from such acceleration); (5) make any note payable in money other than that stated in the notes; (6) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of notes to receive payments of principal of, or interest or premium or Liquidated Damages, if any, on the notes; (7) waive a redemption payment with respect to any note (other than a payment required by one of the covenants described above under the caption "--Repurchase at the Option of Holders"); (8) release any Guarantor from any of its obligations under its Subsidiary Guarantee or the Indenture, except in accordance with the terms of the Indenture; or (9) make any change in the preceding amendment and waiver provisions. Notwithstanding the preceding, without the consent of any Holder of notes, the Company, the Guarantors and the Trustee may amend or supplement the Indenture or the notes: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated notes in addition to or in place of certificated notes; (3) to provide for the assumption of the Company's obligations to Holders of notes in the case of a merger or consolidation or sale of all or substantially all of the Company's assets; (4) to make any change that would provide any additional rights or benefits to the Holders of notes or that does not adversely affect the legal rights under the Indenture of any such Holder; or (5) to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 99 Satisfaction and Discharge The Indenture will be discharged and will cease to be of further effect as to all notes issued thereunder, when: (1) either: (a) all notes that have been authenticated (except lost, stolen or destroyed notes that have been replaced or paid and notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or (b) all notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or will become due and payable within one year and the Company or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the notes not delivered to the Trustee for cancellation for principal, premium and Liquidated Damages, if any, and accrued interest to the date of maturity or redemption; (2) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound; (3) the Company or any Guarantor has paid or caused to be paid all sums payable by it under the Indenture; and (4) the Company has delivered irrevocable instructions to the Trustee under the Indenture to apply the deposited money toward the payment of the notes at maturity or the redemption date, as the case may be. In addition, the Company must deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. Concerning the Trustee If the Trustee becomes a creditor of the Company or any Guarantor, the Indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Holders of a majority in principal amount of the then outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur and be continuing, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. 100 Certain Definitions Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" shall have correlative meanings. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets or rights, other than sales of inventory in the ordinary course of business consistent with past practices; provided that the sale, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption "--Repurchase at the Option of Holders--Change of Control" and/or the provisions described above under the caption "--Certain Covenants--Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant; and (2) the issuance of Equity Interests in any of the Company's Restricted Subsidiaries or the sale of Equity Interests in any of its Subsidiaries. Notwithstanding the preceding, the following items shall not be deemed to be Asset Sales: (1) any single transaction or series of related transactions that involves assets having a fair market value of less than $1.0 million; (2) a transfer of assets between or among the Company and its Wholly Owned Restricted Subsidiaries; (3) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary; (4) the sale or lease of equipment, inventory, accounts receivable or other assets in the ordinary course of business; (5) the sale or other disposition of cash or Cash Equivalents; (6) a Restricted Payment or Permitted Investment that is permitted by the covenant described above under the caption "--Certain Covenants--Restricted Payments;" and (7) the sale and leaseback of any assets within 90 days of the acquisition of such assets. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has 101 been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP. "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The terms "Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning. "Board of Directors" means: (1) with respect to a corporation, the board of directors of the corporation; (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; and (3) with respect to any other Person, the board or committee of such Person serving a similar function. "Borrowing Base" means, as of any date, an amount equal to 85% (or 90% for the calendar months of July, August, October and November) of the book value of all inventory owned by the Company as of the end of the most recent fiscal quarter preceding such date, calculated in accordance with GAAP. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means: (1) United States dollars (including such dollars as are held as overnight bank deposits and demand deposits with banks); (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B" or better or rated "A3" or better by Moody's Investors Service, Inc. or "A" or better by Standard & Poor's Ratings Group; 102 (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Rating Services and in each case maturing within 270 days after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "Change of Control" means the occurrence of any of the following: (1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" or "group" (as such terms are used in Section 13(d)(3) of the Exchange Act) (other than the Principals and the Related Parties); (2) the adoption of a plan relating to the liquidation or dissolution of the Company; (3) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than the Principals and their Related Parties, becomes the Beneficial Owner, directly or indirectly, of more than a majority of the Voting Stock of the Company or the Parent, measured by voting power rather than number of shares; (4) the first day on which a majority of the members of the Board of Directors of the Company or the Parent are not Continuing Directors; or (5) the first day on which the Parent ceases to own 100% of the outstanding Equity Interests of the Company. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus (4) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the 103 extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus (5) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Wholly Owned Restricted Subsidiary thereof; (2) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; (3) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded; (4) the cumulative effect of a change in accounting principles and any ongoing non-cash effect from a change since the date of the Indenture in the time period over which goodwill relating to the Acquisition may be amortized shall be excluded; and (5) the Net Income of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the specified Person or one of its Subsidiaries. "Consolidated Net Worth" means, with respect to any specified Person as of any date, the sum of: (1) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date; plus (2) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company or Holdings who: (1) was a member of such Board of Directors on the date of the Indenture; or (2) was nominated for election or elected to such Board of Directors with the approval of either (i) a majority of the Board of Directors who were members of such Board either (x) on the date of the Indenture or (y) at the time of such nomination or election or (ii) one or more Principals and their Related Parties; provided that (x) such Principals, together with their Related Parties, Beneficially Own at least 35% of the outstanding Voting Stock of the Company and (y) no other Person or group (other than the Principals and the Related Parties) Beneficially Owns more Voting Stock of Holdings than such Principals and their Related Parties. "Credit Agreement" means that certain Loan and Security Agreement, dated as of October 30, 1998, by and between the Company and Congress Financial Corporation, including any related notes, 104 guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "Credit Facilities" means one or more debt facilities (including, without limitation, the Credit Agreement) or commercial paper facilities, in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables), bankers' acceptances or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption "--Certain Covenants--Restricted Payments." "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the date of the Indenture, until such amounts are repaid. "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations; plus (2) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period; plus (3) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined 105 federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Fixed Charges of such Person and its Restricted Subsidiaries for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be given pro forma effect as if they had occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated on a pro forma basis in accordance with Regulation S-X under the Securities Act, but without giving effect to clause (3) of the proviso set forth in the definition of Consolidated Net Income; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded; and (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. "Guarantors" means each Subsidiary of the Company that executes a Subsidiary Guarantee in accordance with the provisions of the Indenture and their respective successors and assigns. "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements, interest rate cap agreements, interest rate collar agreements, foreign exchange contracts and currency swap agreements; and 106 (2) other agreements or arrangements designed to protect such Person against fluctuations in interest rates and/or currency values. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent, in respect of: (1) borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) banker's acceptances; (4) representing Capital Lease Obligations; (5) the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or (6) representing any Hedging Obligations, if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any indebtedness of the sort described in clause (1) through (6) above of any other Person. Notwithstanding the foregoing, the term "Indebtedness" shall not include Non-Recourse Debt or indebtedness that constitutes "Indebtedness" merely by virtue of a pledge of Equity Interests of an Unrestricted Subsidiary securing the same. The amount of any Indebtedness outstanding as of any date shall be: (1) the accreted value thereof, in the case of any Indebtedness issued with original issue discount; and (2) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees but excluding receivables arising in the ordinary course of business), advances or capital contributions (excluding commission, travel and other advances to officers, employees, directors and independent contractors of the Company and its Restricted Subsidiaries made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, either (x) such Person is no longer a Restricted Subsidiary of the Company or (y) if such Subsidiary was a Wholly Owned Subsidiary immediately preceding such sale or disposition, such Person is no longer a Wholly Owned Subsidiary, then in each case, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "--Certain Covenants-- Restricted Payments." The acquisition by the Company or any Restricted Subsidiary of the Company of a Person that holds an Investment in a third Person shall be deemed to be an Investment by the Company or such Restricted Subsidiary in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person in an amount determined as 107 provided in the final paragraph of the covenant described above under the caption "--Certain Covenants--Restricted Payments." "Jay Galin Consulting Agreement" means the consulting agreement between Jay Galin and the Company in the form attached to Jay Galin's employment agreement with the Company in effect on the date of the Indenture. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain, together with any related provision for taxes on such gain, realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and (2) any extraordinary gain, together with any related provision for taxes on such extraordinary gain. "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non- cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and any reserve for indemnities, reimbursements or adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness: (1) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise or (c) constitutes the lender; (2) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (3) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Permitted Business" means the business conducted by the Company and its Restricted Subsidiaries on the date of the closing of this offering and other businesses reasonably related thereto. 108 "Permitted Investments" means: (1) any Investment in the Company or in a Wholly Owned Restricted Subsidiary of the Company; (2) any Investment in Cash Equivalents; (3) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment: (a) such Person becomes a Wholly Owned Restricted Subsidiary of the Company; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the Company; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "-- Repurchase at the Option of Holders--Asset Sales;" (5) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (6) Hedging Obligations; (7) the incurrence by the Company or any of its Restricted Subsidiaries of performance, bid or advance payment bonds, surety bonds, custom bonds, utility bonds and similar obligations arising in the ordinary course of business; (8) endorsements of instruments for collection or deposit in the ordinary course of business; (9) loans and advances to employees and officers not to exceed $500,000 outstanding in the aggregate at any time incurred in the ordinary course of business; (10) loans to employees, directors and officers in connection with the purchase by such Persons of Equity Interests of the Parent so long as the cash proceeds of such purchase received by the Parent are contemporaneously remitted by the Parent to the Company as a capital contribution; (11) investments in account debtors received in connection with the bankruptcy or reorganization, or in settlement of delinquent obligations, of customers; (12) investments in existence on the date of the Indenture; and (13) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (13) that are at the time outstanding not to exceed $5.0 million. "Permitted Liens" means: (1) Liens on assets of the Company and any Guarantor securing Indebtedness and other Obligations under Credit Facilities that were permitted by the terms of the Indenture to be incurred; (2) Liens in favor of the Company or the Guarantors; (3) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company or the Subsidiary; (4) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; 109 (5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clauses (4) and (5) of the second paragraph of the covenant entitled "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock" covering only the assets acquired with such Indebtedness; (7) Liens existing on the date of the Indenture; (8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (9) zoning restrictions, easements, licenses, covenants and other similar restrictions and encumbrances affecting the use of real property not interfering in any material respect with the ordinary conduct of the business of the Company and its Restricted Subsidiaries; (10) judgment liens not giving rise to an Event of Default; (11) Liens, rights of setoff and credit balances with respect to deposit accounts and other Cash Equivalents; (12) deposits with the owner or lessor of premises leased and operated in the ordinary course of business; (13) nonconsensual liens that do not individually or in the aggregate detract materially from the value or transferability of the assets of the Company or any of its Restricted Subsidiaries, or impair materially the use of any such assets in the operation of the respective businesses of the Company and its Restricted Subsidiaries; (14) Liens securing Hedging Obligations; and (15) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest thereon and the amount of all expenses and premiums incurred in connection therewith); (2) such Permitted Refinancing Indebtedness has a final maturity date not earlier than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the notes, such Permitted Refinancing Indebtedness is subordinated in right of payment to the notes on terms at least as favorable to the Holders of notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (4) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. 110 "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "Principals" means (1) each of (x) Pegasus Partners, L.P., (y) Pegasus Related Partners, L.P. and (z) Pegasus G&G Retail, L.P. and Pegasus G&G Retail II, L.P. for so long as they are directly or indirectly controlled by or under common control with either Pegasus Partners, L.P. or Pegasus Related Partners, L.P. (together, the "Pegasus Funds") and (2) Jay Galin and Scott Galin (together, the "Galins"). "Public Equity Offering" means an underwritten public offering of Capital Stock (other than Disqualified Stock) of the Parent or the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act; provided that in the event of a Public Equity Offering by the Parent, the Parent contributes to the capital of the Company net cash proceeds of such Public Equity Offering in an amount sufficient to redeem the Notes called for redemption in accordance with the terms thereof. "Related Party" means: (1) any controlling general partner or controlling stockholder, 80% (or more) owned Subsidiary, or immediate family member (in the case of an individual) of any Principal; (2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of any one or more Principals and/or such other Persons referred to in the immediately preceding clause (1); or (3) any controlling general partner or controlling stockholder of any Related Party described in clause (1) above or any controlling general partner or controlling stockholder of any such Related Party described in clause (1) above. In addition, (1) each of the Galins shall be the Related Party of the other and (2) each of the Pegasus Funds shall be a Related Party of the other. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned 111 or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Unrestricted Subsidiary" means any Subsidiary of the Company that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries. Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption "--Certain Covenants--Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," the Company shall be in default of such covenant. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if: (1) such Indebtedness is permitted under the covenant described under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. Any Subsidiary so designated as a Restricted Subsidiary must become a Guarantor and execute a supplemental indenture and deliver an Opinion of Counsel to the Trustee within ten Business Days of the date on which it was so designated. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including 112 payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any specified Person means a Restricted Subsidiary of such Person, all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. 113 REGISTRATION RIGHTS AGREEMENT The Company and the initial purchasers of the units entered into an A/B Exchange Registration Rights Agreement on May 17, 1999 in connection with the private placement of the units. Pursuant to the registration rights agreement, the Company agreed to: (i) file with the Commission on or prior to 90 days after the date of issuance of the outstanding notes a registration statement on the appropriate form relating to a registered exchange offer for the outstanding notes under the Securities Act; and (ii) use its reasonable best efforts to cause the exchange offer registration statement to be declared effective under the Securities Act within 150 days after the issuance of the outstanding notes. As soon as practicable after the effectiveness of the exchange offer registration statement, the Company will offer to the holders of Transfer Restricted Securities (as defined below) who are not prohibited by any law or policy of the Commission from participating in the exchange offer the opportunity to exchange their Transfer Restricted Securities for an issue of a second series of notes that are identical in all material respects to the outstanding notes (except that the exchange notes will not contain terms with respect to transfer restrictions) and that would be registered under the Securities Act. The Company will keep the exchange offer open for not less than 20 business days nor more than 30 business days (or longer, if required by applicable law) after the date on which the registration statement becomes effective. If: (i) because of any change in applicable law, the Company is not permitted to effect the exchange offer, (ii) any holder notifies the Company prior to the 20th day following consummation of the exchange offer that any applicable law or Commission policy does not permit any holder of outstanding notes to participate in the exchange offer, (iii) any holder notifies the Company prior to the 20th day following the consummation of the exchange offer that it may not resell the exchange notes acquired by it in the exchange offer to the public without delivering a prospectus and this Prospectus is not appropriate or available for such resales by such holder, or (iv) any holder notifies the Company prior to the 20th day following the consummation of the exchange offer that it is a broker-dealer and holds outstanding notes acquired directly from the Company or any of the Company's affiliates, then the Company will file with the Commission a shelf registration statement to cover resales of Transfer Restricted Securities by such holders who satisfy certain conditions relating to the provision of information in connection with the shelf registration statement. For purposes of the foregoing, "Transfer Restricted Securities" means: (i) each outstanding note, until the earliest to occur of: (a) the date on which such outstanding note is exchanged in the exchange offer for an exchange note which is entitled to be resold to the public by the holder thereof without complying with the prospectus delivery requirements of the Securities Act, (b) the date on which such outstanding note has been disposed of in accordance with a shelf registration statement (and the purchasers thereof have been issued exchange notes), or (c) the date on which such outstanding note is distributed to the public pursuant to Rule 144 under the Securities Act, and (ii) each exchange note held by a broker-dealer until the date on which such exchange note is disposed of by a broker-dealer as set forth under the caption "Plan of Distribution." 114 The Company will use its reasonable best efforts to have the exchange offer registration statement or, if applicable, the shelf registration statement declared effective by the Commission as promptly as practicable after the filing thereof. Unless the exchange offer would not be permitted by a policy of the Commission, the Company will commence the exchange offer and will use its reasonable best efforts to consummate the exchange offer as promptly as practicable, but in any event within 30 business days of the date the registration statement is declared effective. If applicable, the Company will use its reasonable best efforts to keep the shelf registration statement effective for a period of at least two years after the date of issuance of the outstanding notes or such shorter period when all outstanding notes covered by the shelf registration statement have been sold pursuant thereto. If: (i) the applicable registration statement is not filed on or before the date specified for such filing; (ii) any of such registration statements is not declared effective by the Commission on or prior to the date specified for such effectiveness (the "Effectiveness Target Date"); (iii) the exchange offer is not consummated within 30 business days of the Effectiveness Target Date with respect to the registration statement; or (iv) the registration statement or the shelf registration statement that is filed and declared effective thereafter ceases to be effective or fails to be usable for its intended purpose (at any time that the Company is obligated to maintain the effectiveness thereof) without being succeeded immediately by a post-effective amendment to such registration statement curing such failure and declared effective; (each such event referred to in clauses (i) through (iv) above, a "Registration Default"), the Company will be obligated to pay liquidated damages to each holder of Transfer Restricted Securities during the period of one or more such Registration Defaults. With respect to the first 90-day period immediately following the occurrence of the first Registration Default, the amount of the liquidated damages shall be equal to $.05 per week per $1,000 in principal amount of Transfer Restricted Securities held by such holder for each week or portion thereof that the Registration Default continues. With respect to each subsequent 90-day period, the amount of the liquidated damages shall increase by an additional $.05 per week per $1,000 in principal amount of Transfer Restricted Securities until all Registration Defaults have been cured, up to a maximum amount of liquidated damages of $.25 per week per $1,000 in principal amount of Transfer Restricted Securities; provided that the Company shall in no event be required to pay liquidated damages for more than one Registration Default at any given time. The liquidated damages payable with respect to the Transfer Restricted Securities shall cease when all Registration Defaults have been cured. The registration rights agreement also provides that the Company: (i) shall make available for a period of one year after the consummation of the exchange offer (or such shorter period as will terminate when all Transfer Restricted Securities have been sold) a prospectus meeting the requirements of the Securities Act to any broker-dealer for use in connection with any resale of any such exchange notes; (ii) shall pay all expenses incident to its performance under the registration rights agreement and reimburse the holders of Transfer Restricted Securities who are tendering for reasonable fees and disbursements of not more than one counsel; and (iii) and the holders of Transfer Restricted Securities each agree to indemnify the other against certain liabilities, including liabilities under the Securities Act. Each holder of outstanding notes who wishes to exchange such outstanding notes for exchange notes in the exchange offer will be required to make certain representations, including representations that: (i) any exchange notes to be received by it will be acquired in the ordinary course of its business; 115 (ii) it has no arrangement or understanding with any person to participate in the distribution of the exchange notes; and (iii) it is not an "affiliate" (as defined in Rule 144 under the Securities Act) of the Company, or if it is an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the holder is not a broker-dealer, it will be required to represent that it is not engaged in, and does not intend to engage in, the distribution of the exchange notes. If the holder is a broker-dealer that will receive exchange notes for its own account in exchange for notes that were acquired as a result of market-making activities or other trading activities, it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. Holders of the notes will be required to make certain representations to the Company (as described above) in order to participate in the exchange offer and will be required to deliver information to be used in connection with the shelf registration statement in order to have their notes included in the shelf registration statement and benefit from the provisions regarding liquidated damages set forth in the preceding paragraphs. A holder who sells notes pursuant to the shelf registration statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the registration rights agreement which are applicable to such a holder (including certain indemnification obligations). Holders of the notes will also be required to suspend their use of this Prospectus under certain circumstances. For so long as the notes are outstanding, the Company will continue to make available to holders of the notes and to prospective purchasers of the notes the information required by Rule 144A(d)(4) under the Securities Act. The foregoing description of the registration rights agreement is a summary only, does not purport to be complete and is qualified in its entirety by reference to all provisions of the registration rights agreement. The registration rights agreement has been filed as an exhibit to the registration statement of which this Prospectus is a part. 116 BOOK-ENTRY; DELIVERY AND FORM The exchange notes will initially be represented by one or more permanent global notes in definitive, fully registered book-entry form, without interest coupons (the "Global Notes") that will be deposited with, or on behalf of, DTC and registered in the name of Cede & Co., as nominee of DTC, on behalf of the acquirors of exchange notes represented thereby for credit to the respective accounts of the acquirors (or to such other accounts as they may direct) at DTC, or Morgan Guaranty Trust Company of New York, Brussels Office, as operator of the Euroclear System, or Cedel Bank, societe anonyme. See "The Exchange Offer--Book Entry Transfer." The Global Notes may be transferred, in whole and not in part, solely to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for notes in physical, certificated form ("Certificated Notes") except in the limited circumstances described below under "--Certificated Notes." All interests in the Global Notes, including those held through Euroclear or Cedel, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Cedel may also be subject to the procedures and requirements of such systems. Certain Book-Entry Procedures for the Global Notes The descriptions of the operations and procedures of DTC, Euroclear and Cedel set forth below are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to change by them from time to time. We take no responsibility for these operations or procedures, and investors are urged to contact the relevant system or its participants directly to discuss these matters. DTC has advised us that it is: (i) a limited purpose trust company organized under the laws of the State of New York, (ii) a "banking organization" within the meaning of the New York Banking Law, (iii) a member of the Federal Reserve System, (iv) a "clearing corporation" within the meaning of the Uniform Commercial Code, as amended, and (v) a "clearing agency" registered pursuant to Section 17A of the Exchange Act. DTC was created to hold securities for its participants (collectively, the "Participants") and facilitates the clearance and settlement of securities transactions between Participants through electronic book-entry changes to the accounts of its Participants, thereby eliminating the need for physical transfer and delivery of certificates. DTC's Participants include securities brokers and dealers, banks and trust companies, clearing corporations and certain other organizations. Indirect access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies (collectively, the "Indirect Participants") that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. Investors who are not Participants may beneficially own securities held by or on behalf of DTC only through Participants or Indirect Participants. We expect that pursuant to procedures established by DTC ownership of the notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the interests of Participants) and the records of Participants and the Indirect Participants (with respect to the interests of persons other than Participants). 117 The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Accordingly, the ability to transfer interests in the notes represented by a Global Note to such persons may be limited. In addition, because DTC can act only on behalf of its Participants, who in turn act on behalf of persons who hold interests through Participants, the ability of a person having an interest in notes represented by a Global Note to pledge or transfer such interest to persons or entities that do not participate in DTC's system, or to otherwise take actions in respect of such interest, may be affected by the lack of a physical definitive security in respect of such interest. So long as DTC or its nominee is the registered owner of a Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the notes represented by the Global Note for all purposes under the Indenture. Except as provided below, owners of beneficial interests in a Global Note will not be entitled to have notes represented by such Global Note registered in their names, will not receive or be entitled to receive physical delivery of Certificated Notes, and will not be considered the owners or holders thereof under the Indenture for any purpose, including with respect to the giving of any direction, instruction or approval to the Trustee thereunder. Accordingly, each holder owning a beneficial interest in a Global Note must rely on the procedures of DTC and, if such holder is not a Participant or an Indirect Participant, on the procedures of the Participant through which such holder owns its interest, to exercise any rights of a holder of notes under the Indenture or such Global Note. The Company understands that under existing industry practice, in the event that the Company requests any action of holders of notes, or a holder that is an owner of a beneficial interest in a Global Note desires to take any action that DTC, as the holder of such Global Note, is entitled to take, DTC would authorize the Participants to take such action and the Participants would authorize holders owning through such Participants to take such action or would otherwise act upon the instruction of such holders. Neither the Company nor the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of notes by DTC, or for maintaining, supervising or reviewing any records of DTC relating to such notes. Payments with respect to the principal of, and premium, if any, liquidated damages, if any, and interest on, any notes represented by a Global Note registered in the name of DTC or its nominee on the applicable record date will be payable by the Trustee to or at the direction of DTC or its nominee in its capacity as the registered holder of the Global Note representing such notes under the Indenture. Under the terms of the Indenture, the Company and the Trustee may treat the persons in whose names the notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving payment thereon and for any and all other purposes whatsoever. Accordingly, neither the Company nor the Trustee has or will have any responsibility or liability for the payment of such amounts to owners of beneficial interests in a Global Note (including principal, premium, if any, liquidated damages, if any, and interest). Payments by the Participants and the Indirect Participants to the owners of beneficial interests in a Global Note will be governed by standing instructions and customary industry practice and will be the responsibility of the Participants or the Indirect Participants and DTC. DTC management is aware that some computer applications, systems, and the like for processing data ("Systems") that are dependent upon calendar dates, including dates before, on, and after January 1, 2000, may encounter "Year 2000 problems". DTC has informed its Participants and other members of the financial community that it has developed and is implementing a program so that its Systems, as the same relate to the timely payment of distributions (including principal and income payments) to securityholders, book-entry deliveries, and settlement of trades within DTC ("DTC Services"), continue to function appropriately. This program includes a technical assessment and a remediation plan, each of which is complete. Additionally, DTC's plan includes a testing phase, which is expected to be completed within appropriate time frames. 118 However, DTC's ability to perform properly its services is also dependent upon other parties, including but not limited to issuers and their agents, as well as third party vendors from whom DTC licenses software and hardware, and third party vendors on whom DTC relies for information or the provision of services, including telecommunication and electrical utility service providers, among others. DTC has informed the industry that it is contacting (and will continue to contact) third party vendors from whom DTC acquires services to: (i) impress upon them the importance of such services being Year 2000 compliant; and (ii) determine the extent of their efforts for Year 2000 remediation (and, as appropriate, testing) of their services. In addition, DTC is in the process of developing such contingency plans as it deems appropriate. According to DTC, the foregoing information with respect to DTC has been provided to the industry for informational purposes only and is not intended to serve as a representation, warranty, or contract modification of any kind. Transfers between Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same-day funds. Transfers between participants in Euroclear or Cedel will be effected in the ordinary way in accordance with their respective rules and operating procedures. Subject to compliance with the transfer restrictions applicable to the notes, cross-market transfers between the Participants in DTC, on the one hand, and Euroclear or Cedel participants, on the other hand, will be effected through DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or Cedel, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Cedel, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Notes in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Cedel participants may not deliver instructions directly to the depositaries for Euroclear or Cedel. Because of time zone differences, the securities account of a Euroclear or Cedel participant purchasing an interest in a Global Note from a Participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Cedel participant, during the securities settlement processing day (which must be a business day for Euroclear and Cedel) immediately following the settlement date of DTC. Cash received in Euroclear or Cedel as a result of sales of interests in a Global Security by or through a Euroclear or Cedel participant to a Participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Cedel cash account only as of the business day for Euroclear or Cedel following DTC's settlement date. Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to facilitate transfers of interests in the Global Notes among participants in DTC, Euroclear and Cedel, they are under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Company nor the Trustee will have any responsibility for the performance by DTC, Euroclear or Cedel or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. 119 Certificated Notes If: (i) the Company notifies the Trustee in writing that DTC notified the Company that DTC is no longer willing or able to continue to act as a depositary or DTC ceases to be registered as a clearing agency under the Exchange Act and, in either case, a successor depositary is not appointed within 120 days of such notice from DTC, (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Certificated Notes under the Indenture, or (iii) DTC, at its option, determines that Global Notes should be exchanged for Certificated Notes following an Event of Default with respect to the notes, then, upon surrender by DTC of the Global Notes, Certificated Notes will be issued to each person that DTC identifies as the beneficial owner of the notes represented by the Global Notes. In addition, beneficial interests in a Global Note may be exchanged for Certificated Notes upon prior written notice given to the Trustee by or on behalf of DTC in accordance with the Indenture. In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests in Global Notes will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures). Neither the Company nor the Trustee shall be liable for any delay by DTC or any Participant or Indirect Participant in identifying the beneficial owners of the related notes and each such person may conclusively rely on, and shall be protected in relying on, instructions from DTC for all purposes (including with respect to the registration and delivery, and the respective principal amounts, of the notes to be issued). 120 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a general discussion of material United States federal income tax consequences associated with the exchange of the outstanding notes for the exchange notes in the exchange offer and the ownership and disposition of the exchange notes. This summary applies to you only if you are a holder of an exchange note who acquired an outstanding note at the initial offering from an initial purchaser for the original offering price and are now acquiring the exchange note in the exchange offer. This discussion is based on provisions of the Internal Revenue Code of 1986, as amended, (the "Code"), Treasury regulations, and administrative and judicial interpretations of the Code and the regulations, all as in effect as of the date of this Prospectus and all of which are subject to change, possibly with retroactive effect. This discussion does not address the tax consequences to subsequent purchasers of the exchange notes and applies to you only if you hold the exchange notes as capital assets. Your treatment as a holder of the notes may vary depending upon your situation. For example, if you are an insurance company, tax-exempt organization, financial institution, broker-dealer, subject to the alternative minimum tax provisions of the Code, holding notes as part of a hedge, straddle or other risk reduction or constructive sale transaction, or a nonresident alien or foreign corporation subject to net-basis United States federal income tax on income or gain derived from a note because such income or gain is effectively connected with the conduct of a United States trade or business, you may be subject to special rules not discussed below. Your should consult your tax advisor regarding the particular tax consequences to you of the exchange of the outstanding notes for the exchange notes in the exchange offer and the ownership and disposition of the exchange notes, as well as any tax consequences that may arise under the laws of any relevant foreign, state, local or other taxing jurisdiction. Exchange Offer The exchange of an outstanding note for an exchange note in the exchange offer will not constitute a significant modification of the outstanding note for United States federal income tax purposes. Therefore, the exchange note received will be treated as a continuation of the outstanding note in your hands. As a result, there will be no United States federal income tax consequences to you upon the exchange of an outstanding note for an exchange note in the exchange offer and you will have the same adjusted tax basis and holding period in the exchange note as you had in the outstanding note immediately before the exchange. Other Tax Considerations United States Holders If you are a "United States Holder," as defined below, this section applies to you. Otherwise, the next section, "Non-United States Holders," applies to you. Definition of United States Holder. You are a "United States Holder" if you hold the notes, and you are: . a citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the "substantial presence" test under Section 7701(b) of the Code; . a corporation or partnership created or organized in the United States or under the laws of the United States or of any political subdivision of the United States; . an estate, the income of which is subject to United States federal income tax regardless of its source; or 121 . a trust, if a United States court can exercise primary supervision over the administration of the trust and one or more United States persons can control all substantial decisions of the trust, or if the trust was in existence on August 20, 1996 and has elected to continue to be treated as a United States person. Taxation of Stated Interest. Subject to the discussion below regarding OID (as defined below), you must generally pay federal income tax on the interest on the notes: . when it accrues, if you use the accrual method of accounting for United States federal income tax purposes; or . when you receive it, if you use the cash method of accounting for United States federal income tax purposes. Taxation of Original Issue Discount. The outstanding notes were issued with original issue discount ("OID") for federal income tax purposes and thus the exchange notes will also have OID for federal income tax purposes. As a result, you will be required to include OID in gross income for federal income tax purposes, as it accrues in advance of the receipt of cash payments on the notes (regardless of whether you are a cash or accrual basis taxpayer). The amount of OID with respect to each note will be the excess of its "stated redemption price at maturity" over its "issue price." The "issue price" of a note is equal to the first price at which a substantial amount of the units (consisting of the outstanding notes and certain warrants to purchase the Parent's Class D common stock) was sold to the public, reduced by the portion of the purchase price of the units allocable to the warrants. The company allocated the purchase price of a unit between a warrant and an outstanding note based on their relative fair market values. Such allocation is binding upon you, as a United States Holder, unless you disclose on a statement attached to your income tax return that you are using a different allocation. The "stated redemption price at maturity" of each note will include all cash payments required to be made thereunder until and at maturity other than the stated interest. The total OID for the period from original issuance of the notes until their maturity will accrue based on a constant yield to maturity and will be allocated to each "accrual period" therein. An "accrual period" in the case of the notes is each semi-annual period following the date on which they are issued. The OID allocated to an accrual period will be further apportioned to each day within the accrual period on a pro rata basis. A holder of a debt instrument issued with OID (including a holder who is a cash basis taxpayer) is required to include an amount of OID in income in each taxable year equal to the sum of the "daily portions" of OID for each day during the taxable year on which the debt instrument is held by such holder. Sale or Other Taxable Disposition of the Notes. You must recognize taxable gain or loss on the sale, exchange, redemption, retirement or other taxable disposition of a note. The amount of your gain or loss equals the difference between the amount you receive for the note (in cash or other property, valued at fair market value), minus the amount attributable to accrued interest on the note, minus your adjusted tax basis in the note. Your initial tax basis in a note equals the portion of the issue price of the unit allocated to the note and will be increased by OID previously included (or currently includible) in your gross income to the date of any disposition and decreased by any payments, other than payments of stated interest on the notes. Your gain or loss will generally be a long-term capital gain or loss if you have held the note for more than one year. Otherwise, it will be a short-term capital gain or loss. Payments attributable to accrued interest which you have not yet included in income will be taxed as ordinary interest income. 122 Backup Withholding You may be subject to a 31% backup withholding tax when you receive interest payments on a note, or proceeds upon the sale or other disposition of a note. Certain holders (including, among others, corporations and certain tax-exempt organizations) are generally not subject to backup withholding. In addition, the 31% backup withholding tax will not apply to you if you provide your taxpayer identification number ("TIN") in the prescribed manner unless: . the IRS notifies us or our agent that the TIN you provided is incorrect; . you fail to report interest and dividend payments that you receive on your tax return and the IRS notifies us or our agent that withholding is required; or . you fail to certify under penalties of perjury that you are not subject to backup withholding. If the 31% backup withholding tax does apply to you, you may use the amounts withheld as a refund or credit against your United States federal income tax liability as long as you provide certain information to the IRS. Non-United States Holders Definition of Non-United States Holder. A "Non-United States Holder" is any person other than a United States Holder. Please note that if you are subject to United States federal income tax on a net basis on income or gain with respect to a note because such income or gain is effectively connected with the conduct of a United States trade or business, this disclosure does not cover the United States federal tax rules that apply to you. Portfolio Interest Exemption. You will generally not have to pay United States federal income tax on interest paid on the notes because of the "portfolio interest exemption" if either: . you represent that you are not a United States person for United States federal income tax purposes and you provide your name and address to us or our paying agent on a properly executed IRS Form W-8 (or a suitable substitute form) signed under penalties of perjury; or . a securities clearing organization, bank, or other financial institution that holds customers' securities in the ordinary course of its business, holds the note on your behalf, certifies to us or our agent under penalties of perjury that it has received IRS Form W-8 (or a suitable substitute) from you or from another qualifying financial institution intermediary, and provides a copy to us or our agent. You will not, however, qualify for the portfolio interest exemption described above if: . you own, actually or constructively, 10% or more of the total combined voting power of all classes of our capital stock; . you are a controlled foreign corporation with respect to which we are a "related person" within the meaning of Section 864(d)(4) of the Code; or . you are a bank receiving interest described in Section 881(c)(3)(A) of the Code (i.e., interest on an extension of credit made pursuant to a loan agreement entered into in the ordinary course of your trade or business). Withholding Tax if the Interest Is Not Portfolio Interest. If you do not claim, or do not qualify for, the benefit of the portfolio interest exemption, you may be subject to a 30% withholding tax on interest payments made on the notes. However, you may be able to claim the benefit of a reduced withholding tax rate under an applicable income tax treaty. The required information for claiming treaty benefits is generally submitted, under current regulations, on Form 1001. Successor forms will require additional information, as discussed below under the heading "--New Withholding Regulations." 123 Reporting. We may report annually to the IRS and to you the amount of interest paid to, and the tax withheld, if any, with respect to you. Sale or Other Disposition of the Notes. You will generally not be subject to United States federal income tax or withholding tax on gain recognized on a sale, exchange, redemption, retirement, or other disposition of a note. You may, however, be subject to tax on such gain if: . you are an individual who was present in the United States for 183 days or more in the taxable year of the disposition, in which case you may have to pay a United States federal income tax of 30% (or a reduced treaty rate) on such gain; or . you are an individual who is a former citizen or resident of the United States, your loss of citizenship or residency occurred within the last ten years (and, if you are a former resident, on or after February 6, 1995), and it had as one of its principal purposes the avoidance of United States tax, in which case you may be taxed on the net gain derived from the sale under the graduated United States federal income tax rates that are applicable to United States citizens and resident aliens, and you may be subject to withholding under certain circumstances. United States Federal Estate Taxes. If you qualify for the portfolio interest exemption under the rules described above when you die, the notes will not be included in your estate for United States federal estate tax purposes. Backup Withholding and Information Reporting. If you receive payments of interest or principal directly from us or through the United States office of a custodian, nominee, agent or broker, there is a possibility that you will be subject to both backup withholding at a rate of 31% and information reporting. With respect to interest payments made on a note, however, backup withholding and information reporting will not apply if you certify, generally on a Form W- 8 or substitute form, that you are not a United States person in the manner described above under the heading "--Portfolio Interest Exemption," provided that the payor does not have actual knowledge that the payee is a U.S. person. Moreover, with respect to proceeds received on the sale, exchange, redemption, or other disposition of a note backup withholding or information reporting generally will not apply if you properly provide, generally on Form W-8 or a substitute form, a statement that you are an "exempt foreign person" for purposes of the broker reporting rules, and other required information. If you are not subject to United States federal income or withholding tax on the sale or other disposition of a note, as described above under the heading "--Sale or Other Disposition of the Notes," you will generally qualify as an "exempt foreign person" for purposes of the broker reporting rules. If payments of principal or interest are made to you outside the United States by or through the foreign office of your foreign custodian, nominee or other agent, or if you receive the proceeds of the sale of a note through a foreign office of a "broker," as defined in the pertinent United States Treasury Regulations, you will generally not be subject to backup withholding or information reporting. Under New Withholding Regulations (as defined below), however, which will be effective for payments made after December 31, 2000, you will be subject to backup withholding and information reporting if the foreign custodian, nominee, agent or broker has actual knowledge or reason to know that the payee is a United States person. You will also be subject to information reporting under the New Regulations, but not backup withholding, if the payment is made by a foreign office of a custodian, nominee, agent or broker that is a United States person or a controlled foreign corporation for United States federal income tax purposes, or that derives 50% or more of its gross income from the conduct of a United States trade or business for a specified three- year period, unless the broker has in its records documentary evidence that you are a Non-United States Holder and certain other conditions are met. 124 Any amounts withheld under the backup withholding rules may be refunded or credited against the Non-United States Holder's United States federal income tax liability, provided that the required information is furnished to the IRS. New Withholding Regulations. New regulations relating to withholding tax or income paid to foreign persons (the "New Withholding Regulations") will generally be effective for payments made after December 31, 2000. The New Withholding Regulations modify and, in general, unify the way in which you establish your status as a non-United States "beneficial owner" eligible for withholding exemptions including the portfolio interest exemption, a reduced treaty rate or an exemption from backup withholding. For example, the new regulations will require new forms, which you generally will have to provide earlier than you would have had to provide replacements for expiring existing forms. The New Withholding Regulations clarify withholding agents' reliance standards. They also require additional certifications for claiming treaty benefits. The New Withholding Regulations also provide somewhat different procedures for foreign intermediaries and flow-through entities (such as foreign partnerships) to claim the benefit of applicable exemptions on behalf of non-United States beneficial owners for which or for whom they receive payments. The New Withholding Regulations also amend the foreign broker office definition as it applies to partnerships. When you exchange your outstanding notes for exchange notes, you will be required to submit certification to the Company that complies with current Treasury Regulations in order to obtain an available exemption from or reduction in withholding tax. The New Withholding Regulations provide that certifications satisfying the requirements of the New Withholding Regulations will be deemed to satisfy the requirement of the Treasury Regulations now in effect. In any case, you will generally be required to provide certifications that comply with the provisions of the New Withholding Regulations, where required, not later than the earlier of (i) the date after December 31, 1999, on which your certification is no longer accurate or has expired, and (ii) December 31, 2000, if you remain as a holder of the notes on such date, unless you receive payments on the notes through a qualified intermediary (as defined in the New Withholding Regulations) that has provided a proper certification on your behalf. If you are a Non-United States Holder claiming benefit under an income tax treaty (and not relying on the portfolio interest exemption with respect to interest payments on the notes), you should be aware that you may be required to obtain a taxpayer identification number and to certify your eligibility under the applicable treaty's limitations on benefits article in order to comply with the New Withholding Regulations' certification requirements. The New Withholding Regulations are complex and this summary does not completely describe them. Please consult your tax advisor to determine how the New Withholding Regulations will affect your particular circumstances. 125 PLAN OF DISTRIBUTION Each broker-dealer that received exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. This Prospectus, as it may be amended or supplemented, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for outstanding notes only where such outstanding notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale for a period of one year from the date on which the exchange offer is consummated, or such shorter period as will terminate when all outstanding notes acquired by broker-dealers for their own accounts as a result of market-making activities or other trading activities have been exchanged for exchange notes and such exchange notes have been resold by such broker-dealers. The Company will not receive any proceeds from any sale of exchange notes by broker-dealers. Exchange notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any exchange notes. Any broker-dealer that resells exchange notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such exchange notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of exchange notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver any by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Company has agreed to pay all expenses incident to the exchange offer, including reasonable fees of not more than one counsel retained by the holders of outstanding notes but excluding commissions or concessions of any brokers or dealers and the fees of any other advisors or experts retained by the holders of outstanding notes, except as expressly set forth in the registration rights agreement, and will indemnify the holders of outstanding notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. 126 LEGAL MATTERS The validity of the exchange notes offered hereby will be passed upon for the Company by Kaye, Scholer, Fierman, Hays & Handler, LLP, New York, New York. EXPERTS The combined financial statements of G & G Shops, Inc. at January 31, 1998 and for the seven months ended August 28, 1998 and each of the two years in the period ended January 31, 1998 appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The consolidated financial statements of G+G Retail, Inc. at January 30, 1999 and for the five months ended January 30, 1999, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement on Form S-4 under the Securities Act with respect to the exchange notes being offered hereby. This Prospectus, which forms a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement. You should refer to the Registration Statement for further information. Statements contained in this Prospectus as to the contents of any contract or other documents are not necessarily complete, and, where such contract or other document is an exhibit to the Registration Statement, each such statement is qualified by the provision in such exhibit to which reference is hereby made. This Registration Statement may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices in New York (Seven World Trade Center, 13th Floor, New York, New York 10048), and Chicago (Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661). Copies of all or any portion of the Registration Statement may be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company will provide without charge to each person to whom this Prospectus is delivered, upon such person's written or oral request, a copy of any and all of the documents incorporated by reference in this Prospectus (not including the exhibits to such documents unless such exhibits are specifically incorporated by reference into such documents). Requests for such copies should be directed to the Company at 520 Eighth Avenue, New York, New York 10018, telephone number (212)279-4961, attention: Chief Financial Officer. In addition, the Company has agreed that, whether or not required by the rules and regulations of the Commission, so long as any notes are outstanding, the Company will furnish to the holders of notes (1) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K, if the Company was required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its subsidiary and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (2) all current reports that would be required to be filed with the Commission on Form 8-K if the Company was required to file such reports. In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. 127 INDEX TO FINANCIAL STATEMENTS
Page ---- G+G RETAIL, INC. Report of Independent Auditors........................................... F-2 Consolidated Balance Sheet as of January 30, 1999........................ F-3 Consolidated Statement of Income for the Five Months Ended January 30, 1999.................................................................... F-4 Consolidated Statement of Stockholder's Equity for the Five Months Ended January 30, 1999........................................................ F-5 Consolidated Statement of Cash Flows for the Five Months Ended January 30, 1999................................................................ F-6 Notes to Consolidated Financial Statements............................... F-7 G+G RETAIL, INC. Consolidated Balance Sheets as of May 1, 1999 and January 30, 1999....... F-15 Consolidated Statement of Operations of G+G Retail, Inc. for the Three Months Ended May 1, 1999 and Combined Statement of Operations of G & G Shops, Inc. for the Three Months Ended May 2, 1998...................... F-16 Consolidated Statement of Cash Flows of G+G Retail, Inc. for the Three Months Ended May 1, 1999 and Combined Statement of Cash Flows of G & G Shops, Inc. for the Three Months Ended May 2, 1998...................... F-17 Notes to Unaudited Consolidated Financial Statements..................... F-18 G & G SHOPS, INC. Report of Independent Auditors........................................... F-20 Combined Balance Sheet as of January 31, 1998............................ F-21 Combined Statements of Income for the Seven Months Ended August 28, 1998 and for each of the Two Years in the Period Ended January 31, 1998...... F-22 Combined Statements of Shareholder's Deficit for the Seven Months Ended August 28, 1998 and for each of the Two Years in the Period Ended January 31, 1998........................................................ F-23 Combined Statements of Cash Flows for the Seven Months Ended August 28, 1998 and for each of the Two Years in the Period Ended January 31, 1998.................................................................... F-24 Notes to Combined Financial Statements................................... F-25
F-1 Report of Independent Auditors The Board of Directors G+G Retail, Inc. We have audited the accompanying consolidated balance sheet of G+G Retail, Inc. and its subsidiary (collectively, the "Company") as of January 30, 1999 and the related consolidated statements of income, stockholder's equity and cash flows for the five months ended January 30, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at January 30, 1999 and the consolidated results of its operations and its cash flows for the five months ended January 30, 1999, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP April 14, 1999 F-2 G+G RETAIL, INC. CONSOLIDATED BALANCE SHEET (In Thousands) January 30, 1999 ASSETS Current assets: Cash and short-term investments..................................... $ 13,129 Accounts receivable................................................. 718 Merchandise inventories............................................. 12,578 Prepaid expenses.................................................... 794 Deferred tax assets................................................. 645 -------- Total current assets................................................. 27,864 Property and equipment, net.......................................... 22,560 Intangible assets, net............................................... 116,625 Deferred tax assets.................................................. 410 Other assets......................................................... 205 -------- Total assets......................................................... $167,664 ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable.................................................... $ 13,338 Accrued expenses.................................................... 11,155 Income taxes payable................................................ 1,330 -------- Total current liabilities............................................ 25,823 Long-term debt....................................................... 90,000 -------- Total liabilities.................................................... 115,823 Commitments and contingencies Stockholder's equity: Class B common stock, par value $.01 per share, 1,000 shares authorized, 10 shares issued and outstanding....................... -- Additional paid-in capital.......................................... 49,828 Retained earnings................................................... 2,013 -------- Total stockholder's equity........................................... 51,841 -------- Total liabilities and stockholder's equity........................... $167,664 ========
See accompanying notes. F-3 G+G RETAIL, INC. CONSOLIDATED STATEMENT OF INCOME (In Thousands) Five months ended January 30, 1999 Net sales............................................................. $131,567 Cost of sales (including occupancy costs)............................. 79,267 -------- Gross margin.......................................................... 52,300 Operating expenses: Selling, general, administrative and buying......................... 36,170 Depreciation and amortization....................................... 5,141 -------- Operating income...................................................... 10,989 Interest expense...................................................... 7,520 Interest income....................................................... 125 -------- Income before provision for income taxes.............................. 3,594 Provision for income taxes............................................ 1,581 -------- Net income............................................................ $ 2,013 ========
See accompanying notes. F-4 G+G RETAIL, INC. CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (In Thousands) Five months ended January 30, 1999
Additional Total Common Paid-In Retained Stockholder's Stock Capital Earnings Equity ------ ---------- -------- ------------- Balance--August 28, 1998............... $ -- $ -- $ -- $ -- Capital contribution, net.............. 49,828 49,828 Net income............................. 2,013 2,013 ------ ------- ------ ------- Balance--January 30, 1999.............. $ -- $49,828 $2,013 $51,841 ====== ======= ====== =======
See accompanying notes. F-5 G+G RETAIL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands) Five months ended January 30, 1999 Operating activities Net income.......................................................... $ 2,013 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization..................................... 6,245 Write-off of deferred financing costs............................. 390 Deferred income taxes............................................. (340) Changes in assets and liabilities: Accounts receivable............................................. (349) Merchandise inventories......................................... 6,124 Prepaid expenses................................................ (784) Other assets.................................................... (98) Income taxes payable............................................ 1,330 Accounts payable and accrued expenses........................... (2,588) -------- Net cash provided by operating activities........................... 11,943 Investing activities Capital expenditures, net........................................... (2,779) Acquisition of business, net of cash acquired....................... (132,000) Payment of acquisition costs........................................ (2,879) -------- Net cash used in investing activities............................... (137,658) Financing activities Proceeds from notes payable......................................... 5,000 Proceeds from long-term debt........................................ 90,000 Proceeds from initial capital contribution, net..................... 49,828 Repayment of notes payable.......................................... (5,000) Payment of debt issuance costs...................................... (2,759) -------- Net cash provided by financing activities........................... 137,069 -------- Net increase in cash and short-term investments..................... 11,354 Cash and short-term investments, beginning of period................ 1,775 -------- Cash and short-term investments, end of period...................... $ 13,129 ======== Supplemental cash flow disclosures Cash paid during the five months ended January 30, 1999: Interest.......................................................... $ 5,381 ======== Income taxes...................................................... $ 570 ========
See accompanying notes. F-6 G+G RETAIL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 30, 1999 1. Organization and Business G+G Retail, Inc. ("G+G" or the "Company") was incorporated on June 26, 1998. On August 28, 1998, G&G Retail Holdings, Inc. ("Holdings" or the "Parent") made a capital contribution to the Company in the amount of $50.5 million. Concurrently with such contribution to capital, the Company made a payment on behalf of the Parent in the amount of $700,000. Simultaneous with the initial capital contribution, the Company acquired (the "Acquisition") substantially all of the assets and certain liabilities of G & G Shops, Inc. ("G & G Shops" or the "Predecessor") and certain other subsidiaries of Petrie Retail, Inc. ("Petrie") from Petrie. The Acquisition was accounted for as a purchase; accordingly, the accompanying consolidated balance sheet reflects the preliminary allocation of the purchase price to tangible and intangible assets acquired and liabilities assumed (Note 3). Holdings has no operations other than owning all of the capital stock of the Company and is dependent on the cash flows from the Company to meet its obligations, including with respect to the mandatory redeemable preferred stock due 2008. Prior to August 28, 1998, G+G's business was conducted by G & G Shops, a wholly-owned subsidiary of Petrie, and certain other subsidiaries of Petrie. As part of the Acquisition, 15,000 shares of Class C, non-voting, common stock of Holdings were issued to the Predecessor. These shares, which represent 15% of Holdings common stock on a fully-diluted basis, were transferred to the liquidating trustee who oversees the bankruptcy proceedings for Petrie and its subsidiaries in connection with the confirmation of Petrie's plan of reorganization. On October 12, 1995, Petrie filed petitions under Chapter 11 of the Bankruptcy Code ("Chapter 11") in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"), on behalf of itself and its subsidiaries, including G & G Shops (collectively, the "Debtors"), seeking relief to reorganize under Chapter 11. The Debtors managed their affairs and operated their business under Chapter 11 as debtors-in-possession until the Acquisition and Plan of Reorganization (on December 18, 1998 the Bankruptcy Court issued an order confirming the Debtors' plan of reorganization). 2. Summary of Significant Accounting Policies Principles of Consolidation and Basis of Presentation The accompanying financial statements include the consolidated operations of G+G and its wholly-owned subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation. Nature of Business The Company owns and operates a chain of young women's specialty apparel stores in the United States, Puerto Rico and the U.S. Virgin Islands. Short-Term Investments Short-term investments consist of time deposits, U.S. treasury money market funds, and commercial paper of less than ninety days maturity. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions related to certain accounts, such as inventory, accounts receivable, income taxes and various other reserves, that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. F-7 G+G RETAIL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Concentration of Risk The Company operates a distribution center that depends on employees under a collective bargaining agreement with a union. Historically, the Company has not experienced labor disruptions as a result of disputes with its union workers. The Company has significant merchandise purchases from vendors who utilize factors. Approximately 36% of the Company's merchandise purchases are from three vendors. In addition, approximately 16% of the stores are leased from a single landlord. Fiscal Year The Company's fiscal year ends on the Saturday nearest January 31. The fiscal period ended January 30, 1999 began on August 29, 1998 and consisted of twenty- two weeks. Inventories Merchandise inventories, which consist of finished goods, are valued at the lower of cost as determined by the retail inventory method (average cost basis) or market. Property and Equipment Property and equipment are recorded at cost. Depreciation and amortization of property and equipment are computed principally by the straight-line method based on the estimated useful lives of the assets as follows: Leasehold costs and improvements Term of lease or 10 years, whichever is less, straight-line Store fixtures and equipment 1 to 10 years, straight-line
Deferred Financing Costs The Company capitalizes debt issuance costs. Such costs are amortized over the lives of the related debt. Intangible Assets Excess of cost over net assets acquired (i.e., goodwill) is being amortized on the straight-line method over thirty years. The Company assesses the recoverability of goodwill at each balance sheet date by determining whether the amortization of the balance of goodwill over its remaining useful life can be recovered through projected undiscounted future operating cash flows. Long-Lived Assets In accordance with FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company reviews the recoverability of intangibles and other long-lived assets whenever events and circumstances indicate that the carrying amount may not be recoverable. The carrying amount of long-lived assets is reduced by the difference between the carrying amount and estimated fair value. Rental Expense Defined rental escalations are averaged over the term of the related lease in order to provide level recognition of rental expense. F-8 G+G RETAIL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Income Taxes Income taxes are accounted for by the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between financial reporting and tax basis of assets and liabilities and are measured using the current enacted tax rates and laws that will be in effect when the differences are expected to reverse. Preopening Costs Store opening costs are charged to operations as incurred. Advertising and Promotion All costs associated with advertising and promotion are expensed in the year incurred. Advertising and promotion expense was $928,000 in the fiscal period. Segments Reporting In 1998, the Company adopted Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131 superseded SFAS 14, Financial Reporting for Segments of a Business Enterprise. The adoption of SFAS 131 did not affect the results of the Company's operation or financial position. The Company operates a chain of 422 young women's specialty apparel stores in the United States, Puerto Rico and the U.S. Virgin Islands. Primarily all of the 422 stores are mall based and the customers served are young women principally between the ages of thirteen and nineteen years old. All of the Company's merchandise is distributed to its stores from the same distribution center. The Company conducts business in one operating segment. The Company determined its operating segment based on individual stores that the chief operating decision maker reviews for purposes of assessing performance and making operational decisions. These individual operations have been aggregated into one segment because the Company believes it helps the users to understand the Company's performance. The combined operations have similar economic characteristics and each operation has similar products, services, customers and distribution network. Impact of Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities. The Company is required to adopt SFAS No. 133 beginning January 1, 2000. The adoption of SFAS No. 133 is not expected to have a material effect on the Company's consolidated financial position or results of operations. 3. The Acquisition On August 28, 1998, senior management of the Predecessor, in conjunction with an investor group, acquired from Petrie substantially all of the assets and certain of the liabilities of G & G Shops and certain other subsidiaries of Petrie. The Company accounted for the Acquisition as a purchase. F-9 G+G RETAIL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Accordingly, the acquired assets and assumed liabilities have been recorded at their estimated fair values at the date of acquisition as follows (in thousands): Fair value of assets acquired: Current assets, excluding cash................................... $ 19,323 Property, plant and equipment.................................... 23,280 Purchase price in excess of tangible net assets acquired......... 113,754 Less liabilities assumed: Accounts payable and accrued expenses............................ (24,357) -------- Net cash paid...................................................... $132,000 ========
The unaudited pro forma results, which assume that the consummation of the Acquisition and the planned $107 million debt offering (Note 6) had occurred on February 1, 1998 and 1997, are as follows (in thousands):
Fiscal ----------------- 1999 1998 -------- -------- Net sales.................................................. $294,390 $286,938 Net income................................................. 1,689 4,454
The pro forma results are not necessarily indicative of the results of operations that would have occurred had the acquisitions taken place at the beginning of the periods presented nor are they intended to be indicative of results that may occur in the future. 4. Property and Equipment Property and equipment consist of the following at January 30, 1999 (in thousands): Leasehold costs, improvements and store fixtures and equipment..... $26,059 Less accumulated depreciation and amortization..................... (3,499) ------- $22,560 =======
5. Intangible Assets Intangible assets consist of the following at January 30, 1999 (in thousands): Goodwill........................................................... $116,633 Deferred financing................................................. 2,759 Less accumulated amortization...................................... (2,767) -------- $116,625 ========
Amortization of deferred financing costs, which is included in interest expense in the consolidated statement of income, totaled approximately $1.5 million for the five months ended January 30, 1999. 6. Long-Term Debt On August 28, 1998, in connection with the Acquisition, the Company entered into a Loan Agreement (the "Loan Agreement") which, subject to the terms and conditions thereof, provided the Company with $90 million of financing (the "Loan"). F-10 G+G RETAIL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Outstanding borrowings under the Loan Agreement bear interest per annum at LIBOR (5.6% at January 30, 1999), plus 600 basis points, and are guaranteed by Holdings. The Loan Agreement contains customary covenants including limitations on change of ownership, transactions with affiliates, dividends, additional indebtedness, creation of liens, asset sales, acquisitions and capital expenditures. The formation of G & G Retail of Puerto Rico, Inc., the Company's Puerto Rican service subsidiary, caused technical defaults under the Loan Agreement. The Company has obtained waivers with respect to such technical defaults. Interest, which is payable monthly, totaled approximately $4.4 million in fiscal 1999. An additional fee equal to 1% of the aggregate unpaid principal amount of the Loan is payable on a quarterly basis which totaled approximately $1.5 million in fiscal 1999. The carrying amount of the Loan approximates fair value at January 30, 1999. Under certain circumstances, pursuant to the Loan Agreement, the Loan may convert into a rollover note ("Rollover") on August 28, 1999 (the "Exchange Date"). If the Loan is not repaid before the Exchange Date, the Company must extend the financing for an additional six years under the Rollover. The Rollover would be payable in full at the end of the six year term. Management intends to repay the Loan with proceeds from a planned debt offering prior to the Exchange Date and write off the related deferred financing costs. Notes Payable On August 28, 1998, the Company entered into a Loan and Security Agreement (the "Facility") which provided for the extension of credit up to $10 million, plus 50% of the aggregate cost or market of inventory, not to exceed $5 million of additional borrowings, as defined therein. Interest on the Facility accrued at a per annum rate at LIBOR, plus 500 basis points which approximated the weighted average rate on the outstanding borrowings for the period. On October 30, 1998, the Company entered into a new Loan and Security Agreement (the "New Facility") which replaced the Facility. The New Facility, which expires in October 2001, provides, subject to the terms and conditions thereof, for the extension of credit subject to eligible inventory (as defined therein) not to exceed $20 million, of which $10 million can be used for letters of credit. There were no borrowings under the New Facility outstanding at January 30, 1999. Interest on amounts advanced under the New Facility accrues at a rate equal to specified margins over the adjusted Eurodollar Rate or at the Prime Rate (7.75% at January 30, 1999). Outstanding letters of credit under the New Facility totalled approximately $640,000 at January 30, 1999. The New Facility contains a minimum tangible net worth covenant and other customary covenants including limitations on change of ownership, transactions with affiliates, dividends, additional indebtedness, creation of liens, asset sales, acquisitions, conduct of business and capital expenditures. The New Facility also contains customary events of default including defaults on the Company's other indebtedness (which includes the Loan). The formation of G & G Retail of Puerto Rico, Inc., the Company's Puerto Rican service subsidiary, caused technical defaults under the New Facility. The Company has obtained waivers with respect to such technical defaults. The Company's obligations under the New Facility are secured by a lien on all or substantially all of the Company's assets. If the New Facility is terminated prior to the stated maturity, a termination fee is payable. The fee payable for termination on or prior to October 1999 would be $150,000, on or prior to October 2000 would be $100,000 and prior to October 2001 would be approximately $67,000. F-11 G+G RETAIL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In connection with the termination of the Facility, the Company wrote off approximately $390,000 in deferred financing costs, which is included in interest expense in the consolidated statement of operations. 7. Related Party Transactions In connection with the closing of the Acquisition, an indirect investor in Holdings earned a closing fee in the amount of $1,250,000 ($1,000,000 of this fee was paid at closing and the remaining $250,000 was to be paid over a two- year period, $160,000 of which is outstanding at January 30, 1999). The closing fee constituted consideration for financial advisory services in connection with the Acquisition. Additional Acquisition related fees totaling approximately $2.1 million were paid to investment banking advisors who have an indirect ownership interest in Holdings. Two directors of the Company and Holdings, who are also officers of the Company and Holdings and shareholders of Holdings, were entitled to receive a success fee (the "Success Fee") aggregating approximately $3.3 million from G & G Shops in connection with their assistance in the sale of G & G Shops' business. The obligation to pay the Success Fee was assumed by the Company and paid prior to January 30, 1999. 8. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The following is a summary of the provision for income taxes for the five months ended January 30, 1999 (in thousands): Current income taxes: Federal............................................................ $1,170 State and Puerto Rico.............................................. 751 Deferred income taxes: Federal............................................................ (134) State and Puerto Rico.............................................. (206) ------ Total provision for income taxes..................................... $1,581 ======
A reconciliation of the income tax provision to the amount of the provision that would result from applying the federal statutory rate (34%) to income before taxes is as follows:
Five months ended January 30, 1999 ----------- Provision for income taxes at federal statutory rate................ 34.0% State income taxes, net of federal tax benefit...................... 4.6 Effect of higher Puerto Rico tax rates.............................. 4.7 Other............................................................... .6 ---- Effective tax rate.................................................. 43.9% ====
F-12 G+G RETAIL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's net deferred tax asset as of January 30, 1999 are as follows (in thousands):
January 30, 1999 -------- Current deferred tax asset: Accrued expenses.................................................. $ 222 Inventory cost capitalization..................................... 423 ------ $ 645 ====== Long-term deferred tax asset: Difference between book and tax basis of fixed assets............. $1,060 Intangible asset.................................................. (650) ------ $ 410 ======
9. Employee Benefit Plans G+G maintains a profit sharing plan for all eligible employees that is funded on a current basis through discretionary contributions. Profit sharing expense was $250,000 for the five months ended January 30, 1999. G+G also maintains a 401(k) plan covering certain of its employees. The Company at its discretion can make contributions to the plan; however, no contributions were made for the five months ended January 30, 1999. G+G also maintains a defined contribution plan covering certain of its union employees at its distribution center. Contribution expense was approximately $40,000 for the five months ended January 30, 1999. 10. Commitments and Contingencies The Company has employment agreements with certain key employees, providing for minimum aggregate annual compensation of approximately $1.58 million per annum with contract terms up to five years. Additionally, such employment agreements provide for various incentive compensation payments as determined by the Company's Board of Directors. The Company is committed under operating leases for its stores and warehouse facility, and equipment leases having initial terms of one year or more expiring on various dates to 2008. Certain leases provide for additional rentals based on a percentage of sales and for additional payments covering real estate taxes, common area charges and other occupancy costs. A summary of rental expense under all leases is as follows for the five months ended January 30, 1999 (in thousands): Fixed minimum........................................................ $ 9,058 Percentage rentals................................................... 1,020 Equipment rentals.................................................... 273 ------- $10,351 =======
F-13 G+G RETAIL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Minimum annual lease commitments (excluding percentage rents) under non- cancelable operating leases for subsequent periods are as follows (in thousands): Fiscal year ending in: 2000................................................................. $18,504 2001................................................................. 13,574 2002................................................................. 11,259 2003................................................................. 8,626 2004................................................................. 5,433 Thereafter........................................................... 9,178 ------- $66,574 =======
Litigation The Company is a defendant in various lawsuits arising in the ordinary course of its business. While the ultimate liability, if any, arising from these claims cannot be predicted with certainty, the Company is of the opinion that the resolution of the lawsuits will not likely have a material adverse effect on the Company's consolidated financial statements. 11. Accrued Liabilities Accrued liabilities consist of the following at January 30, 1999 (in thousands): Salaries and employee benefit costs................................. $ 4,338 Rent/occupancy costs................................................ 2,678 Corporate and store operating costs................................. 2,664 Other............................................................... 1,475 ------- $11,155 =======
12. Subsequent Event (Unaudited) On May 17, 1999, G+G and Holdings sold 107,000 units consisting of $107 million face amount of 11% Senior Notes due May 15, 2006 and warrants of Holdings at an exercise price of $0.01 per share to purchase 8,209 shares of nonvoting Class D Common Stock in connection with the refinancing of the Company's then existing indebtedness. Any Class D Common Stock outstanding will be automatically converted into one class of the Company's voting Common Stock upon the consummation of an initial public offering which results in at least 20% of the Company's Common Stock becoming publicly traded ("IPO"). The warrants will expire upon the earlier of the consummation of an IPO (as defined) or ten years from the date of issuance. F-14 G+G RETAIL, INC. CONSOLIDATED BALANCE SHEETS (Unaudited)
May 1, 1999 January 30, 1999 ----------- ---------------- (In thousands) Assets Current assets: Cash and short-term investments.................. $ 5,332 $ 13,129 Accounts receivable.............................. 452 718 Merchandise inventories.......................... 21,897 12,578 Prepaid expenses................................. 3,253 794 Deferred tax assets.............................. 645 645 -------- -------- Total current assets.............................. 31,579 27,864 Property and equipment, net....................... 23,590 22,560 Intangible assets, net............................ 115,489 116,625 Deferred tax assets............................... 785 410 Other assets...................................... 207 205 -------- -------- Total assets...................................... $171,650 $167,664 ======== ======== Liabilities and stockholder's equity Current liabilities: Accounts payable................................. $ 15,852 $ 13,338 Accrued expenses................................. 13,132 11,155 Income taxes payable............................. 1,222 1,330 -------- -------- Total current liabilities......................... 30,206 25,823 Long-term debt.................................... 90,000 90,000 -------- -------- Total liabilities................................. 120,206 115,823 Commitments and contingencies Stockholder's equity: Class B common stock, par value $.01 per share, 1,000 shares authorized, 10 shares issued and outstanding..................................... -- -- Additional paid-in capital....................... 49,828 49,828 Retained earnings................................ 1,616 2,013 -------- -------- Total stockholder's equity........................ 51,444 51,841 -------- -------- Total liabilities and stockholder's equity........ $171,650 $167,664 ======== ========
See accompanying notes. F-15 G+G RETAIL, INC. CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (Unaudited)
Consolidated Combined G+G Retail, Inc. G & G Shops, Inc. ---------------- ----------------- Three months Three months ended ended May 1, 1999 May 2, 1998 ---------------- ----------------- (In thousands) Net sales.................................. $72,733 $66,398 Cost of sales (including occupancy costs).. 46,374 42,594 ------- ------- Gross margin............................... 26,359 23,804 Operating expenses: Selling, general, administrative and buying.................................... 20,728 19,338 Depreciation and amortization............ 3,173 1,225 ------- ------- Operating income........................... 2,458 3,241 Interest expense........................... 3,277 -- Interest income............................ 109 -- ------- ------- (Loss) income before provision (benefit) for income taxes.......................... (710) 3,241 (Benefit) provision for income taxes....... (313) 1,335 ------- ------- Net (loss) income.......................... $ (397) $ 1,906 ======= =======
See accompanying notes. F-16 G+G RETAIL, INC. CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (Unaudited)
Consolidated Combined G+G Retail, Inc. G & G Shops, Inc. ---------------- ----------------- Three months Three months ended ended May 1, 1999 May 2, 1998 ---------------- ----------------- (In thousands) Operating activities Net (loss) income.......................... $ (397) $ 1,906 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization............ 2,216 1,225 Amortization of intangible assets........ 957 -- Amortization of deferred financing costs..................................... 536 -- Deferred taxes........................... (375) -- Changes in assets and liabilities: Accounts receivable, net and other assets.................................... (2,195) (2,022) Merchandise inventories................ (9,319) (8,475) Accounts payable and accrued expenses.. 4,491 7,903 Income taxes payable................... (108) (159) ------- ------- Net cash (used in) provided by operating activities................................ (4,194) 378 Investing activities Capital expenditures, net.................. (3,246) (1,558) Transaction costs.......................... (357) -- ------- ------- Net cash used in investing activities...... (3,603) (1,558) Financing activities Net distributions to parent................ -- 1,180 ------- ------- Net cash provided by financing activities.. -- 1,180 ------- ------- Net decrease in cash and short-term investments............................... (7,797) -- Cash and short-term investments, beginning of period................................. 13,129 -- ------- ------- Cash and short-term investments, end of period.................................... $ 5,332 $ -- ======= ======= Supplemental cash flow disclosures Cash paid for: Interest................................. $ 3,299 $ -- ======= ======= Income taxes............................. $ 191 $ -- ======= =======
See accompanying notes. F-17 G+G RETAIL, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1 The accompanying consolidated financial statements include G+G Retail, Inc. (the "Company") and its wholly-owned subsidiary. The Company was incorporated on June 26, 1998. The combined statement of operations and statement of cash flow for the three months ended May 2, 1998 are those of the Company's predecessor, G & G Shops, Inc. and its subsidiaries and certain other subsidiaries of its parent, Petrie Retail Inc. (collectively the "Predecessor"). On August 28, 1998, G+G Retail Holdings, Inc. ("Holdings" or the "Parent") made a capital contribution to the Company in the amount of $50.5 million. Concurrently with such contribution to capital, the Company made a payment on behalf of the Parent in the amount of $700,000. Simultaneous with the initial capital contribution, the Company acquired (the "Acquisition") substantially all of the assets and assumed certain liabilities of the Predecessor from Petrie Retail, Inc. ("Petrie"). The Acquisition was accounted for as a purchase; accordingly, the accompanying consolidated balance sheets reflect the preliminary allocation of the purchase price to tangible and intangible assets acquired and liabilities assumed. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company's management, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) considered necessary to present fairly its financial position as of May 1, 1999 and January 30, 1999 and the results of its operations and cash flows for the period ended May 1, 1999 and the results of the Predecessor's operations and cash flows for the period ended May 2, 1998. These financial statements should be read in conjunction with the consolidated financial statements of the Company and the combined financial statements of the Predecessor and footnotes thereto included elsewhere in this Prospectus. The interim operating results are not necessarily indicative of the results that may be expected for an entire year. Note 2 On August 28, 1998, in connection with the Acquisition, the Company entered into a Senior Bridge Note Agreement (the "Senior Bridge Note") which, subject to the terms and conditions thereof, provided the Company with $90 million of financing (the "Loan"). Outstanding borrowings under the Senior Bridge Note bear interest per annum at one-month LIBOR plus 600 basis points (10.92% at May 1, 1999), and are guaranteed by Holdings. Interest, which is payable monthly, totaled approximately $2.7 million in the first quarter of fiscal 2000. An additional fee equal to 1% of the aggregate unpaid principal amount of the Loan is payable on a quarterly basis and totaled approximately $300,000 in the quarter ended May 1, 1999. On May 17, 1999 the Company refinanced the Loan with the proceeds from a $107 million private placement of units (see Note 5); thus, this 1% fee was not accrued in the accompanying financial statements. Note 3 The Company has a Loan and Security Agreement, which expires in October 2001, and provides, subject to the terms and conditions thereof, for the extension of credit subject to eligible inventory (as defined therein) not to exceed $20 million, of which $10 million can be used for letters of credit. There were no borrowings under the Facility outstanding at May 1, 1999. Outstanding letters of credit under the Facility totaled approximately $681,000 at May 1, 1999. F-18 G+G RETAIL, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Interest on amounts advanced under the Facility accrues at a rate equal to specified margins over the adjusted Eurodollar Rate or at the Prime Rate (7.75% at May 1, 1999). Note 4 Effective March 15, 1999, Holdings adopted its 1999 Stock Option Plan (the "Option Plan") providing for the granting of options to purchase shares of its Class A Common Stock to its employees and employees of its subsidiaries including the Company. The Option Plan is administered by the Board of Directors of Holdings which is authorized to grant incentive stock options and/or non-qualified stock options to purchase up to 7,000 shares of Class A Common Stock. As of May 1, 1999, Holdings had granted, under the Option Plan, options to purchase 5,000 shares of its Class A Common Stock, above fair market value, of which 1,250 are currently exercisable. Note 5 On May 17, 1999 the Company and Holdings completed a private placement of 107,000 units consisting in the aggregate of $107 million face amount of 11% Senior Notes due May 15, 2006 of the Company and warrants to purchase 8,209 shares of nonvoting Class D Common Stock of Holdings at an exercise price of $.01 per share. There was an original issue discount of approximately $7.3 million related to the issuance of the units. The net proceeds were used to refinance the Loan and pay fees related to the offering of the units, and the balance of the net proceeds will be used for general corporate purposes. The Senior Notes, net of discount, were recorded at approximately $99 million. The pro forma results (a) for the first quarter of fiscal 2000, which assume the consummation of the $107 million private placement of units had occurred on January 31, 1999, and (b) for the first quarter of fiscal 1999, which assume the consummation of the Acquisition and the $107 million private placement of units had each occurred on February 1, 1998, are as follows (in thousands):
First Quarter ---------------- 2000 1999 ------- ------- Net sales.................................................. $72,733 $66,398 Operating income........................................... 2,458 1,917 Net loss................................................... (415) (780)
The pro forma results are not necessarily indicative of the results of operations that would have occurred had the Acquisition and the units offering taken place at the beginning of the periods presented nor are they intended to be indicative of results that may occur in the future. F-19 Report of Independent Auditors The Board of Directors G & G Shops, Inc. We have audited the accompanying combined balance sheet of G & G Shops, Inc. and its subsidiaries (collectively, the "Company") as of January 31, 1998, and the combined statements of income, shareholder's deficit, and cash flows for the seven months ended August 28, 1998 and the two years in the period ended January 31, 1998. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of the Company at January 31, 1998, and the combined results of its operations and its cash flows for the seven months ended August 28, 1998 and the two years in the period ended January 31, 1998, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP April 14, 1999 F-20 G & G SHOPS, INC. COMBINED BALANCE SHEET (In Thousands) January 31, 1998 ASSETS Current assets: Accounts receivable................................................. $ 542 Merchandise inventories............................................. 10,091 Prepaid expenses.................................................... 157 -------- Total current assets................................................. 10,790 Property and equipment, net.......................................... 17,170 Other assets......................................................... 197 -------- Total assets......................................................... $ 28,157 ======== LIABILITIES AND SHAREHOLDER'S DEFICIT Current liabilities: Accounts payable (including bank overdrafts of $1.7 million)........ $ 9,172 Accrued expenses.................................................... 14,705 -------- Total current liabilities............................................ 23,877 Long-term liabilities: Liabilities subject to compromise................................... 20,866 -------- Total liabilities.................................................... 44,743 Commitments and contingencies Shareholder's deficit: Paid-in capital..................................................... 5,637 Retained earnings................................................... 28,922 Net distributions to Parent......................................... (51,145) -------- Total shareholder's deficit.......................................... (16,586) -------- Total liabilities and shareholder's deficit.......................... $ 28,157 ========
See accompanying notes. F-21 G & G SHOPS, INC. COMBINED STATEMENTS OF INCOME (In Thousands)
Seven months Year ended ended ----------------- August January February 28, 1998 31, 1998 1, 1997 -------- -------- -------- Net sales............................................ $162,823 $286,938 $266,362 Cost of sales (including occupancy costs)............ 106,056 177,765 166,636 -------- -------- -------- Gross margin......................................... 56,767 109,173 99,726 Operating expenses: Selling, general, administrative and buying........ 48,231 77,437 73,374 Depreciation and amortization...................... 2,845 4,489 4,526 Royalty expense.................................... 1,012 1,834 1,749 Store closing expenses............................. 87 431 1,561 -------- -------- -------- Income before income taxes........................... 4,592 24,982 18,516 Income taxes......................................... 1,892 10,293 7,629 -------- -------- -------- Net income........................................... $ 2,700 $ 14,689 $ 10,887 ======== ======== ========
See accompanying notes. F-22 G & G SHOPS, INC. COMBINED STATEMENTS OF SHAREHOLDER'S DEFICIT (In Thousands)
Net Total Paid-In Retained Distributions Shareholder's Capital Earnings to Parent Deficit ------- -------- ------------- ------------- Balance--February 3, 1996......... $5,637 $ 3,346 $(13,531) $ (4,548) Net distributions............... (18,545) (18,545) Net income...................... 10,887 10,887 ------ ------- -------- -------- Balance--February 1, 1997......... 5,637 14,233 (32,076) (12,206) Net distributions............... (19,069) (19,069) Net income...................... 14,689 14,689 ------ ------- -------- -------- Balance--January 31, 1998......... 5,637 28,922 (51,145) (16,586) Net distributions............... (14,140) (14,140) Net income...................... 2,700 2,700 ------ ------- -------- -------- Balance--August 28, 1998.......... $5,637 $31,622 $(65,285) $(28,026) ====== ======= ======== ========
See accompanying notes. F-23 G & G SHOPS, INC. COMBINED STATEMENTS OF CASH FLOWS (In Thousands)
Seven months Year ended ended ------------------ August January February 28, 1998 31, 1998 1, 1997 -------- -------- -------- Operating activities Net income...................................... $ 2,700 $ 14,689 $ 10,887 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................. 2,845 4,489 4,526 Store closing expenses........................ -- 203 695 Loss on disposal of equipment................. 16 220 -- Changes in assets and liabilities: Accounts receivable......................... 177 (460) 10 Merchandise inventories..................... (8,611) (388) 656 Prepaid expenses and other assets........... 144 91 94 Accounts payable and accrued expenses....... 18,363 6,444 1,848 Liabilities subject to compromise........... 159 300 1,327 -------- -------- -------- Net cash provided by operating activities....... 15,793 25,588 20,043 Investing activities Capital expenditures, net....................... (3,400) (7,005) (1,952) -------- -------- -------- Net cash used in investing activities........... (3,400) (7,005) (1,952) Financing activities Net distributions to Parent..................... (14,140) (19,069) (18,545) -------- -------- -------- Net cash used in financing activities........... (14,140) (19,069) (18,545) -------- -------- -------- Net decrease in cash............................ (1,747) (486) (454) Cash, beginning of period....................... -- 486 940 -------- -------- -------- Cash (bank overdraft), end of period............ $ (1,747) $ -- $ 486 ======== ======== ========
See accompanying notes. F-24 G & G SHOPS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS August 28, 1998 1. Organization and Business The accompanying combined financial statements include the accounts of G & G Shops, Inc. ("G & G" or the "Company"), a subsidiary of Petrie Retail, Inc. ("Petrie Retail" or the "Parent") and certain store assets owned by Petrie Retail. On December 9, 1994, PS Stores Acquisition Corp. acquired (the "Acquisition") all of the issued and outstanding shares of Petrie Retail from Petrie Stores Corporation pursuant to the terms of a Stock Purchase Agreement (the "Agreement"). In accordance with the Agreement, for accounting purposes the transaction was accounted for as of November 26, 1994. The Acquisition was accounted for as a purchase. The bargain purchase element associated with the transaction was pushed down to the Company based on the fair value of the Company's property and equipment at the date of acquisition relative to the consolidated property and equipment. The estimated portion of the purchase accounting liabilities deemed to be attributable to the Company have been reflected in these combined financial statements. On October 12, 1995 (the "Petition Date"), Petrie Retail filed petitions under Chapter 11 ("Chapter 11") of the Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of New York, on behalf of itself and its subsidiaries, including G & G (collectively, the "Debtors"), seeking relief to reorganize under Chapter 11. The Debtors managed the affairs and operated the business of G & G under Chapter 11 as debtors-in-possession until August 28, 1998 when substantially all of the assets of G & G were acquired. On August 28, 1998, substantially all of the Company's assets and certain liabilities were sold to an investor group including the management of G & G (the "Sale") (Note 11). 2. Summary of Significant Accounting Policies Nature of Business The Company owns and operates a chain of young women's specialty apparel stores in the United States, Puerto Rico and the U.S. Virgin Islands. Fiscal Year The Company's fiscal year ends on the Saturday nearest January 31. The fiscal period ended August 28, 1998 began on February 1, 1998 and consisted of thirty weeks. Each of the fiscal years ended January 31, 1998 and February 1, 1997 consisted of fifty-two weeks. Principles of Combination The accompanying combined financial statements include the accounts of the Company and certain store assets owned by subsidiaries of Petrie Retail but operated as stores of the Company. All significant intercompany activity between the various entities included in these financial statements has been eliminated in combination. F-25 G & G SHOPS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions related to certain accounts, such as inventory, accounts receivable, income taxes and various other reserves, as well as liabilities subject to compromise, that affect the amounts reported in the combined financial statements and accompanying notes. Actual results could materially differ from those estimates. Concentration of Risk The Company operates a distribution center that depends on employees under a collective bargaining agreement with a union. Historically, the Company has not experienced labor disruptions as a result of disputes with its union workers. The Company has significant merchandise purchases from vendors who utilize factors. Approximately 36% of the Company's merchandise purchases are from three vendors. In addition, approximately 16% of the stores are leased from a single landlord. Inventories Merchandise inventories, which consist of finished goods, are valued at the lower of cost as determined by the retail inventory method (average cost basis) or market. Property and Equipment Property and equipment are recorded at cost. Depreciation and amortization of property and equipment are computed principally by the straight-line method based on the estimated useful lives of the assets as follows: Leasehold costs and improvements Term of lease or 10 years, whichever is less, straight-line Store fixtures and equipment 1 to 10 years, straight-line
Preopening Costs Store opening costs are charged to operations as incurred. Accrued Expenses and Long-Term Liabilities Included in accrued expenses and liabilities subject to compromise are certain costs associated with the acquisition, as well as other acquisition related liabilities. These amounts are classified as liabilities subject to compromise in the combined balance sheet. Income Taxes Income taxes are accounted for by the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between financial reporting and tax basis of assets and liabilities and are measured using the current enacted tax rates and laws that will be in effect when the differences are expected to reverse. F-26 G & G SHOPS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) Net Distributions to Parent Net distributions to Parent consists of the intercompany activity between the Company and the Parent principally resulting from the Company transferring substantially all operating cash flow to the Parent, net of certain expenditures made by the Parent on behalf of the Company. No interest has been imputed on transactions with the Parent. Long-Lived Assets In accordance with FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company reviews its long-lived assets used in operations for events and circumstances which might indicate that the assets are impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No impairment losses on long-lived assets were required for the period ended August 28, 1998 or for the fiscal years 1998 or 1997. Advertising and Promotion All costs associated with advertising and promotion are expensed in the year incurred. Advertising and promotion expense was $794,000 for the seven months ended August 28, 1998 and $1.1 million and $1.4 million in fiscal 1998 and fiscal 1997, respectively. Reclassifications Certain prior year balances have been reclassified to conform with the current year's presentation. 3. Property and Equipment Property and equipment consist of the following at January 31, 1998 (in thousands): Leasehold cost, improvements and store fixtures and equipment....... $30,899 Less accumulated depreciation....................................... 13,729 ------- $17,170 =======
4. Income Taxes PS Stores Acquisition Corp. and its subsidiaries, including the Company, file a consolidated federal income tax return and, where applicable, combined state and local income tax returns. As a result, the Company is jointly and severally liable for all tax claims arising from the consolidated and combined returns to which it is a party. However, after the Sale, Petrie Retail retained all of the income tax liabilities. (Note 11). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. F-27 G & G SHOPS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) In accordance with a tax sharing agreement, the provision for income taxes recorded by the Company represents the amount calculated on a separate return basis. All taxes are paid by the Parent with the applicable expenses related to the Company allocated through the intercompany account. At August 28, 1998, January 31, 1998, and February 1, 1997 approximately $5 million of income tax reserves are classified as liabilities subject to compromise. The following is a summary of the components of the Company's income tax provision (in thousands):
Seven months Year ended ended ------------------ August January February 28, 1998 31, 1998 1, 1997 -------- -------- -------- Current income taxes: Federal........................................ $1,342 $ 7,231 $5,395 State and Puerto Rico.......................... 822 4,574 3,681 Deferred income taxes: Federal........................................ (212) (1,179) (1,128) State and Puerto Rico.......................... (60) (333) (319) ------ ------- ------ Total provision for income taxes................. $1,892 $10,293 $7,629 ====== ======= ======
The deferred income tax provision is principally due to the differences in the depreciation methods used for financial statement and tax purposes, and to various accrual and reserve accounts. The net current and deferred income tax assets have been included in the net distributions to Parent account in the accompanying combined balance sheet. A reconciliation of the income tax provision to the provision that would result from applying the federal statutory rate (34%) to income before taxes is as follows:
Seven months Year ended ended ----------------- August January February 28, 1998 31, 1998 1, 1997 -------- -------- -------- Provision for income taxes at federal statutory rate.......................................... 34.0% 34.0% 34.0% State income taxes, net of federal tax benefit....................................... 4.6 4.6 4.6 Other.......................................... .1 .1 .1 Effect of higher Puerto Rico tax rates......... 2.5 2.5 2.5 ---- ---- ---- Effective tax rate............................. 41.2% 41.2% 41.2% ==== ==== ====
5. Store Closing Expense Store closing expense was as follows (in thousands):
Seven months Year ended ended ----------------- August January February 28, 1998 31, 1998 1, 1997 -------- -------- -------- Store closing expense............................ $87 $431 $1,561 === ==== ======
F-28 G & G SHOPS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) The store closing expense for the seven months ended August 28, 1998 principally consists of losses on disposal of property and equipment and inventory. The fiscal 1998 store closing expense of approximately $431,000 consists of a $228,000 provision for lease rejection claims and $203,000 of losses on disposal of property and equipment and inventory. The lease rejection obligations of $228,000 (amount included in liabilities subject to compromise) were calculated taking into account provisions in the Bankruptcy Code. The fiscal 1997 store closing expense of approximately $1.6 million consists of an $866,000 provision for lease rejection claims and $695,000 of losses on disposal of property and equipment and inventory. The lease rejection obligations of $866,000 (amount included in liabilities subject to compromise) were calculated taking into account provisions in the Bankruptcy Code. 6. Liabilities Subject to Compromise Petrie Retail and its subsidiaries each filed a voluntary petition on October 12, 1995 with the United States Bankruptcy Court for relief under Chapter 11. As a result, the Debtors' obligations with respect to its prepetition liabilities were stayed with certain exceptions concerning the Debtors' prepetition secured bank debt. In addition, the Debtors received authority to pay certain prepetition liabilities for payroll, employee benefits and certain other expenses. Certain prepetition obligations are collateralized by both real and personal property of the Debtors; however, these obligations are recorded as liabilities subject to compromise, as the ultimate adequacy of security for any secured prepetition debt will be determined in the claim allowance or plan confirmation process. Additional claims will arise by reason of current and future terminations of various contractual obligations and as certain contingent and/or disputed claims are asserted or settled. Those claims and liabilities could materially exceed the amounts recorded. In Chapter 11 cases, substantially all liabilities as of the Petition Date are subject to compromise or other treatment under a plan or plans of reorganization. For financial reporting purposes, these liabilities and obligations whose disposition is dependent on the outcome of the Chapter 11 cases have been segregated and classified as liabilities subject to compromise under reorganization proceedings in the combined balance sheet. Generally, actions to enforce or otherwise effect repayment of all pre-Chapter 11 liabilities as well as all litigation pending as of the Petition Date against the Debtors are stayed while the Debtors continue their business operations as debtors-in-possession. Schedules have been filed by the Debtors with the Bankruptcy Court setting forth the assets and liabilities of the Debtors as of the Petition Date as reflected in the Debtors' accounting records. Differences between amounts reflected in such schedules and claims filed by creditors will be investigated and either amicably resolved or adjudicated. The ultimate amount of and settlement terms for such liabilities are subject to the claims allowance process and the terms of a plan or plans of reorganization and, accordingly, are not presently determinable. Additional liabilities subject to compromise may become fixed or liquidated subsequent to the Petition Date as a result of claims filed by parties affected by the Debtors' rejection of executory contracts, including leases, and from the Bankruptcy Court's resolution of asserted claims, including contingent claims and other disputed accounts. The date by which certain prepetition creditors of the Debtors were required to file proof of their prepetition claims was December 29, 1997. Under the Bankruptcy Code, the Debtors may elect to assume or reject real estate leases, employment contracts, personal property leases, service contracts, and other prepetition executory contracts or leases, subject to Bankruptcy Court approval. The liabilities subject to compromise include a provision F-29 G & G SHOPS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) for the estimated amount that may be claimed by lessors and allowed by the Bankruptcy Court in connection with rejected real estate leases. Executory contracts assumed by the Company may create additional administrative expenses. Accordingly, such liabilities may be subject to material changes (Note 11). The Company's liabilities subject to compromise consist of the following at January 31, 1998 (in thousands): Long-term liabilities: Accounts payable-trade............................................ $ 3,934 Accrued expenses and other........................................ 14,828 Lease rejection claims............................................ 2,104 ------- $20,866 =======
7. Accrued Expenses Accrued expenses consist of the following at January 31, 1998 (in thousands): Royalty............................................................. $ 2,420 Taxes (other than income taxes)..................................... 1,299 Corporate and store operating costs................................. 2,652 Rent/occupancy costs................................................ 4,435 Salaries and employee benefit costs................................. 3,899 ------- $14,705 =======
In connection with the Sale (Note 11), only certain current liabilities were acquired and all liabilities subject to compromise were retained by Petrie Retail. 8. Employee Benefit Plans G & G maintains a profit sharing plan for all eligible employees that is funded on a current basis by discretionary contributions. Profit sharing expense was $348,000, $600,000 and $420,000, respectively, for the seven months ended August 28, 1998 and the fiscal years ended January 31, 1998 and February 1, 1997. The Company also maintains a 401(k) plan covering certain employees. The Company does not match employee contributions to the plan. Certain of the Company's employees are also covered by a union sponsored, collectively bargained, multi-employer defined benefit pension plan (the "Plan"). Effective January 31, 1995 the Company withdrew from the Plan. In addition, other employers withdrew from the Plan. The combination of these events resulted in the imposition of a mass withdrawal liability on the Company. An estimate of the ultimate withdrawal liability for the Plan has been recorded by the Company as a liability subject to compromise in the accompanying combined balance sheet. In connection with the Sale, the estimated ultimate withdrawal liability was retained by Petrie Retail. F-30 G & G SHOPS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) 9. Transactions with Related Parties Included in the combined statements of income for the seven months ended August 28, 1998 and each of the fiscal years ended January 31, 1998 and February 1, 1997 are payroll, insurance and various other expenditures paid by the Parent on behalf of the Company. Such intercompany payments made by the Parent on behalf of the Company have been included in net distributions to the Parent in the combined balance sheet. The Company performs many of the functions of a stand-alone company; however, Petrie Retail performed certain administrative, treasury, legal, management information systems for payroll processing and general ledger support, and tax services on behalf of the Company. The Company's financial statements reflect an estimate of the costs for which there was no allocation by Petrie Retail. The estimated costs reflected in the combined financial statements for these additional services is $300,000 for the seven month period ended August 28, 1998 and $600,000 for each of fiscal 1998 and 1997. Management believes the method used in determining these amounts is reasonable. Two officers of the Company were entitled to receive a success fee aggregating approximately $3.3 million from the Company in connection with their assistance in the sale of the Company's business (Note 11). This fee has been included in selling, general, administrative and buying expenses in the combined statement of income for the seven months ended August 28, 1998. 10. Commitments and Contingencies The Company and its subsidiaries are committed under operating leases for their stores and warehouse facility, and equipment leases having initial terms of one year or more expiring on various dates to 2008. Certain leases provide for additional rentals based on a percentage of sales and for additional payments covering real estate taxes, common area charges and other occupancy costs. A summary of rental expense under all leases was as follows (in thousands):
Seven Year ended months ---------------- ended January August 28, 31, February 1998 1998 1, 1997 ---------- ------- -------- Fixed minimum.................................... $11,214 $18,153 $18,435 Percentage rentals............................... 1,618 3,033 2,259 Equipment rentals................................ 314 562 513 ------- ------- ------- $13,146 $21,748 $21,207 ======= ======= =======
Minimum annual lease commitments (excluding percentage rents) under noncancelable operating leases for subsequent periods are as follows (in thousands): Fiscal year ending in: 2000................................................................ $17,468 2001................................................................ 12,893 2002................................................................ 10,468 2003................................................................ 8,033 2004................................................................ 4,851 Thereafter.......................................................... 7,580 ------- $61,293 =======
F-31 G & G SHOPS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) As disclosed in Note 6, the Debtors filed a voluntary petition on October 12, 1995 with the Bankruptcy Court for relief under Chapter 11. As debtors-in- possession, the Debtors have the right, subject to Bankruptcy Court approval and certain other limitations, to assume or reject executory contracts, including unexpired leases. These amounts are included in lease rejection claims (Note 6). The Company is involved in litigation associated with the bankruptcy proceedings and its reorganization efforts, as well as matters related to its ordinary conduct of business. If such litigation resulted in unfavorable outcomes to the Company, they could have a material impact on its combined financial statements. Management believes it has meritorious defenses associated with the litigation. In conjunction with the Sale, Petrie retained all liabilities associated with this litigation. 11. Subsequent Event On August 28, 1998, substantially all of the assets (the "Purchased Assets") of the junior women's apparel retail business (the "Business") conducted under the trade names "G+G" and "Rave" and certain liabilities were sold by Petrie Retail to an investment group including the management of the Company (the "Acquirer"). The acquisition was effectuated pursuant to an asset purchase agreement dated as of July 6, 1998, as amended, between Petrie Retail and the Acquirer, which was approved by the Bankruptcy Court on August 24, 1998. On October 12, 1995, the Debtors filed petitions under Chapter 11 in the Bankruptcy Court, seeking relief to reorganize under Chapter 11. On August 28, 1998, substantially all of the Company's assets and certain liabilities were sold in the Sale. The purchase price paid for the Purchased Assets was approximately $157 million, principally consisting of $132 million in cash, the assumption of certain liabilities and the issuance of stock. The Purchased Assets included, among other things: (a) all right, title and interest in over 400 store leases, as well as leases for the Business' headquarters and distribution center, and other contracts related to the Business, (b) inventories and other tangible personal property related to the Business, (c) equipment and fixtures related to the Business, (d) accounts receivable, notes receivable and other claims for money or obligations due to Petrie Retail in connection with the Business, and (e) intellectual property and goodwill associated with the Business. Liabilities and contingencies not assumed by the Acquirer were retained by Petrie Retail and are managed by the trustee who oversees the bankruptcy proceedings for Petrie Retail and its subsidiaries. Such liabilities and contingencies consist principally of liabilities subject to compromise (Note 6), pension liabilities (Note 8), tax liabilities (Note 4) and the assumption of all pending and threatened litigation as of August 28, 1998. F-32 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this Prospectus. You must not rely on any unauthorized information or representations. This Prospectus is an offer to issue only the exchange notes offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this Prospectus is correct only as of its date. ---------------- TABLE OF CONTENTS
Page ---- Note Regarding Forward-Looking Statements.......................... i Summary of the Exchange Offer........ 5 Risk Factors......................... 14 The Acquisition...................... 23 Use of Proceeds...................... 24 Capitalization....................... 25 Unaudited Pro Forma Consolidated Financial Statements................ 26 Selected Financial and Operating Data...................... 32 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 35 Business............................. 44 Management........................... 54 Principal Stockholders............... 62 Certain Relationships and Related Transactions................ 64 Description of Revolving Credit Facility............................ 69 The Exchange Offer................... 70 Description of the Notes............. 81 Registration Rights Agreement........ 114 Book-Entry; Delivery and Form........ 117 Certain Federal Income Tax Considerations...................... 121 Plan of Distribution................. 126 Legal Matters........................ 127 Experts.............................. 127 Available Information................ 127 Index to Financial Statements........ F-1
Until , (90 days after the date of this Prospectus), all dealers effecting transactions in the exchange notes, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when selling exchange notes received in exchange for outstanding notes held for their own account. See "Plan of Distribution." - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- $107,000,000 [LOGO] G+G Retail, Inc. Offer to Exchange All Outstanding 11% Senior Notes due 2006 for 11% Senior Notes due 2006 which have been Registered under the Securities Act of 1933 --------------------------------- PROSPECTUS --------------------------------- , 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 20. Indemnification of Directors and Officers. Set forth below is a description of certain provisions of the Delaware General Corporation Law (the "DGCL"), the Certificate of Incorporation of the Company and the Indemnification Agreements dated August 28, 1998 between the Company and each of its directors, as such provisions relate to the indemnification of the directors and officers of the Company. This description is intended only as a summary and is qualified in its entirety by reference to the applicable provisions of the DGCL and the Certificate of Incorporation of the Company and the Indemnification Agreements which are attached as exhibits to this registration statement. Section 145 of the DGCL provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at its request in such capacity at another corporation or business organization, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal proceeding, had no reasonable cause to believe that such person's conduct was unlawful. A Delaware corporation may indemnify officers and directors against expenses (including attorneys' fees) in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses that such officer or director actually and reasonably incurred. Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director of a corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of his fiduciary duty as a director; provided, however, that such clause shall not apply to any liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL (Liability of Directors for Unlawful Payment of Dividend or Unlawful Stock Purchase or Redemption) or (iv) for any transaction from which the director derived an improper personal benefit. The Company's Certificate of Incorporation provides for the elimination of personal liability of a director for breach of fiduciary duty to the full extent permitted by the DGCL. The Company's Certificate of Incorporation also provides that the Company shall indemnify its directors and officers to the full extent permitted by the DGCL. The Company has entered into separate, identical indemnification agreements with each of its directors. Pursuant to each indemnification agreement, the Company agreed to hold harmless and indemnify, to the fullest extent provided by Sections 145(a) and (b) of the DGCL, the director against all expenses, judgments, fines and amounts paid in settlement reasonably incurred by the director in connection with any threatened, pending or completed civil or criminal action, suit or proceeding (including derivative actions) to which the director is, was or becomes a party, or is threatened to be made a party, as a result of being a director or former director of the Company. The obligation of the Company to indemnify a director is subject to the conditions that the director acted in good faith and in a manner he reasonably believed to be in the best interest of and not opposed to the Company and, with respect to a criminal proceeding, had no reason to believe such conduct was unlawful. In addition, the obligation of the II-1 Company to indemnify a director is subject to certain limited exclusions set forth in the indemnification agreement. Pursuant to each indemnification agreement, a director also is entitled to receive from the Company an advance for expenses incurred by such director in defending any action, suit or proceeding, which advance is subject to repayment if a court ultimately determines that the director was not entitled to be indemnified. The directors and officers of the Company are covered under directors' and officers' liability insurance policies maintained by the Company. Item 21. Exhibits and Financial Statement Schedules. (a) Exhibits
Exhibit No. Description ------- ----------- 1.01 Purchase Agreement, dated as of May 6, 1999, by and among U.S. Bancorp Investments, Inc., CIBC World Markets Corp., G+G Retail, Inc. and G&G Retail Holdings, Inc. 2.01 Asset Purchase Agreement, dated as of July 6, 1998, among G & G Shops, Inc., the subsidiaries of G & G Shops, Inc. named therein, the subsidiaries of Petrie Retail, Inc. named therein, PSL, Inc. and G+G Retail, Inc. 2.02 Amendment No. 1 to the Asset Purchase Agreement, dated as of July 27, 1998, among G & G Shops, Inc., the subsidiaries of G & G Shops, Inc. named therein, the subsidiaries of Petrie Retail, Inc. named therein, PSL, Inc. and G+G Retail, Inc. 2.03 Amendment to the Asset Purchase Agreement, dated August 24, 1998, among G & G Shops, Inc., the subsidiaries of G & G Shops, Inc. named therein, the subsidiaries of Petrie Retail, Inc. named therein, PSL, Inc. and G+G Retail, Inc. 3.01 Certificate of Incorporation of G+G Retail, Inc. 3.02 Amended and Restated By-Laws of G+G Retail, Inc. 4.01 Indenture, dated as of May 17, 1999, by and between G+G Retail, Inc., as issuer, and U.S. Bank Trust National Association, as trustee. 4.02 Form of 11% Senior Note due 2006 of G+G Retail, Inc. 4.03 A/B Exchange Registration Rights Agreement, dated as of May 17, 1999, by and between G+G Retail, Inc. and U.S. Bancorp Libra. 5.01 Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP as to the legality of the securities being registered. 10.01 Agreement of Lease, dated November 28, 1988, between Hartz 83rd Street Associates and G & G Shops of Woodbridge, Inc. 10.02 Lease Addendum, dated April 10, 1990, between Hartz 83rd Street Associates and G & G Shops of Woodbridge, Inc. 10.03 Second Lease Modification Agreement, dated February 24, 1994, between Hartz 83rd Street Associates and G & G Shops of Woodbridge, Inc. 10.04 Notification Letter, dated November 20, 1995, re: assignment of landlord's interest under the Agreement of Lease dated November 28, 1988 between Hartz 83rd Street Associates and G & G Shops of Woodbridge, Inc., as amended. 10.05 Assignment and Assumption Agreement, dated as of August 28, 1998, by and among G & G Shops, Inc., the subsidiaries of G & G Shops, Inc. named therein, the subsidiaries of Petrie Retail, Inc. named therein, PSL, Inc. and G+G Retail, Inc.
II-2
Exhibit No. Description ------- ----------- 10.06 Employment Agreement, dated as of August 28, 1998, by and between G+G Retail, Inc. and Jay Galin. 10.07 Employment Agreement, dated as of August 28, 1998, by and between G+G Retail, Inc. and Scott Galin. 10.08 Indemnification Agreement, dated August 28, 1998, between G+G Retail, Inc. and Jay Galin. 10.09 Indemnification Agreement, dated August 28, 1998, between G+G Retail, Inc. and Scott Galin. 10.10 Indemnification Agreement, dated August 28, 1998, between G+G Retail, Inc. and Craig Cogut. 10.11 Indemnification Agreement, dated August 28, 1998, between G+G Retail, Inc. and Lenard Tessler. 10.12 Indemnification Agreement, dated August 28, 1998, between G+G Retail, Inc. and Donald D. Shack. 10.13 Letter Agreement, dated October 12, 1998, by and between G+G Retail, Inc. and Michael Kaplan. 10.14 Letter Agreement, dated October 12, 1998, by and between G+G Retail, Inc. and Jeffrey Galin. 10.15 Loan and Security Agreement, dated October 30, 1998, by and between Congress Financial Corporation, G+G Retail, Inc. and the Additional Parties thereto. 10.16 Amendment No. 1 to Employment Agreement, dated as of November 30, 1998, by and between G+G Retail, Inc. and Jay Galin. 10.17 Amendment No. 1 to Employment Agreement, dated as of November 30, 1998, by and between G+G Retail, Inc. and Scott Galin. 10.18 Bonus Plan for Senior Management Employees of G+G Retail, Inc., effective February 2, 1999. 10.19 NCR Corporation Master Agreement, effective as of February 9, 1999, between NCR Corporation and G+G Retail, Inc.* 10.20 Discount Addendum, effective as of February 26, 1999, between NCR Corporation and G+G Retail, Inc.* 10.21 G&G Retail Holdings, Inc. 1999 Stock Option Plan, effective as of March 15, 1999. 10.22 Option Agreement, dated as of March 15, 1999, by and between G&G Retail Holdings, Inc. and Jay Galin. 10.23 Option Agreement, dated as of March 15, 1999, by and between G&G Retail Holdings, Inc. and Scott Galin. 10.24 Service Agreement, dated April 1, 1999, between G+G Retail, Inc. and G & G Retail of Puerto Rico, Inc. 10.25 Master Lease Purchase Agreement, dated as of May 4, 1999, by and between Chase Equipment Leasing, Inc. and G+G Retail, Inc. 10.26 Addendum to Master Lease Purchase Agreement, effective as of May 4, 1999, by and between Chase Equipment Leasing, Inc. and G+G Retail, Inc. 10.27 Form of Exchange Agent Agreement between U.S. Bank Trust National Association, as exchange agent, and G+G Retail, Inc.* 12.01 Statement regarding the computation of ratio of earnings to fixed charges for G+G Retail, Inc. 21.01 Subsidiaries of G+G Retail, Inc. 23.01 Consent of Ernst & Young LLP. 23.02 Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP (contained in Exhibit 5.01). 24.01 Power of attorney (included on signature page to the Registration Statement). 25.01 Statement of eligibility of trustee. 27.01 Financial data schedule. 27.02 Financial data schedule. 99.01 Form of Letter of Transmittal. 99.02 Form of Notice of Guaranteed Delivery.
- -------- * To be filed by amendment. II-3 (b) Financial Statement Schedules. All schedules for which provision is made in Regulation S-X of the Securities and Exchange Commission are not required under the related instructions or are inapplicable or the required information is included in the financial statements or notes thereto and, therefore, have been omitted. Item 22. Undertakings. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) of the Securities Act if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (b) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (c) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 22nd day of June, 1999. G+G RETAIL, INC. /s/ Scott Galin By: _________________________________ Scott Galin President and Chief Operating Officer KNOWN TO ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Jay Galin and/or Scott Galin and any of them his attorney-in-fact, with full power of substitution, for him in any and all capacities, to sign any amendments to this Registration Statement (including post-effective amendments), and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in- fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Jay Galin Chairman of the Board, Chief June 22, 1999 - --------------------------------- Executive Officer, and Jay Galin Director (principal executive officer) /s/ Scott Galin President, Chief Operating June 22, 1999 - --------------------------------- Officer, and Director Scott Galin /s/ Michael Kaplan Vice President, Chief June 22, 1999 - --------------------------------- Financial Officer, Michael Kaplan Treasurer, and Secretary (principal financial officer and principal accounting officer) /s/ Craig Cogut Director June 22, 1999 - --------------------------------- Craig Cogut /s/ Lenard Tessler Director June 22, 1999 - --------------------------------- Lenard Tessler /s/ Donald D. Shack Director June 22, 1999 - --------------------------------- Donald D. Shack II-5 EXHIBIT INDEX
Exhibit No. Description ------- ----------- 1.01 Purchase Agreement, dated as of May 6, 1999, by and among U.S. Bancorp Investments, Inc., CIBC World Markets Corp., G+G Retail, Inc. and G&G Retail Holdings, Inc. 2.01 Asset Purchase Agreement, dated as of July 6, 1998, among G & G Shops, Inc., the subsidiaries of G & G Shops, Inc. named therein, the subsidiaries of Petrie Retail, Inc. named therein, PSL, Inc. and G+G Retail, Inc. 2.02 Amendment No. 1 to the Asset Purchase Agreement, dated as of July 27, 1998, among G & G Shops, Inc., the subsidiaries of G & G Shops, Inc. named therein, the subsidiaries of Petrie Retail, Inc. named therein, PSL, Inc. and G+G Retail, Inc. 2.03 Amendment to the Asset Purchase Agreement, dated August 24, 1998, among G & G Shops, Inc., the subsidiaries of G & G Shops, Inc. named therein, the subsidiaries of Petrie Retail, Inc. named therein, PSL, Inc. and G+G Retail, Inc. 3.01 Certificate of Incorporation of G+G Retail, Inc. 3.02 Amended and Restated By-Laws of G+G Retail, Inc. 4.01 Indenture, dated as of May 17, 1999, by and between G+G Retail, Inc., as issuer, and U.S. Bank Trust National Association, as trustee. 4.02 Form of 11% Senior Note due 2006 of G+G Retail, Inc. 4.03 A/B Exchange Registration Rights Agreement, dated as of May 17, 1999, by and between G+G Retail, Inc. and U.S. Bancorp Libra. 5.01 Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP as to the legality of the securities being registered. 10.01 Agreement of Lease, dated November 28, 1988, between Hartz 83rd Street Associates and G & G Shops of Woodbridge, Inc. 10.02 Lease Addendum, dated April 10, 1990, between Hartz 83rd Street Associates and G & G Shops of Woodbridge, Inc. 10.03 Second Lease Modification Agreement, dated February 24, 1994, between Hartz 83rd Street Associates and G & G Shops of Woodbridge, Inc. 10.04 Notification Letter, dated November 20, 1995, re: assignment of landlord's interest under the Agreement of Lease dated November 28, 1988 between Hartz 83rd Street Associates and G & G Shops of Woodbridge, Inc., as amended. 10.05 Assignment and Assumption Agreement, dated as of August 28, 1998, by and among G & G Shops, Inc., the subsidiaries of G & G Shops, Inc. named therein, the subsidiaries of Petrie Retail, Inc. named therein, PSL, Inc. and G+G Retail, Inc. 10.06 Employment Agreement, dated as of August 28, 1998, by and between G+G Retail, Inc. and Jay Galin. 10.07 Employment Agreement, dated as of August 28, 1998, by and between G+G Retail, Inc. and Scott Galin. 10.08 Indemnification Agreement, dated August 28, 1998, between G+G Retail, Inc. and Jay Galin. 10.09 Indemnification Agreement, dated August 28, 1998, between G+G Retail, Inc. and Scott Galin. 10.10 Indemnification Agreement, dated August 28, 1998, between G+G Retail, Inc. and Craig Cogut. 10.11 Indemnification Agreement, dated August 28, 1998, between G+G Retail, Inc. and Lenard Tessler. 10.12 Indemnification Agreement, dated August 28, 1998, between G+G Retail, Inc. and Donald D. Shack.
Exhibit No. Description ------- ----------- 10.13 Letter Agreement, dated October 12, 1998, by and between G+G Retail, Inc. and Michael Kaplan. 10.14 Letter Agreement, dated October 12, 1998, by and between G+G Retail, Inc. and Jeffrey Galin. 10.15 Loan and Security Agreement, dated October 30, 1998, by and between Congress Financial Corporation, G+G Retail, Inc. and the Additional Parties thereto. 10.16 Amendment No. 1 to Employment Agreement, dated as of November 30, 1998, by and between G+G Retail, Inc. and Jay Galin. 10.17 Amendment No. 1 to Employment Agreement, dated as of November 30, 1998, by and between G+G Retail, Inc. and Scott Galin. 10.18 Bonus Plan for Senior Management Employees of G+G Retail, Inc., effective February 2, 1999. 10.19 NCR Corporation Master Agreement, effective as of February 9, 1999, between NCR Corporation and G+G Retail, Inc.* 10.20 Discount Addendum, effective as of February 26, 1999, between NCR Corporation and G+G Retail, Inc.* 10.21 G&G Retail Holdings, Inc. 1999 Stock Option Plan, effective as of March 15, 1999. 10.22 Option Agreement, dated as of March 15, 1999, by and between G&G Retail Holdings, Inc. and Jay Galin. 10.23 Option Agreement, dated as of March 15, 1999, by and between G&G Retail Holdings, Inc. and Scott Galin. 10.24 Service Agreement, dated April 1, 1999, between G+G Retail, Inc. and G & G Retail of Puerto Rico, Inc. 10.25 Master Lease Purchase Agreement, dated as of May 4, 1999, by and between Chase Equipment Leasing, Inc. and G+G Retail, Inc. 10.26 Addendum to Master Lease Purchase Agreement, effective as of May 4, 1999, by and between Chase Equipment Leasing, Inc. and G+G Retail, Inc. 10.27 Form of Exchange Agent Agreement between U.S. Bank Trust National Association, as exchange agent, and G+G Retail, Inc.* 12.01 Statement regarding the computation of ratio of earnings to fixed charges for G+G Retail, Inc. 21.01 Subsidiaries of G+G Retail, Inc. 23.01 Consent of Ernst & Young LLP. 23.02 Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP (contained in Exhibit 5.01). 24.01 Power of attorney (included on signature page to the Registration Statement). 25.01 Statement of eligibility of trustee. 27.01 Financial data schedule. 27.02 Financial data schedule. 99.01 Form of Letter of Transmittal. 99.02 Form of Notice of Guaranteed Delivery.
- -------- * To be filed by amendment. 2 EX-1.01 2 PURCHASE AGREEMENT 5/6/99 EXHIBIT 1.01 - -------------------------------------------------------------------------------- G+G RETAIL, INC. and G&G RETAIL HOLDINGS, INC. 107,000 Units consisting of 11% Series A Senior Notes due 2006 of G+G Retail, Inc. and Warrants to purchase 8209 shares of Class D Common Stock of G&G Retail Holdings, Inc. representing 7.5% of the fully-diluted common stock of G&G Retail Holdings, Inc. Purchase Agreement May 6, 1999 U.S. BANCORP INVESTMENTS, INC. CIBC WORLD MARKETS CORP. - -------------------------------------------------------------------------------- 107,000 Units consisting of 11% Series A Senior Notes due 2006 of G+G Retail, Inc. and Warrants to purchase 8209 shares of Class D Common Stock of G&G Retail Holdings, Inc. representing 7.5% of the fully-diluted common stock of G&G Retail Holdings, Inc. PURCHASE AGREEMENT May 6, 1999 U.S. Bancorp Investments, Inc. CIBC World Markets Corp. c/o U.S. Bancorp Libra 156 West 56th Street, Suite 901 New York, New York 10019 Dear Sirs: G+G Retail, Inc., a Delaware corporation (the "Company"), and G&G Retail Holdings, Inc., a Delaware corporation ("Holdings" and, together with the Company, the "Issuers") propose to issue and sell to U.S. Bancorp Investments, Inc. and CIBC World Markets Corp. (each, an "Initial Purchaser" and, collectively, the "Initial Purchasers") an aggregate of 107,000 Units, each Unit consisting of $1,000 in principal amount of 11% Series A Senior Notes due 2006 of the Company (the "Series A Notes") and one Warrant (a "Warrant") to purchase .07672 shares of Class D Common Stock of Holdings, par value $.001 per share (such shares aggregating to 7.5% of the fully-diluted common stock of Holdings as of the Closing Date, the "Warrant Shares" and, together with the Notes, the "Units"), subject to the terms and conditions set forth herein. The Series A Notes are to be issued pursuant to the provisions of an indenture (the "Indenture"), to be dated as of the Closing Date (as defined below), between the Company and U.S. Bank Trust National Association, as trustee (the "Trustee"). The Series A Notes and the Series B Notes (as defined below) issuable in exchange therefor are collectively referred to herein as the "Notes." The Warrants are to be issued pursuant to a Warrant Agreement (the "Warrant Agreement"), to be dated as of the Closing Date, between Holdings and U.S. Bank Trust National Association, as warrant agent (the "Warrant Agent"). The Units are to be issued pursuant to a Unit Agreement (the "Unit Agreement"), to be dated as of the Closing Date, among Holdings, the Company and U.S. Bank Trust National Association, as unit agent (the "Unit Agent"). As used herein, the term "Securities" shall mean, collectively, the Units, the 1 Notes, the Warrants and the Warrant Shares. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Indenture. 1. Offering Memorandum. The Securities will be offered and sold to the Initial Purchasers pursuant to one or more exemptions from the registration requirements under the Securities Act of 1933, as amended (the "Act"). The Company has prepared a preliminary offering memorandum, dated April 15, 1999 (the "Preliminary Offering Memorandum") relating to the Notes and the Issuers have prepared a final offering memorandum, dated May 10, 1999 (the "Offering Memorandum"), relating to the Units. Upon original issuance thereof, and until such time as the same is no longer required pursuant to the Act, the Securities (and all securities issued in exchange therefor, in substitution thereof or upon conversion thereof) shall bear the following legend: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR 904 UNDER THE SECURITIES ACT OR (C) IT IS AN ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a)(1), (2), (3), OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR"), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR 904 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED 2 INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE [TRUSTEE][WARRANT AGENT] AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. 2. Agreements to Sell and Purchase. On the basis of the representations, warranties and covenants contained in this Agreement, and subject to the terms and conditions contained herein, the Issuers agree to issue and sell to the Initial Purchasers, and each Initial Purchaser agrees, severally and not jointly, to purchase from the Issuers, the number of Units set forth opposite the name of such Initial Purchaser on Schedule A hereto at a purchase price equal to $903.46 per Unit (the "Purchase Price"). 3. Terms of Offering. The Initial Purchasers have advised the Issuers that the Initial Purchasers will make offers (the "Exempt Resales") of the Units purchased hereunder on the terms set forth in the Offering Memorandum, as amended or supplemented, solely to (i) persons whom the Initial Purchasers reasonably believe to be "qualified institutional buyers" as defined in Rule 144A under the Act ("QIBs"), and (ii) persons permitted to purchase the Units in offshore transactions in reliance upon Regulation S under the Act (each, a "Regulation S Purchaser") (such persons specified in clauses (i) and (ii) being referred to herein as the "Eligible Purchasers"). The Initial Purchasers will offer the Units to Eligible Purchasers initially at a price equal to $931.40 per Unit. Such price may be changed at any time without notice. Holders (including subsequent transferees) of the Series A Notes will have the registration rights set forth in the registration rights agreement related thereto (the "Debt Registration Rights Agreement"), to be dated the Closing Date, in substantially the form of Exhibit A hereto, for so long as such Series A Notes constitute "Transfer Restricted Securities" (as defined in the Debt Registration Rights Agreement). Holders (including subsequent transferees) of the Warrants and Warrant Shares will have the registration rights described in the Offering Memorandum which will be set forth in the registration rights agreement (the "Equity Registration Rights Agreement" and, together with the Debt Registration Rights Agreement, the "Registration Rights Agreements"), to be dated the Closing Date, for so long as such Warrants and Warrant Shares constitute Transfer Restricted Securities. Pursuant to the Debt Registration Rights Agreement, the Company will agree to file with the Securities and Exchange Commission (the "Commission") under the circumstances set forth therein, (i) a registration statement under the Act (the "Exchange Offer Registration Statement") relating to the Company's 11% Series B Senior Notes (the "Series B Notes"), to be 3 offered in exchange for the Series A Notes (such offer to exchange being referred to as the "Exchange Offer") and (ii) a shelf registration statement pursuant to Rule 415 under the Act (the "Shelf Registration Statement" and, together with the Exchange Offer Registration Statement, the "Debt Registration Statements") relating to the resale by certain holders of the Series A Notes and to use its best efforts to cause such Debt Registration Statements to be declared and remain effective and usable for the periods specified in the Debt Registration Rights Agreement and to consummate the Exchange Offer. Pursuant to the Equity Registration Rights Agreement, Holdings will agree (i) to file with the Commission a registration statement under the Act for the sale of the Warrant Shares upon a demand by the holders of a majority of the Warrant Shares any time after six months following certain public offerings of Holdings common stock and (ii) to include the Warrant Shares in any filing of a registration statement pertaining to Holdings common stock upon and following a qualified public offering of Holdings common stock (in each case, the registration statements filed are referred to as the "Equity Registration Statements" and, together with the Debt Registration Statements, the "Registration Statements") as described in the Offering Memorandum. This Agreement, the Indenture, the Notes, the Warrant Agreement, the Warrants, the Unit Agreement, the Units and the Registration Rights Agreements are hereinafter sometimes referred to collectively as the "Operative Documents." 4. Delivery and Payment. (a) Delivery of, and payment of the Purchase Price for, the Units shall be made at the offices of Latham & Watkins, New York, New York or such other location as may be mutually acceptable. Such delivery and payment shall be made at 12:30 p.m. New York City time, on May 17, 1999 or at such other time on the same date or such other date as shall be agreed upon by the Initial Purchasers and the Issuers in writing. The time and date of such delivery and the payment for the Units are herein called the "Closing Date." 5. Agreements of the Issuers. Each Issuer hereby agrees with the Initial Purchasers as follows: (a) To advise the Initial Purchasers promptly and, if requested by the Initial Purchasers, confirm such advice in writing, (i) of the issuance by any state securities commission of any stop order suspending the qualification or exemption from qualification of any Securities for offering or sale in any jurisdiction designated by the Initial Purchasers pursuant to Section 5(e) hereof, or the initiation of any proceeding by any state securities commission or any other federal or state regulatory authority for such purpose and (ii) of the happening of any event during the period referred to in Section 5(c) below that makes any statement of a material fact made in the Preliminary Offering Memorandum or the Offering Memorandum untrue or that requires any additions to or changes in the Preliminary Offering Memorandum or the Offering Memorandum in order to make the statements therein not misleading. The Issuers shall use their reasonable best efforts to prevent the issuance of any stop 4 order or order suspending the qualification or exemption of any Securities under any state securities or Blue Sky laws and, if at any time any state securities commission or other federal or state regulatory authority shall issue an order suspending the qualification or exemption of any Securities under any state securities or Blue Sky laws, the Issuers shall use their reasonable best efforts to obtain the withdrawal or lifting of such order at the earliest possible time. (b) To furnish the Initial Purchasers and those persons identified by the Initial Purchasers to the Issuers as many copies of the Preliminary Offering Memorandum and the Offering Memorandum, and any amendments or supplements thereto, as the Initial Purchasers may reasonably request for the time period specified in Section 5(c). Subject to the Initial Purchasers' compliance with the representations and warranties and agreements set forth in Section 7 hereof, the Issuers consent to the use of the Preliminary Offering Memorandum and the Offering Memorandum, and any amendments and supplements thereto required pursuant hereto, by the Initial Purchasers in connection with Exempt Resales. (c) During (1) the period commencing on the date hereof and ending on the date the Offering Memorandum is first mailed in connection with Exempt Resales by the Initial Purchasers and (2) such period thereafter as in the opinion of counsel for the Initial Purchasers an Offering Memorandum is required by law to be delivered in connection with Exempt Resales by the Initial Purchasers, and in connection with market-making activities of the Initial Purchasers for so long as any Securities are outstanding, (i) not to make any amendment or supplement to the Offering Memorandum of which the Initial Purchasers shall not previously have been advised or to which the Initial Purchasers shall reasonably object after being so advised and (ii) to prepare promptly upon the Initial Purchasers' reasonable request, any amendment or supplement to the Offering Memorandum which may be necessary or advisable in connection with such Exempt Resales or such market-making activities. (d) If, during the periods referred to in Section 5(c) above, any event shall occur or condition shall exist as a result of which, in the opinion of counsel to the Initial Purchasers, it becomes necessary to amend or supplement the Offering Memorandum in order to make the statements therein, in the light of the circumstances when such Offering Memorandum is delivered to an Eligible Purchaser, not misleading, or if, in the opinion of counsel to the Initial Purchasers, it is necessary to amend or supplement the Offering Memorandum to comply with any applicable law, forthwith to prepare an appropriate amendment or supplement to such Offering Memorandum so that the statements therein, as so amended or supplemented, will not, in the light of the circumstances when it is so delivered, be misleading, or so that such Offering Memorandum will comply with applicable law, and to furnish to the Initial Purchasers and such other persons as the Initial Purchasers may designate such number of copies thereof as the Initial Purchasers may reasonably request. (e) Prior to the sale of all Units pursuant to Exempt Resales as contemplated hereby, to cooperate with the Initial Purchasers and counsel to the Initial Purchasers in connection with the registration or qualification of the Units for offer and sale to the Initial Purchasers and pursuant to Exempt Resales under the securities or Blue Sky laws of such jurisdictions as the Initial Purchasers may request and to continue such registration or 5 qualification in effect so long as required for Exempt Resales and to file such consents to service of process or other documents as may be necessary in order to effect such registration or qualification; provided, however, that neither Issuer shall be required in connection therewith to qualify as a foreign corporation in any jurisdiction in which it is not now so qualified or to take any action that would subject it to general consent to service of process or taxation in any jurisdiction in which it is not now so subject. (f) So long as the Securities are outstanding and the Indenture or Warrant Agreement so requires, (i) to mail and make generally available (in the time period required to file a Form 10-K with the Commission if either Issuer was required to file such form) after the end of each fiscal year to the record holders of the Notes or Warrants, a financial report of the Issuers and their subsidiaries on a consolidated basis (and a similar financial report of all unconsolidated subsidiaries, if any), all such financial reports to include a consolidated balance sheet, a consolidated statement of operations, a consolidated statement of cash flows and a consolidated statement of stockholders' equity as of the end of and for such fiscal year, together with comparable information as of the end of and for the preceding year, certified by the Issuers' independent public accountants and (ii) to mail and make generally available (in the time period required to file a Form 10-Q with the Commission if either Issuer were required to file such form) after the end of each quarterly period (except for the last quarterly period of each fiscal year) to such holders, a consolidated balance sheet, a consolidated statement of operations and a consolidated statement of cash flows (and similar financial reports of all unconsolidated subsidiaries, if any) as of the end of and for such period, and for the period from the beginning of such year to the close of such quarterly period, together with comparable information for the corresponding periods of the preceding year. (g) So long as the Securities are outstanding, to furnish to the Initial Purchasers as soon as available copies of all reports or other communications furnished by either Issuer to its security holders or furnished to or filed with the Commission or any national securities exchange on which any class of securities of either Issuer is listed and such other publicly available information concerning the Issuers and/or their subsidiaries as the Initial Purchasers may reasonably request. (h) So long as any of the Securities remain outstanding and during any period in which an Issuer is not subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to make available to any holder of Securities in connection with any sale thereof and any prospective purchaser of such Securities from such holder, upon request, the information ("Rule 144A Information") required by Rule 144A(d)(4) under the Act concerning the Issuers or the Securities. (i) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of the obligations of the Issuers under this Agreement, including: (i) the fees, disbursements and expenses of counsel to the Issuers and accountants of the Issuers in connection with the sale and delivery of the Securities to the Initial Purchasers and pursuant to Exempt Resales, and all other fees and expenses in connection with the preparation, printing, 6 filing and distribution of the Preliminary Offering Memorandum, the Offering Memorandum and all amendments and supplements to any of the foregoing (including financial statements), including the mailing and delivering of copies thereof to the Initial Purchasers and persons designated by it in the quantities specified herein, (ii) all costs and expenses related to the transfer and delivery of the Securities to the Initial Purchasers and pursuant to Exempt Resales, including any transfer or other taxes payable thereon, (iii) all costs of printing or producing this Agreement, the other Operative Documents and any other agreements or documents in connection with the offering, purchase, sale or delivery of the Securities, (iv) all expenses in connection with the registration or qualification of the Securities for offer and sale under the securities or Blue Sky laws of the several states and all costs of printing or producing any preliminary and supplemental Blue Sky memoranda in connection therewith (including the filing fees and fees and disbursements of counsel for the Initial Purchasers in connection with such registration or qualification and memoranda relating thereto), (v) the cost of printing certificates representing the Securities, (vi) all expenses and listing fees in connection with the application for quotation of the Securities in the National Association of Securities Dealers, Inc. ("NASD") Automated Quotation System - PORTAL ("PORTAL"), (vii) the fees and expenses of the Trustee, the Warrant Agent, the Unit Agent and their counsel in connection with the Indenture, the Notes, the Warrant Agreement, the Warrants, the Unit Agreement and the Unit, (viii) the costs and charges of any transfer agent, registrar and/or depositary (including DTC), (ix) any fees charged by rating agencies for the rating of the Notes, (x) all costs and expenses associated with the performance of the Issuers of their obligations under the Operative Documents, (xi) all reasonable and documented out-of-pocket expenses (including reasonable legal fees and expenses) of U.S. Bancorp Investments, Inc. incurred in connection with the sale and delivery of the Securities; provided that the aggregate amount of such out-of-pocket expenses incurred shall not exceed $250,000, as pursuant to an Engagement Letter among Libra Investments, Inc., G+G Retail, Inc., and the other parties thereto, dated as of July 15, 1998; provided, further, that such costs and expenses shall only be payable (x) if (A) an agreement has been reached on or before the Closing Date (in any event prior to the consummation of the offering) whereby Cerberus G&G Retail L.L.C. ("Cerberus") waives or otherwise relinquishes its anti-dilution adjustment rights as a result of the issuance of the Warrants and the issuance of shares underlying the Warrants, or (B) the Initial Purchasers cure or satisfy the effects of the anti-dilution adjustment rights with respect to the Warrants whereby Pegasus Partners, L.P., Pegasus Related Partners, L.P., Pegasus G&G Retail, L.P. and Pegasus G&G Retail II, L.P. do not experience ratable dilution of their common shares of Holdings, or (y) if the Company otherwise agrees and (xii) and all other costs and expenses incident to the performance of the obligations of the Issuers hereunder for which provision is not otherwise made in this Section. (j) To use its reasonable best efforts to effect the inclusion of the Units, Warrants and Notes in PORTAL and to maintain the listing of the Units, Warrants and Notes on PORTAL for so long as such securities are outstanding. (k) To use its reasonable best efforts to obtain the approval of DTC for "book-entry" transfer of the Securities, and to comply with all of its agreements set forth in the 7 representation letters of the Issuers to DTC relating to the approval of the Securities by DTC for "book-entry" transfer. (l) Not to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Act) that would be integrated with the sale of the Units to the Initial Purchasers or pursuant to Exempt Resales in a manner that would require the registration of any such sale of the Units under the Act. (m) Not to voluntarily claim, and to actively resist any attempts to claim, the benefit of any usury laws against the holders of any Securities. (n) To use its reasonable best efforts to cause the Exchange Offer to be made in the appropriate form to permit Series B Notes registered pursuant to the Act to be offered in exchange for the Series A Notes, and to comply with all applicable federal and state securities laws in connection with the Exchange Offer. (o) To comply with all of its agreements set forth in the Registration Rights Agreements. (p) To use its reasonable best efforts to do and perform all things required or necessary to be done and performed under this Agreement by it prior to the Closing Date and to satisfy all conditions precedent to the delivery of the Units. (q) To repay all outstanding indebtedness under the Senior Bridge Notes (as defined in the Offering Memorandum) on or prior to the Closing Date. 6. Representations, Warranties and Agreements of the Issuers. As of the date hereof and as of the Closing Date, the Issuers, jointly and severally, represent and warrant to, and agree with, the Initial Purchasers that: (a) The Preliminary Offering Memorandum and the Offering Memorandum do not, and any supplement or amendment to them will not, as of their respective dates, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties contained in this paragraph (a) shall not apply to statements in or omissions from the Preliminary Offering Memorandum or the Offering Memorandum (or any supplement or amendment thereto) based upon information relating to the Initial Purchasers furnished to the Issuers in writing by the Initial Purchasers expressly for use therein. To the knowledge of the Issuers, no stop order preventing the use of the Preliminary Offering Memorandum or the Offering Memorandum, or any amendment or supplement thereto, or any order asserting that any of the transactions contemplated by this Agreement are subject to the registration requirements of the Act, has been issued. 8 (b) Each of the Issuers and their subsidiaries has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to carry on its business as described in the Preliminary Offering Memorandum and the Offering Memorandum and to own, lease and operate its properties, and each is duly qualified and is in good standing as a foreign corporation authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified could not reasonably be expected to have a material adverse effect on the business, prospects, financial condition or results of operations of the Issuers and their subsidiaries, taken as a whole (a "Material Adverse Effect"). (c) All outstanding shares of capital stock of the Issuers have been duly authorized and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights, except as described in the Offering Memorandum. (d) The entities listed on Schedule B hereto are the only subsidiaries, direct or indirect, of the Issuers. All of the outstanding shares of capital stock of each of the Issuers' subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, and are owned by the Issuers, directly or indirectly through one or more subsidiaries, free and clear of any security interest, claim, lien, encumbrance or adverse interest of any nature (each, a "Lien"), other than Liens disclosed in the Offering Memorandum. (e) The Warrants, when issued on the Closing Date, will provide for the right to purchase 7.499% of the fully-diluted common shares of Holdings, subject to certain exceptions set forth in the Offering Memorandum; (f) This Agreement has been duly authorized, executed and delivered by the Issuers. (g) The Indenture has been duly authorized by the Company and, on the Closing Date, will have been duly executed and delivered by the Company. When the Indenture has been duly executed and delivered by the Company and the other parties thereto, the Indenture will be a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. On the Closing Date, the Indenture will conform in all material respects to the requirements of the Trust Indenture Act of 1939, as amended (the "TIA" or "Trust Indenture Act"), and the rules and regulations of the Commission applicable to an indenture which is qualified thereunder. (h) Each of the Issuers has duly and validly authorized the issuance of the Securities to be issued by it as part of a Unit. 9 (i) The Series A Notes have been duly authorized and, on the Closing Date, will have been duly executed and delivered by the Company. When the Series A Notes have been issued, executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, the Series A Notes will be entitled to the benefits of the Indenture and will be valid and binding obligations of the Company, enforceable in accordance with their terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. On the Closing Date, the Series A Notes will conform as to legal matters in all material respects to the description thereof contained in the Offering Memorandum. (j) On the Closing Date, the Series B Notes will have been duly authorized by the Company. When the Series B Notes are issued, executed and authenticated in accordance with the terms of the Exchange Offer and the Indenture, the Series B Notes will be entitled to the benefits of the Indenture and will be the valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as (i) the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (k) The Warrants have been duly authorized by Holdings and, on the Closing Date, will have been validly delivered by Holdings. When the Warrants are issued, the Warrants will be valid and binding obligations of Holdings, enforceable against Holdings in accordance with their terms, except as (i) the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. The Offering Memorandum contains an accurate summary, in all material respects, of the terms of the Warrants. (l) The Offering Memorandum contains an accurate summary, in all material respects, of the terms of the Units. (m) The Warrant Shares have been duly and validly authorized for issuance by Holdings, and when issued pursuant to the terms of the Warrants and the Warrant Agreement will be fully paid and nonassessable and will not be subject to any preemptive or similar rights. The Offering Memorandum contains an accurate summary, in all material respects, of the terms of the Warrant Shares. (n) The Debt Registration Rights Agreement has been duly authorized by the Company and, on the Closing Date, will have been duly executed and delivered by the Company. When the Debt Registration Rights Agreement has been duly executed and delivered by the Company and the other parties thereto, the Debt Registration Rights Agreement will be a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency, 10 reorganization or similar laws affecting creditors' rights generally, (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability, (iii) rights to indemnification and contribution thereunder may be limited by federal and state securities laws and public policy considerations and (iv) enforcement of any provision requiring the payment of liquidated damages may be limited by public policy considerations. On the Closing Date, the Debt Registration Rights Agreement will conform as to legal matters in all material respects to the description thereof in the Offering Memorandum. (o) The Equity Registration Rights Agreement has been duly and validly authorized by Holdings and, when duly executed and delivered by Holdings, will be a valid and binding agreement of Holdings, enforceable against it in accordance with its terms, except as (i) the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights, (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability and (iii) to the extent that rights to indemnification and contribution thereunder may be limited by federal or state securities laws or public policy relating thereto. The Offering Memorandum contains an accurate summary, in all material respects, of the terms of the Equity Registration Rights Agreement. (p) The Warrant Agreement has been duly and validly authorized by Holdings and, when duly executed and delivered by Holdings, will be a valid and binding agreement of Holdings, enforceable against it in accordance with its terms, except as (i) the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability and (iii) to the extent that rights to indemnification and contribution thereunder may be limited by federal or state securities laws or public policy relating thereto. The Offering Memorandum contains an accurate summary, in all material respects, of the terms of the Warrant Agreement. (q) The Unit Agreement has been duly and validly authorized by the Issuers and, when duly executed and delivered by the Issuers, will be a valid and binding agreement of the Issuers, enforceable against it in accordance with its terms, except as (i) the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability and (iii) to the extent that rights to indemnification and contribution thereunder may be limited by federal or state securities laws or public policy relating thereto. The Offering Memorandum contains an accurate summary, in all material respects, of the terms of the Unit Agreement. (r) Neither of the Issuers nor any of their subsidiaries is (i) in violation of its respective charter or by-laws (other than immaterial violations with respect to the establishment of, and election of directors to, certain committees which shall be cured prior to the Closing Date) or (ii) in default in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Issuers and their subsidiaries, taken as a whole, to which the 11 Issuers or any of their subsidiaries is a party or by which the Issuers or any of their subsidiaries or their respective property is bound, except in the case of clause (ii), for such defaults that would not, singly or in the aggregate, have a Material Adverse Effect . (s) The execution, delivery and performance of this Agreement and the other Operative Documents by the Issuers, compliance by the Issuers with all provisions hereof and thereof and the consummation of the transactions contemplated hereby and thereby will not, (i) assuming the accuracy of the Initial Purchasers' representations, warranties and agreements set forth in Section 7 hereof, require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except such as have been obtained and such as may be required under the securities or Blue Sky laws of the various states and such as may be required under the Act or the TIA in connection with the transactions contemplated by the Registration Rights Agreements), (ii) conflict with or constitute a breach of any of the terms or provisions of, or a default under, (A) the charter or by-laws of the Issuers or any of their subsidiaries or (B) any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Issuers and their subsidiaries, taken as a whole, to which the Issuers or any of their subsidiaries is a party or by which the Issuers or any of their subsidiaries or their respective property is bound, except in the case of (B), for such conflicts, breaches or defaults that would not, singly or in the aggregate, have a Material Adverse Effect, (iii) violate or conflict with any applicable law or any rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over the Issuers, any of their subsidiaries or their respective property, except for such violations or conflicts that would not, singly or in the aggregate, have a Material Adverse Effect, (iv) result in the imposition or creation of (or the obligation to create or impose) a Lien under any material agreement or instrument to which the Issuers or any of their subsidiaries is a party or by which the Issuers or any of their subsidiaries or their respective property is bound, or (v) result in the termination, suspension or revocation of any Authorization (as defined below) of the Issuers or any of their subsidiaries or result in any other impairment of the rights of the holder of any such Authorization, except for such terminations, suspensions or revocations or other impairments that would not, singly or in the aggregate, have a Material Adverse Effect. (t) There are no legal or governmental proceedings pending or, to the knowledge of the Issuers, threatened to which the Issuers or any of their subsidiaries is or, to the knowledge of the Issuers, could be a party or to which any of their respective property is or, to the knowledge of the Issuers, could be subject, which could reasonably be expected to result, singly or in the aggregate, in a Material Adverse Effect. (u) Neither of the Issuers nor any of their subsidiaries has violated any foreign, federal, state or local law or regulation relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), any provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or any provisions of the Foreign Corrupt Practices Act or the rules and regulations promulgated thereunder, except for such violations which, singly or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 12 (v) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any Authorization, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a Material Adverse Effect. (w) Each of the Issuers and their subsidiaries has such permits, licenses, consents, exemptions, franchises, authorizations and other approvals (each, an "Authorization") of, and has made all filings with and notices to, all governmental or regulatory authorities and self-regulatory organizations and all courts and other tribunals, including without limitation, under any applicable Environmental Laws, as are necessary to own, lease, license and operate its respective properties and to conduct its business, except where the failure to have any such Authorization or to make any such filing or notice could not reasonably be expected to, singly or in the aggregate, have a Material Adverse Effect. Each such Authorization is valid and in full force and effect and each of the Issuers and their subsidiaries is in compliance with all the terms and conditions thereof and with the rules and regulations of the authorities and governing bodies having jurisdiction with respect thereto; and to the knowledge of the Issuers, no event has occurred (including, without limitation, the receipt of any notice from any authority or governing body) which allows or, after notice or lapse of time or both, would allow, revocation, suspension or termination of any such Authorization or results or, after notice or lapse of time or both, would result in any other impairment of the rights of the holder of any such Authorization; and such Authorizations contain no restrictions that are burdensome to the Issuers or any of their subsidiaries; except where such failure to be valid and in full force and effect or to be in compliance, the occurrence of any such event or the presence of any such restriction could not reasonably be expected to, singly or in the aggregate, have a Material Adverse Effect. (x) Ernst & Young LLP, which has certified the financial statements included in the Preliminary Offering Memorandum and the Offering Memorandum, are independent auditors with respect to the Issuers, as required by the Act and the Exchange Act. The historical financial statements, together with related schedules and notes, set forth in the Preliminary Offering Memorandum and the Offering Memorandum comply as to form in all material respects with the requirements applicable to registration statements on Form S-1 under the Act. (y) The historical financial statements, together with related notes set forth in the Offering Memorandum (and any amendment or supplement thereto), present fairly, in all material respects, the consolidated financial position, results of operations and cash flows of Holdings and its subsidiaries and the Company and its subsidiaries, in each case, on the basis stated in the Offering Memorandum at the respective dates or for the respective periods to which they apply; such historical financial statements and related notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein; and, subject to the qualifications stated in the Preliminary Offering Memorandum and the Offering Memorandum, the other historical financial and statistical information and data set forth in the Offering Memorandum (and any amendment 13 or supplement thereto) are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Issuers (to the extent applicable, in the case of statistical information). (z) The pro forma financial statements included in the Preliminary Offering Memorandum and the Offering Memorandum have been prepared on a basis consistent with the historical financial statements of the Issuers and their subsidiaries and give effect to assumptions used in the preparation thereof on a reasonable basis and in good faith and present fairly in all material respects the historical and proposed transactions contemplated by the Preliminary Offering Memorandum and the Offering Memorandum. Subject to the qualifications stated in the Preliminary Offering Memorandum and the Offering Memorandum, the other pro forma financial and statistical information and data included in the Offering Memorandum are, in all material respects, accurately presented and prepared on a basis consistent with the pro forma financial statements. (aa) Neither Issuer is and, after giving effect to the offering and sale of the Securities and the application of the net proceeds thereof as described in the Offering Memorandum, neither Issuer will be, an "investment company," as such term is defined in the Investment Company Act of 1940, as amended. (bb) There are no contracts, agreements or understandings between either of the Issuers and any person granting such person the right to require either of the Issuers to file a registration statement under the Act with respect to any securities of the Issuers or to require the Issuers to include such securities with the Securities registered pursuant to any Registration Statement, except as disclosed by the Offering Memorandum. (cc) Neither the Issuers nor any of their subsidiaries nor any agent thereof acting on the behalf of them has taken, and none of them will take, any action that might cause this Agreement or the issuance or sale of the Securities to violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal Reserve System. (dd) No "nationally recognized statistical rating organization" as such term is defined for purposes of Rule 436(g)(2) under the Act (i) has imposed (or has informed any executive officer of the Issuers that it is considering imposing) any condition (financial or otherwise) on the Issuers' retaining any rating assigned to the Issuers or any securities of the Issuers or (ii) has indicated to any executive officer of the Issuers that it is considering (a) the downgrading, suspension, or withdrawal of, or any review for a possible change that does not indicate the direction of the possible change in, any rating so assigned or (b) any change in the outlook for any rating of the Issuers or any securities of the Issuers. (ee) Since the respective dates as of which information is given in the Offering Memorandum, other than as set forth in or contemplated by the Offering Memorandum (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (i) there has not occurred any material adverse change or any development which could 14 reasonably be expected to result in a material adverse change in the condition, financial or otherwise, or the earnings, business, management or operations of either Issuer and its subsidiaries, taken as a whole, (ii) there has not been any material adverse change or any development which could reasonably be expected to result in a material adverse change in the capital stock or in the long-term debt of the either Issuer or any of its subsidiaries and (iii) neither Issuer nor any of their subsidiaries has incurred any material liability or obligation, direct or contingent. (ff) Each of the Preliminary Offering Memorandum and the Offering Memorandum, as of its date, contains all the information specified in, and meeting the requirements of, Rule 144A(d)(4) under the Act. (gg) When the Securities are issued and delivered by the Issuers pursuant to this Agreement, the Securities will not be of the same class (within the meaning of Rule 144A under the Act) as any security of the Issuers that is listed on a national securities exchange registered under Section 6 of the Exchange Act or that is quoted in a United States automated inter-dealer quotation system. (hh) No form of general solicitation or general advertising (as defined in Regulation D under the Act) was used by the Issuers or any of their representatives (other than the Initial Purchasers, as to whom the Issuers make no representation) in connection with the offer and sale of the Securities contemplated hereby, including, but not limited to, articles, notices or other communications published in any newspaper, magazine, or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. No securities of the same class as the Securities have been issued and sold by the Issuers within the six-month period immediately prior to the date hereof. (ii) Assuming the accuracy of the Initial Purchasers' representations, warranties and agreements set forth in Section 7 hereof, prior to the effectiveness of any Registration Statement, the Indenture is not required to be qualified under the TIA. (jj) All indebtedness of the Company that will be repaid with the proceeds of the issuance and sale of the Securities was incurred, and the indebtedness represented by the Series A Notes is being incurred, for proper purposes and in good faith, and the Company was not, at the time of the incurrence of such indebtedness that will be repaid with the proceeds of the issuance and sale of the Securities, and will not be on the Closing Date (after giving effect to the application of the proceeds from the issuance of the Securities), insolvent (as defined in Section 101(32) of Title 11 of the United States Bankruptcy Code), and the Company had at the time of the incurrence of such indebtedness that will be repaid with the proceeds of the issuance and sale of the Securities, and will have on the Closing Date (after giving effect to the application of the proceeds from the issuance of the Securities), sufficient capital for carrying on its business and was, at the time of the incurrence of such indebtedness that will be repaid with the proceeds of the issuance and sale of the Securities, and will be on the Closing Date (after giving effect to the application of the proceeds from the issuance of the Securities), able to pay its debts as they mature. 15 (kk) Neither the Issuers nor any of their affiliates or any person acting on its or their behalf (other than the Initial Purchasers, as to whom the Issuers make no representation) has engaged or will engage in any directed selling efforts within the meaning of Regulation S under the Act ("Regulation S") with respect to the Units. (ll) Assuming the accuracy of the Initial Purchasers' representations, warranties and agreements set forth in Section 7 hereof, the Units offered and sold in reliance on Regulation S have been and will be offered and sold only in offshore transactions. (mm) The Issuers and their affiliates and all persons acting on their behalf (other than the Initial Purchasers, as to whom the Issuers make no representation) have complied with and will comply with the offering restrictions requirements of Regulation S in connection with the offering of the Securities outside the United States and, in connection therewith, the Offering Memorandum will contain the disclosure required by Rule 902(g)(2). (nn) The Securities sold in reliance on Regulation S will be represented upon issuance by a temporary global security that may not be exchanged for definitive securities until the expiration of the distribution compliance period referred to in Rule 903(c)(3) of the Act and only upon certification of beneficial ownership of such Security by non-U.S. persons or U.S. persons who purchased such Securities in transactions that were exempt from the registration requirements of the Act. (oo) The sale of the Securities pursuant to Regulation S is not part of a plan or scheme on the part of the Issuers to evade the registration provisions of the Act. (pp) No registration under the Act of the Securities is required for the sale of the Securities to the Initial Purchasers as contemplated hereby or for the Exempt Resales assuming the accuracy of the Initial Purchasers' representations and warranties and agreements set forth in Section 7 hereof. (qq) Each certificate signed by any officer of the Issuers and delivered to the Initial Purchasers or counsel for the Initial Purchasers on or after the date hereof but prior to or on the Closing Date shall be deemed to be a representation and warranty by the Issuers to the Initial Purchasers as to the matters covered thereby. (rr) The Issuers and their subsidiaries own or possess, or can acquire on reasonable terms, all patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names ("intellectual property") currently employed by them in connection with the business now operated by them, except where the failure to own or possess or otherwise be able to acquire such intellectual property could not reasonably be expected to, singly or in the aggregate, have a Material Adverse Effect; and no executive officers of the Issuers or any of their subsidiaries has received any notice of infringement of or conflict with asserted rights of others with respect to any of such intellectual 16 property which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect. The Issuers acknowledge that the Initial Purchasers and, for purposes of the opinions to be delivered to the Initial Purchasers pursuant to Section 9 hereof, counsel to the Issuers and counsel to the Initial Purchasers will rely upon the accuracy and truth of the foregoing representations and hereby consents to such reliance. 7. Initial Purchasers' Representations and Warranties. Each of the Initial Purchasers, severally and not jointly, represents and warrants to the Issuers, and agrees that: (a) Such Initial Purchaser is either a QIB or an Institutional Accredited Investor, in either case, with such knowledge and experience in financial and business matters as is necessary in order to evaluate the merits and risks of an investment in the Securities. (b) Such Initial Purchaser (A) is not acquiring the Securities with a view to any distribution thereof or with any present intention of offering or selling any of the Securities in a transaction that would violate the Act or the securities laws of any state of the United States or any other applicable jurisdiction and (B) will be reoffering and reselling the Securities only (x) to QIBs in reliance on the exemption from the registration requirements of the Act provided by Rule 144A, (y) in offshore transactions in reliance upon Regulation S under the Act and (z) in compliance with the laws of any jurisdiction outside of the United States in which it offers or sells the Securities. (c) Such Initial Purchaser agrees that no form of general solicitation or general advertising (within the meaning of Regulation D under the Act) has been or will be used by such Initial Purchaser or any of its representatives in connection with the offer and sale of the Securities pursuant hereto, including, but not limited to, articles, notices or other communications published in any newspaper, magazine or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. (d) Such Initial Purchaser agrees that, in connection with Exempt Resales, such Initial Purchaser will solicit offers to buy the Securities only from, and will offer to sell the Securities only to, Eligible Purchasers. Each Initial Purchaser further agrees that it will offer to sell the Securities only to, and will solicit offers to buy the Securities only from, (A) Eligible Purchasers that the Initial Purchaser reasonably believes are QIBs and (B) Regulation S Purchasers, in each case, that agree that (x) the Securities purchased by them may be resold, pledged or otherwise transferred only (I) to the Issuers or any of their subsidiaries, (II) to a person whom the seller reasonably believes is a QIB purchasing for its own account or for the account of a QIB in a transaction meeting the requirements of Rule 144A under the Act, (III) in an offshore transaction (as defined in Rule 902 under the Act) meeting the requirements of Rule 903 or 904 of the Act, (IV) in a transaction meeting the requirements of Rule 144 under the Act, (V) to an Institutional Accredited Investor that, prior to such transfer, furnishes the Trustee a 17 signed letter containing certain representations and agreements relating to the restrictions on transfer of such Security (the form of which is substantially the same as Exhibit D to the Indenture) and, an opinion of counsel acceptable to the Issuers that such transfer is in compliance with the Act, (VI) in accordance with another exemption from the registration requirements of the Act (and based upon an opinion of counsel acceptable to the Issuers) or (VII) pursuant to an effective registration statement and, in each case, in accordance with the applicable securities laws of any state of the United States or any other applicable jurisdiction and (y) they will deliver to each person to whom such Securities or an interest therein is transferred a notice substantially to the effect of the foregoing. (e) Such Initial Purchaser and its affiliates or any person acting on its or their behalf have not engaged and will not engage in any directed selling efforts within the meaning of Regulation S with respect to the Securities. (f) Assuming the accuracy of the Issuers' representations, warranties and agreements set forth in Section 6 hereof, the Securities offered and sold by such Initial Purchaser pursuant hereto in reliance on Regulation S have been and will be offered and sold only in offshore transactions. (g) The sale of the Securities offered and sold by such Initial Purchaser pursuant hereto in reliance on Regulation S is not part of a plan or scheme on the part of the Initial Purchasers to evade the registration provisions of the Act. (h) Such Initial Purchaser agrees that it has not offered or sold and will not offer or sell the Securities in the United States or to, or for the benefit or account of, a U.S. Person (other than a distributor), in each case, as defined in Rule 902 under the Act (i) as part of its distribution at any time and (ii) otherwise until the end of the distribution compliance period in connection with the commencement of the offering of the Securities pursuant hereto and the Closing Date, other than in accordance with Regulation S of the Act or another exemption from the registration requirements of the Act. Such Initial Purchaser agrees that, during such distribution compliance period, it will not cause any advertisement with respect to the Securities (including any "tombstone" advertisement) to be published in any newspaper or periodical or posted in any public place and will not issue any circular relating to the Securities, except such advertisements as are permitted by and include the statements required by Regulation S. (i) Such Initial Purchaser and its affiliates and any person acting on its or their behalf have complied with and will comply with the offering restrictions requirements of Regulation S in connection with the offering of the Securities outside the United States. (j) Such Initial Purchaser agrees that, at or prior to confirmation of a sale of Securities by it to any distributor (as defined in Regulation S), dealer or person receiving a selling concession, fee or other remuneration during the distribution compliance period referred to in Rule 903(b)(3) under the Act, it will send to such distributor, dealer or person receiving a selling concession, fee or other remuneration a confirmation or notice to substantially the following effect: 18 "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of a distribution at any time or (ii) otherwise until the end of the distribution compliance period in connection with the commencement of the Offering and the Closing Date, except in either case in accordance with Regulation S under the Securities Act (or Rule 144A or to Institutional Accredited Investors in transactions that are exempt from the registration requirements of the Securities Act), and in connection with any subsequent sale by you of the Securities covered hereby in reliance on Regulation S during the period referred to above to any distributor, dealer or person receiving a selling concession, fee or other remuneration, you must deliver a notice to substantially the foregoing effect. Terms used above have the meanings assigned to them in Regulation S." (k) Such Initial Purchaser agrees that the Securities offered and sold in reliance on Regulation S will be represented upon issuance by a global security that may not be exchanged for definitive securities until the expiration of the distribution compliance period referred to in Rule 903(b)(3) of the Act and only upon certification of beneficial ownership of such Securities by non-U.S. persons or U.S. persons who purchased such Securities in transactions that were exempt from the registration requirements of the Act. Such Initial Purchaser acknowledges that the Issuers and, for purposes of the opinions to be delivered to each Initial Purchaser pursuant to Section 9 hereof, counsel to the Issuers and counsel to the Initial Purchasers will rely upon the accuracy and truth of the foregoing representations and such Initial Purchaser hereby consents to such reliance. 8. Indemnification. (a) Each of the Issuers, jointly and severally, agree to indemnify and hold harmless the Initial Purchasers, their directors, officers, employees and agents and each person, if any, who controls each of the Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and judgments (including, without limitation, any reasonable legal or other expenses incurred in connection with investigating or defending any matter, including any action, that could give rise to any such losses, claims, damages, liabilities or judgments) caused by any untrue statement or alleged untrue statement of a material fact contained in the Offering Memorandum (or any amendment or supplement thereto), the Preliminary Offering Memorandum or any Rule 144A Information provided by the Issuers to any holder or prospective purchaser of Securities pursuant to Section 5(h) or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to the Initial Purchasers furnished in writing to the Issuers by such Initial Purchaser; provided, however, that the foregoing indemnity agreement 19 with respect to any Preliminary Offering Memorandum shall not inure to the benefit of any Initial Purchaser who failed to deliver an Offering Memorandum, as then amended or supplemented (so long as the Offering Memorandum and any amendment or supplement thereto was provided by the Issuers to the several Initial Purchasers in the requisite quantity and on a timely basis to permit proper delivery on or prior to the Closing Date), to the person asserting any losses, claims, damages, liabilities or judgments caused by any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Offering Memorandum, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if each untrue statement of a material fact contained in, and each omission or alleged omission of a material fact from, such Preliminary Offering Memorandum was corrected in the Offering Memorandum and a court of competent jurisdiction shall have finally determined that such Initial Purchaser would not have incurred such losses, claims, damages, liabilities and expenses had the Offering Memorandum been delivered or sent, as so amended or supplemented. (b) The Initial Purchasers severally agree to indemnify and hold harmless the Issuers and their directors, officers, employees and agents and each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Issuers, to the same extent as the foregoing indemnity from the Issuers to the Initial Purchasers but only with reference to information relating to the Initial Purchasers furnished in writing to the Issuers by an Initial Purchaser expressly for use in the Preliminary Offering Memorandum or the Offering Memorandum, and without reference to the proviso contained therein. (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the "indemnified party"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, to assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred. Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action, or employ counsel reasonably satisfactory to the indemnified party, within a reasonable amount of time after notice of the institution of such action by the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case as described in clause (i), (ii) or (iii) of the preceding sentence, the indemnifying party shall not, in connection with any one action or separate but 20 substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such single firm shall be designated in writing by U.S. Bancorp Investments, Inc., in the case of the parties indemnified pursuant to Section 8(a), and by the Issuers, in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action (i) effected with the indemnifying party's written consent or (ii) effected without its written consent only if the settlement is entered into more than 75 days after the indemnifying party shall have received a request from the indemnified party for reimbursement for the fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request and not contested its indemnification obligations in good faith. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to, or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) To the extent the indemnification provided for in this Section 8 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Issuers, on the one hand, and the Initial Purchasers on the other hand from the offering of the Units or (ii) if the allocation provided by clause 8(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(d)(i) above but also the relative fault of the Issuers, on the one hand, and the Initial Purchasers, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative benefits received by the Issuers, on the one hand and the Initial Purchasers, on the other hand, shall be deemed to be in the same proportion as the total net proceeds from the offering of the Units (after underwriting discounts and commissions, but before deducting expenses) received by the Issuers, and the total discounts and commissions received by the Initial Purchasers, bear to the total price to investors of the Units. The relative fault of the Issuers, on the one hand, and the Initial Purchasers, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers, on the one hand, or the Initial 21 Purchasers, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Issuers and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation even if the Initial Purchasers were treated as one entity for such purpose or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any matter, including any action, that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 8, the Initial Purchasers shall not be required to contribute any amount in excess of the amount by which the total discounts and commissions received by such Initial Purchasers exceeds the amount of any damages which the Initial Purchasers have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Initial Purchasers' obligations to contribute pursuant to this Section 8(d) are several in proportion to the respective number of Units purchased by each of the Initial Purchasers hereunder and not joint. (e) The remedies provided for in this Section 8 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. 9. Conditions of Initial Purchasers' Obligations. The obligations of the Initial Purchasers to purchase the Units under this Agreement are subject to the satisfaction of each of the following conditions: (a) All the representations and warranties of the Issuers contained in this Agreement shall be true and correct in all material respects on the Closing Date with the same force and effect as if made on and as of the Closing Date. (b) On or after the date hereof, (i) there shall not have occurred any downgrading, suspension or withdrawal of, nor shall any notice have been given of any potential or intended downgrading, suspension or withdrawal of, or of any review (or of any potential or intended review) for a possible change that does not indicate the direction of the possible change in, any rating of the Issuers or any securities of the Issuers (including, without limitation, the placing of any of the foregoing ratings on credit watch with negative or developing implications or under review with an uncertain direction) by any "nationally recognized statistical rating organization" as such term is defined for purposes of Rule 436(g)(2) under the Act, (ii) there shall not have occurred any change, nor shall any notice have been given of any potential or intended change, in the outlook for any rating of the Issuers or any securities of the Issuers by 22 any such rating organization and (iii) no such rating organization shall have given notice that it has assigned (or is considering assigning) a lower rating to the Notes than that on which the Notes were marketed. (c) Since the respective dates as of which information is given in the Offering Memorandum other than as set forth in the Offering Memorandum (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (i) there shall not have occurred any change or any development involving a prospective change in the condition, financial or otherwise, or the earnings, business, management or operations of the Issuers and their subsidiaries, taken as a whole, (ii) there shall not have been any change or any development involving a prospective change in the capital stock or in the long-term debt of the Issuers or any of their subsidiaries and (iii) neither the Issuers nor any of their subsidiaries shall have incurred any liability or obligation, direct or contingent, the effect of which, in any such case described in clause 9(c)(i), 9(c)(ii) or 9(c)(iii), in the good faith judgment of the Initial Purchasers, is material and adverse and, in the good faith judgment of the Initial Purchasers, makes it impracticable to market the Units on the terms and in the manner contemplated in the Offering Memorandum. (d) The Initial Purchasers shall have received on the Closing Date a certificate dated the Closing Date, signed by the President and the Chief Financial Officer of each of the Issuers, confirming the matters set forth in Sections 6(ee), 9(a) and 9(b) and stating that each of the Issuers has complied with all the agreements and satisfied all of the conditions herein contained and required to be complied with or satisfied on or prior to the Closing Date. (e) The Initial Purchasers shall have received on the Closing Date an opinion (satisfactory to the Initial Purchasers and counsel for the Initial Purchasers), dated the Closing Date, of Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel for the Issuers, to the effect that: (i) each Issuer has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to carry on its business as described in the Offering Memorandum and to own, lease and operate its properties; (ii) each Issuer is duly qualified and is in good standing as a foreign corporation authorized to do business in each jurisdiction listed on a schedule to the opinion; (iii) all the outstanding shares of capital stock of each Issuer have been duly authorized and validly issued and are fully paid, non-assessable and, except as otherwise described in the Offering Memorandum, under the each Issuer's certificate of incorporation, the Delaware General Corporate Law, and the Material Agreements referred to below, not subject to any preemptive or similar rights; 23 (iv) the Series A Notes have been duly authorized and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, will be entitled to the benefits of the Indenture and will be valid and binding obligations of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting the enforcement of creditors' rights in general and to general principles of equity (regardless whether considered in a proceeding at law or in equity) (collectively, the "Exceptions"); (v) the Warrants have been duly authorized by Holdings and, on the Closing Date, when countersigned by the Warrant Agent and issued and delivered in accordance with the terms of this Agreement and the Warrant Agreement, the Warrants will be the valid and binding obligations of Holdings, enforceable against Holdings in accordance with their terms, subject to the Exceptions; (vi) the Units have been duly authorized by the Issuers and, on the Closing Date, when countersigned by the Unit Agent and issued and delivered in accordance with the terms of this Agreement and the Unit Agreement, the Units will be the valid and binding obligations of the Issuers, enforceable against the Issuers in accordance with their terms, subject to the Exceptions; (vii) the Warrant Shares have been duly and validly authorized for issuance by Holdings, and when issued and delivered upon payment of the exercise price pursuant to the terms of the Warrants and the Warrant Agreement will be fully paid and nonassessable and, except as otherwise described in the Offering Memorandum, under Holding's certificate of incorporation, the Delaware General Corporate Law, and the Material Agreements referred to below, will not be subject to any preemptive or similar statutory rights; (viii) the Indenture has been duly authorized, executed and delivered by the Company and is a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, subject to the Exceptions; (ix) this Agreement has been duly authorized, executed and delivered by the Issuers; (x) The Debt Registration Rights Agreement has been duly authorized, executed and delivered by the Company and is a valid and 24 binding agreement of the Company, enforceable against the Company in accordance with its terms, subject to the Exceptions and except as (x) rights to indemnification and contribution thereunder may be limited by federal and state securities laws and public policy considerations and (y) enforcement of any provision requiring the payment of liquidated damages may be limited by public policy considerations; (xi) the Warrant Agreement has been duly and validly authorized, executed and delivered by Holdings and is a valid and binding agreement of Holdings, enforceable against Holdings in accordance with its terms, subject to the Exceptions; (xii) the Equity Registration Rights Agreement has been duly authorized, executed and delivered by Holdings and is a valid and binding agreement of Holdings, enforceable against Holdings in accordance with its terms, subject to the Exceptions and except as rights to indemnification and contribution thereunder may be limited by federal and state securities laws and public policy considerations; (xiii) the Unit Agreement has been duly and validly authorized, executed and delivered by the Issuers and is a valid and binding agreement of the Issuers, enforceable against the Issuers in accordance with its terms, subject to the Exceptions; (xiv) the Series B Senior Notes have been duly authorized; (xv) the statements under the captions "Description of Notes," "Description of Warrants," and "Description of Units" in the Offering Memorandum, insofar as such statements constitute a summary of the terms of the Series A Notes, the Warrants and the Units fairly present in all material respects the terms of the Series A Notes, the Warrants and the Units; (xvi) the statements under the caption "Certain Federal Income Tax Considerations" to the extent they describe statutes, rules or regulations or legal conclusions with respect to their application, have been reviewed by us and are correct in all material respects; (xvii) the execution, delivery and performance of this Agreement and the other Operative Documents by the Issuers, the compliance by the Issuers with all provisions hereof and thereof and the consummation of the transactions contemplated hereby and thereby will not (i) require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except such as have been obtained and such as may be required under the securities or Blue Sky 25 laws of the various states and, with respect to the Exchange Offer and the transactions contemplated by the Registration Rights Agreements, under the Act and the TIA), (ii) violate or constitute a breach of any of the terms or provisions of, or a default under, the charter or by-laws of the Issuers or any of the agreements set forth in officer's certificates of the Issuers accompanying the opinion (the "Material Agreements"), (iii) to such counsel`s knowledge, violate or conflict with any applicable law or any rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over the Issuers or their property, or (iv) result in the imposition or creation of (or the obligation to create or impose) a Lien under the Material Agreements. (xviii) neither Issuer is and, after giving effect to the offering and sale of the Securities and the application of the net proceeds thereof as described in the Offering Memorandum, will be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended; (xix) to such counsel's knowledge based solely on a review of the minute books of the Issuers, the Material Agreements and officer's certificates of the Issuers accompanying the opinion, there are no contracts, agreements or understandings between the Issuers and any person granting such person the right to require the Issuers to file a registration statement under the Act with respect to any securities of the Issuers or to require the Issuers to include such securities with the Securities registered pursuant to any Registration Statement, except as disclosed in the Offering Memorandum; (xx) the Indenture complies as to form in all material respects with the requirements of the TIA, and the rules and regulations of the Commission applicable to an indenture which is qualified thereunder. It is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers in the manner contemplated by this Agreement or in connection with the Exempt Resales to qualify the Indenture under the TIA assuming (i) each person to whom the Initial Purchasers initially offer or sell the Securities in accordance with Section 3 of this Agreement and the Offering Memorandum is a QIB or a Regulation S Purchaser, (ii) the accuracy of, and compliance with, the Initial Purchaser's representations, warranties and agreements contained in Section 7 of this Agreement, (iii) the accuracy of the representations and warranties of the Issuers set forth in Sections 6(gg), (hh), (kk), (ll), (mm), (nn) and (oo) of this Agreement. (xxi) no registration under the Act of the Securities is required for the sale of the Securities to the Initial Purchasers as contemplated by 26 this Agreement or for the Exempt Resales assuming (i) each person to whom the Initial Purchasers initially offer or sell the Securities in accordance with Section 3 of this Agreement and the Offering Memorandum is a QIB or a Regulation S Purchaser, (ii) the accuracy of, and compliance with, the Initial Purchaser's representations, warranties and agreements contained in Section 7 of this Agreement, (iii) the accuracy of the representations and warranties of the Issuers set forth in Sections 6(gg), (hh), (kk), (ll), (mm), (nn) and (oo) of this Agreement. Such counsel shall also state that, to its knowledge based solely on the statements set forth in officer's certificates of the Issuers accompanying its opinion and a review of such firm's own litigation docket and other than as set forth in the Offering Memorandum, there is no action or proceeding, governmental or otherwise, pending to which the Issuers or G & G Retail of Puerto Rico, Inc. ("G&G Puerto Rico") is a party or to which the properties or assets of the Issuers or G&G Puerto Rico are subject, that if determined adversely to the Issuers or G&G Puerto Rico, would have a Material Adverse Effect. Such counsel shall also state that, while it does not opine upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Offering Memorandum (other than as set forth in such counsel's opinions in paragraphs (xv) and (xvi) above) and such counsel has not made any independent check or verification thereof, it has participated in conferences with officers and other representatives of the Issuers and with the Initial Purchasers and their representatives in connection with the preparation of the Offering Memorandum, and based upon these conferences and such counsel's review of the documents referenced above (such counsel's determination of materiality being based in part upon the opinions, representations and statements of the officers and other representatives of the Issuers), no facts have come to such counsel's attention which lead it to believe that the Offering Memorandum as of its date or as of the Closing Date contained or contains any untrue statement of a material fact or omitted or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel expresses no opinion or belief on the financial data, statements and related notes, the financial statement schedules and other financial, accounting and statistical data and the teen market data included in the Offering Memorandum or omitted therefrom). The opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP described in Section 9(e) above shall be rendered to the Initial Purchasers at the request of the Issuers and shall so state therein. (f) The Initial Purchasers shall have received on the Closing Date an opinion, dated the Closing Date, of Latham & Watkins, counsel for the Initial Purchasers, in form and substance reasonably satisfactory to the Initial Purchasers. (g) The Initial Purchasers shall have received, at the time this Agreement is executed and at the Closing Date, letters dated the date hereof or the Closing Date, 27 as the case may be, in form and substance satisfactory to the Initial Purchasers from Ernst & Young LLP, independent auditors, containing the information and statements of the type ordinarily included in accountants' "comfort letters" to the Initial Purchasers with respect to the financial statements and certain financial information contained in the Offering Memorandum. (h) The Units shall have been approved by the NASD for trading and duly listed in PORTAL. (i) The Initial Purchasers shall have received a counterpart, conformed as executed, of the Indenture which shall have been entered into by the Company and the Trustee. (j) The Company shall have executed the Debt Registration Rights Agreement and the Initial Purchasers shall have received an original copy thereof, duly executed by the Company. (i) Holdings shall have executed the Warrant Agreement and the Warrant Registration Rights Agreement and the Initial Purchaser shall have received counterparts, conformed as executed thereof. (k) Holdings shall have executed the Equity Registration Rights Agreement and the Initial Purchasers shall have received an original copy thereof, duly executed by Holdings. (l) The Company shall have issued notice of prepayment to the Administrative Agent of the Senior Bridge Notes, at least 5 business days prior to the Closing Date. (m) The Initial Purchasers shall not have notified the Company on or before 4:50 p.m. New York time on May 10, 1999 that the Initial Purchasers, the Company and SunAmerica Investments, Inc. have not agreed to the terms of the Warrant Agreement and the Equity Registration Rights Agreement and SunAmerica Investments, Inc. does not remain committed to purchase its full $16 million of Units; (n) The Initial Purchasers shall not have notified the Company on or before 3:00 p.m. New York time on May 10, 1999 that any person designated as a purchaser of a Unit pursuant to Exempt Resales has not received the Offering Memorandum; and (o) The Issuers shall not have failed at or prior to the Closing Date to perform or comply with any of the agreements herein contained and required to be performed or complied with by the Issuers, as the case may be, at or prior to the Closing Date. 10. Effectiveness of Agreement and Termination. This Agreement shall become effective upon the execution and delivery of this Agreement by the parties hereto. 28 This Agreement may be terminated at any time on or prior to the Closing Date by the Initial Purchasers by written notice to the Issuers if any of the following has occurred: (i) any outbreak or escalation of hostilities or other national or international calamity or crisis or change in economic conditions or in the financial markets of the United States or elsewhere that, in the Initial Purchasers' judgment, is material and adverse and, in the Initial Purchasers' judgment, makes it impracticable to market the Securities on the terms and in the manner contemplated in the Offering Memorandum, (ii) the suspension or material limitation of trading in securities or other instruments on the New York Stock Exchange, the American Stock Exchange, the Chicago Board of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade or the Nasdaq National Market or limitation on prices for securities or other instruments on any such exchange or the Nasdaq National Market, (iii) the suspension of trading of any securities of the Issuers on any exchange or in the over-the-counter market, (iv) the enactment, publication, decree or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority which in the opinion of the Initial Purchasers materially and adversely affects, or will materially and adversely affect, the business, prospects, financial condition or results of operations of the Issuers and their subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by either federal or New York State authorities or (vi) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs which in the opinion of the Initial Purchasers has a material adverse effect on the financial markets in the United States. If on the Closing Date any one or more of the Initial Purchasers shall fail or refuse to purchase the Units which it or they have agreed to purchase hereunder on such date and the aggregate number of the Units which such defaulting Initial Purchaser or Initial Purchasers, as the case may be, agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Units to be purchased on such date by all Initial Purchasers, each non-defaulting Initial Purchaser shall be obligated severally, in the proportion which the number of the Units set forth opposite its name in Schedule A bears to the aggregate number of the Units which all the non-defaulting Initial Purchasers, as the case may be, have agreed to purchase, or in such other proportion as the Initial Purchasers may specify, to purchase the Units which such defaulting Initial Purchaser or Initial Purchasers, as the case may be, agreed but failed or refused to purchase on such date; provided that in no event shall the aggregate number of the Units which any Initial Purchaser has agreed to purchase pursuant to Section 2 hereof be increased pursuant to this Section 10 by an amount in excess of one-ninth of such amount of such Units without the written consent of such Initial Purchaser. If on the Closing Date any Initial Purchaser or Initial Purchasers shall fail or refuse to purchase the Units and the aggregate number of Units with respect to which such default occurs is more than one-tenth of the aggregate number of Units to be purchased by all Initial Purchasers and arrangements satisfactory to the Initial Purchasers and the Issuers for purchase of such the Units are not made within 48 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Initial Purchaser and the Issuers. In any such case which does not result in termination of this Agreement, either the Initial Purchasers or the Issuers shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Offering Memorandum or any other documents or arrangements may be 29 effected. Any action taken under this paragraph shall not relieve any defaulting Initial Purchaser from liability in respect of any default of any such Initial Purchaser under this Agreement. 11. Miscellaneous. Notices given pursuant to any provision of this Agreement shall be in writing and addressed as follows: (i) if to the Issuers, to G+G Retail, Inc., 520 Eighth Avenue, New York, NY 10018 Attention: Chief Financial Officer and (ii) if to the Initial Purchasers, U.S. Bancorp Libra, a division of U.S. Bancorp Investments, Inc., 11766 Wilshire Blvd, Suite 870, Los Angeles, California 90025 Attention: General Counsel, or in any case to such other address as the person to be notified may have requested in writing. The respective indemnities, contribution agreements, representations, warranties and other statements of the Issuers and the Initial Purchasers set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the Units, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of the Initial Purchasers, the officers or directors of the Initial Purchasers, any person controlling the Initial Purchasers, the Issuers, the officers or directors of the Issuers, or any person controlling the Issuers, (ii) acceptance of the Units and payment for them hereunder and (iii) termination of this Agreement. If for any reason the Units are not delivered by or on behalf of the Issuers as provided herein (other than as a result of any termination of this Agreement pursuant to Section 10 or a breach or default by the Initial Purchasers under this Agreement), the Issuers agree to reimburse the Initial Purchasers for all out-of-pocket expenses (including the reasonable fees and disbursements of counsel) incurred by them. Notwithstanding any termination of this Agreement, the Issuers shall be liable for all expenses which they have agreed to pay pursuant to Section 5(i) hereof. The Issuers also agree to reimburse the Initial Purchasers and their officers, directors and each person, if any, who controls such Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act for any and all fees and expenses (including without limitation the reasonable fees and expenses of counsel) incurred by them in connection with enforcing their rights under this Agreement (including without limitation their rights under Section 8). The Initial Purchasers agree to reimburse the Issuers and their officers, directors and each person, if any, who controls the Issuers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act for any and all fees and expenses (including without limitation the reasonable fees and expenses of counsel) incurred by them in connection with enforcing their rights under this Agreement (including without limitation their rights under Section 8). Except as otherwise provided, this Agreement has been and is made solely for the benefit of and shall be binding upon the Issuers, the Initial Purchasers, the Initial Purchasers' directors and officers, any controlling persons referred to herein, the directors and officers of the Issuers and each of their successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include a purchaser of any of the Securities from the Initial Purchasers merely because of such purchase. 30 This Agreement shall be governed and construed in accordance with the laws of the State of New York without regard to the conflicts of laws provisions thereof. This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. 31 Please confirm that the foregoing correctly sets forth the agreement among the Issuers and the Initial Purchasers. Very truly yours, G+G RETAIL, INC. By: /s/ Scott Galin ---------------------------- Name: Scott Galin Title: President and Chief Operating Officer G&G RETAIL HOLDINGS, INC. By: /s/ Michael Kaplan ---------------------------- Name: Michael Kaplan Title: Vice President and Chief Financial Officer U.S. BANCORP INVESTMENTS, INC. CIBC WORLD MARKETS CORP. By: /s/ Jean Smith ---------------------------- Name: Jean Smith Title: Managing Director 32 SCHEDULE A Number Initial Purchasers of Units ------------------ -------- U.S. Bancorp Investments, Inc............. 64,200 CIBC World Markets Corp................... 42,800 ------- Total 107,000 33 SCHEDULE B Subsidiaries G+G Retail, Inc. G & G Retail of Puerto Rico, Inc. 34 EXHIBIT A [FORM OF DEBT REGISTRATION RIGHTS AGREEMENT] 35 EX-2.01 3 ASSET PURCHASE AGREEMENT 7/6/98 EXHIBIT 2.01 ASSET PURCHASE AGREEMENT AMONG G & G SHOPS, INC., THE SUBSIDIARIES OF G & G SHOPS, INC. NAMED HEREIN, THE SUBSIDIARIES OF PETRIE RETAIL, INC. NAMED HEREIN, PSL, INC. AND G+G RETAIL, INC. Dated as of July 6, 1998 TABLE OF CONTENTS
Page No. ------- ARTICLE I. DEFINITIONS .............................................. 1 Section 1.1. Definitions ...................................... 1 ARTICLE II. SALE AND PURCHASE OF PURCHASED ASSETS AND ASSUMPTION OF ASSUMED LIABILITIES .................................. 10 Section 2.1. Purchase and Sale of Purchased Assets ......... 10 Section 2.2. Assumption of Liabilities ..................... 10 Section 2.3. Purchase Price ................................ 11 Section 2.4. Liability Escrow Account; Reimbursements ...... 11 Section 2.5. [INTENTIONALLY OMITTED] ....................... 11 Section 2.6. Allocation of Purchase Price .................. 11 Section 2.7. Sale at Closing Date .......................... 12 Section 2.8. [INTENTIONALLY OMITTED] ....................... 12 Section 2.9. Discharge of Liens ............................ 12 Section 2.10. Casualty and Condemnation ..................... 12 Section 2.11. Bond Cancellation ............................. 12 ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SELLERS .......... 13 Section 3.1. Authority of Sellers .......................... 13 Section 3.2. No Conflict or Violation ...................... 13 Section 3.3. Consents and Approvals ........................ 14 Section 3.4. Compliance with Law ........................... 14 Section 3.5. [INTENTIONALLY OMITTED] ....................... 14 Section 3.6. Sufficiency and Title to the Purchased Assets . 14 Section 3.7. [INTENTIONALLY OMITTED] ....................... 15 Section 3.8. Assigned Contracts ............................ 15 Section 3.9. Intellectual Property ......................... 15 Section 3.10. Labor Relations ............................... 15 Section 3.11. Employee Benefits ............................. 16 Section 3.12. [INTENTIONALLY OMITTED] ....................... 17 Section 3.13. Litigation .................................... 17 Section 3.14. [INTENTIONALLY OMITTED]........................ Section 3.15. Tax Matters ................................... 18 Section 3.16. Interim Operations ............................ 18 Section 3.17. Brokers ....................................... 18 Section 3.18. Disclaimer of Additional Representations and Warranties; Schedules ................... 18 Section 3.19. Limitation .................................... 19 Section 3.20. Survival ...................................... 19 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER ............. 19 Section 4.1. Authority of Purchaser ........................ 19 Section 4.2. No Conflict or Violation ...................... 20 Section 4.3. Consents and Approvals ........................ 20 Section 4.4. Availability of Funds ......................... 20 Section 4.5. Litigation .................................... 20 Section 4.6. Brokers ....................................... 21
i Section 4.7. Adequate Assurances Regarding Executory Contracts .... 21 Section 4.8. Hart-Scott-Rodino .................................... 21 ARTICLE V. CERTAIN COVENANTS OF THE SELLERS ................................ 21 Section 5.1. Conduct of Business Before the Closing Date .......... 21 Section 5.2. Consents and Approvals ............................... 23 Section 5.3. Information and Access ............................... 23 Section 5.4. Further Assurances ................................... 24 Section 5.5. Reasonable Efforts ................................... 24 Section 5.6. Assignment of Contracts .............................. 24 Section 5.7. Cure of Defaults ..................................... 24 Section 5.8. [INTENTIONALLY OMITTED] .............................. 24 Section 5.9. Accounts Receivable .................................. 24 Section 5.10. Name Change Filings .................................. 24 Section 5.11. Rejection of Contracts ............................... 25 Section 5.12. Transition Arrangements .............................. 25 ARTICLE VI. CERTAIN COVENANTS OF PURCHASER ................................. 25 Section 6.1. [INTENTIONALLY OMITTED] .............................. 25 Section 6.2. Reasonable Efforts ................................... 25 Section 6.3. Consents and Approvals ............................... 25 Section 6.4. Adequate Assurances Regarding Executory Contracts .......................................... 25 Section 6.5. Performance Under Assigned Contracts ................. 26 Section 6.6. Further Assurances ................................... 26 ARTICLE VII. CONDITIONS TO THE SELLERS' OBLIGATIONS ........................ 26 Section 7.1. Representations and Warranties ....................... 26 Section 7.2. Compliance with Agreement ............................ 26 Section 7.3. Financing ............................................ 26 Section 7.4. Consents ............................................. 27 Section 7.5. Corporate Documents .................................. 27 Section 7.6. Entry of the Order ................................... 27 Section 7.7. Galin Releases ....................................... 27 ARTICLE VIII. CONDITIONS TO PURCHASER'S OBLIGATIONS ........................ 27 Section 8.1. Representations and Warranties ....................... 27 Section 8.2. Compliance with Agreement ............................ 28 Section 8.3. Agreements with Galins ............................... 28 Section 8.4. Consents ............................................. 28 Section 8.5. Corporate Documents .................................. 28 Section 8.6. Entry of the Order ................................... 28 Section 8.7. Entry of the Bidding Protections Order ............... 28 Section 8.8. Financing ............................................ 28 Section 8.9. Material Adverse Effect .............................. 29 Section 8.10. Revolving Credit and Guaranty Agreement .............. 29 Section 8.11. Release of the Galins ................................ 29 ARTICLE IX. THE CLOSING; TERMINATION ....................................... 29 Section 9.1. The Closing .......................................... 29
ii Section 9.2. Bidding Protections .................................. 29 Section 9.3. Termination .......................................... 32 Section 9.4. Effects of Termination ............................... 33 ARTICLE X. TAXES ........................................................... 34 Section 10.1. Taxes Related to Purchase of Assets .................. 34 Section 10.2. Cooperation on Tax Matters ........................... 34 ARTICLE XI. EMPLOYEES AND EMPLOYEE BENEFIT PLANS ........................... 35 Section 11.1. Employment ........................................... 35 Section 11.2. Collective Bargaining Agreements ..................... 36 Section 11.3. Employee Welfare Benefit Plans ....................... 36 Section 11.4. COBRA ................................................ 37 Section 11.5. G & G Profit Sharing Plan ............................ 38 Section 11.6. 401(k) Savings Plan .................................. 38 Section 11.7. Puerto Rico Savings Plan ............................. 39 Section 11.8. Vacation and Sick Leave .............................. 40 Section 11.9. Severance Benefits ................................... 41 ARTICLE XII. INDEMNIFICATION ............................................... 41 Section 12.1. Indemnification by the Purchaser ..................... 41 Section 12.2. Indemnification by the Sellers ....................... 42 Section 12.3. Notice of Claim; Right to Participate In and Defend Third Party Claim........................ 43 Section 12.4. Right to Indemnification Not Affected by Knowledge .......................................... 44 ARTICLE XIII. MISCELLANEOUS PROVISIONS ..................................... 44 Section 13.1. Representations and Warranties ....................... 44 Section 13.2. Notices .............................................. 45 Section 13.3. Amendments ........................................... 46 Section 13.4. Assignment ........................................... 46 Section 13.5. Announcements ........................................ 46 Section 13.6. Expenses ............................................. 47 Section 13.7. Entire Agreement ..................................... 47 Section 13.8. Descriptive Headings ................................. 47 Section 13.9. Counterparts ......................................... 47 Section 13.10. Governing Law; Jurisdiction .......................... 47 Section 13.11. Construction ......................................... 47 Section 13.12. Substantive Consolidation ............................ 49 Section 13.13. Severability ......................................... 49
iii SCHEDULE NUMBER SCHEDULE NAME 1.1 G&G Subsidiaries 1.2 PRI Subsidiaries 1.3 Leases 1.3(a) Petrie Seller Leases 1.4 Other Contracts 1.6 Seller Balance Sheet and Adjusted Balance Sheet 2.6 Allocation of Purchase Price 2.11 Bonds 3.3 Consents and Approvals 3.4 Compliance with Law 3.5 Financial Statements 3.8 Assigned Contracts 3.9 Intellectual Property 3.10 Collective Bargaining Agreements 3.11(a) Employee Benefit Plans 3.11(c) Exceptions to Section 401 Qualification 3.11(d) Exceptions to Compliance 3.11(e) Other Compensation Obligations 3.11(h) Plan Claims 3.13 Litigation 3.14 Hazardous Materials 3.16 Interim Operations 11.9 Change in Control Plan Employees EXHIBIT EXHIBIT NAME A Assignment and Assumption Agreement B Bill of Sale and Assumption Agreement C Order D Bidding Protections Order iv ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into as of July 6, 1998 among G & G Shops, Inc., a Delaware corporation ("G&G") and a debtor and debtor-in-possession in a case pending under chapter 11 of the Bankruptcy Code, each of the Subsidiaries of G&G specified on Schedule 1.1 (each a "G&G Seller" and collectively the "G&G Sellers"), each of which is a debtor and debtor-in-possession in a case pending under chapter 11 of the Bankruptcy Code, each of the Subsidiaries of Petrie Retail, Inc., a Delaware corporation ("PRI"), specified on Schedule 1.2 (each a "Petrie Seller" and collectively the "Petrie Sellers"), each of which is a debtor and debtor-in-possession in a case pending under chapter 11 of the Bankruptcy Code, PSL, Inc., a Delaware corporation and a debtor and debtor-in-possession in a case pending under chapter 11 of the Bankruptcy Code ("PSL" and, together with the Petrie Sellers, the "Other Sellers") (G&G, together with the G&G Sellers and the Other Sellers, each a "Seller" and collectively the "Sellers"), and G+G Retail, Inc., a Delaware corporation ("Purchaser"). PRELIMINARY STATEMENT WHEREAS, the Sellers are engaged primarily in the retail sale of junior women's apparel under the trade names "G&G" and "Rave" (the "Business"); WHEREAS, on October 12, 1995, the Sellers filed voluntary petitions with the Bankruptcy Court initiating cases under chapter 11 of the Bankruptcy Code and have continued in the possession of their assets and in the management of their businesses pursuant to sections 1107 and 1108 of the Bankruptcy Code; WHEREAS, Purchaser desires to purchase from the Sellers, and the Sellers desire to sell to Purchaser, substantially all of the assets of the Business, and Purchaser will assume certain liabilities, all on the terms and subject to the conditions set forth herein; and NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I. DEFINITIONS Section 1.1. Definitions. Unless otherwise defined herein, the terms defined in the introductory paragraph and the Recitals to this Agreement shall have the respective meanings specified therein, and the following terms shall have the meanings specified below: "Adjusted Balance Sheet" means the adjusted balance sheet of G&G as of the Balance Sheet Date, as set forth under Column 3 of Schedule 1.6. "Affiliate" means "affiliate" as defined in Rule 405 promulgated under the Securities Act of 1933, as amended. "Agreement" has the meaning set forth in the preamble and shall include all Schedules and Exhibits hereto. "Ancillary Agreements" means, collectively, the Assignment and Assumption Agreement and the Bill of Sale and Assumption Agreement. "Apportionment Date" has the meaning set forth in Section 2.9. "Assignment and Assumption Agreement" means the Assignment and Assumption Agreement to be executed at Closing by Purchaser and the Sellers in substantially the form attached hereto as Exhibit A. "Assigned Contracts" means the Leases and the Other Contracts. "Assumed Liabilities" has the meaning set forth in Section 2.2. "Balance Sheet Date" means April 4, 1998. "Bankruptcy Code" means The Bankruptcy Reform Act of 1978, as heretofore and hereafter amended, and codified as 11 U.S.C. Section 101, et seq. "Bankruptcy Court" means the United States Bankruptcy Court for the Southern District of New York, or any other court, having jurisdiction over the Cases from time to time. "Bill of Sale and Assumption Agreement" means the Bill of Sale and Assumption Agreement to be executed at Closing by Purchasers and the Sellers in substantially the form attached hereto as Exhibit B. "Business" has the meaning set forth in the Recitals hereto. "Business Day" means a day, other than a Saturday or a Sunday, on which the New York Stock Exchange is open for business in The City of New York. "Business Employees" means employees of the Sellers who, on the applicable date, perform services primarily for the Business. 2 "Cases" means the Chapter 11 cases of each of the Sellers pending in the Bankruptcy Court and being jointly administered for procedural purposes as In re Petrie Retail, Inc., et al., Case No. 95 B 44528 (AJG). "Closing" has the meaning set forth in Section 9.1. "Closing Date" has the meaning set forth in Section 9.1. "Code" means the Internal Revenue Code of 1986, as heretofore or hereafter amended. "Damages" means losses, amounts paid in settlement, Taxes, claims, damages, Liabilities, obligations, judgments, settlements and reasonable out-of-pocket costs (including costs of investigation or enforcement) and reasonable expenses and attorneys' fees; provided, however, that Damages shall not include (i) any incidental or consequential damages or (ii) any special or punitive damages. "DIP Lenders" means The Chase Manhattan Bank and the other financial institutions from time to time party to the Revolving Credit and Guaranty Agreement. "Equipment and Fixtures" means, to the extent used in the Business, (i) building operating systems and equipment, other systems and equipment (including, all point of sale, ticketing, sensormatic, phone and security systems and equipment), furniture, furnishings, fixtures, trade fixtures and improvements and selling and other supplies, including items leased by the Sellers (but only to the extent assignable), and (ii) to the extent assignable, any rights of the Sellers to the warranties, licenses and other similar rights with respect thereto. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Excluded Assets" means (a) any cash or cash equivalents of the Sellers (including for this purpose all (i) collected funds received in bank accounts of the Sellers and (ii) amounts in the process of collection charged on credit cards, through 11:59 p.m., Eastern Daylight Time, on the Closing Date) other than cash held in the Stores in an aggregate amount not to exceed $136,300, plus $200 per new store opened from the date of this Agreement through the Closing Date, (b) all properties and assets of the Petrie Sellers other than the Leases set forth on Schedule 1.3(a), (c) all properties and assets of PSL other than the service marks and trademarks set forth on Schedule 3.9, (d) any capital stock or equity interest held by any Seller in any other Seller or any other Person, (e) corporate seals, 3 minute books, charter documents, corporate stock record books, original tax and financial records and such other books and records as pertain to the organization, existence or share capitalization of any of the Sellers, (f) any rights of the Sellers or any of their Affiliates to any Tax refund or Tax benefits or credits (including loss-carryforwards and credits) incurred or accrued, (g) any assets of any Plan maintained by any Seller or any of its Affiliates, unless such Plan is required to be assumed pursuant to Article XI or to the extent that any assets relating to any Plan are transferred to any plan maintained by Purchaser pursuant to Article XI, (h) any property, casualty, workers' compensation or other insurance policy or related insurance services contract relating to any Seller or any of its Affiliates or any of such Seller's property and any rights of any Seller or any of its Affiliates under such insurance policy or contract, other than rights under such insurance policies or contracts with respect to any Assumed Liability or any casualty affecting any of the Purchased Assets if and to the extent purchased, (i) any rights of the Sellers under this Agreement or under any other agreement between any Seller and Purchaser, (j) any assets, or other rights of any Seller which do not relate to the Business, (k) intercompany claims of Sellers, (l) any business of Sellers and/or their respective Affiliates other than the Business, (m) any asset of any Seller that would constitute Purchased Assets (if owned by such Seller on the Closing Date) that is conveyed or otherwise disposed of during the period from the date hereof until the Closing Date (1) in the ordinary course of the Business and not in violation of the terms of this Agreement or (2) as otherwise expressly permitted by the terms of this Agreement, (n) the Non-Assignable Leases, (o) any books, records and information related solely to any of the Excluded Assets or Excluded Liabilities; provided, however, that the Sellers shall deliver to the Purchaser and the Purchaser shall be entitled to retain copies of such books, records and information to the extent they relate to the Purchased Assets or Assumed Liabilities or are otherwise required in the operation or administration of the Business and (p) without limiting any of the foregoing, any of the following, to the extent that they relate solely to any Excluded Assets or Excluded Liabilities: claims, refunds, causes of action, rights of recovery, rights of setoff and rights of recoupment of the Sellers as of the Closing Date. "Excluded Liabilities" has the meaning set forth in Section 2.2. "Executory Contracts" means all Assigned Contracts entered into by or assigned to a Seller before October 12, 1995 and which are executory or unexpired as of the Closing Date. 4 "GAAP" means United States generally accepted accounting principles, as in effect from time to time. "G&G Superior Proposal" has the meaning set forth in Section 9.2. "Governmental Agency" means (a) any international, foreign, federal, state, county, local or municipal governmental or administrative agency or political subdivision thereof, (b) any governmental authority, board, bureau, commission, department or instrumentality, (c) any court or administrative tribunal, (d) any non-governmental agency, tribunal or entity that is vested by a governmental agency with applicable jurisdiction or (e) any arbitration tribunal or other non-governmental authority with applicable jurisdiction. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Incentive Agreement" means the Incentive Agreement approved by order of the Bankruptcy Court by and among Jay and Scott Galin, PRI and G&G. "Intellectual Property" means trademarks, service marks, brand names, logos, trade names, trade dress, label designs, copyrights, customer lists, art work, patents, developments, research data, test procedures, marketing plans, processes, confidential information, inventions (whether or not patentable), discoveries, business methods, trade secrets, registrations, goodwill and rights in computer software, technology and know-how related to the Business; and all rights granted or retained in licenses under any of the foregoing respecting the Business; and all other intellectual and intangible property rights related to the Business (including applications for, and extensions and reissuances of, any of the foregoing and the rights therein) and all claims for past infringements. "IRS" means the Internal Revenue Service of the United States Department of the Treasury. "Knowledge" as applied to any party shall mean the actual knowledge of such party. "Leased Property" means all of the Sellers' right, title and interest, as tenant or sub-tenant, under the real property Leases set forth on Schedules 1.3 and 1.3(a). "Leases" means those real property leases and equipment leases more particularly described on Schedules 1.3, 1.3(a) and 1.4, except (x) those designated by Purchaser pursuant to Section 2.1(b) or 5.11 and (y) the Non-Assignable Leases. 5 "Liability" means any liability or obligation (whether known or unknown, asserted or unasserted, fixed or contingent, accrued or unaccrued, liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Liability Escrow Account" means an account established and maintained jointly by G&G and Purchaser, in a bank acceptable to such parties, and administered in accordance with Section 2.4 hereof. "Lien" means any mortgage, pledge, security interest, charge or other encumbrance. "Material Adverse Effect" means a material adverse effect with respect to the results of operations, properties, operations or financial condition of the Business, taken as a whole. "Non-Assignable Leases" shall mean those real property leases more particularly described on Schedules 1.3, 1.3(a) and 1.4, the assignment of which (i) Purchaser reasonably determines requires the consent of the landlord thereunder (provided, Purchaser so informs the Sellers within two Business Days prior to the final sale hearing) or (ii) if the Sellers object to the determination of Purchaser in the foregoing clause, the Bankruptcy Court determines requires the consent of the landlord thereunder, which consent in either event has not been obtained as of the Closing Date. "Non-Management Seller Group" means Edwin Holman, Gerald Chaney and Michael McLearn, provided that none of such individuals shall have any personal liability arising out or resulting from any references herein to the Non-Management Seller Group. "Official Committee" has the meaning set forth in the preamble to Article VII. "Order" means an Order of the Bankruptcy Court, in the form attached hereto as Exhibit C (other than immaterial changes made after the date hereof and agreed to by the Sellers and Purchaser, which agreement (to such immaterial changes) shall not be unreasonably withheld by either party), authorizing, among other things, the sale of the Purchased Assets to the Purchaser and the assignment of the Assigned Contracts to the Purchaser, in accordance with the terms and conditions of this Agreement and pursuant to, among others, sections 363 and 365 of the Bankruptcy Code. "Other Contracts" means all agreements which are listed on Schedule 1.4. 6 "Permit" means any permit, approval, authorization, license, variance or permission required by a Governmental Agency under any applicable law. "Permitted Liens" means, with respect to Leases, any Lien on the underlying property which is not prohibited under the applicable Lease. "Person" means any individual, partnership, corporation, trust, association, limited liability company, Governmental Agency or other entity. "Plan" or "Plans" has the meaning set forth in Section 3.11(a). "Profit Sharing Plan" has the meaning set forth in Section 11.5. "Purchase Price" has the meaning set forth in Section 2.3. "Purchased Assets" means all of the Sellers' right, title and interest in and to their business, properties, assets, goodwill, rights and claims of whatever kind and nature, real or personal, tangible or intangible, known or unknown, actual or contingent and wherever situated, including the Sellers' rights under Leases (including, without limitation, Sellers' rights to the Leased Property), as the same may exist on the Closing Date and are related to the Business, including, without limitation, the following: (a) all Leases, Leased Property and improvements and other appurtenances thereto and rights in respect thereof; (b) all inventories and other tangible personal property; (c) all Equipment and Fixtures; (d) all accounts receivable and notes receivable and other claims for money or other obligations due to the Sellers including, without limitation, construction allowances from landlords under the Leases, vendor credits pursuant to the Assigned Contracts and, in each case, all proceeds thereof; (e) all of the Sellers' Intellectual Property, including the items listed on Schedule 3.9, as well as all goodwill associated with the Business; (f) all right, title and interest in, to and under the Assigned Contracts; 7 (g) all books and records relating primarily to the Business (including such books and records as are contained in computerized storage media), including books and records related to inventory, purchasing, accounting, sales, maintenance, repairs, marketing, banking, Intellectual Property, shipping records, personnel files for Transferred Employees and all files, customer and supplier lists, records, literature and correspondence related to the Business; provided, however, that the Sellers shall be entitled to make and retain copies of such books and records to the extent they relate to Excluded Assets or Excluded Liabilities or are otherwise required in the administration of the estates of the Sellers and their affiliates and the Cases; (h) to the extent legally assignable, all Permits; (i) to the extent that any of the following relate to any Assumed Liability or any of the Purchased Assets: claims, deposits, prepayments, prepaid assets, refunds (excluding Tax refunds), causes of action, rights of recovery, rights of setoff and rights of recoupment of the Sellers as of the Closing Date, including, to the extent assignable without additional cost to the Sellers, any such rights of the Sellers under any property, casualty, workers' compensation or other insurance policy or related insurance services contract respecting the Business (other than prepaid premiums and deposits); and (j) all cash received by the Sellers on account of sales (including credit card sales) or receivables from and after the Closing Date; provided, however, that notwithstanding any of the foregoing provisions of this definition, the Purchased Assets shall not include any Excluded Assets. "Purchaser Puerto Rico Plan" has the meaning set forth in Section 11.7. "Purchaser Savings Plan" has the meaning set forth in Section 11.6. "Revolving Credit and Guaranty Agreement" means the Revolving Credit and Guaranty Agreement, dated as of May 5, 1997, as the same has been and may be amended, among PRI, PS Stores Acquisition Corp., the subsidiaries of PRI party thereto and The Chase Manhattan Bank, for itself and as agent for the other financial institutions named therein. 8 "Schedules" means the various Schedules referred to in this Agreement delivered separately to Purchaser on or before the date of this Agreement. "Seller Balance Sheet" means the balance sheet of the Business as of April 4, 1998, set forth under Column 1 of Schedule 1.6 attached hereto. "Seller Puerto Rico Plan" has the meaning set forth in Section 11.7. "Seller Savings Plans" has the meaning set forth in Section 11.6. "Stores" means the premises described in the Leases and all fixtures or leasehold improvements thereon, used or held for use by any of the Sellers in the Business. "Success Fee" means the Success Fee payable to Jay and Scott Galin pursuant to the Incentive Agreement. "Tax Return" means any report, return, information return or other information required to be supplied to a taxing authority in connection with Taxes. "Taxes" means all federal, state, local and foreign taxes, including income, gross receipts, excise, employment, sales, use, transfer, license, payroll, franchise, severance, stamp, withholding, Social Security, unemployment, disability, real property, personal property, registration, alternative or add-on minimum, estimated or other tax, including any interest, penalties or additions thereto, whether disputed or not. "Transaction Taxes" has the meaning set forth in Section 10.1. "Transferred Employees" has the meaning set forth in Section 11.1(b). "Transferred Non-Union Employees" has the meaning set forth in Section 11.1(b). "Transferred Union Employees" has the meaning set forth in Section 11.1(b). "WARN" has the meaning set forth in Section 11.1(a). "Welfare Type Plans" has the meaning set forth in Section 11.3. 9 ARTICLE II. SALE AND PURCHASE OF PURCHASED ASSETS AND ASSUMPTION OF ASSUMED LIABILITIES Section 2.1. Purchase and Sale of Purchased Assets. (a) On the terms and subject to the conditions set forth in this Agreement, at the Closing Purchaser shall purchase from the Sellers, and the Sellers shall sell, transfer, assign, convey and deliver to Purchaser, all of the Sellers' right, title and interest in and to the Purchased Assets. (b) At any time not less than 10 Business Days prior to the final sale hearing of the Bankruptcy Court, Purchaser, in its sole discretion may, by written notice to the Sellers, elect to exclude up to four (4) Leases that are Executory Contracts from the definitions of "Assigned Contracts" and "Purchased Assets" and any such Executory Contract shall be deemed an "Excluded Asset" and deleted from Schedules 1.3, 1.3(a) or 1.4, as applicable, and no adjustment to the Purchase Price shall be made as a result of any such deletion; provided, that the aggregate amount of allowable claims for damages arising from the exclusion of Executory Contracts if the Sellers were to reject such Executory Contracts shall not exceed $250,000. Section 2.2. Assumption of Liabilities. On the terms and subject to the conditions set forth in this Agreement, from and after the Closing, Purchaser will assume and pay, perform, discharge and be responsible solely for the following liabilities of the Sellers (the "Assumed Liabilities"): (a) all liabilities of the Seller specifically shown or reflected in the Adjusted Balance Sheet, as increased or decreased in the ordinary course of the Business after the Balance Sheet Date, determined in accordance with the principles utilized in the preparation of the Adjusted Balance Sheet; (b) all Liabilities of any of the Sellers accruing or arising from and after the Closing Date under any and all Assigned Contracts; (c) the Success Fee; and (d) Notwithstanding the preceding clauses (a) and (b), Assumed Liabilities shall not include (i) Liabilities with respect to Taxes (unless otherwise specified on Schedule 1.6 hereof), (ii) Liabilities arising under any multiemployer Plan, (iii) Liabilities of the Sellers relating to any litigation or legal proceeding pending on the Closing Date (other than litigation or legal proceedings with respect to Liabilities shown or reflected on the Adjusted Balance Sheet, (iv) all cure obligations pursuant to Section 5.7 10 hereof and all other obligations of the Sellers under the Assigned Contracts arising prior to the Closing Date and required to be performed thereunder prior to the Closing Date, other than those specifically assumed by Purchaser and reflected on the Adjusted Balance Sheet and (v) Liabilities with respect to Non-Assignable Leases and all such Liabilities shall constitute Excluded Liabilities as defined below. All the Liabilities and obligations of the Sellers of whatever kind or nature, known or unknown, fixed or contingent, accrued or unaccrued, other than the Assumed Liabilities, are hereinafter referred to as the "Excluded Liabilities". Purchaser shall not assume or pay, perform, discharge or be responsible for any of the Excluded Liabilities. Section 2.3. Purchase Price. The total purchase price for the Purchased Assets is approximately $160 million, comprised of a cash payment of $132 million (such cash portion, the "Purchase Price") plus the amount of Assumed Liabilities. The Purchase Price shall be paid to the Sellers, subject to the conditions set forth in this Agreement, at the Closing, (i) by wire transfer of immediately available funds to an account designated by PRI, an amount equal to $125 million (the "Closing Cash Payment") (subject to adjustment pursuant to Section 5.1(1) hereof); and (ii) by payment of $7 million (subject to adjustment pursuant to Section 5.1(1) hereof) to be held in the Liability Escrow Account and applied pursuant to the terms of Section 2.4. Section 2.4. Liability Escrow Account; Reimbursements. G&G and the Purchaser shall cause certain of the Excluded Liabilities, as described in footnote (d) to Schedule 1.6 hereof, to be paid out of the Liability Escrow Account. The Liability Escrow Account and the payment of amounts therefrom shall be jointly administered by Gerald Chaney and Michael Kaplan, in good faith and consistent with the principles set forth in the footnotes to Schedule 1.6 hereof, or by such other persons as shall be designated by the Sellers (in lieu of Gerald Chaney) or by Purchaser (in lieu of Michael Kaplan). Amounts remaining in the Liability Escrow Account, if any, twenty (20) days after the Closing Date shall be paid to Sellers. All disputes relating to the Liability Escrow Account shall be settled by a third-party accounting firm mutually agreed to by the Sellers and Purchaser prior to the Closing Date, and if such an agreement cannot be reached, such firm as selected by the Bankruptcy Court. Section 2.5. [INTENTIONALLY OMITTED]. Section 2.6. Allocation of Purchase Price. The Sellers and Purchaser hereby agree on the allocation of the Purchase Price among the Purchased Assets as set forth on Schedule 2.6 hereto. Subsequent to the Closing, the Sellers will cooperate with Purchaser in the preparation, execution and filing with the United States Internal Revenue Service of all 11 information returns and supplements thereto required to be filed by the parties under section 1060 of the Internal Revenue Code of 1986, as amended, relating to the allocation of such consideration, and the Sellers and Purchaser agree to file Form 8594 (or any substitute therefor) when and as required by applicable law. Section 2.7. Sale at Closing Date. The sale, transfer, assignment and delivery by the Sellers of the Purchased Assets to Purchaser, and the assumption by Purchaser of the Assumed Liabilities, as herein provided shall be effected on the Closing Date by (a) the execution and delivery by the Sellers and Purchaser of an assignment and assumption of the Assigned Contracts substantially in the form of Exhibit A, subject only to Permitted Liens, and (b) with respect to the other Purchased Assets and Assumed Liabilities, by the execution and delivery by the Sellers and Purchaser of a bill of sale and assumption agreement substantially in the form of Exhibit B. Section 2.8. [INTENTIONALLY OMITTED]. Section 2.9. Discharge of Liens. Notwithstanding anything to the contrary in this Agreement, if on the Closing Date there are any Liens that the Sellers are obligated to pay and discharge under this Agreement, the Sellers may use any portion of the Purchase Price to discharge the same, either by way of payment, escrow or by bonding. Section 2.10. Casualty and Condemnation. (a) In the event of any damage or destruction by reason of any casualty to any of the Purchased Assets after the date hereof, or if there shall be any taking by condemnation or eminent domain of any of the Purchased Assets, the Sellers shall (i) in the case of damage or destruction, pay over to Purchaser at Closing any insurance proceeds received by the Sellers prior to the Closing Date (including the amount of any applicable deductible or self-insurance retention) and assign to Purchaser all of the Sellers' right, title and interest in and to any additional proceeds related to such damage or destruction and (ii) in the case of condemnation or eminent domain, pay over to Purchaser all awards received by the Sellers on account of such condemnation or eminent domain prior to the Closing Date and assign to Purchaser all of the Sellers' right to receive any additional awards related to such condemnation or eminent domain; provided, that if all such casualties and takings by condemnation or eminent domain have, collectively, a Material Adverse Effect, Purchaser shall have the right to terminate this Agreement prior to the Closing Date. Section 2.11. Bond Cancellation. The parties hereto acknowledge and agree that, on or prior to the Closing Date, the Sellers may terminate or otherwise cancel the bonds set forth on Schedule 2.11 hereto. 12 ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SELLERS Subject to Sections 3.18 and 3.19, the representations and warranties set forth in Sections 3.1 through 3.17 are made as follows: (i) The Sellers hereby make to Purchaser the representations and warranties set forth in Section 3.1, Section 3.2 (other than the representation and warranty made in clause (ii) thereof), Section 3.3 (other than the representation and warranty made in clause (ii) thereof), Section 3.6(a) (second sentence only), Section 3.11, Section 3.15 (other than with respect to the representations and warranties related to any state or local sales or use Tax, ad valorem personal property Tax, payroll Tax arising after January 31, 1998 or, with respect to the Leases, any real property Tax relating to the Leases) and Section 3.17; and (ii) With respect to clause (ii) of Section 3.2, clause (ii) of Section 3.3, Section 3.4, Section 3.6 (other than the second sentence of Section 3.6(a), Section 3.8, Section 3.9, Section 3.10, Section 3.13 and Section 3.16, the Sellers represent and warrant to Purchaser only that none of the Non-Management Seller Group has Knowledge, as of the date hereof, that any of the statements made in any of such Sections or clauses is not true and correct as of the date hereof. The foregoing provisions of this paragraph (ii) shall be applicable notwithstanding any reference in any of such Sections or clauses to the Knowledge of any Seller. Section 3.1. Authority of Sellers. Each Seller is a corporation validly existing and in good standing under the laws of its state of organization. Each Seller has full corporate power and authority to execute and deliver this Agreement and each of the Ancillary Agreements to which it is a party, and the execution and delivery by each Seller of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action on the part of each Seller, and this Agreement constitutes, and each of the Ancillary Agreements upon its execution will constitute, the legal, valid and binding obligation of each Seller enforceable in accordance with its terms, subject to issuance of the Order and the receipt of the consents, waivers and approvals specified on Schedule 3.3. Subject to any necessary authorization from the Bankruptcy Court, each Seller has full corporate power and authority to own its properties and to carry on the Business presently being conducted by it. Section 3.2. No Conflict or Violation. The execution, delivery and performance by each of the Sellers of this Agreement and the Ancillary Agreements to which such Seller is a party do 13 not and will not violate or conflict with any provision of the Certificate or Articles of Incorporation or By-laws (or equivalent documents) of such Seller and, assuming that the consents, waivers, authorizations, approvals, declarations, filings and registrations referred to in Section 3.3 are obtained or made, do not and will not (i) violate any provision of law, or any order, judgment or decree of any court or other Governmental Agency applicable to such Seller, or (ii) violate or result in a material breach of or constitute (with due notice or lapse of time or both) a material default under any Assigned Contract, loan agreement, mortgage, security agreement, indenture or other instrument to which such Seller is a party or by which it is bound or to which any of the Purchased Assets is subject and, in each case, became so on or after October 12, 1995. Section 3.3. Consents and Approvals. Schedule 3.3 sets forth a true and complete list of each material consent, waiver, authorization or approval of (i) any Governmental Agency and each declaration to or filing or registration with any such Governmental Agency, or (ii) of any other Person in connection with any Assigned Contract involving the payment by any Seller of more than $150,000 in any calendar year, that is required for the execution and delivery of this Agreement by the Sellers or the performance by the Sellers of their respective obligations hereunder; provided, that the representations and warranties set forth in this Section 3.3 shall not apply to Leases. Section 3.4. Compliance with Law. Except as set forth on Schedule 3.4, the Sellers (i) have complied in all material respects with all laws, regulations, orders and other legal requirements applicable to the Business or the Purchased Assets, (ii) have not received written notice of any violation of any law, regulation, order or other legal requirement and (iii) are not in default in any material respect under any order, writ, judgment, award, injunction or decree of any Governmental Agency, applicable to the Business or the Purchased Assets. Section 3.5. [INTENTIONALLY OMITTED] Section 3.6. Sufficiency and Title to the Purchased Assets. (a) The Purchased Assets constitute all of the assets or property used or held for use in the Business, except for the Excluded Assets, and, except as set forth on Schedule 3.6, the Sellers have good and valid title to each of the Purchased Assets. Neither PRI nor any other entity owned directly or indirectly by PRI (other than the Sellers) holds title to or any ownership interest in any of the assets or property used or held for use in the Business (other than the Excluded Assets) other than through the capital stock of the Sellers. (b) The entry of the Order and the delivery to the Purchaser of the instruments of transfer of ownership 14 contemplated by this Agreement will vest good and valid title to the Purchased Assets in the Purchaser, free and clear of all interests in the Purchased Assets including all Liens thereon, other than Permitted Liens or as set forth on any of the schedules hereto. Section 3.7. [INTENTIONALLY OMITTED]. Section 3.8. Assigned Contracts. True and complete copies of the Assigned Contracts listed on Schedule 3.8 have been provided by the Sellers to Purchaser. At the Closing, the Sellers shall have cured any and all defaults or have provided adequate assurance that they will cure any and all defaults with respect to Assigned Contracts as provided in Section 365 of the Bankruptcy Code and as required by the Bankruptcy Court so that at the Closing, there shall be no material defaults under any of the Assigned Contracts. Other than as set forth on Schedule 3.8, neither the Sellers nor, to the best of the Sellers' Knowledge, any other party under any of the Assigned Contracts has commenced any action against the other or given or received any written notice of default or violation under any Assigned Contract which was not withdrawn or dismissed, except only for those defaults which will be cured prior to the Closing in accordance with the Order (or which need not be cured under the Bankruptcy Code to permit the assumption and assignment of Assigned Contracts). Each of the Leases and other Assigned Contracts listed on Schedule 3.8 is or will be at the Closing valid, binding and in full force and effect as against each Seller party thereto. Section 3.9. Intellectual Property. Schedule 3.9 sets forth a true and complete list of all applications and registrations for material Intellectual Property that Sellers own or use in the Business. Except as set forth on Schedule 3.9, the Sellers either own or have the right to use by license, sublicense, agreement or other permission all of the Intellectual Property listed on Schedule 3.9. Except as noted on Schedule 3.9, none of the Sellers has been charged with, nor to the Sellers' Knowledge is threatened to be charged with, with respect to the trademarks, service marks and trade names listed on Schedule 3.9, the infringement or other violation of the intellectual property rights of any other Person having or that would reasonably be expected to have a Material Adverse Effect. Section 3.10. Labor Relations. To the Knowledge of the Sellers, except as set forth on Schedule 3.10 hereto, there is currently no material investigation being conducted or threatened by any Governmental Agency concerning Sellers' compliance with wage and hours laws or regulations, occupational safety or health laws or regulations, human rights or anti-discrimination laws or regulations or any other laws or regulations affecting Business Employees. 15 Section 3.11. Employee Benefits. (a) Schedule 3.11(a) sets forth all "employee benefit plans", as defined in Section 3(3) of ERISA, and all other material employee benefit arrangements or payroll practices including, without limitation, any such arrangements or payroll practices providing severance pay, sick leave, vacation pay, salary continuation for disability, retirement benefits, deferred compensation, bonus pay, incentive pay, stock options, hospitalization insurance, medical insurance, life insurance, scholarships or tuition reimbursements, maintained by the Seller or to which the Seller is obligated to contribute thereunder for current or former Business Employees (each a "Plan" and collectively, the "Plans"). True, correct and complete copies of the following documents, with respect to each of the Plans, to the extent applicable, have been delivered or made available to Purchaser: (i) the Plan and its related trust document, including any amendments thereto, (ii) the most recent IRS Form 5500 filed with the Internal Revenue Service, and (iii) summary plan description. (b) None of the Plans is a multiemployer plan, as defined in Section 3 (37) of ERISA, or a single-employer plan, as defined in Section 4001 (a) (15) of ERISA, that is subject to Title IV of ERISA. (c) Except as set forth on Schedule 3.11(c), each Plan that is intended to qualify under Section 401 of the Code and the trust maintained pursuant thereto has received a favorable determination letter from the IRS regarding its qualification, and, to the Knowledge of the employees of Sellers with responsibility for such matters, nothing has occurred with respect to the operation of any such Plan that could reasonably result in the loss of such qualification or exemption. (d) Except as set forth on Schedule 3.11(d), the Plans have been maintained, in all respects, in accordance with their terms and with all provisions of ERISA and the Code and other applicable federal and state laws and regulations, except for any failure to so comply as would not have a Material Adverse Effect. There are no unpaid contributions due prior to the date hereof with respect to any Plan that are required to have been made under the terms of the Plan or any applicable law. (e) Except as set forth on Schedule 3.11(e), the Sellers have no obligation to provide any deferred compensation, pension or non-pension benefits to retired or other former employees, except for health benefits as specifically required by Part 6 of Title I of ERISA ("COBRA") or other applicable law or pension benefits 16 payable from a Plan intended to be "qualified" within the meaning of Section 401(a) of the Code. (f) All group health plans covering employees of the Sellers have been operated in material compliance with the requirements of Section 4980B of the Code (and any predecessor provisions) and COBRA. (g) Neither the Sellers nor to the Knowledge of the employees of Sellers with responsibility for such matters any other "disqualified person" or "party in interest," as defined in Section 4975 of the Code and Section 3(14) of ERISA, respectively, has engaged in any "prohibited transaction," as defined in Section 4975 of the Code or Section 406 of ERISA, with respect to any Plan nor to the Knowledge of the employees of Sellers with responsibility for such matters have there been any fiduciary violations under ERISA which could subject any Seller (or any officer, director or employee thereof) to any penalty or tax under Section 502(i) of ERISA or Sections 4971 and 4975 of the Code. (h) Except as set forth on Schedule 3.11(h), with respect to any Plan: (i) no filing, application or other matter is pending with the IRS, the PBGC, the United States Department of Labor or any other governmental body; (ii) there is no action, suit or claim pending (nor, to the Knowledge of the employees of Sellers with responsibility for such matters, any basis for such a claim), other than routine claims for benefits; and (iii) there are no outstanding liabilities for taxes or penalties under ERISA, the Code or other applicable law. Section 3.12. [INTENTIONALLY OMITTED] Section 3.13. Litigation. Other than in connection with the Cases and except as set forth on Schedule 3.13, there are no actions, causes of action, claims, suits or proceedings pending or, to Sellers' Knowledge, threatened against any of the Sellers with respect to the Business or affecting the operation of the Business or the use of the Purchased Assets, at law or in equity, or before or by any Governmental Agency, which (i) seeks to restrain or enjoin the consummation of or would materially and adversely affect, the transactions contemplated hereby or (ii) could reasonably be expected to have a Material Adverse Effect. Section 3.14. [INTENTIONALLY OMITTED] 17 Section 3.15. Tax Matters. There is no Lien affecting any of the Purchased Assets that arose in connection with any failure or alleged failure to pay any Tax which will attach to the Purchased Assets after the Closing. Section 3.16. Interim Operations. Taking into account the Sellers' status as debtors in possession under the Bankruptcy Code, since April 4, 1998, the Business has been operated in the ordinary course, consistent with past practices, except as set forth on Schedule 3.16. Except in the ordinary course of business (including the execution and delivery of post-petition leases and/or lease renewals) and except as approved by the Bankruptcy Court, since the Balance Sheet Date, none of the Sellers has, with respect to the Business: (i) incurred or become subject to, or agreed to incur or become subject to, any material obligation or Liability that is an Assumed Liability, except as contemplated by this Agreement; (ii) mortgaged or pledged any of the Purchased Assets, except pursuant to the Revolving Credit and Guaranty Agreement; (iii) sold or transferred or agreed to sell or transfer any of the Purchased Assets; (iv) suffered any extraordinary losses or waived any material rights; (v) terminated any material contract, agreement, license, or other instrument to which it is a party with respect to the Purchased Assets. Section 3.17. Brokers. Except for the services provided by CIBC Oppenheimer in connection with the transactions contemplated by this Agreement, all negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Sellers without the intervention of any other Person acting on the Sellers' behalf in such manner as to give rise to any valid claim by any such Person against the Purchaser for a finder's fee, brokerage commission or other similar payment based on an arrangement with the Sellers. Section 3.18. Disclaimer of Additional Representations and Warranties; Schedules. (a) Except as expressly set forth in this Agreement, the Schedules and Exhibits hereto, the Ancillary Agreements, and any certificate or instrument delivered pursuant to the terms hereof or thereof, the Sellers make no representations or warranties with respect to the Business, or its operations, assets (including, without limitation, the Purchased Assets), liabilities (including, without limitation, the Assumed Liabilities) or conditions, including, with respect to the Purchased Assets, any representation or warranty of merchantability, suitability or fitness for a particular purpose, or quality as to the Purchased Assets, or any part thereof, or as to the condition or workmanship thereof, or the absence of any defects therein, whether latent or patent. Except as provided in this Agreement, the Schedules and Exhibits hereto, the Ancillary Agreements, and any other certificate 18 or instrument delivered pursuant to the terms hereof or thereof, the Purchased Assets are to be conveyed hereunder "AS IS" on the date hereof and in their present condition, subject to reasonable use, wear and tear between the date hereof and the Closing Date, and Purchaser shall rely upon its own examination thereof. (b) Notwithstanding anything to the contrary contained in this Agreement, no matter primarily relating to any of the Excluded Assets or Excluded Liabilities is required to be disclosed on any Schedule. In addition, any item disclosed on any one Schedule shall be deemed to be disclosed on each Schedule, where relevant. Disclosure of an item in any Schedule shall not be deemed to be an admission that such item is material. Section 3.19. Limitation. Notwithstanding the foregoing provisions of this Article III or any other provision of this Agreement, none of the Sellers shall have any liability to Purchaser for or in respect of any representation or warranty made in this Article III, and none of the Sellers shall be deemed to have breached or violated any such representation or warranty, as of the date hereof, any of Jay Galin, Scott Galin or Michael Kaplan has Knowledge of the facts or circumstances causing such representation or warranty to be not true and correct. Section 3.20. Survival. Each of the representations and warranties of Sellers described in clause (i) of the introduction to this Article III shall survive the Closing until the earlier to occur of (x) the first anniversary of the Closing Date or (y) the confirmation of the Sellers' plan of reorganization by the Bankruptcy Court and each of the representations and warranties of Sellers described in clause (ii) of the introduction to this Article III shall survive the Closing until the earlier to occur of (x) the date which is six months following the Closing Date or (y) the confirmation of the Sellers' plan of reorganization by the Bankruptcy Court (the "Survival Period"). No claim may be asserted by Purchaser against Sellers arising out of a breach of any such representation or warranty unless written notice setting forth the basis of such claim in reasonable detail has been furnished to the Sellers before the expiration of the Survival Period. ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser represents and warrants to the Sellers as follows: Section 4.1. Authority of Purchaser. Purchaser is a corporation, validly existing, and in good standing under the laws of the State of Delaware. Purchaser has full corporate power and authority to execute and deliver this Agreement, and 19 the execution and delivery by Purchaser of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Purchaser, and this Agreement constitutes the legal, valid and binding obligation of Purchaser enforceable in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, moratorium, or similar laws from time to time in effect which affect creditors' rights generally, and by legal and equitable limitations on the enforceability of specific remedies. Purchaser has full corporate power and authority to own its properties and to carry on the business presently being conducted by it. Section 4.2. No Conflict or Violation. The execution, delivery and performance by Purchaser of this Agreement and the Ancillary Agreements do not and will not violate or conflict with any provision of the Certificate or Articles of Incorporation or By-laws of Purchaser and do not and will not violate any provision of law, or any order, judgment or decree of any court or other Governmental Agency applicable to Purchaser, or violate or result in a material breach of or constitute (with due notice or lapse of time or both) a default under any loan agreement, mortgage, security agreement, indenture or other instrument to which Purchaser is a party or by which it is bound. Section 4.3. Consents and Approvals. The execution, delivery and performance by Purchaser of this Agreement do not require the consent or approval of, or filing with, any government, governmental body or agency or other entity or person except: (i) as may be required to effect the transfer of any Permits; or (ii) such consents, approvals and filings, the failure to obtain or make which would not, individually or in the aggregate, have a material adverse effect on its ability to consummate the transactions contemplated hereby. Section 4.4. Availability of Funds. Purchaser shall seek to obtain, within 10 Business Days after the date hereof, commitments for debt and/or equity financing acceptable in all respects to Purchaser, in its sole discretion, taking into account pricing, interest rates, covenants, financial condition of the Business and all such other factors as Purchaser deems relevant (the "Financing Commitments"). Assuming receipt of such Financing Commitments (which the Sellers acknowledge is not assured), Purchaser will at Closing have funds sufficient to allow it to pay the Purchase Price at the times and in the manner set forth in this Agreement and to satisfy all its other obligations under this Agreement. Section 4.5. Litigation. Except in connection with the Cases, there are no actions, causes of action, claims, suits, proceedings, orders, writs, injunctions, or decrees pending or, to the Knowledge of Purchaser, threatened against Purchaser at law or in equity or before or by any Governmental Agency, which seeks to restrain or enjoin the consummation of the transactions 20 contemplated hereby or that shall otherwise materially adversely affect the ability of Purchaser to perform its obligations hereunder. Section 4.6. Brokers. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Purchaser without the intervention of any other person acting on its behalf in such manner as to give rise to any valid claim by any such person against the Sellers or their Affiliates for a finder's fee, brokerage commission or other similar payment based on an arrangement with Purchaser. Section 4.7. Adequate Assurances Regarding Executory Contracts. Purchaser is and will be capable of satisfying the conditions contained in sections 365(b)(1)(c) and (f) of the Bankruptcy Code with respect to the Executory Contracts. Section 4.8. Hart-Scott-Rodino. For purposes of the HSR Act, in connection with the consummation of the transactions hereby (i) the Purchaser's total assets are less than $10,000,000 and (ii) the Purchaser would be its own "ultimate parent entity" as such term is defined under the HSR Act. ARTICLE V. CERTAIN COVENANTS OF THE SELLERS Each Seller covenants with Purchaser that from and after the date hereof through the Closing Date: Section 5.1. Conduct of Business Before the Closing Date. Without the prior written consent of Purchaser or unless otherwise ordered by the Bankruptcy Court sua sponte or on motion by a third party, notice of which order or motion shall be promptly delivered by the Sellers to Purchaser, between the date hereof and the Closing Date, the Sellers shall not, except as required or expressly permitted pursuant to the terms hereof, make any material change in the Purchased Assets or the Business as it relates to the Purchased Assets, or enter into any transaction respecting the Business, other than in any such case in the ordinary course of the Business consistent with the Sellers' past practices, and shall continue to operate the Stores and the Business as it relates to the Purchased Assets in the ordinary course of the Business. Without limiting the generality but subject to, the foregoing, unless otherwise consented to in writing by Purchaser the Sellers shall, consistent with their past practices: (a) Perform all of their material post-petition obligations under the Leases and Other Contracts in accordance with their terms, except for obligations which are not required to be performed under the Bankruptcy Code or which are being disputed by the Sellers in good faith; 21 (b) Comply in all material respects with all statutes, laws, ordinances, rules and regulations applicable to the Purchased Assets and Assumed Liabilities except where compliance is being disputed by the Sellers in good faith or excused by the Bankruptcy Code or other applicable law; (c) Not remove, agree to remove, sell or agree to sell or otherwise transfer or permit any person or entity to remove any Equipment, Machinery and Fixtures from the Stores, except for replacements and refurbishments in the ordinary course of business; (d) Not amend or modify, in any material respect, or terminate any of the Leases or Other Contracts or agree or consent to any material amendments or modifications or terminations thereof; (e) Not change, in any material respect, any of their methods or procedures relating to accounting for accounts receivable or inventory in the Business; (f) Promptly notify Purchaser if the G&G Sellers receive any notices from any lessor, Governmental Agency, insurance company or any other entity indicating any material default or the need for any material repairs, alterations or improvements or any other matter that could reasonably be expected to materially and adversely affect the Purchased Assets, or that any of the Leased Properties are or may be in violation of any law, and cause compliance at the Sellers' cost, except where compliance is being disputed by the Sellers in good faith; (g) Promptly notify Purchaser if the Sellers receive any notices of or otherwise become aware of any condemnation proceedings affecting the Stores; (h) Not grant any unusual or extraordinary wage, salary or benefit increases to any of the Sellers' employees (eligible to become Transferred Employees) prior to Closing; (i) Not enter into any material agreements that would be binding on the Purchaser or affect any of the Purchased Assets after the Closing Date, other than in the ordinary course of business; (j) Promptly notify Purchaser of any order of the Bankruptcy Court entered in the Cases that affects or will affect the operation of the Business or the Purchased Assets and promptly deliver a copy of any such order to Purchaser; (k) Maintain all occurrence-based forms of insurance with respect to the Purchased Assets as in effect on the date hereof; and 22 (1) The Sellers shall, from and after the date hereof through the Closing Date, make available to the Business an amount each week equal to the lesser of (i) total weekly revenues of the Business for such week minus $1 million, plus or minus 10% and (ii) $4.5 million, for operating expenses of the Business (such amount paid by the Sellers, the "Operating Expense Payment"). To the extent that the aggregate Operating Expense Payments made from the date hereof through the Closing Date are less than the Total Weekly Minimum, the parties agree that the Liability Escrow Account shall be increased by the amount of such shortfall and the Closing Cash Payment shall be decreased by the amount of such shortfall. As used in this Section 5.1(1), "Total Weekly Minimum" shall mean the product of (i) $4.5 million and (ii) the number of weeks (including any pro rata portion of a partial week) between the date hereof and the Closing Date. Section 5.2. Consents and Approvals. The Sellers shall use commercially reasonable efforts to obtain (a) entry of the Order by the Bankruptcy Court, and (b) the consent of The Chase Manhattan Bank, on behalf of itself and as agent under the Revolving Credit and Guaranty Agreement, to this Agreement and the transaction contemplated hereby. Section 5.3. Information and Access. The Sellers will permit representatives of Purchaser to have reasonable access during normal business hours after reasonable notice from Purchaser to the Sellers, and in a manner so as not to interfere with the normal operations, to all premises, properties, personnel, accountants, books, records, contracts and documents of or pertaining to the Business. Purchaser and each of its representatives will treat and hold as confidential such information in accordance with the terms and provisions of that certain Confidentiality Agreement, entered into on April 29, 1998, between Pegasus Investors, L.P. and PRI, which Confidentiality Agreement remains in full force and effect. Purchaser shall reimburse the Sellers for any reasonable out-of-pocket costs incurred by the Sellers (but not for overhead or cost of salaries or benefits of Purchaser's personnel) in providing such access. Purchaser shall indemnify, defend and hold harmless the Sellers, the lessors under the Leases and their respective Affiliates from and against any and all claims, demands, causes of action, losses, damages, liabilities, cost and expenses (including, without limitation, attorneys' fees and disbursements), suffered or incurred by such Persons in connection with (i) Purchaser's and/or Purchaser's representatives' entry upon the Leased Property, or (ii) any and all other activities undertaken by Purchaser or Purchaser's representatives with respect to the Leased Property pursuant to this Section 5.3. The parties hereto agree and acknowledge that the provisions of this Section 5.3 shall in no way affect the conditions set forth in Article VIII of this Agreement. 23 Section 5.4. Further Assurances. Upon the request of the Purchaser at any time after the Closing Date, the Sellers shall forthwith execute and deliver such documents and take such actions as Purchaser or its counsel may reasonably request to effectuate the purposes of this Agreement. Section 5.5. Reasonable Efforts. Upon the terms and subject to the conditions of this Agreement, the Sellers will use commercially reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary or proper consistent with applicable law to consummate and make effective in the most expeditious manner practicable the transactions contemplated hereby. Without limiting the foregoing, the Sellers will take or cause to be taken by others all reasonable actions required to obtain or satisfy all consents and to continue such efforts as may be required after the Closing Date to facilitate the full and expeditious transfer of legal title, or the sublease or sublicense as the case may be, of the Purchased Assets. Section 5.6. Assignment of Contracts. At the Closing and effective as of the Closing Date, the Sellers shall sell, assign and transfer to Purchaser all their rights under the Assigned Contracts, free from all defaults by the Sellers and all claims by third parties against Purchaser or the Purchased Assets relating to any defaults by the Sellers thereunder. Section 5.7. Cure of Defaults. The Sellers shall, on or prior to the Closing, cure any and all defaults or provide adequate assurance that they will cure any and all defaults with respect to Assigned Contracts as provided in Section 365 of the Bankruptcy Code and as required by the Bankruptcy Court, so that such Assigned Contracts may be assumed by the Sellers and assigned to the Purchaser as applicable in accordance with the provisions of section 365 of the Bankruptcy Code and so that Purchaser shall have no obligations for defaults existing prior to the assignment. Section 5.8. [INTENTIONALLY OMITTED]. Section 5.9. Accounts Receivable. Each Seller shall promptly remit in kind to Purchaser any payments received by such Seller after the Closing in respect of accounts receivable constituting a part of the Purchased Assets hereunder. Section 5.10. Name Change Filings. On the Closing Date, the Sellers shall file with the Secretary of State of the state of incorporation of each applicable Seller an amendment to each applicable Seller's certificate of incorporation to change its name to a name which does not contain the words "G&G Shops" or "G&G," and shall promptly provide Purchaser with evidence of such filing. In addition, the Sellers shall, within 30 days after the Closing Date, take such actions and file such documents as are necessary to reflect such name changes in all states in 24 which any such Seller is qualified to do business as a foreign corporation and will deliver to Purchaser copies of such documents evidencing such name change filings. Section 5.11. Rejection of Contracts. In the event that at any time not less than 10 Business Days prior to the final sale hearing of the Bankruptcy Court, Purchaser gives written notice to Sellers, directing Sellers to reject up to four (4) Leases that are Executory Contracts, such agreements shall be deleted from Schedule 1.3, 1.3(a) or 1.4, as applicable, and shall not be deemed an "Assigned Contract" or a "Purchased Asset"; provided, that the aggregate allowed claims for damages arising from the exclusion of Executory Contracts, if the Sellers were to reject such Executory Contracts shall not exceed $250,000. Section 5.12. Transition Arrangements. From and after the Closing Date, Sellers shall maintain all checking accounts (with sufficient funds therein) until all checks drawn on such accounts prior to the Closing Date have cleared. In addition, Sellers shall cooperate with Purchaser in the establishment of such other reasonable transition arrangements (including, without limitation, with respect to insurance, medical, payroll and banking matters) as Purchaser shall reasonably request, for a period of up to ninety (90) days following the Closing Date. Purchaser shall compensate the Sellers for their actual costs incurred in providing such services including, but not limited to, direct costs and liabilities incurred in providing such transition services, labor costs and related overhead costs. ARTICLE VI. CERTAIN COVENANTS OF PURCHASER Section 6.1. [INTENTIONALLY OMITTED]. Section 6.2. Reasonable Efforts. Upon the terms and subject to the conditions of this Agreement, Purchaser will use commercially reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary or proper consistent with applicable law to consummate and make effective in the most expeditious manner practicable the transactions contemplated hereby. Section 6.3. Consents and Approvals. Purchaser shall use commercially reasonable efforts to provide, at the Sellers' request, assistance in obtaining the Order in order to effect the transactions contemplated by this Agreement. Section 6.4. Adequate Assurances Regarding Executory Contracts. With respect to each Executory Contract, Purchaser shall provide adequate assurance as required under the Bankruptcy Code of the future performance of such Executory Contract by Purchaser. Purchaser agrees that it will promptly take all 25 actions as are reasonably required by the Sellers to assist in obtaining the Bankruptcy Court's entry of the Order, such as furnishing affidavits, non-confidential financial information or other documents or information for filing with the Bankruptcy Court and making Purchaser's employees and representatives available to testify before the Bankruptcy Court, with respect to demonstrating adequate assurance of future performance by Purchaser under the Executory Contracts. Section 6.5. Performance Under Assigned Contracts. Purchaser agrees that from and after the Closing Date it shall take all actions necessary to satisfy its obligations under the terms and conditions of each of the Assigned Contracts. Section 6.6. Further Assurances. Upon the request of the Sellers at any time after the Closing Date, the Purchaser shall forthwith execute and deliver such documents as the Sellers or their counsel may reasonably request to effectuate the purposes of this Agreement. ARTICLE VII. CONDITIONS TO THE SELLERS' OBLIGATIONS The obligations of the Sellers to consummate the transactions contemplated by this Agreement are subject to the satisfaction (unless waived in writing by the Sellers) of each of the following conditions on or prior to the Closing Date: Section 7.1. Representations and Warranties. The representations and warranties of Purchaser contained in this Agreement shall be true and correct on and as of the Closing Date in all material respects as though such representations and warranties were made on and as of the Closing Date. Purchaser shall have delivered to the Sellers a certificate signed by an officer of Purchaser, dated the Closing Date, to the foregoing effect. The Sellers shall also have received a certificate dated the Closing Date and signed by each of Jay Galin, Scott Galin and Michael Kaplan, stating that they have no knowledge that any of the representations and warranties set forth in Article III hereof are untrue; provided, that such individuals shall have no personal liability arising out of or resulting from such certificate. Section 7.2. Compliance with Agreement. Purchaser shall have performed and complied in all material respects (and in all respects in the case of Article II hereof) with all covenants and conditions to be performed or complied with by it on or prior to the Closing Date. Purchaser shall have delivered to the Sellers a certificate signed by an officer of Purchaser, dated the Closing Date, to the foregoing effect. Section 7.3. Financing. Purchaser shall have obtained Financing Commitments which, together with Purchaser's available 26 cash on the Closing Date, are sufficient to enable Purchaser to pay the Purchase Price, and all of the conditions set forth in such Financing Commitments shall have been satisfied. Section 7.4. Consents. Other than the Bankruptcy Court's entry of the Order (which is addressed in Section 7.6), all consents, waivers, authorizations and approvals of any Governmental Agency set forth on Schedule 3.3 and the consent of The Chase Manhattan Bank, on behalf of itself and as agent under the Revolving Credit and Guaranty Agreement, shall have been duly obtained and shall be in full force and effect on the Closing Date. Section 7.5. Corporate Documents. The Sellers shall have received from Purchaser certified copies of the resolutions duly adopted by the board of directors of Purchaser approving the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, and such resolutions shall be in full force and effect as of the Closing Date. Section 7.6. Entry of the Order. (i) The Bankruptcy Court shall have entered the Order; (ii) the Order shall not be stayed; (iii) the Order shall not modify the terms and conditions of this Agreement or the transactions contemplated hereby in any way that adversely affects the Sellers; and (iv) the Order shall be final and no longer subject to appeal. Section 7.7. Galin Releases. The Sellers shall have received a release in form and substance reasonably satisfactory to them from each of Jay Galin and Scott Galin releasing the Sellers, Warburg, Pincus Ventures, L.P. and each of their affiliates from any and all claims arising under or related to each of the Galins respective employment by the Sellers including, but not limited to, the Incentive Agreement, except as to indemnification claims arising out of the management of the Business in its ordinary course. ARTICLE VIII. CONDITIONS TO PURCHASER'S OBLIGATIONS The obligation of Purchaser to consummate the transactions contemplated by this Agreement is subject to the satisfaction (unless waived in writing by Purchaser) of each of the following conditions on or prior to the Closing Date: Section 8.1. Representations and Warranties. The representations and warranties of the Sellers contained in this Agreement shall be true and correct on and as of the Closing Date in all material respects as though such representations and warranties were made on and as of the Closing Date. The Sellers shall have delivered to Purchaser a certificate signed by the Chief Executive Officer or the Chief Operating Officer of the G&G Sellers, dated the Closing Date, to the foregoing effect; 27 provided, that none of such individuals shall have any personal liability arising out of or resulting from such certificate. Section 8.2. Compliance with Agreement. The Sellers shall have performed and complied in all material respects (and in all respects in the case of Article II hereof) with all covenants and conditions to be performed or complied with by them on or prior to the Closing Date. The Sellers shall have delivered to Purchaser a certificate signed by an executive officer of each of the Sellers, dated the Closing Date, to the foregoing effect. Section 8.3. Agreements with Galins. On or prior to July 20, 1998, Jay Galin, Scott Galin and the other shareholders of Purchaser shall have entered into mutually acceptable shareholder, employment and other arrangements (the "Purchaser Agreements") relating to the ownership, management and operation of Purchaser and the Business after the Closing Date. Section 8.4. Consents. Other than obtaining the Order (which is addressed in Section 8.6), there shall have been duly obtained and in full force and effect on the Closing Date: (i) all consents, waivers, authorizations and approvals of any Governmental Agency required in connection with the execution, delivery and performance of this Agreement, (ii) the consent of The Chase Manhattan Bank, on behalf of itself and as agent under the Revolving Credit and Guaranty Agreement and (iii) any consents required in connection with any Assigned Contract (other than Leases) involving the payment by any Seller of more than $150,000 in any calendar year, in each case as set forth on Schedule 3.3. Section 8.5. Corporate Documents. Purchaser shall have received from Sellers certified copies of the resolutions duly adopted by the boards of directors of Sellers approving the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, and such resolutions shall be in full force and effect as of the Closing Date. Section 8.6. Entry of the Order. (i) The Bankruptcy Court shall have entered the Order; (ii) the Order shall not be stayed; (iii) the Order as entered by the Bankruptcy Court, shall not modify the terms and conditions of this Agreement or the transactions contemplated hereby in any way that adversely affects Purchaser; and (iv) the Order shall be final and no longer subject to appeal. Section 8.7. Entry of the Bidding Protections Order. The Bidding Protections Order (as defined in Section 9.2 below), in the form annexed as Exhibit D, shall have been entered by the Bankruptcy Court. Section 8.8. Financing. Purchaser shall have obtained Financing Commitments which, together with Purchaser's available 28 cash on the Closing Date, are sufficient to enable Purchaser to pay the Purchase Price, and all of the conditions set forth in such Financing Commitments shall have been satisfied. Section 8.9. Material Adverse Effect. No Material Adverse Effect shall have occurred since the date of this Agreement arising from causes outside the control of Purchaser and which could not have been avoided by Purchaser's exercise of reasonable care. Section 8.10. Revolving Credit and Guaranty Agreement. The Revolving Credit and Guaranty Agreement shall not have been terminated. Section 8.11. Release of the Galins. Jay and Scott Galin shall have received a release from the Sellers from any and all claims asserting a breach of the Incentive Agreement or a breach of fiduciary duty arising out of the Galins' participation as investors and employees in the sale of the Business to G+G Retail, Inc., including the Galins' commitment to act exclusively with "TGV/Pegasus" as provided in the bid letter, dated May 18, 1998. ARTICLE IX. THE CLOSING; TERMINATION Section 9.1. The Closing. The Closing of the purchase and sale of the Purchased Assets (the "Closing") shall be held within two (2) Business Days after each of the conditions precedent set forth in Articles VII and VIII have been satisfied or waived (the "Closing Date"). The Closing shall be held at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019. At the Closing, all of the transactions provided for in Article II hereof shall be consummated on a substantially concurrent basis. Section 9.2. Bidding Protections. (a) Other Proposals. Except as otherwise set forth in this Section 9.2(a), the Sellers and their agents shall not solicit any proposal from any Person or Persons to acquire, directly or indirectly, all or substantially all of the assets of the Business or more than 50% of the voting power of the equity securities of G&G (an "Alternative Transaction") or any inquiry which may result in such a proposal from any person (provided that in no event shall the filing of, submission of documents to or the presentation of evidence, testimony or information to the Bankruptcy Court constitute the solicitation of an Alternative Transaction). Notwithstanding anything herein to the contrary, negotiations and discussions by the Sellers with any party that previously submitted a written expression of interest (including, but not limited to, a markup of a form purchase agreement) in acquiring all or substantially all of the Business shall not 29 constitute the solicitation of an Alternative Transaction; without limiting the foregoing, such determination shall not affect whether or not the Sellers entering into an agreement with such a party constitutes an Alternative Transaction hereunder. Notwithstanding the foregoing or anything in this Agreement to the contrary, if at any time prior to the Closing or termination of this Agreement, any of the Sellers (or any representative of the Sellers) receives any unsolicited proposal or inquiry that the Sellers determine in good faith constitutes or may result in a G&G Superior Proposal (as defined below), the Sellers may (and may authorize and/or permit any of their officers, directors, employees, attorneys, agents or representatives to) (i) furnish information with respect to the Sellers or the Business to any person or persons making such proposal or inquiry (which may include a person or persons that made inquiries or proposals prior to the date hereof), (ii) participate in discussions and/or negotiations regarding such proposal or inquiry and (iii) subject to approval by order of the Bankruptcy Court, enter into one or more agreements with any such person or persons with respect to a G&G Superior Proposal and, prior to or concurrently therewith, terminate this Agreement. "G&G Superior Proposal" means any bona fide proposal made by any person or persons to acquire, directly or indirectly, all or substantially all of the assets of the Business or more than 50% of the voting power of the equity securities of G&G on terms which the Boards of Directors of PRI and G&G determine in their good faith judgment to be more favorable to the Sellers than the transaction provided for in this Agreement (taking into account all factors relating to such proposed transaction deemed relevant by such Boards of Directors, including, but not limited to, the financing thereof, the proposed timing thereof and all other conditions thereto), including a recapitalization transaction approved by the appropriate Boards of Directors of the Sellers; provided, that no such proposal may be deemed a G&G Superior Proposal unless such proposal includes consideration which is in excess of the sum of (i) the Purchase Price, (ii) the Topping Fee (as defined below), which for purposes of this Section 9.2(a) shall be deemed to equal $2.64 million, and (iii) the Expense Reimbursement (as defined below), which for purposes of this Section 9.2(a) shall be deemed to equal $1,250,000. (b) Topping Fee. If, after entry of the Bidding Protections Order (as defined below), (i) this Agreement has not been terminated pursuant to Sections 9.3(a), 9.3(b), 9.3(f), 9.3(g) or 9.3(h), (ii) Purchaser is not then in default of any material obligation hereunder which would excuse performance hereunder by the Sellers and (iii) the Sellers shall accept an offer and enter into an agreement which provides for a G&G Superior Proposal, then Pegasus Investors, L.P. shall, without further court order, be entitled to receive a fee equal to 2% of Purchase Price (the "Topping Fee"); provided, however that if at the hearing to sell all or substantially all of the Business a G&G Superior Proposal is made and the Purchaser revises its offer to purchase the Purchased Assets, Pegasus Investors, L.P. shall 30 be entitled to receive only the Expense Reimbursement as provided below. The Topping Fee shall be payable within five (5) days of the consummation of a G&G Superior Proposal. (c) Expense Reimbursement. In the event that (i) an agreement providing for a G&G Superior Proposal is entered into or (ii) this Agreement is terminated for any reason other than as set forth in the last sentence of this Section 9.2(c), Pegasus Investors, L.P. shall be entitled to receive reimbursement of the reasonable, actual, fully-documented out-of-pocket costs and expenses paid or incurred by Purchaser or Pegasus Investors, L.P., commencing as of May 1, 1998 and ending on the earlier of (i) the date Purchaser is notified of the Sellers' execution of an agreement providing for an Alternative Transaction or a G&G Superior Proposal and (ii) the date this Agreement is terminated, directly incident to, under or in connection with this Agreement and the transactions contemplated hereby (including fees and disbursements of counsel, accountants, financial advisors and other third parties and commitment fees paid to financing institutions) in an amount not to exceed $1,250,000 in the aggregate (the "Expense Reimbursement"). The Expense Reimbursement shall be payable within five (5) days of the consummation of an agreement which provides for an Alternative Transaction or a G&G Superior Proposal; provided, that Purchaser shall have presented to the Sellers fully detailed invoices or other documentation supporting the Expense Reimbursement. Purchaser's claim for such Expense Reimbursement shall be a super-priority administrative claim in the Cases senior to all unsecured administrative claims other than those arising under (a) the Revolving Credit and Guaranty Agreement (and related documents), (b) the letter agreement, dated March 13, 1998, between Century Business Credit Corporation and Warburg, Pincus Ventures L.P. and (c) administrative claims of employees of the Sellers for wages, benefits and severance entitlements. Notwithstanding anything contained in this Agreement to the contrary, the Purchaser shall not be entitled to receive the Expense Reimbursement if the Agreement is terminated pursuant to Section 9.3(e) (by the Sellers solely as a result of any default or breach by Purchaser), 9.3(f), 9.3(g) or 9.3(h); provided, however, that if within 120 days of any such termination by the Sellers pursuant to Section 9.3(g) as a result of the Sellers' dissatisfaction with a Financing Commitment tendered by Purchaser which Purchaser was willing to accept, the Sellers enter into an agreement which provides for an Alternative Transaction or a G&G Superior Proposal (i) for total consideration (including assumption of liabilities) which equals or exceeds the consideration to be provided by Purchaser hereunder, the Sellers shall, promptly upon consummation of such agreement, pay to Pegasus Investors, L.P. the Expense Reimbursement and (ii) for total consideration (including assumption of liabilities) which is less than the consideration to be provided by Purchaser hereunder, the Sellers shall, promptly upon consummation of such 31 agreement, pay to Pegasus Investors, L.P. the Expense Reimbursement up to a maximum of $625,000; and provided, further that if Purchaser shall fail to tender a Financing Commitment to the Sellers hereunder, the Agreement is terminated by the Sellers pursuant to Section 9.3(g) and the Sellers enter into an agreement within 120 days of the date the Agreement is so terminated which provides for an Alternative Transaction or a G&G Superior Proposal (other than a going out of business sale, provided that a going out of business sale shall not include a sale of all or substantially all of the Business to an entity or entities which continues to operate the Business as a going concern under such entity's or entities' trade names) and each of Jay Galin and Scott Galin participate in such transaction, the Sellers shall, promptly upon consummation of such agreement, pay to Pegasus Investors, L.P. the Expense Reimbursement up to a maximum of $500,000. (d) Bidding Protections Order. The Sellers shall use commercially reasonable efforts to obtain an order in the form annexed as Exhibit D hereto (the "Bidding Protections Order") of the Bankruptcy Court approving the provisions of this Section 9.2, and the Purchaser shall cooperate with and take such actions as reasonably requested by the Sellers in obtaining such order. The Bidding Protections Order shall provide that the Topping Fee and the Expense Reimbursement shall be payable by Sellers as set forth above. Section 9.3. Termination. Anything in this Agreement to the contrary notwithstanding, this Agreement and the transactions contemplated hereby may be terminated in any of the following ways at any time before the Closing and in no other manner: (a) By mutual written consent of Purchaser and the Sellers (in the case of the Sellers, upon consultation with, and with the consent of, the Official Committee); or (b) By Purchaser as provided in Section 2.10; or (c) By the Sellers as provided in Section 9.2; (d) By Purchaser or the Sellers (if such terminating party is not then in default of any obligation hereunder), if the Closing has not occurred on or before August 31, 1998; (e) By the Sellers or Purchaser (if such terminating party is not then in default of any obligation hereunder) if the other party is in breach in any material respect of any of its representations made in this Agreement, or is in violation or default of any of its covenants or agreements in this Agreement; 32 (f) By Purchaser or the Sellers, within two Business Days following July 15, 1998, if the Bidding Protections Order is not entered by July 15, 1998 or such Bidding Protections Order has not been consented to by the DIP Lenders by July 15, 1998; (g) By Purchaser or the Sellers, within two Business Days following July 20, 1998, if Purchaser has not obtained the Financing Commitments on or before July 20, 1998; or (h) By Purchaser or the Sellers, within two Business Days following July 20, 1998, if the Purchaser Agreements shall not have been entered into and delivered to the Sellers on or before July 20, 1998. Section 9.4. Effects of Termination. (a) In the event this Agreement is terminated pursuant to Section 9.3, except as provided in this Section 9.4, all further obligations of the parties hereunder shall terminate. (b) Notwithstanding anything contained in this Agreement to the contrary, the Sellers shall have no liability or obligation under this Article IX unless and until the Bidding Protections Order shall have been entered by the Bankruptcy Court and the DIP Lenders shall have consented to the Bidding Protections Order. Thereafter, the Sellers' liability for any termination of this Agreement solely shall be as follows: (i) In the event this Agreement is terminated other than as set forth below in Section 9.4(b)(ii), the Sellers shall only be liable to Pegasus Investors, L.P. for the Expense Reimbursement pursuant and subject to the terms of Section 9.2(c). (ii) In the event this Agreement is terminated due to the Sellers' execution of an agreement providing for a G&G Superior Proposal, the Sellers shall be liable to Pegasus Investors, L.P. for (i) the Topping Fee pursuant and subject to the terms of Section 9.2(b) and (ii) the Expense Reimbursement pursuant and subject to the terms of Section 9.2(c). (c) In the event this Agreement is terminated pursuant to Section 9.3(e) (by the Sellers solely as a result of any default or breach by Purchaser), Purchaser shall be liable for any and all Damages incurred or suffered by any Seller as a result of such default or delay, up to a maximum of $3 million. Each of Pegasus Partners, L.P. and Pegasus Related Partners, L.P. acknowledges and agrees that it shall have joint and several liability with Purchaser up to such maximum amount of Damages. 33 (d) The foregoing provisions of this Section 9.4 shall not limit the rights of the parties hereto to seek specific performance of any obligation hereunder of any other party. ARTICLE X. TAXES The parties hereto hereby covenant and agree as follows: Section 10.1. Taxes Related to Purchase of Assets. The parties recognize and acknowledge that, because the sale, transfer, assignment and delivery of the Purchased Assets is being made in connection with the Sellers' plan of reorganization, they may be exempt under section 1146(c) of the Bankruptcy Code and the Order from all state and local transfer, recording, stamp or other similar transfer taxes (collectively, "Transaction Taxes") that may be imposed by reason of the sale, transfer, assignment and delivery of the Purchased Assets; provided, however, that if Transaction Taxes are assessed for any reason, then the Sellers shall bear the cost of such Transaction Taxes along with any recording and filing fees. Purchaser and the Sellers agree to cooperate to determine the amount of Transaction Taxes payable in connection with the transactions contemplated under this Agreement. Transaction Taxes shall not include any Taxes for which the Sellers are responsible under Section 10.2. Sellers shall bear the cost of any use or sales tax that may be imposed as a result of the transactions contemplated hereby or, together with Purchaser, jointly seek to establish a basis for an exemption therefrom. Purchaser and the Sellers agree to cooperate in the preparation and filing of any and all required returns for or with respect to such Transaction Taxes and/or use or sales taxes with any and all appropriate taxing authorities. Section 10.2. Cooperation on Tax Matters. Purchaser and the Sellers agree to furnish or cause to be furnished to each other, as promptly as practicable, such information and assistance relating to the Business as is reasonably necessary for the preparation and filing of any Tax Return, claim for refund or other required or optional filings relating to tax matters, for the preparation for and proof of facts during any tax audit, for the preparation for any tax protest, for the prosecution or defense of any suit or other proceeding relating to tax matters and for the answer of any governmental or regulatory inquiry relating to tax matters. Purchaser agrees to retain possession of all files and records delivered to Purchaser by the Sellers for a period of at least six years from the Closing Date. In addition, from and after the Closing Date, Purchaser agrees that it will provide access to the Sellers and their attorneys, accountants and other representatives (after reasonable notice and during normal 34 business hours) to such files and records as the Sellers may reasonably deem necessary to properly prepare for, file, prove, answer, prosecute and/or defend any such return, filing, audit, protest, claim, suit, inquiry or other proceeding. Sellers shall reimburse Purchaser for any reasonable out-of-pocket costs incurred by Purchaser (but not for overhead or cost of salaries or benefits of Purchaser's personnel) in providing such access. ARTICLE XI. EMPLOYEES AND EMPLOYEE BENEFIT PLANS Section 11.1. Employment. (a) Offer to Hire. Effective as of the Closing Date, Purchaser shall (i) offer to hire, in a comparable position and at the same rate of pay, each active Business Employee who is primarily involved in the conduct of the Business on the day immediately prior to the Closing Date and all those inactive Business Employees who are on approved leave on the Closing Date because of jury duty, family or medical leave, sick leave, vacation or military duty or (ii) pay and discharge all severance obligations (including any WARN (as defined below) liability triggered as a result of Purchaser's failure to offer employment to such Business Employees) owed to the Business Employees set forth in the preceding sentence to which Purchaser does not offer employment. Purchaser shall be responsible for any obligations or Liabilities to the Business Employees under the Worker Adjustment and Retraining Notification Act and any similar state or local "plant closing" law ("WARN") to the extent WARN thresholds are exceeded as a result of actions taken by the Purchaser on or after the Closing Date with respect to the Business Employees. The Sellers shall be responsible for any obligations or Liabilities to the Business Employees under WARN as a result of actions taken by the Sellers prior to the Closing Date. (b) Transferred Employees. The Business Employees who accept and commence employment with Purchaser and whose terms and conditions of employment are covered by a collective bargaining agreement with any of the Sellers immediately prior to the Closing Date shall be referred to herein as "Transferred Union Employees." The Business Employees who accept and commence employment with Purchaser and whose terms and conditions of employment are not covered by a collective bargaining agreement with any of the Sellers immediately prior to the Closing Date shall be referred to herein as "Transferred Non-Union Employees." Collectively, the Transferred Union Employees and the Transferred-Non Union Employees shall be referred to herein as the "Transferred Employees." Purchaser's obligation with respect to Transferred Employees shall commence as of the Closing Date. Upon request of Purchaser, the Sellers shall 35 provide Purchaser reasonable access to and copies of data regarding ages, dates of hire, compensation, job description and, subject to applicable law, such other personnel records as Purchaser may reasonably request in respect of the Business Employees. (c) Terms of Employment. For the period ending one year after the Closing Date, Purchaser will provide Transferred Non-Union Employees with benefits under Purchaser's employee benefit plans which are substantially equivalent to those provided to such employees pursuant to the Plans specified in Schedule 3.11(a) and will provide Transferred Union Employees with such benefits as shall be required under the terms of any applicable collective bargaining agreement covering such employees from and after the Closing Date. Except as provided otherwise in this Article XI or as required by the terms of any collective bargaining agreement, the Transferred Employees' employment with Purchaser shall be upon such terms and conditions as Purchaser, in its sole discretion, shall determine, and nothing herein expressed or implied by this Agreement shall confer upon any Business Employee, or legal representative thereof, any rights or remedies, including any right to employment, or for any specified period, of any nature or kind whatsoever, under or by reason of this Agreement. Section 11.2. Collective Bargaining Agreements. Effective as of the Closing Date, Purchaser shall assume until their scheduled expiration dates the collective bargaining agreements listed on Schedule 3.10 in respect of the Transferred Union Employees and shall be solely responsible for discharging all obligations (including the establishment of such employee benefit plans, programs and arrangements as may be required by such collective bargaining agreements) and Liabilities arising thereunder on and after the Closing Date. Purchaser shall have no responsibility or Liability in respect of any collective bargaining agreement covering any current or former employees of the Sellers during the period of employment by the Sellers. Section 11.3. Employee Welfare Benefit Plans. Except with respect to any claim that is covered by an Assigned Contract or otherwise constitutes an Assumed Liability, the Sellers shall retain responsibility for all hospital, medical, life insurance, disability and other welfare plan expenses and benefits, and for all workers' compensation, unemployment compensation and other government mandated benefits (collectively referred to herein as "Welfare Type Plans"), in respect of claims covered by Plans and which are incurred by Transferred Employees and their dependents prior to the Closing Date. Purchaser shall be responsible for all claims incurred on or after the Closing Date by Transferred Employees and their dependents under all Welfare Type Plans that are maintained by Purchaser for the Transferred Employees and their dependents. For purposes of this Section 11.3, claims shall be deemed to have been incurred: 36 (a) with respect to all death or dismemberment claims, on the actual date of death or dismemberment; (b) with respect to all disability claims, other than short-term disability or salary continuation benefits, on the date the claimant became unable to (i) perform his or her regular duties of employment, in the case of an employee claimant, or (ii) perform the normal day-to-day responsibilities that would reasonably be expected of someone of similar age and lifestyle, in the case of a dependent claimant; (c) with respect to short-term disability or salary continuation claims, on each day for which income benefits are payable to the claimant; (d) with respect to all medical, drug or dental claims, on the date the service was received or the supply was purchased by the claimant; provided, however, that a medical claim relating to a claimant's hospitalization shall be deemed to be incurred on the date the claimant was first hospitalized; and (e) with respect to workers' compensation claims, on the date the incident occurred. Transferred Employees shall participate as of the Closing Date under Welfare Type Plans established or provided by Purchaser without, to the extent practicable, any waiting periods, any evidence of insurability and any preexisting physical or mental condition restrictions (except to the extent applicable and unsatisfied under the Sellers' Welfare Type Plans), and Purchaser shall provide credit, to the extent recognized by a similar Plan of the Sellers, for claims incurred prior to the Closing Date for purposes of applying deductibles, co-payments, out of pocket maximums and benefit maximums. Prior to and following the Closing Date, the Sellers shall provide Purchaser with the records and other data needed for Purchaser to comply with the provisions of this Section. At Purchaser's request, the Sellers shall, to the extent practicable, arrange to have coverage under their Welfare Type Plans extended for the Transferred Employees through the end of the month in which the Closing occurs. Section 11.4. COBRA. Purchaser shall have sole responsibility for "continuation coverage" benefits provided after the Closing Date under Purchaser's group health plans to all Transferred Employees, and "qualified beneficiaries" of Transferred Employees, for whom a "qualifying event" occurs after the Closing Date. The Sellers shall be responsible for providing any notices to the Transferred Employees required pursuant to the Consolidated Omnibus Budget Reconciliation Act, and shall have sole responsibility for "continuation coverage" benefits provided under the Sellers' group health plans to all employees of the Sellers, and "qualified beneficiaries" of employees of the 37 Sellers, for whom a "qualifying event" has occurred on or prior to the Closing Date. The terms "continuation coverage," "qualified beneficiaries" and "qualifying event" shall have the meanings ascribed to them under Section 4980B of the Code and Sections 601-608 of ERISA. Section 11.5. G & G Profit Sharing Plan. G&G currently sponsors and maintains a qualified defined contribution profit sharing plan known as the G&G Retirement Plan and Trust (the "Profit Sharing Plan") which provides certain retirement benefits for certain eligible employees of the G&G Sellers, including certain Transferred Employees. Effective as of the Closing Date, the Sellers and Purchaser shall take all necessary and appropriate action to cause Purchaser to assume the sponsorship of the Profit Sharing Plan. Purchaser and the Sellers agree that the Purchaser shall be deemed the successor to and assignee of the Sellers for all purposes under the Profit Sharing Plan, including for purposes of determining the date on which a termination of employment, separation from service or other similar event has occurred under the Profit Sharing Plan. As of the Closing Date, the Sellers and their respective Affiliates shall have no Liability for the payment of benefits to any participants accrued under the Profit Sharing Plan before or after the Closing Date, and Purchaser shall indemnify and hold the Sellers and their respective Affiliates harmless from and against any Liability as a result of any claim against a Seller or its Affiliates for the payment of benefits under the Profit Sharing Plan. Nothing contained herein shall interfere with Purchaser's right to amend or terminate the Profit Sharing Plan, in accordance with its terms and applicable law, following its assumption. Section 11.6. 401(k) Savings Plan. G&G is currently a Participating employer in two 401(k) plans known as the Petrie Retail, Inc. 401(k) Savings Plan and the Petrie Retail, Inc. 401(k) Plan for UAW Local 2326 Employees (collectively the "Seller Savings Plans") which provide benefits for certain of the Transferred Employees. Effective as of the Closing Date, Purchaser shall adopt or provide a savings plan or plans with a cash or deferred arrangement that is qualified under Section 401(a) of the Code on behalf of the Transferred Employees who participated in the Seller Savings Plans (the "Purchaser Savings Plan"), and that expressly provides that: (i) Transferred Employees who were participants in the Seller Savings Plans immediately prior to the Closing Date will continue their participation in the Purchaser Savings Plans as of the Closing Date without interruption and (ii) all Transferred Employees will have their months and years of service with the Sellers and their Affiliates which is recognized under the Seller Savings Plans credited for eligibility, vesting and other purposes for which service is taken into account under the Seller Savings Plans. As soon as practicable after the Closing Date, the Sellers shall cause the assets of the trust under the Seller Savings Plans in respect of the aggregate benefits accrued (including unvested 38 benefits) under the Seller Savings Plans by the Transferred Employees to be valued and transferred to the trust under the Purchaser Savings Plan; provided, however, that Purchaser shall first have provided the Sellers with either a copy of a favorable determination letter from the IRS or an opinion of counsel reasonably satisfactory to the Sellers regarding the qualification, in form, of the Purchaser Savings Plan under Section 401(a) of the Code. The assets to be transferred from the trust under the Seller Savings Plans pursuant to this Section 11.6 shall be in cash or, to the extent mutually agreed to by the Sellers and Purchaser, a combination of cash, securities and other property; provided, however, that any outstanding loans attributable to the accounts of the Transferred Employees shall be transferred in kind. The actual amount transferred from the trust under the Seller Savings Plans shall be adjusted to reflect any normal and reasonable administrative expenses properly attributable to the accounts of the Transferred Employees during the period following the Closing Date. At the time the assets that are held in the trust with respect to the Transferred Employees under the Seller Savings Plans are paid to the trust under the Purchaser Savings Plans, the Purchaser Savings Plans shall assume all liabilities of the Seller Savings Plans for the applicable benefits so transferred, and such transfer shall be in full discharge of all obligations of the Seller Savings Plans in respect thereof. During the period following the Closing Date and preceding the transfer of assets and liabilities pursuant to this Section 11.6, (i) the Sellers shall take such action as is necessary to prevent a default by any Transferred Employee with an outstanding loan from the Seller Savings Plans unless and until such Transferred Employee fails to make a timely payment on such loan and (ii) Purchaser will cooperate with and assist the Sellers or their designee in the continued administration of the Seller Savings Plans, including, subject to the consent of the Transferred Employee, collecting and remitting to the trustee of the Seller Savings Plans payroll deductions relating to any outstanding loans. Notwithstanding the above, the amount transferred to the trust under the Purchaser Savings Plans shall in no event be less than the amount necessary to satisfy the requirements of Section 414(l) of the Code and ERISA. Section 11.7. Puerto Rico Savings Plan. G&G is currently a Participating employer in a plan known as the Petrie Retail, Inc. Savings Plan for Puerto Rico Employees (the "Seller Puerto Rico Plan") which provides certain deferred compensation benefits for certain eligible employees of the Sellers, including certain of the Transferred Employees. Effective as of the Closing Date, Purchaser shall adopt or provide a savings plan or plans with a cash or deferred arrangement that is qualified under Section 1165(a) of the Puerto Rico Internal Revenue Code of 1994 on behalf of the Transferred Employees (the "Purchaser Puerto Rico Plan"), and that expressly provides that: (i) Transferred Employees who were Participants in the Seller Puerto Rico Plan immediately prior to the Closing Date will continue their participation in the Purchaser Puerto Rico Plan as of the Closing 39 Date without interruption, and (ii) all Transferred Employees will have their months and years of service with the Sellers and their Affiliates which is recognized under the Seller Puerto Rico Plan credited for eligibility, vesting and other purposes for which service is taken into account under the Seller Puerto Rico Plan. As soon as practicable after the Closing Date, the Sellers shall cause the assets of the trust under the Seller Puerto Rico Plan in respect of the aggregate benefits accrued (including unvested benefits) under the Seller Puerto Rico Plan by the Transferred Employees to be valued and transferred to the trust under the Purchaser Puerto Rico Plan; provided, however, that Purchaser shall first have provided the Sellers with either a copy of a favorable determination letter from the Puerto Rico Department of Treasury or an opinion of counsel reasonably satisfactory to the Sellers regarding the qualification, in form, of the Purchaser Puerto Rico Plan under Section 1165 of the Puerto Rico Internal Revenue Code of 1994. The assets to be transferred from the trust under the Seller Puerto Rico Plan pursuant to this Section 11.7 shall be in cash or, to the extent mutually agreed to by the Sellers and Purchaser, a combination of cash, securities and other property; provided, however, any outstanding loans attributable to the accounts of the Transferred Employees shall be transferred in kind. The actual amount transferred from the trust under the Seller Puerto Rico Plan shall be adjusted to reflect any normal and reasonable administrative expenses properly attributable to the accounts of the Transferred Employees during the period following the Closing Date. At the time the assets that are held in the trust with respect to the Transferred Employees under the Seller Puerto Rico Plan are paid to the trust under the Purchaser Puerto Rico Plans, the Purchaser Puerto Rico Plans shall assume all liabilities of the Seller Puerto Rico Plan for the applicable benefits so transferred, and such transfer shall be in full discharge of all obligations of the Seller Puerto Rico Plan in respect thereof. During the period following the Closing Date and preceding the transfer of assets and liabilities pursuant to this Section 11.7, (i) the Sellers shall take such action as is necessary to prevent a default by any Transferred Employee with an outstanding loan from the Seller Puerto Rico Plan unless and until such Transferred Employee fails to make a timely payment on such loan and (ii) Purchaser will cooperate with and assist the Sellers or their designee in the continued administration of the Seller Puerto Rico Plan, including, subject to the consent of the Transferred Employee, collecting and remitting to the trustee of the Seller Puerto Rico Plan payroll deductions relating to any outstanding loans. Notwithstanding the above, the amount transferred to the trust under the Purchaser Puerto Rico Plans shall in no event be less than the amount necessary to satisfy the applicable requirements of the Puerto Rico Internal Revenue Code of 1994. Section 11.8. Vacation and Sick Leave. Each Transferred Employee will be credited by Purchaser with any unused vacation and sick leave earned as of the Closing Date 40 under the vacation and sick leave policy of the Sellers applicable to such Transferred Employee, and the Sellers shall have no Liability therefor following the Closing Date. Purchaser shall recognize service by each Transferred Employee with the Sellers for purposes of determining entitlement to vacation and sick leave following the Closing Date under the applicable vacation and sick leave policy of the Sellers; provided, however, that this Section 11.8 shall not be construed so as to entitle any Transferred Employee to be credited with any benefits under Purchaser's vacation and sick leave policy with respect to any period of employment prior to the Closing Date other than as provided in the preceding sentence. Section 11.9. Severance Benefits. Purchaser agrees that in the event that any Business Employee does not accept employment with Purchaser, Purchaser will provide such person with a severance benefit which is not less than one week's salary for each year of such person's service with the Sellers and Purchaser, but not less than two weeks or more than 12 weeks. Purchaser further agrees that in the event that (i) any Business Employee whose terms and conditions of employment are covered by a collective bargaining agreement with any of the Sellers immediately prior to the Closing Date or (ii) any Transferred Union Employee does not accept employment with Purchaser or is terminated by Purchaser, other than for cause, during the one-year period immediately following the Closing Date, Purchaser will make all payments required by the terms of the collective bargaining agreements covering such persons. Notwithstanding the foregoing, in the event the individuals set forth on Schedule 11.9 are entitled to payment under the Change in Control Severance Plan Covering Key Employees of Petrie Retail, Inc. and its Operating Subsidiaries (the "Change in Control Plan"), Purchaser agrees to make all payments to such individuals, on behalf of Sellers, required by the terms of the Change in Control Plan, in lieu of the severance benefits required by the preceding sentence. The parties agree that nothing contained in this Section 11.9 shall be deemed to confer upon any Person other than the parties to this Agreement any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement. ARTICLE XII. INDEMNIFICATION Section 12.1. Indemnification by the Purchaser. From and after the date of this Agreement, the Purchaser will indemnify, defend and hold the Sellers, their Affiliates and their respective officers, directors, employees and agents harmless from and against any and all claims, actions, suits, demands, assessments, judgments, losses, liabilities, damages, penalties, costs and expenses (including, without limitation, reasonable attorneys' fees to the extent permitted by law and accounting fees and investigation costs) (collectively, "Losses") 41 that may be incurred by any such indemnified party and, directly or indirectly, resulting or arising from, related to or incurred in connection with (i) the use or operation of the Purchased Assets or the conduct of the Business after the Closing Date, (ii) the Assumed Liabilities, (iii) those liabilities and obligations arising after the Closing Date under the Assigned Contracts included in the Purchased Assets and acquired by the Purchaser hereunder; provided, however, that this Section 12.1 does not apply to any such liabilities and obligations arising from breaches of such Assigned Contracts or defaults under Assigned Contracts by the Sellers, and (iv) any breach of any representation or warranty or any covenant, obligation or agreement of the Purchaser contained in this Agreement; provided, further, that Purchaser shall not be required to indemnify the Sellers under this clause (iv) of this Article XII in respect of any Losses related to any breach of any of the Purchaser's representations and warranties ("Purchaser Breach Losses") until the aggregate amount of all Purchaser Breach Losses exceeds $500,000, whereupon Purchaser shall be required to indemnify the Sellers in respect of all Purchaser Breach Losses and not only those in excess of $500,000. Section 12.2. Indemnification by the Sellers. From and after the date of this Agreement, each Seller will indemnify, defend and hold the Purchaser, its Affiliates and their respective officers, directors, employees and agents harmless from and against any and all Losses that may be incurred by any such indemnified party, directly or indirectly resulting or arising from, related to or incurred in connection with (i) the Excluded Liabilities, (ii) the Excluded Assets (iii) liabilities in connection with the Non-Assignable Leases and (iv) any breach of any representation or warranty or any covenant, obligation or agreement of the Sellers contained in this Agreement; provided, that, with respect to this clause (iv), the indemnification rights of Purchaser with respect to Losses related to any breach of any of the Sellers' representations and warranties set forth in (a) Section 3.1, Section 3.2 (other than the representation and warranty made in clause (ii) thereof), Section 3.3 (other than the representation and warranty made in clause (ii) thereof), Section 3.6(a) (second sentence only), Section 3.11, Section 3.15 (other than with respect to the representations and warranties related to any state or local sales or use Tax, ad valorem personal property Tax, payroll Tax arising after January 31, 1998 or, with respect to the Leases, any real property Tax relating to the Leases) and Section 3.17 ("Non-Business Seller Breach Losses") and (b) clause (ii) of Section 3.2, clause (ii) of Section 3.3, Section 3.4, Section 3.6 (other than the second sentence of Section 3.6(a), Section 3.8, Section 3.9, Section 3.10, Section 3.13 and Section 3.16 ("Business Seller Breach Losses" and, together with the Business Seller Breach Losses, the "Seller Breach Losses") shall survive only for the applicable Survival Periods; and provided, further, that the Sellers shall not be required to indemnify Purchaser under this clause (iv) of this Article XII in respect of any Seller Breach Loss until the 42 aggregate amount of all Seller Breach Losses exceeds $500,000 (the "Aggregate Basket Amount"), whereupon the Sellers shall be required to indemnify Purchaser in respect of all Seller Breach Losses and not only those in excess of the Aggregate Basket Amount; and provided, further, that the Sellers shall only be liable under this clause (iv) of this Article XII for Business Seller Breach Losses up to an aggregate amount of $4,500,000, it being understood that the Sellers shall be liable under this Article XII for all Non-Business Seller Breach Losses. Section 12.3. Notice of Claim; Right to Participate In and Defend Third Party Claim. (a) In the event that any indemnified party (which term includes all Persons entitled to indemnification under Section 12 and their successors and assigns) receives notice of the assertion of any claim, the commencement of any suit, action or proceeding or the imposition of any penalty or assessment by a third party in respect of which indemnity may be sought under this Agreement ("Third Party Claim") and the indemnified party intends to seek indemnity under this Agreement, then the indemnified party will promptly provide the indemnifying party with notice of the Third Party Claim. The failure by an indemnified party to notify an indemnifying party of a Third Party Claim does not relieve the indemnifying party of any indemnification responsibility under Section 12 unless and only to the extent that such failure adversely prejudices the ability of the indemnifying party to defend such Third Party Claim. (b) The indemnifying party has the right to control the defense, compromise or settlement of the Third Party Claim with counsel of its choosing if the indemnifying party delivers written notice to the indemnified party within seven calendar days following the indemnifying party's receipt of notice of the Third Party Claim from the indemnified party acknowledging its obligations to indemnify the indemnified party with respect to such Third Party Claim in accordance with this Section 12 and establishes security, or otherwise demonstrates its ability, in a manner reasonably satisfactory to the indemnified party to secure or provide for the indemnifying party's obligations under this Section 12 with respect to such Third Party Claim. In its defense, compromise or settlement of any Third Party Claim, the indemnifying party will provide the indemnified party, in a timely manner, with such information with respect to such defense, compromise or settlement as the indemnified party requests and will not assume any position or take any action that would impose an obligation of any kind or restrict the actions of the indemnified party. The indemnified party will be entitled (at the indemnified party's expense) to participate in the defense by the indemnifying party of any Third Party Claim with its own counsel. Notwithstanding the foregoing, if the indemnifying party fails, in the reasonable opinion of the indemnified party, to take reasonable steps necessary to defend a Third Party Claim within ten calendar days after receiving notice from the indemnified party that the indemnified party believes 43 the indemnifying party has failed to take such steps, the indemnified party may assume its own defense, and the indemnifying party will be responsible for any reasonable expenses therefor. Without the prior written consent of the indemnified party, the indemnifying party will not enter into any settlement or compromise of any Third Party Claim which could lead to liability or create any financial or other obligation on the part of the indemnified party for which the indemnified party is not entitled to reimbursement under this Agreement. (c) In the event that the indemnifying party does not undertake the defense, compromise or settlement of a Third Party Claim, the indemnified party has the right to control the defense or settlement of such Third Party Claim with counsel of its choosing at the cost of the indemnifying party; provided, however, that the indemnified party will not settle or compromise any Third Party Claim without the indemnifying party's prior written consent, unless (i) the terms of such settlement or compromise release the indemnified party and the indemnifying party from any and all liability with respect to the Third Party Claim or (ii) the indemnifying party has not (x) acknowledged its obligations to indemnify the indemnified party with respect to such Third Party Claim in accordance with this Section 12 and (y) established security, or otherwise demonstrated its ability, in a manner reasonably satisfactory to the indemnified party to secure or provide for the indemnifying party's obligations under this Section 12 with respect to such Third Party Claim. (d) Any indemnifiable claim under this Agreement that is not a Third Party Claim will be asserted by the indemnified party by promptly delivering notice thereof to the indemnifying party. If the indemnifying party does not respond to such notice within 15 calendar days after its receipt, it shall have no further right to contest the validity of such claim. Section 12.4. Right to Indemnification Not Affected by Knowledge. Subject to Section 3.19, the right to indemnification, payment of Losses or other remedy based on the representations, warranties, covenants and obligations in this Agreement will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant or obligation. ARTICLE XIII. MISCELLANEOUS PROVISIONS Section 13.1. Representations and Warranties. The representations and warranties of the parties to this Agreement made in this Agreement, subject to the exceptions thereto, will not be affected by any information furnished to, or any 44 investigation conducted by, any of them or their representatives in connection with the subject matter of this Agreement. Section 13.2. Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given (a) when delivered personally to the recipient, (b) when sent to the recipient by telecopy (receipt electronically confirmed by sender's telecopy machine) if during normal business hours of the recipient, otherwise on the next Business Day, (c) one (1) Business Day after the date when sent to the recipient by reputable express courier service (charges prepaid) or (d) seven (7) Business Days after the date when mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Such notices, demands and other communications will be sent to the Sellers and to Purchaser at the addresses indicated below: If to Purchaser: G+G Retail, Inc. 520 Eighth Avenue New York, New York 10018 Attention: Scott D. Galin Facsimile No. (212) 695-4952 and Pegasus Investors, L.P. 99 River Road Cos Cob, Connecticut 06807 Attention: Jonathan Berger Facsimile No. (203) 869-6940 With copies (which shall not constitute notice) to: Kaye, Scholer, Fierman, Hays & Handler, LLP 425 Park Avenue New York, New York 10022 Attention: Mark S. Selinger, Esq. Facsimile No. (212) 836-8689 and Shack & Siegel, P.C. 530 Fifth Avenue 16th Floor New York, New York 10036 Attention: Donald Shack, Esq. Facsimile No. (212) 730-1964 45 If to the Sellers: Petrie Retail, Inc. 150 Meadowlands Parkway Secaucus, New Jersey 07094 Attention: Michael B. McLearn Facsimile No. (201) 392-0938 With a copy Willkie Farr & Gallagher (which shall not 787 Seventh Avenue constitute notice) to: New York, New York 10019 Attention: Cornelius T. Finnegan III Facsimile No. (212) 728-8111 and Hahn & Hessen, LLP 350 Fifth Avenue Suite 3700 New York, New York 10118 Attention: Mark S. Indelicato Facsimile No. (212) 594-7167 or to such other address as any party hereto may, from time to time, designate in writing delivered pursuant to the terms of this Section. Section 13.3. Amendments. The terms, provisions and conditions of this Agreement may not be changed, modified or amended in any manner except by an instrument in writing duly executed by each of the parties hereto. Section 13.4. Assignment. This Agreement is binding upon and inures to the benefit of the successors and assigns of each party to this Agreement (including any trustee appointed in respect of the Sellers under the Bankruptcy Code), but no rights, obligations or liabilities under this Agreement may be assigned by any party without the prior written consent of the other parties hereto, except that Purchaser shall have the right, on or prior to the Closing Date, to assign all or any portion of its rights under this Agreement to one or more wholly owned subsidiaries of Purchaser and/or to one or more entities under common ownership with Purchaser; provided, however, that no such assignment shall relieve Purchaser of its obligations hereunder. Section 13.5. Announcements. All press releases, notices to customers and suppliers and other announcements prior to the Closing Date with respect to this Agreement and the transactions contemplated by this Agreement shall be approved by both Purchaser and PRI prior to the issuance thereof; provided that any party may make any public disclosure it believes in good faith is required by law or regulation (in which case the disclosing party shall advise the other party (which shall be PRI in the case of disclosure proposed to be made by Purchaser and Purchaser in the case of disclosure proposed to be made by any of 46 the Sellers) prior to making such disclosure and provide such other party an opportunity to review and comment on the proposed disclosure) Section 13.6. Expenses. Except as otherwise set forth in this Agreement, each party to this Agreement shall bear all of its legal, accounting, investment banking and other expenses incurred by it or on its behalf in connection with the transactions contemplated by this Agreement, whether or not such transactions are consummated. Section 13.7. Entire Agreement. This Agreement and the Ancillary Agreements constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede and are in full substitution for any and all prior agreements and understandings between them relating to such subject matter. The Exhibits and Schedules to this Agreement are hereby incorporated and made a part hereof and are an integral part of this Agreement. Section 13.8. Descriptive Headings. The descriptive headings of the several sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. Section 13.9. Counterparts. For the convenience of the parties, any number of counterparts of this Agreement may be executed by any one or more parties hereto, and each such executed counterpart shall be, and shall be deemed to be, an original, but all of which shall constitute, and shall be deemed to constitute, in the aggregate but one and the same instrument. Section 13.10. Governing Law; Jurisdiction. This Agreement shall be construed, performed and enforced in accordance with, and governed by, the laws of the State of New York, without giving effect to the principles of conflicts of laws thereof. For so long as the Sellers are subject to the jurisdiction of the Bankruptcy Court, the parties hereto irrevocably elect as the sole judicial forum for the adjudication of any matters arising under or in connection with this Agreement, and consent to the jurisdiction of, the Bankruptcy Court. After the Sellers are no longer subject to the jurisdiction of the Bankruptcy Court, the parties hereto irrevocably elect as the sole judicial forum for the adjudication of any matters arising under or in connection with this Agreement, and consent to the jurisdiction of, the courts of the County of New York, State of New York or of the United States of America for the Southern District of New York. Section 13.11. Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party. Any references to any federal, state, local or foreign statute or law will also 47 refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. Unless the context otherwise requires: (a) a term has the meaning assigned to it by this Agreement; (b) an accounting term not otherwise defined has the meaning assigned to by GAAP; (c) the word "or" is not exclusive; (d) the words "include", "includes" and "including" shall be deemed to be followed by the words "without limitation"; (e) words in the singular include the plural and in the plural include the singular; (f) provisions apply to successive events and transactions; and (g) "$" means the currency of the United States of America. 48 Section 13.12. Substantive Consolidation. Purchaser hereby acknowledges that the Cases have been substantively consolidated and agrees that the Sellers shall not be deemed to have breached any representations, warranties or covenants hereunder solely as a result of such substantive consolidation. Section 13.13. Severability. In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument. Furthermore, in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be valid and enforceable. IN WITNESS WHEREOF, the Sellers and Purchaser have executed and delivered this Agreement as of the day and year first written above. G & G SHOPS, INC. By: /s/ Edwin J. Holman --------------------------------- Name: Edwin J. Holman Title: Chairman of the Board PSL, INC. By: /s/ Edwin J. Holman --------------------------------- Name: Edwin J. Holman Title: Chairman and Chief Executive Officer 49 78 Nassau Street Corp. 458 Seventh Avenue Corporation G & G Island Corporation G & G Shops of Brooklyn, Inc. G & G Shops of Maryland, Inc. G & G Shops of Mid-Island Corp. G & G Shops of Nanuet, Inc. G & G Shops of New England, Inc. G & G Shops of New York, Inc. G & G Shops of North Carolina, Inc. G & G Shops of Pennsylvania, Inc. G & G Shops of Woodbridge, Inc. Sco-Jef Mercantile Corp. By: /s/ Edwin J. Holman --------------------------------- Name: Edwin J. Holman Title: Chairman of the Board 50 157 De Diego Corporation 61 Dr. Veve Corporation Caribe Apparel Corporation Christina El Senorial Corp. Cumbres Apparel Corp. Dayson's Cupey Corp. Dayson's of Ponce, Inc. El Canton Apparel Corp. Franklin 198 Corp. Franklin 203 Corp. Franklin 203 Corp. Franklin 221 Corp. Franklin 253 Corp. Marianne Estrella Corp. Noya Carolina Corp. N. Calimano MPA Corp. Progresso-Corchado Corp. Rave Apparel of Bayamon Corporation Rave Apparel Corporation of Humacao Whitney Stores, Inc. By: /s/ Edwin J. Holman --------------------------------- Name: Edwin J. Holman Title: Chairman and Chief Executive Officer 51 G+G RETAIL, INC. By: /s/ Jonathan Berger --------------------------------- Name: Jonathan Berger Title: Vice President PEGASUS PARTNERS, L.P. By: /s/ Jonathan Berger --------------------------------- Name: Jonathan Berger Title: Vice President As to Section 9.4 only. PEGASUS RELATED PARTNERS, L.P. By: /s/ Jonathan Berger --------------------------------- Name: Jonathan Berger Title: Vice President As to Section 9.4 only. EXHIBIT A ASSIGNMENT AND ASSUMPTION AGREEMENT KNOW ALL MEN BY THESE PRESENTS, that the Sellers (the "Assignors" hereunder), pursuant to the terms of that certain Asset Purchase Agreement, dated July 6, 1998, by and among the Sellers and Purchaser (the "Agreement"), for and in consideration of Ten Dollars ($10.00) and other good and valuable consideration from G+G Retail, Inc., a Delaware corporation ("Assignee"), the receipt and sufficiency of which are hereby acknowledged by Assignors, do hereby assign, transfer, sell and convey unto Assignee, its successors and assigns, all of Assignors' right, title and interest in, to and under the Assigned Contracts described on Exhibit A attached hereto and incorporated herein by reference, together with all renewal options, if any, options to purchase and all other rights privileges and benefits belonging to or held by Assignors under the Assigned Contracts. TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns forever, subject, however, to all terms, conditions and provisions in the Assigned Contracts. In consideration for the foregoing assignment, Assignee hereby accepts the foregoing assignment and agrees to assume, perform and be bound by all of the duties, obligations and liabilities of Assignors under the Assigned Contracts arising on and after the date hereof. Assignors further agree to execute and deliver to Assignee such further instruments of transfer and assignment as Assignee may from time to time reasonably request in order to transfer and assign to and vest in Assignee all of the rights, privileges and property hereby transferred and assigned or intended so to be. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Agreement. A-1 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed to be effective as of the ___ day of July, 1998. G & G SHOPS, INC. By:___________________________ Name: Title: PSL, INC. By:___________________________ Name: Title: A-2 78 Nassau Street Corp. 458 Seventh Avenue Corporation G & G Island Corporation G & G Shops of Brooklyn, Inc. G & G Shops of Maryland, Inc. G & G Shops of Mid-Island Corp. G & G Shops of Nanuet, Inc. G & G Shops of New England, Inc. G & G Shops of New York, Inc. G & G Shops of North Carolina, Inc. G & G Shops of Pennsylvania, Inc. G & G Shops of Woodbridge, Inc. Sco-Jef Mercantile Corp. By:___________________________ Name: Title: A-3 157 De Diego Corporation 61 Dr. Veve Corporation Caribe Apparel Corporation Christina El Senorial Corp. Cumbres Apparel Corp. Dayson's Cupey Corp. Dayson's of Ponce, Inc. El Canton Apparel Corp. Franklin 198 Corp. Franklin 203 Corp. Franklin 203 Corp. Franklin 221 Corp. Franklin 223 Corp. Marianne Estrella Corp. Noya Carolina Corp. N. Calimano MDA Corp. Progresso-Corchado Corp. Rave Apparel Corp of Bayamon Rave Apparel Corp of Humacao Whitney Stores, Inc. By:___________________________ Name: Title: A-4 G+G RETAIL, INC. By:___________________________ Name: Title: A-5 EXHIBIT B BILL OF SALE AND ASSUMPTION AGREEMENT KNOW ALL MEN BY THESE PRESENTS: That the Sellers, in consideration for their receipt of the Purchase Price and for other good and valuable consideration paid to the Sellers by G+G RETAIL, INC., a Delaware corporation (the "Purchaser"), receipt and sufficiency of which is hereby accepted and acknowledged, have granted, bargained, sold, transferred, assigned and delivered, and notwithstanding that the following property may be conveyed by separate and specific transfer documents, by these presents do hereby grant, bargain, sell, transfer, assign and deliver unto said Purchaser all of their right, title and interest in the assets, property and property rights collectively constituting the Purchased Assets owned by the Sellers under that certain Asset Purchase Agreement, dated July 6, 1998, by and among the Sellers and Purchaser (the "Agreement") (all capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Agreement) and consisting of the following: (a) all Leases, Leased Property and improvements and other appurtenances thereto and rights in respect thereof; (b) all inventories and other tangible personal property; (c) all Equipment and Fixtures; (d) all accounts receivable and notes receivable and other claims for money or other obligations due to the Sellers including, without limitation, construction allowances from landlords under the Leases, vendor credits pursuant to the Assigned Contracts and, in each case, all proceeds thereof; (e) all of the Sellers' Intellectual Property, as well as all goodwill associated with the Business; (f) all right, title and interest in, to and under the Assigned Contracts; (g) all books and records relating primarily to the Business (including such books and records as are contained in computerized storage media), including books and records related to inventory, purchasing, accounting, sales, maintenance, repairs, marketing, banking, Intellectual Property, shipping records, personnel files for Transferred Employees and all B-1 files, customer and supplier lists, records, literature and correspondence related to the Business; provided, however, that the Sellers shall be entitled to make and retain copies of such books and records to the extent they relate to Excluded Assets or Excluded Liabilities or are otherwise required in the administration of the estates of the Sellers and their affiliates and the Cases; (h) to the extent legally assignable, all Permits; (i) to the extent that any of the following relate to any Assumed Liability or any of the Purchased Assets: claims, deposits, prepayments, prepaid assets, refunds (excluding Tax refunds), causes of action, rights of recovery, rights of setoff and rights of recoupment of the Sellers as of the Closing Date, including, to the extent assignable without additional cost to the Sellers, any such rights of the Sellers under any property, casualty, workers' compensation or other insurance policy or related insurance services contract respecting the Business (other than prepaid premiums and deposits); and (j) all cash received by the Sellers on account of sales (including credit card sales) or receivables from and after the Closing Date; TO HAVE AND TO HOLD the same unto said Purchaser and its successors and assigns, to and for its or their use, forever; and The Sellers do hereby warrant that they are the lawful owners of the foregoing Purchased Assets; that the foregoing Purchased Assets are free and clear of all Liens (except as may otherwise be stated in the Agreement); and that the Sellers have the right to sell the foregoing Purchased Assets; and To the extent provided in the Agreement, the Sellers do hereby agree to warrant and defend the sale of the foregoing Purchased Assets hereby made unto the Purchaser and its successors and assigns against all persons whomsoever; and The Sellers hereby constitute and appoint, effective as of the date hereof, the Purchaser, its successors and assigns as the true and lawful attorney-in-fact of the Sellers with full power of substitution in the name of such Purchaser or in the name of the Sellers but for the benefit of the Purchaser (a) to collect for the account of the Purchaser any item of the foregoing Purchased Assets and (b) to institute and prosecute all proceedings which the Purchaser may in its discretion deem proper in order to assert or enforce any right, title or interest in or to the foregoing Purchased Assets and to defend or compromise any and all actions, suits or proceedings in respect of any of the foregoing Purchased Assets. The Purchaser shall be entitled to B-2 retain for its own account any amounts collected pursuant to the foregoing powers, including any amounts payable as interest in respect thereof. The Purchaser shall indemnify and hold harmless each Seller for damages arising out of the performance of its duties hereunder. THE SELLERS HEREBY DECLARE THAT THE FOREGOING APPOINTMENT IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE AND PERPETUAL AND SHALL NOT BE TERMINATED BY ANY ACT OF THE SELLERS OR THEIR SUCCESSORS OR ASSIGNS, BY OPERATION OF LAW OR BY THE OCCURRENCE OF ANY OTHER EVENT OR IN ANY OTHER MANNER. B-3 IN WITNESS WHEREOF, the Sellers have caused this Bill of Sale and Assumption Agreement to be executed by its proper corporate officers this ____ day of _____, 1998. G & G SHOPS, INC. BY: ____________________ Name: Title: PSL, INC. BY: ____________________ Name: Title: B-4 78 Nassau Street Corp. 458 Seventh Avenue Corporation G & G Island Corporation G & G Shops of Brooklyn, Inc. G & G Shops of Maryland, Inc. G & G Shops of Mid-Island Corp. G & G Shops of Nanuet, Inc. G & G Shops of New England, Inc. G & G Shops of New York, Inc. G & G Shops of North Carolina, Inc. G & G Shops of Pennsylvania, Inc. G & G Shops of Woodbridge, Inc. Sco-Jef Mercantile Corp. By:_____________________________ Name: Title: B-5 157 De Diego Corporation 61 Dr. Veve Corporation Caribe Apparel Corporation Christina El Senorial Corp. Cumbres Apparel Corp. Dayson's Cupey Corp. Dayson's of Ponce, Inc. El Canton Apparel Corp. Franklin 198 Corp. Franklin 203 Corp. Franklin 203 Corp. Franklin 221 Corp. Franklin 223 Corp. Marianne Estrella Corp. Noya Carolina Corp. N. Calimano MDA Corp. Progresso-Corchado Corp. Rave Apparel Corp of Bayamon Rave Apparel Corp of Humacao Whitney Stores, Inc. By:_________________________ Name: Title: B-6 UNITED STATES BANKRUPTCY COURT EXHIBIT C SOUTHERN DISTRICT OF NEW YORK - -------------------------------------X In re : Chapter 11 PETRIE RETAIL, INC., et al. : Case No. 95 B 44528 (AJG) : (Jointly Administered) : Debtors. - -------------------------------------X ORDER PURSUANT TO SECTIONS 105, 363, 365 AND 1146 OF THE BANKRUPTCY CODE: (A) AUTHORIZING SUBJECT DEBTORS TO (i) SELL SUBSTANTIALLY ALL OF THE ASSETS RELATING TO THE BUSINESS OF G&G SHOPS, INC. AND CERTAIN OF ITS AFFILIATES, AND (ii) ASSUME, ASSIGN AND/OR SELL CERTAIN UNEXPIRED LEASES AND EXECUTORY CONTRACTS RELATING THERETO, FREE AND CLEAR OF ALL LIENS, CLAIMS, INTERESTS AND ENCUMBRANCES; (B) APPROVING ASSET PURCHASE AGREEMENT AND OTHER AGREEMENTS RELATED THERETO; (C) AUTHORIZING SUBJECT DEBTORS TO CONSUMMATE ALL TRANSACTIONS CONTEMPLATED BY SUCH AGREEMENTS; AND (D) GRANTING RELATED RELIEF Upon the motion (the "Motion") dated July 6, 1998 of the above-captioned debtors and debtors in possession (collectively, the "Debtors"), for an order pursuant to sections 105, 363, 365 and 1146 of title 11 of the United States Code (the "Bankruptcy Code"), as supplemented by Rules 2002, 4001, 6004, 6006, 9007, 9008 and 9019 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), inter alia, (a) approving that certain Asset Purchase Agreement dated as of July __, 1998 (the "Purchase Agreement"),/1/ among G & G Shops, Inc. ("G&G"), certain of the subsidiaries of G&G, PSL, Inc. ("PSL"), ____________________ /1/ Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Purchase Agreement or the Motion. C-1 the other Debtors identified in the Purchase Agreement (together with G&G and PSL, the "Subject Debtors") and G+G Retail, Inc. ("Purchaser"), a copy of which was filed with the Court on July ___, 1998, and authorizing the Subject Debtors to take all steps necessary or appropriate to consummate the Purchase Agreement; (b) authorizing the sale of the Purchased Assets to Purchaser, free and clear of all liens, claims, interests and encumbrances other than those to which Purchaser has agreed to take subject, or to such other Successful Bidder; (c) authorizing the Subject Debtors to assume and assign the Assigned Contracts to Purchaser or to such other Successful Bidder; and (d) granting related relief, all as more fully set forth in the Motion; and upon the affidavit of Michael J. Kelly, Esq., submitted in support of the Motion pursuant to Local Bankruptcy Rule 9077-1(a), the Order to Show Cause, dated July 6, 1998 (the "Scheduling Order"), which scheduled (i) a hearing (the "Bidding Protections Hearing") to consider approval of the Bidding Protections and other relief, and (ii) a hearing (the "Sale Hearing," and together with the Bidding Protections Hearing, the "Hearings") to consider the remainder of the relief sought by the Motion; and the Scheduling Order having established a bar date of July 20, 1998 (the "Cure Objection Deadline"), by which landlords and other non-debtor parties to the Assigned Contracts had to file objections setting forth, among other things, all outstanding defaults and any purported conditions to assignment under the Assigned Contracts, whether monetary or non-monetary, and claims of every kind and character existing as of June 30, 1998, and any objections to C-2 the Asset Purchase Agreement, or be forever barred from asserting other defaults, pursuing any other claims which may have existed on said date under the Assigned Contracts, and taking any action inconsistent with the Asset Purchase Agreement; and the Bidding Protections Hearing having been held on July 15, 1998; and the Bidding Protections Order dated July ___, 1998 having been entered; and the Sale Hearing having been held on July 27, 1998; and upon the Motion and full record of the Hearings and upon all of the submissions filed herein and all prior proceedings in these cases, and upon the affidavits of service and Publication of the Notice reflecting compliance with the notice requirements contained in the Scheduling Order; and after due deliberation and sufficient cause appearing therefor; it is HEREBY FOUND AND DETERMINED, that: a. The Court has jurisdiction to hear and determine the Motion and all related matters pursuant to 28 U.S.C. (S)(S) 1334 and 157 and the "Standing Order of Referral of Cases to Bankruptcy Judges" of the United States District Court for the Southern District of New York, dated December 10, 1984 (Ward, Acting C.J.). Venue of this proceeding in this district is proper pursuant to 28 U.S.C. (S) 1409. The Motion and Hearings constitute core proceedings pursuant to 28 U.S.C. (S) 157(b)(2)(A), (B), (N) and (O). The statutory predicates for the relief granted herein are sections 105, 363, 365 and 1146 of the Bankruptcy Code, as C-3 complemented by Bankruptcy Rules 2002, 4001, 6004, 6006, 9007, 9008 and 9019. b. The Debtors have demonstrated sufficient cause to expedite the Hearings on and determination of the Motion and the related relief requested in connection therewith; delay will cause the Debtors and their estates irreparable harm. c. Proper, timely and sufficient notice of the Motion and the Hearings was provided by direct mail and publication of the Notice and is sufficient pursuant to Bankruptcy Rules 2002, 4001, 6004 and 6006 and the Scheduling Order. No other or further notice of the Motion, the Hearings, or the entry of this Order is necessary. A reasonable opportunity to object to or be heard regarding the relief requested in the Motion has been afforded to all interested parties including (i) each creditor listed on the Debtors' schedules as holding a claim in an undisputed, liquidated amount greater than zero or that timely filed a proof of claim in these cases; (ii) the United States Trustee; (iii) all persons who are known by the Subject Debtors to have liens upon or other interests in the Purchased Assets; (iv) all parties to the Assigned Contracts at the notice addresses required in the Assigned Contracts; (v) the Securities and Exchange Commission in Washington, D.C.; (vi) the Pension Benefit Guaranty Corporation; (vii) the District Director of the Internal Revenue Service for the Southern District of New York; (viii) the United States Attorney for the Southern District of New York; (ix) the New York State Commissioner of Taxation and the equivalent taxing C-4 authorities for each of the states in which the Subject Debtors have operated the business; and (x) all parties who have appeared and filed demands for copies of all notices and other papers. d. The Subject Debtors have advanced sound and sufficient business justification, and it is a reasonable exercise of the Subject Debtors' business judgment to (i) sell all their right, title and interest in and to the Purchased Assets upon the terms and conditions set forth in the Purchase Agreement, (ii) assume and assign to Purchaser the Assigned Contracts and (iii) consummate all transactions contemplated by the Purchase Agreement. e. The provisions of sections 363(b), 363(f) and 365 of the Bankruptcy Code have been complied with and are applicable as to the Purchased Assets. f. Consummation of the Purchase Agreement and the related agreements (collectively, the "Transaction Documents") is in the best interests of the Subject Debtors, the other Debtors herein and their estates, all creditors, equity holders and other parties in interest. g. All of the transactions contemplated by the Transaction Documents, including the sale of the Purchased Assets, are properly authorized under sections 105, 363, 365 and 1146 of the Bankruptcy Code. h. The Purchase Agreement incorporates the highest or otherwise best offer received for the Purchase Assets following C-5 a period of active and thorough solicitation and the conduct of an open and complete sale process managed by the Debtors and CIBC Oppenheimer reasonably calculated to yield the highest or otherwise best offer for the Purchased Assets. i. The sale, conveyance and assignment of the Purchased Assets pursuant to the Transaction Documents is free and clear of any and all liens, security interests, pledges, hypothecations, encumbrances, claims (including but not limited to any and all "claims" as defined in Section 101(5) of the Bankruptcy Code and any and all rights and claims under any bulk transfer statutes and similar laws) or other interests of whatever kind or nature in or with respect to any of the Purchased Assets (including but not limited to any options or rights to purchase such assets and any mechanic's or tax liens), whether arising by agreement, by statute or otherwise and whether arising before, on or after the date on which these chapter 11 cases were commenced (collectively, "Liens"). j. The Subject Debtors and the Purchaser are exempt from and excused from complying with any jurisdiction's bulk transfer laws or any laws or regulations requiring notice to any taxing authority of any jurisdiction prior to, or other laws which might directly or indirectly affect, consummation of the transactions contemplated by the Transaction Documents or the relief requested in the Motion and the provisions of this Order. k. The Transaction Documents: (i) were proposed, negotiated, and entered into in good faith after arms-length C-6 bargaining by the parties; and (ii) provide the Subject Debtors with the highest or otherwise best offer received for the Purchased Assets. Purchaser is a good faith purchaser pursuant to section 363(m) of the Bankruptcy Code and entitled to the protections thereunder. l. In connection with the assumption and assignment of the Assigned Contracts, at or prior to the Closing, the Subject Debtors shall pay all cure amounts to the non-debtor parties to the Assigned Contracts as required by the Bankruptcy Code or the Court, provided that if the Debtors dispute the cure amount of an Assigned Contract, the Debtors will establish an escrow fund and deposit the full cure amount asserted by the non-Debtor party to the contract (or such lesser amount as ordered by the Court) into the escrow fund, to be held in escrow subject to further order of the Court or agreement of the parties. m. The Purchaser has provided adequate assurance of its future performance under the Assigned Contracts and the proposed assumption and assignment of the Assigned Contracts satisfy the requirements of the Bankruptcy Code including, inter alia, sections 365(b)(1) and (3) and 365(f) to the extent applicable. Specifically, the record has established that: (i) Jay Galin has been President of G&G since 1968 and Scott Galin has been Executive Vice President of G&G since 1991, Jay and Scott Galin will have an equity interest in the Purchaser and will continue to operate and manage the business for the Purchaser; (ii) Jay and Scott Galin have substantial proven retailing experience and C-7 ability to efficiently and effectively operate the Business at the premises covered by the Assigned Contracts in accordance with the terms of the Assigned Contracts and Jay and Scott Galin have experience in operating stores having the same or similar uses as permitted under the Assigned Contracts, in first-class shopping centers sufficient to enable it to successfully operate the premises for the permitted uses under the Assigned Contracts; (iii) Jay and Scott Galin have reputation and experience and the Purchaser has a financial condition equal to or better than each of the Debtors which is a party to any of the Assigned Contracts; (iv) the assignment of the Assigned Contracts to Purchaser does not materially adversely affect the quality or type of business operation conducted at the Stores by the Debtors heretofore; (v) Purchaser will continue to operate the business and the stores under the existing trade names and pursuant to the other terms of the Assigned Contracts; and (vi) assuming the value of the Purchased Assets minus the value of the Assumed Liabilities totals an amount equal to the cash Purchase Price, the net worth of Purchaser is in excess of $30,000,000. n. The assignments of the Assigned Contracts shall be effective notwithstanding any provisions precluding or impairing the rights of the Subject Debtors to assign the Assigned Contracts or preventing or restricting Purchaser from operating retail stores under its trade names. C-8 o. The Assigned Contracts are valid and binding, in full force and effect, and enforceable in accordance with their terms. p. The sale of the Purchased Assets to the Purchaser and the assumption by the Purchaser of the Assumed Liabilities will maximize the assets of the estates of the Subject Debtors and is in contemplation of the formulation of a plan of reorganization and necessary to the confirmation and consummation of any plan of reorganization. Accordingly, the sale of the Purchased Assets shall be deemed a sale "under a plan" within the meaning of section 1146(c) of the Bankruptcy Code exempt from any and all stamp taxes, recording taxes and similar taxes. NOW, THEREFORE, IT IS HEREBY ADJUDGED, DECREED AND ORDERED that: 1. The findings of fact set forth above and conclusions of law stated herein shall constitute the Court's findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052, made applicable to this proceeding pursuant to Bankruptcy Rule 9014. To the extent any finding of fact later shall be determined to be a conclusion of law, it shall be so deemed, and to the extent any conclusion of law later shall be determined to be a finding of fact, it shall be so deemed. 2. The Motion is granted; provided, however, that notwithstanding anything contained herein or in the Transaction Documents to the contrary, the Subject Debtors shall be deemed C-9 to have assumed and assigned each Assigned Contract as of the date of, and only upon the Closing, and absent such Closing, each Assigned Contract shall neither be deemed assumed nor assigned and shall in all respects be subject to further administration under the Bankruptcy Code. 3. The Transaction Documents are hereby approved. The Subject Debtors are authorized to sell to Purchaser all of their right, title and interest in and to the Purchased Assets pursuant to the terms of the Transaction Documents. 4. The Debtors are authorized and empowered to execute, deliver and perform under the Transaction Documents and all agreements and documents contemplated thereby and related thereto, and to take or perform such actions and expend such funds as may be necessary to effectuate the terms of the Transaction Documents, all transactions related thereto and this Order. 5. From and after the Closing Date, the Purchaser shall assume, satisfy and discharge the Assumed Liabilities and shall defend, indemnify and hold the Debtors harmless from and against any and all liabilities for any claim or pecuniary loss arising out of or related to the Assumed Liabilities from and after the Closing Date. 6. The Purchaser has not assumed or otherwise become obligated for any of the Excluded Liabilities and has not purchased any of the Excluded Assets. Consequently, all holders C-10 of Excluded Liabilities are hereby enjoined from asserting or prosecuting any claim or cause of action against the Purchaser or the Purchased Assets to recover on account of any Excluded Liabilities. All persons having any interest in the Excluded Assets are hereby enjoined from asserting or prosecuting any claim or cause of action against the Purchaser for any liability associated with the Excluded Assets. 7. As of the Closing Date, the Seller shall not be responsible for any Assumed Liability and all holders of Assumed Liabilities are hereby enjoined from asserting or prosecuting any claim or cause of action against the Debtors or their estates to recover any claim that is an Assumed Liability. All persons having any interest in the Assumed Liabilities are hereby enjoined from asserting or prosecuting any claim or cause of action against the Debtors for any liability associated with the Assumed Liabilities. 8. Pursuant to sections 105(a) and 363(f) of the Bankruptcy Code, the Purchased Assets shall be sold free and clear of all Liens of any kind or nature, except for the Permitted Liens. Nothing contained herein shall be deemed to be an acknowledgment or consent by the Debtors as to the amount, priority or allowance of any claim or validity, force and effect, or immunity from avoidance, of any Lien. 9. Upon the Closing Date, each of the Debtors' creditors, except holders of Permitted Liens with respect to such liens, is authorized and directed to execute such documents and take all C-11 other action as may be necessary to release its Liens upon or other interests in the Purchased Assets. 10. The Subject Debtors are authorized to pay or to provide funds to the Purchaser to pay all cure amounts with respect to the Assigned Contracts pursuant to the Transaction Documents (or, if disputed, paying into escrow the disputed cure amount or such lesser amount as ordered by the Court) so that all such payments are made within ten (10) business days of the Closing. 11. All parties to the Assigned Contracts are forever barred and enjoined from raising or asserting against the Debtors and the Purchaser any default or breach under, or any claim or pecuniary loss, or condition to assignment, arising under or related to, the Assigned Contracts existing as of the Closing or arising by reason of the Closing unless such default, breach, claim, pecuniary loss or condition was raised or asserted prior to the Cure Objection Deadline in strict accordance with the provisions of the Scheduling Order. 12. The Assigned Contracts, upon assignment to the Purchaser, shall be deemed valid and binding, in full force and effect and enforceable in accordance with their terms, subject to the provisions of this Order, and, pursuant to section 365(k) of the Bankruptcy Code, the Subject Debtors shall be relieved from any further liability, except for any cure obligations as herein provided. C-12 13. Despite any provision to the contrary that entitles any party to or beneficiary of any Assigned Contract to any compensation, injunctive relief or other right of any kind, by reason of the assignment of any Assigned Contract, failure to comply with such provision in connection with the consummation of the Transaction Documents shall not be a default or triggering event under any Assigned Contract and such provision shall not be enforceable. 14. Pursuant to section 1146 of the Bankruptcy Code, all transfers and the delivery of instruments of transfer under the Transaction Documents are exempt from any and all stamp taxes, recording taxes and similar taxes imposed upon such sale or transfer under any Federal, State or local law. 15. This Order shall be binding upon and inure to the benefit of any successors and assigns of the Purchaser and the Subject Debtors, including without limitation, any trustee appointed for the Subject Debtors in their respective chapter 11 cases or subsequent chapter 7 cases. 16. Purchaser is hereby determined to be a good faith purchaser under section 363(m) of the Bankruptcy Code, and is entitled to the protections afforded to a good faith purchaser thereunder. 17. Pursuant to this Court's Order dated January 12, 1999: (A) Approving And Authorizing Debtors to Enter into (i) Fourth Amendment To Revolving Credit And Guaranty Agreement And (ii) C-13 Third Amendment To Related Junior Participation Agreement; and (B) Granting Other Related Relief (the "January 12 Order"), the net proceeds from the sale of the Purchased Assets shall (a) first promptly be paid to The Chase Manhattan Bank, as Agent for the Debtors' debtor-in-possession lenders under the debtor-in-possession financing agreement (the "DIP Agreement"), and applied to repay in full, if such proceeds are sufficient, all Obligations under and as defined in the DIP Agreement (other than, prior to the Senior Loan Termination Date (as defined in the DIP Agreement), fees owed to Warburg, Pincus Ventures, L.P. pursuant to Section 2.19 of the DIP Agreement); and (b) thereafter, be applied, distributed and utilized in accordance with the remaining provisions of the January 12 Order. 18. The Debtors shall be authorized and empowered (but not directed) to pay, or establish an escrow account for, all or any portion of any real estate or personal property taxes (including any interest or penalties thereon) on the Purchased Assets. 19. This Order shall be effective and enforceable immediately upon entry. 20. The failure specifically to include any particular provisions of the Transaction Documents in this Order shall not diminish or impair the efficacy of such provisions, it being the intent of the Court that the Transaction Documents are approved in their entirety. 21. The Court shall retain sole and exclusive jurisdiction over all matters arising from or related to the Purchased C-14 Assets, the Motion, the Transaction Documents, the implementation thereof and this Order. Dated: New York, New York July ____, 1998 ______________________________ UNITED STATES BANKRUPTCY JUDGE C-15 EXHIBIT D UNITED STATES BANKRUPTCY COURT HEARING DATE: JULY __, 1998 SOUTHERN DISTRICT OF NEW YORK HEARING TIME: _____ _.M. - --------------------------------------------------X : In re : Chapter 11 : PETRIE RETAIL, INC., et al., : Case No. 95 B 44528 (AJG) : (Jointly Administered) Debtors. : : - --------------------------------------------------X ORDER APPROVING TOPPING FEE AND EXPENSE REIMBURSEMENT AND ESTABLISHING BIDDING PROCEDURES RELATED TO ASSET PURCHASE AGREEMENT PROVIDING FOR THE SALE OF SUBSTANTIALLY ALL OF THE ASSETS RELATING TO THE BUSINESS OF G & G SHOPS, INC. AND CERTAIN OF ITS AFFILIATES AND RELATED TRANSACTIONS Upon the motion (the "Motion"), dated July 6, 1998, of G & G Shops, Inc. ("G&G"), PSL, Inc. ("PSL") and certain subsidiaries and/or affiliates of Petrie Retail, Inc. ("PRI") and G&G (collectively, the "Seller"), certain of the above-captioned debtors and debtors in possession (collectively with the Seller, the "Debtors"), for orders, (l) approving a topping fee and expense reimbursement (respectively, the "Topping Fee" and "Expense Reimbursement") and establishing bidding procedures for competing bids to purchase the Purchased Assets (defined below), and establishing procedures for determining Cure Obligations (as defined in the Motion), and (2) pursuant to sections 105, 363, 365 and 1146 of title 11 of the United States Code (the "Bankruptcy Code"), as supplemented by Rules 2002, 4001, 6004, 6006, 9007 and 9008 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), among other things: (a) authorizing D-1 and approving an asset purchase agreement substantially in the form of that certain Asset Purchase Agreement dated as of July 6, 1998 (the "Purchase Agreement"), among the Seller and G & G Retail, Inc. ("Purchaser"), a copy of which was filed with the Court on July __, 1998; (b) authorizing the sale of substantially all of the assets relating to the business of G&G and certain of its affiliates in accordance with the Purchase Agreement (as defined in the Purchase Agreement, the "Purchased Assets"),/1/ to Purchaser under the Purchase Agreement, free and clear of all liens, claims, interests and encumbrances other than those to which Purchaser has agreed to take subject; (c) authorizing the Seller to assume, assign and/or sell the Assigned Contracts; (d) authorizing the Seller to take all steps necessary or appropriate to consummate the Purchase Agreement and to consummate all transactions related thereto; and (e) granting related relief, all as more fully set forth in the Motion; and this Court having scheduled a hearing (the "Bidding Protections Hearing") to consider (i) authorizing and approving the Topping Fee and Expense Reimbursement and (ii) establishing bidding procedures for competing offers for the Purchased Assets, by Order to Show Cause, dated July __, 1998 (the "Order to Show Cause"); and notice of the Bidding Protections Hearing and that portion of the relief requested by the Motion to be considered at the Bidding Protections Hearing having been provided in the form and manner prescribed in the Order to Show Cause; and such notice _____________ 1. All capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Motion. D-2 constituting due and adequate notice of the Bidding Protections Hearing and no other or further notice being necessary or required; and the Bidding Protections Hearing having been held on July __, 1998; and it appearing, based upon the Motion, the full record of these cases and the record of the Bidding Protections Hearing, that the relief requested at such hearing is in the best interests of the Debtors, their estates, creditors and other parties in interest; and after due deliberation and sufficient cause appearing therefor, it is ORDERED, that the Topping Fee and Expense Reimbursement provisions contained in Section 9.2 of the Purchase Agreement are approved in all respects; and it is further ORDERED, that the Debtors are authorized and empowered to pay the Topping Fee and Expense Reimbursement to Pegasus Investors, L.P., as required under and pursuant to the Purchase Agreement, within five (5) business days after Pegasus Investors, L.P. becomes entitled thereto without further order of the Court; and it is further ORDERED, that the Debtors are authorized and empowered to take or perform such actions and expend such funds as may be necessary to effectuate the terms of this Order; and it is further ORDERED, that the Bidding Procedures set forth in paragraph seventy-six (76) of the Motion are approved; and it is further D-3 ORDERED, that any offer to purchase the Purchased Assets must conform with the Bidding Procedures; and it is further ORDERED, that parties desiring to submit a competing bid for the Purchased Assets must file and serve in accordance with the Bidding Procedures a written intention to bid on the Purchased Assets upon: (i) Willkie Farr & Gallagher, Attorneys for the Debtors, 787 Seventh Avenue, New York, New York 10019-6099, Attention: Michael J. Kelly, Esq., (ii) the United States Trustee, 80 Broad Street, Third Floor, New York, New York 10004, Attention: Patricia Schrage, Esq.; (iii) Zalkin, Rodin & Goodman LLP, Attorneys for Chase, 750 Third Avenue, New York, New York 10017, Attention: Richard Toder, Esq.; (iv) Hahn & Hessen, Attorneys for the Creditors' Committee, 350 Fifth Avenue, Suite 3700, New York, New York 10118, Attention: William Fabrizio, Esq.; (v) Kaye, Scholer, Fierman, Hays & Handler, LLP, Attorneys for the Purchaser, 425 Park Avenue, New York, New York, Attention: Herbert S. Edelman, Esq. and Mark S. Selinger, Esq., and Shack & Siegel, P.C., Attorneys for Jay and Scott Galin, 530 Fifth Avenue, 16th Floor, New York, New York 10036, Attention: Donald Shack, Esq.; and (vi) CIBC Oppenheimer Corp., 425 Lexington Avenue, 3rd Floor, New York, New York 10017, Attention: Brian Gerson, so as to be received not later than seventy-two (72) hours prior to the Sale Hearing; and it is further D-4 ORDERED, that this Court shall retain exclusive jurisdiction to consider and resolve any matter, claim or dispute arising from or relating to the Topping Fee and Expense Reimbursement or the implementation of this Order. Dated: New York, New York July __, 1998 ______________________________ UNITED STATES BANKRUPTCY JUDGE D-5 EX-2.02 4 AMENDMENT NO.1 TO ASSET PURCHASE AGMT 7/27/98 EXHIBIT 2.02 AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT AMENDMENT NO. 1, dated as of July 27, 1998, to the Asset Purchase Agreement (the "Purchase Agreement") dated as of July 6, 1998 among G & G Shops, Inc., ("G&G"), each of the subsidiaries of G&G and Petrie Retail, Inc. specified on the schedules to the Purchase Agreement, PSL, Inc. and G+G Retail, Inc. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Purchase Agreement. WHEREAS, the parties hereto desire to amend the Purchase Agreement in accordance with the terms hereof. NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Section 9.3(g) of the Purchase Agreement is hereby amended by deleting the two references to the date "July 20, 1998" contained therein and replacing them with the date "July 29, 1998." 2. Section 9.3(h) of the Purchase Agreement is hereby amended by deleting the two references to the date "July 20, 1998" contained therein and replacing them with the date "July 29, 1998." 3. Except as set forth herein, the Purchase Agreement shall continue in full force and effect in accordance with its terms (as modified by order of the Bankruptcy Court) and the Purchase Agreement, as amended hereby, is hereby ratified and confirmed by the parties thereto. 4. This Amendment No. 1 shall be construed, performed and enforced in accordance with, and governed by, the laws of the State of New York, without giving effect to the principles of conflicts of laws thereof. 5. For the convenience of the parties, any number of counterparts of this Amendment No. 1 may be executed by any one or more parties hereto, and each such executed counterpart shall be, and shall be deemed to be, an original, but all of which shall constitute, and shall be deemed to constitute, in the aggregate, but one and the same instrument. IN WITNESS WHEREOF, the parties have executed and delivered this Amendment No. 1 as of the day and year first written above. G & G SHOPS, INC. By: /s/ Edwin J. Holman -------------------------------- Name: Edwin J. Holman Title: Chairman of the Board PSL, INC. By: /s/ Edwin J. Holman -------------------------------- Name: Edwin J. Holman Title: Chairman of the Board and Chief Executive Officer 78 Nassau Sweet Corp. 458 Seventh Avenue Corporation G & G Island Corporation G & G Shops of Brooklyn, Inc. G & G Shops of Maryland, Inc. G & G Shops of Mid-Island Corp. G & G Shops of Nanuet, Inc. G & G Shops of New England, Inc. G & G Shops of New York, Inc. G & G Shops of North Carolina, Inc. G & G Shops of Pennsylvania, Inc. G & G Shops of Woodbridge, Inc. Sco-Jef Mercantile Corp. By: /s/ Edwin J. Holman -------------------------------- Name: Edwin J. Holman Title: Chairman of the Board 2 157 De Diego Corporation 61 Dr. Veve Corporation Caribe Apparel Corporation Christina El Senorial Corp. Cumbres Apparel Corp. Dayson's Cupey Corp. Dayson's of Ponce, Inc. El Canton Apparel Corp. Franklin 198 Corp. Franklin 203 Corp. Franklin 203 Corp. Franklin 221 Corp. Franklin 253 Corp. Marianne Estrella Corp. Noya Carolina Corp. N. Calimano MPA Corp. Progresso-Corchado Corp. Rave Apparel of Bayamon Corporation Rave Apparel Corporation of Humacao Whitney Stores, Inc. By: /s/ Edwin J. Holman -------------------------------- Name: Edwin J. Holman Title: Chairman of the Board and Chief Executive Officer G+G RETAIL, INC. By: /s/ Jonathan Berger -------------------------------- Name: Jonathan Berger Title: Vice President 3 EX-2.03 5 AMENDMENT TO THE ASSET PURCHASE AGMT 8/24/98 EXHIBIT 2.03 AMENDMENT TO ASSET PURCHASE AGREEMENT THIS AMENDMENT, dated as of August 24, 1998, to ASSET PURCHASE AGREEMENT dated as of July 6, 1998 among G & G Shops, Inc., a Delaware corporation ("G&G") and a debtor and debtor-in-possession in a case pending under chapter 11 of the Bankruptcy Code, each of the Subsidiaries of G&G specified on Schedule 1.1 thereto (each a "G&G Seller" and collectively the "G&G Sellers"), each of which is a debtor and debtor-in-possession in a case pending under chapter 11 of the Bankruptcy Code, each of the Subsidiaries of Petrie Retail, Inc., a Delaware corporation ("PRI"), specified on Schedule 1.2 thereto (each a "Petrie Seller" and collectively the "Petrie Sellers"), each of which is a debtor and debtor-in-possession in a case pending under chapter 11 of the Bankruptcy Code, PSL, Inc., a Delaware corporation and a debtor and debtor-in-possession in a case pending under chapter 11 of the Bankruptcy Code ("PSL" and, together with the Petrie Sellers, the "Other Sellers") (G&G, together with the G&G Sellers and the Other Sellers, each a "Seller" and collectively the "Sellers"), and G+G Retail, Inc., a Delaware corporation ("Purchaser"). PRELIMINARY STATEMENT WHEREAS, the Sellers and Purchaser entered into the Asset Purchase Agreement referred to above (the "Agreement"); WHEREAS, the Sellers and Purchaser desire to make certain amendments to the Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I. AMENDMENTS The Agreement is hereby amended as follows: (a) Section 2.3 is amended by adding at the end of the first sentence thereof the following: "and 15,000 shares of the Class C Common Stock of G&G Retail Holdings, Inc." (b) Section 8.1 is amended by adding thereto, immediately after the words "Chief Operating Officer," the following: "or the Chief Administrative and Chief Financial Officer". (c) Schedule 1.3 to the Agreement is supplemented by the attached Supplement to Schedule 1.3. (d) The attached Schedule 2.6 is added to the Agreement as Schedule 2.6. ARTICLE II RATIFICATION The Agreement, as amended pursuant to Article I, is hereby ratified and confirmed. -2- IN WITNESS WHEREOF, Sellers and Purchaser have executed and delivered this Amendment as of the day and year first written above. G & G SHOPS, INC. By: /s/ Gerald M. Chaney ------------------------------------ Name: Gerald M. Chaney Title: Executive Vice President - Chief Administrative Officer and Chief Financial Officer PSL, INC. By: /s/ Gerald M. Chaney ------------------------------------ Name: Gerald M. Chaney Title: Executive Vice President - Chief Administrative Officer and Chief Financial Officer -3- 78 Nassau Street Corp. 458 Seventh Avenue Corporation G & G Island Corporation G & G Shops of Brooklyn, Inc. G & G Shops of Maryland, Inc. G & G Shops of Mid-Island Corp. G & G Shops of Nanuet, Inc. G & G Shops of New England, Inc. G & G Shops of New York, Inc. G & G Shops of North Carolina, Inc. G & G Shops of Pennsylvania, Inc. G & G Shops of Woodbridge, Inc. Sco-Jef Mercantile Corp. By: /s/ Gerald M. Chaney ------------------------------------ Name: Gerald M. Chaney Title: Executive Vice President - Chief Administrative Officer and Chief Financial Officer -4- 157 De Diego Corporation 61 Dr. Veve Corporation Caribe Apparel Corporation Christina El Senorial Corp. Cumbres Apparel Corp. Dayson's Cupey Corp. Dayson's of Ponce, Inc. El Canton Apparel Corp. Franklin 198 Corp. Franklin 203 Corp. Franklin 203 Corp. Franklin 221 Corp. Franklin 253 Corp. Marianne Estrella Corp. Noya Carolina Corp. N. Calimano MPA Corp. Progresso-Corchado Corp. Rave Apparel of Bayamon Corporation Rave Apparel Corporation of Humacao Whitney Stores, Inc. By: /s/ Gerald M. Chaney ------------------------------------ Name: Gerald M. Chaney Title: Executive Vice President - Chief Administrative Officer and Chief Financial Officer G+G RETAIL, INC. By: /s/ Jonathan Berger ------------------------------------ Name: Jonathan Berger Title: Vice President -5- EX-3.01 6 CERTIFICATE OF INCORPORATION OF G+G RETAIL, INC EXHIBIT 3.01 State of Delaware Office of the Secretary of State ----------------------------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF INCORPORATION OF "G+G RETAIL, INC.," FILED IN THIS OFFICE ON THE TWENTY-SIXTH DAY OF JUNE, A.D. 1998, AT 9 O'CLOCK A.M. [SEAL] /s/ Edward J. Freel ----------------------------------- Edward J. Freel, Secretary of State AUTHENTICATION: 9741694 DATE: 05-13-99 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 06/26/1998 981251230 -- 2914098 CERTIFICATE OF INCORPORATION OF G+G RETAIL, INC. 1. The name of the corporation is G+G Retail, Inc. (the "Corporation"). 2. The address of the Corporation's registered office in Delaware is 15 East North Street, Dover (Kent County), Delaware 19901. United Corporate Services, Inc. is the Corporation's registered agent at that address. 3. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. 4. The aggregate number of shares which the Corporation shall have authority to issue is 1,000 shares of Class B Common Stock, $.01 par value per share (the "Class B Common Stock"). 5. The name of the sole incorporator is Sabrina Clerge and her mailing address is c/o Kaye, Scholer, Fierman, Hays & Handler, LLP, 425 Park Avenue, New York, New York 10022. 6. The Board of Directors shall have the power to make, alter or repeal the by-laws of the Corporation. 7. The election of the Board of Directors need not be by written ballot. 8. The Corporation shall indemnify to the fullest extent permitted by Section 145 of the General Corporation Law of Delaware as amended from time to time each person who is or was a director or officer of the Corporation and the heirs, executors and administrators of such a person. 9. No director shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director for any act or omission occurring subsequent to the date when this provision becomes effective, except that he may be liable (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. Dated: June 26, 1998 /s/ Sabrina Clerge -------------------------- Sabrina Clerge Sole Incorporator State of Delaware Office of the Secretary of State ---------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF CHANGE OF REGISTERED AGENT OF "G+G RETAIL, INC.", FILED IN THIS OFFICE ON THE FOURTH DAY OF SEPTEMBER, A.D. 1998, AT 9 O'CLOCK A.M. [SEAL] /s/ Edward J. Freel ----------------------------------- Edward J. Freel, Secretary of State AUTHENTICATION: 9741693 DATE: 05-13-99 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 09/04/1998 981348302 -- 2914098 CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE AND OF REGISTERED AGENT It is hereby certified that: 1. The name of the corporation (hereinafter called the "corporation") is G+G RETAIL, INC. 2. The registered office of the corporation within the State of Delaware is hereby changed to 1013 Centre Road, City of Wilmington 19805, County of New Castle. 3. The registered agent of the corporation within the State of Delaware is hereby changed to Corporation Service Company, the business office of which is identical with the registered office of the corporation as hereby changed. 4. The corporation has authorized the changes hereinbefore set forth by resolution of its Board of Directors. Signed on September 3, 1998 /s/ Jonathan Berger ------------------------------- Jonathan Berger, Vice President EX-3.02 7 AMENDED & RESTATED BY-LAWS OF G+G RETAIL, INC. EXHIBIT 3.02 AMENDED AND RESTATED BY-LAWS of G+G RETAIL, INC. (the "Corporation") 1. MEETINGS OF STOCKHOLDERS. 1.1 Annual Meeting. The annual meeting of stockholders shall be held on such date and at such time as shall be designated from time to time by the board of directors (the "Board") and stated in the notice of meeting. 1.2 Special Meetings. Special meetings of the stockholders may be called by resolution of the Board or by the president and shall be called by the president or secretary upon the written request (stating the purpose or purposes of the meeting) of a majority of the directors then in office or by the holders of 30% or more of the shares entitled to vote. Only business related to the purposes set forth in the notice of the meeting may be transacted at a special meeting. 1.3 Place and Time of Meetings. Meetings of the stockholders may be held in or outside Delaware at the place and time specified by the Board or the directors or stockholders requesting the meeting. 1.4 Notice of Meetings; Waiver of Notice. Written notice of each meeting of stockholders shall be given to each stockholder entitled to vote at the meeting, except that (a) it shall not be necessary to give notice to any stockholder who submits a signed waiver of notice before or after the meeting, and (b) no notice of an adjourned meeting need be given except when required under Section 1.5 of these by-laws or by law. Each notice of a meeting shall be given, personally or by mail, not less than 10 nor more than 60 days before the meeting and shall state the time and place of the meeting, and unless it is the annual meeting, shall state at whose direction or request the meeting is called and the purposes for which it is called. If mailed, notice shall be considered given when mailed to a stockholder at his address on the Corporation's records. The attendance of any stockholder at a meeting, without protesting at the beginning of the meeting that the meeting is not lawfully called or convened, shall constitute a waiver of notice by him. 1.5 Quorum. At any meeting of stockholders, the presence in person or by proxy of the holders of a majority of the shares entitled to vote at such meeting shall constitute a quorum for the transaction of any business. In the absence of a quorum a majority in voting interest of those present or, if no stockholders are present, any officer entitled to preside at or to act as secretary of the meeting, may adjourn the meeting until a quorum is present. At any adjourned meeting at which a quorum is present any action may be taken which might have been taken at the meeting as originally called. No notice of an adjourned meeting need be given if the time and place are announced at the meeting at which the adjournment is taken except that, if adjournment is for more than thirty days or if, after the adjournment, a new record date is fixed for the meeting, notice of the adjourned meeting shall be given pursuant to Section 1.4. 1.6 Voting; Proxies. Each stockholder of record shall be entitled to one vote for each share registered in his name. Corporate action to be taken by stockholder vote, other than the election of directors, shall be authorized by a majority of the votes cast at a meeting of stockholders, except as otherwise provided by law or by Section 1.8 of these by-laws. Voting need not be by written ballot unless requested by a stockholder at the meeting or ordered by the chairman of the meeting. Each stockholder entitled to vote at any meeting of stockholders or to express consent to or dissent from corporate action in writing without a meeting may authorize another person to act for him by proxy. Every proxy must be signed by the stockholder or his attorney-in-fact. No proxy shall be valid after three years from its date unless it provides otherwise. 1.7 List of Stockholders. Not less than 10 days prior to the date of any meeting of stockholders, the secretary of the Corporation shall prepare a complete list of stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in his name. For a period of not less than 10 days prior to the meeting, the list shall be available during ordinary business hours for inspection by any stockholder for any purpose germane to the meeting. During this period, the list shall be kept either (a) at a place within the city where the meeting is to be held, if that place shall have been specified in the notice of the meeting, or (b) if not so specified, at the place where the meeting is to be held. The list shall also be available for inspection by stockholders at the time and place of the meeting. 1.8 Action by Consent Without a Meeting. Any action required or permitted to be taken at any meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voting. Prompt notice of the taking of any such action shall be given to those stockholders who did not consent in writing. 2. BOARD OF DIRECTORS. 2.1 Number, Qualification, Election and Term of Directors. The business of the Corporation shall be managed by the Board, which shall consist of not less than one and not more than five directors. The number of directors may be changed by resolution of eighty percent (80%) of the entire Board or by the stockholders, but no decrease may shorten the term of any incumbent director. Directors shall be elected at each annual meeting of stockholders by a plurality of the votes cast and shall hold office until the next annual meeting of stockholders and 2 until the election and qualification of their respective successors, subject to the provisions of Section 2.10 of these by-laws. As used in these by-laws, the term "entire Board" means the total number of directors which the Corporation would have if there were no vacancies on the Board. 2.2 Pegasus Partners, L.P. and Pegasus Related Partners, L.P. Rights. So long as each of Pegasus Partners, L.P. and Pegasus Related Partners, L.P. (collectively, the "Pegasus Funds") owns any common stock of the Corporation, directly or indirectly through one or more affiliates, it shall have the right (i) exercisable by written notice to the Corporation and each of the other stockholders, if any, to designate at least one member of the Board, (ii) to consult with and advise management of the Corporation, (iii) to receive all material provided to members of the Board, and (iv) to visit and inspect the properties of the Corporation and each of its direct or indirect subsidiaries, examine and copy their books of record and account, and discuss their affairs, finances and accounts with their officers and independent public accountants, all at such reasonable times as such Pegasus Fund may desire, and to have its representative(s) meet with the senior management of the Corporation annually to discuss the Corporation's operations and prospects. Each Pegasus Fund may at any time direct that the person(s) designated by it to serve as a member of the Board be removed, with or without cause. If the director(s) designated by either Pegasus Fund dies, resigns or is removed by such Pegasus Fund, such Pegasus Fund shall have the right to designate a successor(s). 2.3 Quorum and Manner of Acting. Eighty percent (80%) of the entire Board shall constitute a quorum for the transaction of business at any meeting, except as provided in Section 2.11 of these by-laws. Action of the Board shall be authorized by the vote of all of the directors present at the time of the vote if there is a quorum, unless otherwise provided by law or these by-laws. In the absence of a quorum a majority of the directors present may adjourn any meeting from time to time until a quorum is present. 2.4 Place of Meetings. Meetings of the Board may be held in or outside Delaware. 2.5 Annual and Regular Meetings. Annual meetings of the Board, for the election of officers and consideration of other matters, shall be held either (a) without notice immediately after the annual meeting of stockholders and at the same place, or (b) as soon as practicable after the annual meeting of stockholders, on notice as provided in Section 2.6 of these by-laws. Regular meetings of the Board may be held without notice at such times and places as the Board determines. If the day fixed for a regular meeting is a legal holiday, the meeting shall be held on the next business day. 2.6 Special Meetings. Special meetings of the Board may be called by the president or by any of the directors. Only business related to the purposes set forth in the notice of meeting may be transacted at a special meeting. 2.7 Notice of Meetings; Waiver of Notice. Notice of the time and place of each special meeting of the Board, and of each annual meeting not held immediately after the annual meeting of stockholders and at the same place, shall be given to each director by mailing it to 3 him at his residence or usual place of business at least three days before the meeting, or by delivering or telephoning or telegraphing it to him at least two days before the meeting. Notice of a special meeting shall also state the purpose or purposes for which the meeting is called. Notice need not be given to any director who submits a signed waiver of notice before or after the meeting or who attends the meeting without protesting at the beginning of the meeting the transaction of any business because the meeting was not lawfully called or convened. Notice of any adjourned meeting need not be given, other than by announcement at the meeting at which the adjournment is taken. 2.8 Board or Committee Action Without a Meeting. Any action required or permitted to be taken by the Board or by any committee of the Board may be taken without a meeting if all of the members of the Board or of the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents by the members of the Board or the committee shall be filed with the minutes of the proceeding of the Board or of the committee. 2.9 Participation in Board or Committee Meetings by Conference Telephone. Any or all members of the Board or of any committee of the Board may participate in a meeting of the Board or of the committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at the meeting. 2.10 Resignation and Removal of Directors. Any director may resign at any time by delivering his resignation in writing to the president or secretary of the Corporation, to take effect at the time specified in the resignation; the acceptance of a resignation, unless required by its terms, shall not be necessary to make it effective. Any or all of the directors may be removed at any time, for cause, by vote of the stockholders. 2.11 Vacancies. In the event a vacancy occurs, a replacement director shall be elected in accordance with Section 2.1 of these by-laws; provided, however, that any vacancy in the Board created by an increase in the number of directors, may be filled for the unexpired term by a majority vote of the remaining directors, though less than a quorum. 2.12 Compensation. Directors shall receive such compensation as the Board determines, together with reimbursement of their reasonable expenses in connection with the performance of their duties. A director may also be paid for serving the Corporation, its affiliates or subsidiaries in other capacities. 3. COMMITTEES. 3.1 Executive Committee. The Board, by resolution adopted by eighty percent (80%) of the entire Board, may designate an Executive Committee of one or more directors which shall have all the powers and authority of the Board, except as otherwise provided in the resolution, section 141(c) of the Delaware General Corporation Law, or any other applicable law. The 4 members of the Executive Committee shall serve at the pleasure of the Board. All action of the Executive Committee shall be reported to the Board at its next meeting. 3.2 Other Committees. The Board, by resolution adopted by eighty percent (80%) of the entire Board, may designate other committees of directors of one or more directors, which shall serve at the Board's pleasure and have such powers and duties as the Board determines. 3.3 Rules Applicable to Committees. The Board, by Resolution adopted by eighty percent (80%) of the entire Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of a committee, the member or members present at a meeting of the committee and not disqualified, whether or not a quorum, may unanimously appoint another director to act at the meeting in place of the absent or disqualified member. All action of a committee shall be reported to the Board at its next meeting. Each committee shall adopt rules of procedure and shall meet as provided by those rules or by resolutions of the Board. 4. OFFICERS. 4.1 Number; Security. The executive officers of the Corporation shall be the chairman, the president, one or more vice presidents (including an executive vice president, if the Board so determines), a secretary, a treasurer and such other executive officers as the Board of Directors may determine. Any two or more offices may be held by the same person, except the offices of president and secretary. The Board may require any officer, agent or employee to give security for the faithful performance of his duties. 4.2 Election; Term of Office. The executive officers of the Corporation shall be elected annually by the Board, and each such officer shall hold office until the next annual meeting of the Board and until the election of his successor, subject to the provisions of Section 4.4. 4.3 Subordinate Officers. The Board may appoint subordinate officers (including assistant secretaries and assistant treasurers), agents or employees, each of whom shall hold office for such period and have such powers and duties as the Board determines. The Board may delegate to any executive officer or to any committee the power to appoint and define the powers and duties of any subordinate officers, agents or employees. 4.4 Resignation and Removal of Officers. Any officer may resign at any time by delivering his resignation in writing to the president or secretary of the Corporation, to take effect at the time specified in the resignation; the acceptance of a resignation, unless required by its terms, shall not be necessary to make it effective. Any officer appointed by the Board or appointed by an executive officer or by a committee may be removed by the Board either with or without cause, and in the case of an officer appointed by an executive officer or by a committee, by the officer or committee who appointed him or by the president. 5 4.5 Vacancies. A vacancy in any office may be filled for the unexpired term in the manner prescribed in Sections 4.2 and 4.3 of these by-laws for election or appointment to the office. 4.6 The Chairman. The chairman of the board shall be the chief executive officer of the Corporation and shall preside at all meetings of the Board and of the stockholders. Subject to the control of the Board, he shall have general supervision over the business of the Corporation and shall have such other powers and duties as chairmen of corporations usually have or as the Board assigns to him. 4.7 The President. The president shall be the chief operating officer of the Corporation. Subject to the control of the Board and the chairman of the board, he shall have general supervision over the business of the Corporation and shall have such other powers and duties as presidents of corporations usually have or as the Board assigns to him. 4.8 Vice President. Each vice president shall have such powers and duties as the Board, the chairman or the president assigns to him. 4.9 The Treasurer. The treasurer shall be the chief financial officer of the Corporation and shall be in charge of the Corporation's books and accounts. Subject to the control of the Board, he shall have such other powers and duties as the Board, the chairman or the president assigns to him. 4.10 The Secretary. The secretary shall be the secretary of, and keep the minutes of, all meetings of the Board and of the stockholders, shall be responsible for giving notice of all meetings of stockholders and of the Board, and shall keep the seal and, when authorized by the Board, apply it to any instrument requiring it. Subject to the control of the Board, he shall have such powers and duties as the Board, the chairman or the president assigns to him. In the absence of the secretary from any meeting, the minutes shall be kept by the person appointed for that purpose by the presiding officer. 4.11 Salaries. The Board may fix the officers' salaries, if any, or it may authorize the chairman or the president to fix the salary of any other officer. 5. SHARES. 5.1 Certificates. The Corporation's shares shall be represented by certificates in the form approved by the Board. Each certificate shall be signed by the chairman, the president or a vice president and by the secretary or an assistant secretary, or the treasurer or an assistant treasurer, and shall be sealed with the Corporation's seal or a facsimile of the seal. Any or all of the signatures on the certificate may be a facsimile. 5.2 Transfers. Shares shall be transferable only on the Corporation's books, upon surrender of the certificate for the shares, properly endorsed. The Board may require satisfactory 6 surety before issuing a new certificate to replace a certificate claimed to have been lost or destroyed. 5.3 Determination of Stockholders of Record. The Board may fix, in advance, a date as the record date for the determination of stockholders entitled to notice of or to vote at any meeting of the stockholders, or to express consent to or dissent from any proposal without a meeting, or to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action. The record date may not be more than 60 or less than 10 days before the date of the meeting or more than 60 days before any other action. 6. MISCELLANEOUS. 6.1 Seal. The Board shall adopt a corporate seal, which shall be in the form of a circle and shall bear the Corporation's name and the year and state in which it was incorporated. 6.2 Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the Board. 6.3 Voting of Shares in Other Corporations. Shares in other corporations which are held by the Corporation may be represented and voted by the Board, or by a person appointed by resolution of eighty percent (80%) of the entire Board. 6.4 Amendments. Subject to the rights of any class or series of stock set forth in the Certificate of Incorporation, these by-laws may be amended, repealed or adopted by resolution of eighty percent (80%) of the entire Board. 7 EX-4.01 8 INDENTURE 5/17/99 EXHIBIT 4.01 ================================================================================ G+G RETAIL, INC. SERIES A AND SERIES B 11% SENIOR NOTES DUE 2006 INDENTURE Dated as of May 17, 1999 U.S. Bank Trust National Association Trustee ================================================================================ CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section 310(a)(1)....................................... 7.10 (a)(2)....................................... 7.10 (a)(3)....................................... N.A. (a)(4)....................................... N.A. (a)(5)....................................... 7.10 (b).......................................... 7.10 (c).......................................... N.A. 311(a).......................................... 7.11 (b).......................................... 7.11 (c).......................................... N.A. 312(a).......................................... 2.05 (b).......................................... 11.03 (c).......................................... 11.03 313(a).......................................... 7.06 (b)(1)....................................... 10.03 (b)(2)....................................... 7.06; 7.07 (c).......................................... 7.06; 11.02 (d).......................................... 7.06 314(a).......................................... 4.03 (b).......................................... N.A. (c)(1)....................................... N.A. (c)(2)....................................... N.A. (c)(3)....................................... N.A. (e).......................................... 11.05 (f).......................................... N.A. 315(a).......................................... 7.01 (b).......................................... 7.05; 11.02 (c).......................................... 7.01 (d).......................................... 7.01 (e).......................................... 6.11 316(a) (last sentence).......................... 2.09 (a)(1)(A).................................... 6.05 (a)(1)(B).................................... 6.04 (a)(2)....................................... N.A. (b).......................................... 6.07 (c).......................................... 2.12 317(a)(1)....................................... 6.08 (a)(2)....................................... 6.09 (b).......................................... 2.04 318(a).......................................... N.A. (b).......................................... N.A. (c).......................................... 11.01
N.A. means not applicable. * This Cross Reference Table is not part of the Indenture. TABLE OF CONTENTS
Page ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE..................... 1 Section 1.01. Definitions............................................... 16 Section 1.02. Other Definitions......................................... 16 Section 1.03. Incorporation by Reference of Trust Indenture Act......... 16 Section 1.04. Rules of Construction..................................... 17 ARTICLE 2. THE NOTES...................................................... 17 Section 2.01. Form and Dating........................................... 17 Section 2.02. Execution and Authentication.............................. 18 Section 2.03. Registrar and Paying Agent................................ 19 Section 2.04. Paying Agent to Hold Money in Trust....................... 19 Section 2.05. Holder Lists.............................................. 19 Section 2.06. Transfer and Exchange..................................... 19 Section 2.07. Replacement Notes......................................... 31 Section 2.08. Outstanding Notes......................................... 31 Section 2.09. Treasury Notes............................................ 32 Section 2.10. Temporary Notes........................................... 32 Section 2.11. Cancellation.............................................. 32 Section 2.12. Defaulted Interest........................................ 33 ARTICLE 3. REDEMPTION AND PREPAYMENT...................................... 33 Section 3.01. Notices to Trustee........................................ 33 Section 3.02. Selection of Notes to Be Redeemed......................... 33 Section 3.03. Notice of Redemption...................................... 33 Section 3.04. Effect of Notice of Redemption............................ 34 Section 3.05. Deposit of Redemption Price............................... 34
i Section 3.06. Notes Redeemed in Part...................................... 35 Section 3.07. Optional Redemption......................................... 35 Section 3.08. Mandatory Redemption........................................ 35 Section 3.09. Offer to Purchase by Application of Excess Proceeds......... 35 ARTICLE 4. COVENANTS........................................................ 37 Section 4.01. Payment of Notes............................................ 37 Section 4.02. Maintenance of Office or Agency............................. 37 Section 4.03. Reports..................................................... 38 Section 4.04. Compliance Certificate...................................... 38 Section 4.05. Taxes....................................................... 39 Section 4.06. Stay, Extension and Usury Laws.............................. 39 Section 4.07. Restricted Payments......................................... 39 Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries................................................ 41 Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.. 42 Section 4.10. Asset Sales................................................. 45 Section 4.11. Transactions with Affiliates................................ 46 Section 4.12. Liens....................................................... 47 Section 4.13. Business Activities......................................... 47 Section 4.14. Corporate Existence......................................... 47 Section 4.15. Offer to Repurchase Upon Change of Control.................. 47 Section 4.16. Limitation on Sale and Leaseback Transactions............... 48 Section 4.17. Limitation on Issuances and Sales of Capital Stock of Wholly Owned Subsidiaries.......................................... 48 Section 4.18. Payments for Consent........................................ 49 Section 4.19. Additional Subsidiary Guarantees............................ 49 ARTICLE 5. SUCCESSORS....................................................... 49 Section 5.01. Merger, Consolidation, or Sale of Assets.................... 49 Section 5.02. Successor Corporation Substituted........................... 50
ii ARTICLE 6. DEFAULTS AND REMEDIES............................................ 50 Section 6.01. Events of Default........................................... 50 Section 6.02. Acceleration................................................ 52 Section 6.03. Other Remedies.............................................. 52 Section 6.04. Waiver of Past Defaults..................................... 53 Section 6.05. Control by Majority......................................... 53 Section 6.06. Limitation on Suits......................................... 53 Section 6.07. Rights of Holders of Notes to Receive Payment............... 53 Section 6.08. Collection Suit by Trustee.................................. 54 Section 6.09. Trustee May File Proofs of Claim............................ 54 Section 6.10. Priorities.................................................. 54 Section 6.11. Undertaking for Costs....................................... 55 ARTICLE 7. TRUSTEE.......................................................... 55 Section 7.01. Duties of Trustee........................................... 55 Section 7.02. Rights of Trustee........................................... 56 Section 7.03. Individual Rights of Trustee................................ 56 Section 7.04. Trustee's Disclaimer........................................ 57 Section 7.05. Notice of Defaults.......................................... 57 Section 7.06. Reports by Trustee to Holders of the Notes.................. 57 Section 7.07. Compensation and Indemnity.................................. 57 Section 7.08. Replacement of Trustee...................................... 58 Section 7.09. Successor Trustee by Merger, etc............................ 59 Section 7.10. Eligibility; Disqualification............................... 59 Section 7.11. Preferential Collection of Claims Against Company........... 59 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE......................... 59 Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.... 59 Section 8.02. Legal Defeasance and Discharge.............................. 59
iii Section 8.03. Covenant Defeasance......................................... 60 Section 8.04. Conditions to Legal or Covenant Defeasance.................. 60 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions....................... 62 Section 8.06. Repayment to Company........................................ 62 Section 8.07. Reinstatement............................................... 62 ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER................................. 63 Section 9.01. Without Consent of Holders of Notes......................... 63 Section 9.02. With Consent of Holders of Notes............................ 63 Section 9.03. Compliance with Trust Indenture Act......................... 65 Section 9.04. Revocation and Effect of Consents........................... 65 Section 9.05. Notation on or Exchange of Notes............................ 65 Section 9.06. Trustee to Sign Amendments, etc............................. 65 ARTICLE 10. SUBSIDIARY GUARANTEES........................................... 65 Section 10.01. Guarantee.................................................. 65 Section 10.02. Limitation on Guarantor Liability.......................... 66 Section 10.03. Execution and Delivery of Subsidiary Guarantee............. 67 Section 10.04. Guarantors May Consolidate, etc., on Certain Terms......... 67 Section 10.05. Releases Following Sale of Assets and Certain Other Events. 68 ARTICLE 11. MISCELLANEOUS................................................... 68 Section 11.01. Trust Indenture Act Controls............................... 68 Section 11.02. Notices.................................................... 69 Section 11.03. Communication by Holders of Notes with Other Holders of Notes...................................................... 70 Section 11.04. Certificate and Opinion as to Conditions Precedent......... 70 Section 11.05. Statements Required in Certificate or Opinion.............. 70 Section 11.06. Rules by Trustee and Agents................................ 71 Section 11.07. No Personal Liability of Directors, Officers, Employees and Stockholders............................................... 71 Section 11.08. Governing Law.............................................. 71
iv Section 11.09. No Adverse Interpretation of Other Agreements.............. 71 Section 11.10. Successors................................................. 71 Section 11.11. Severability............................................... 71 Section 11.12. Counterpart Originals...................................... 71 Section 11.13. Table of Contents, Headings, etc........................... 71
EXHIBITS Exhibit A1 FORM OF NOTE Exhibit A2 FORM OF REGULATION S TEMPORARY GLOBAL NOTE Exhibit B FORM OF CERTIFICATE OF TRANSFER Exhibit C FORM OF CERTIFICATE OF EXCHANGE Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Exhibit E FORM OF NOTATION OF GUARANTEE Exhibit F FORM OF SUPPLEMENTAL INDENTURE v INDENTURE dated as of May 17, 1999 between G+G Retail, Inc., a Delaware corporation (the "Company"), and U.S. Bank Trust National Association, as trustee (the "Trustee"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 11% Series A Senior Notes due 2006 (the "Series A Notes") and the 11% Series B Senior Notes due 2006 (the "Series B Notes" and, together with the Series A Notes, the "Notes"): ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. "144A Global Note" means a global note substantially in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" shall have correlative meanings. "Agent" means any Registrar, Paying Agent or co-registrar. "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Cedel that apply to such transfer or exchange. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets or rights, other than sales of inventory in the ordinary course of business consistent with past practices; provided that the sale, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole shall be governed by the provisions of Section 4.15 and Section 5.01; and (2) the issuance of Equity Interests in any of the Company's Restricted Subsidiaries or the sale of Equity Interests in any of its Subsidiaries. Notwithstanding the preceding, the following items shall not be deemed to be Asset Sales: (1) any single transaction or series of related transactions that involves assets having a fair market value of less than $1.0 million; (2) a transfer of assets between or among the Company and its Wholly Owned Restricted Subsidiaries; (3) an issuance of Equity Interests 1 by a Wholly Owned Restricted Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary; (4) the sale or lease of equipment, inventory, accounts receivable or other assets in the ordinary course of business; (5) the sale or other disposition of cash or Cash Equivalents; (6) a Restricted Payment or Permitted Investment that is permitted by Section 4.07; and (7) the sale and leaseback of any assets within 90 days of the acquisition of such assets. "Attributable Debt" means in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The terms "Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning. "Board of Directors" means: (1) with respect to a corporation, the board of directors of the corporation; (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; and (3) with respect to any other Person, the board or committee of such Person serving a similar function. "Borrowing Base" means, as of any date, an amount equal to 85% (or 90% for the calendar months of July, August, October and November) of the book value of all inventory owned by the Company as of the end of the most recent fiscal quarter preceding such date, calculated in accordance with GAAP. "Broker-Dealer" has the meaning set forth in the Registration Rights Agreement. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. 2 "Cash Equivalents" means: (1) United States dollars (including such dollars as are held as overnight bank deposits and demand deposits with banks); (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B" or better or rated "A3" or better by Moody's Investors Service, Inc. or "A" or better by Standard & Poor's Ratings Group; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Rating Services and in each case maturing within 270 days after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "Cedel" means Cedel Bank, SA. "Change of Control" means the occurrence of any of the following: (1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" or "group" (as such terms are used in Section 13(d)(3) of the Exchange Act) (other than the Principals and the Related Parties); (2) the adoption of a plan relating to the liquidation or dissolution of the Company; (3) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than the Principals and their Related Parties, becomes the Beneficial Owner, directly or indirectly, of more than a majority of the Voting Stock of the Company or Holdings, measured by voting power rather than number of shares; (4) the first day on which a majority of the members of the Board of Directors of the Company or Holdings are not Continuing Directors; or (5) the first day on which Holdings ceases to own 100% of the outstanding Equity Interests of the Company. "Company" means G+G Retail, Inc., and any and all successors thereto. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus (4) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of 3 prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus (5) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Wholly Owned Restricted Subsidiary thereof; (2) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; (3) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded; (4) the cumulative effect of a change in accounting principles and any ongoing non-cash effect from a change since the date of this Indenture in the time period over which goodwill relating to the Company's purchase of substantially all of the assets of G+G Shops, Inc. on August 28, 1998 may be amortized shall be excluded; and (5) the Net Income of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the specified Person or one of its Subsidiaries. "Consolidated Net Worth" means, with respect to any specified Person as of any date, the sum of: (1) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date; plus (2) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company or Holdings who: (1) was a member of such Board of Directors on the date of this Indenture; or (2) was nominated for election or elected to such Board of Directors with the approval of either (i) a majority of the Board of Directors who were members of such Board either (x) on the date of this Indenture or (y) at the time of such nomination or election or (ii) one or more Principals and their Related Parties; provided that (x) such Principals, together with their Related Parties, Beneficially Own at least 35% of the outstanding Voting Stock of the Company and (y) no other Person or group (other than the Principals and the Related Parties) Beneficially Owns more Voting Stock of Holdings than such Principals and their Related Parties. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 11.02 hereof or such other address as to which the Trustee may give notice to the Company. 4 "Credit Agreement" means that certain Loan and Security Agreement, dated as of October 30, 1998, by and between the Company and Congress Financial Corporation, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "Credit Facilities" means one or more debt facilities (including, without limitation, the Credit Agreement) or commercial paper facilities, in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables), bankers' acceptances or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, substantially in the form of Exhibit A1 hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 4.07. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear system. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means the Notes issued in the Exchange Offer pursuant to Section 2.06(f) hereof. 5 "Exchange Offer" has the meaning set forth in the Registration Rights Agreement. "Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the date of this Indenture, until such amounts are repaid. "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letters of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations; plus (2) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period; plus (3) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Fixed Charges of such Person and its Restricted Subsidiaries for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be given pro forma effect as if they had occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated on a pro forma basis in accordance with Regulation S-X under the Securities Act, but without giving effect to clause (3) of the proviso set forth in the definition of Consolidated Net Income; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded; and (3) 6 the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Global Notes" means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, substantially in the form of Exhibit A1 hereto issued in accordance with Section 2.01, 2.06(b)(iv), 2.06(d)(ii), 2.06(d)(iii) or 2.06(f) hereof. "Global Note Legend" means the legend set forth in Section 2.06(g)(ii), which is required to be placed on all Global Notes issued under this Indenture. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. "Guarantor" means each Subsidiary of the Company that executes a Subsidiary Guarantee in accordance with the provisions of this Indenture and their respective successors and assigns. "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements, interest rate cap agreements, interest rate collar agreements, foreign exchange contracts and currency swap agreements; and (2) other agreements or arrangements designed to protect such Person against fluctuations in interest rates and/or currency values. "Holder" means a Person in whose name a Note is registered. "Holdings" means G&G Retail Holdings, Inc. "IAI Global Note" means the global Note substantially in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold to Institutional Accredited Investors. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent, in respect of: (1) borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) banker's acceptances; (4) representing Capital Lease Obligations; (5) the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or (6) representing any Hedging Obligations, if and to the extent any of the preceding items 7 (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any indebtedness of the sort described in clause (1) through (6) above of any other Person. Notwithstanding the foregoing, the term "Indebtedness" shall not include Non- Recourse Debt or indebtedness that constitutes "Indebtedness" merely by virtue of a pledge of Equity Interests of an Unrestricted Subsidiary securing the same. The amount of any Indebtedness outstanding as of any date shall be: (1) the accreted value thereof, in the case of any Indebtedness issued with original issue discount; and (2) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Indenture" means this Indenture, as amended or supplemented from time to time. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs. "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees but excluding receivables arising in the ordinary course of business), advances or capital contributions (excluding commission, travel and other advances to officers, employees, directors and independent contractors of the Company and its Restricted Subsidiaries made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, either (x) such Person is no longer a Restricted Subsidiary of the Company or (y) if such Subsidiary was a Wholly Owned Subsidiary immediately preceding such sale or disposition, such Person is no longer a Wholly Owned Subsidiary, then in each case, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of Section 4.07. The acquisition by the Company or any Restricted Subsidiary of the Company of a Person that holds an Investment in a third Person shall be deemed to be an Investment by the Company or such Restricted Subsidiary in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of Section 4.07. "Jay Galin Consulting Agreement" means the consulting agreement between Jay Galin and the Company in the form attached to Jay Galin's employment agreement with the Company in effect on the date of this Indenture. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. 8 "Letter of Transmittal" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Liquidated Damages" means all liquidated damages then owing pursuant to Section 5 of the Registration Rights Agreement, as specified in writing by the Company to the Trustee from time to time or any Holder or Holders of more than 25% in principal amount of the then outstanding Notes. "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain, together with any related provision for taxes on such gain, realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and (2) any extraordinary gain, together with any related provision for taxes on such extraordinary gain. "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and any reserve for indemnities, reimbursements or adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness: (1) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise or (c) constitutes the lender; (2) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the Notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (3) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Non-U.S. Person" means a Person who is not a U.S. Person. "Notes" has the meaning assigned to it in the preamble to this Indenture. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering" means the offering of the Notes by the Company. 9 "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 11.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is, unless otherwise stated herein, reasonably acceptable to the Trustee, that meets the requirements of Section 11.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Participant" means, with respect to the Depositary, Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel, respectively (and, with respect to DTC, shall include Euroclear and Cedel). "Permitted Business" means the business conducted by the Company and its Restricted Subsidiaries on the date of the closing of this offering and other businesses reasonably related thereto. "Permitted Investments" means: (1) any Investment in the Company or in a Wholly Owned Restricted Subsidiary of the Company; (2) any Investment in Cash Equivalents; (3) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment: (a) such Person becomes a Wholly Owned Restricted Subsidiary of the Company; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the Company; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10; (5) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (6) Hedging Obligations; (7) the incurrence by the Company or any of its Restricted Subsidiaries of performance, bid or advance payment bonds, surety bonds, custom bonds, utility bonds and similar obligations arising in the ordinary course of business; (8) endorsements of instruments for collection or deposit in the ordinary course of business; (9) loans and advances to employees and officers not to exceed $500,000 outstanding in the aggregate at any time incurred in the ordinary course of business; 10 (10) loans to employees, directors and officers in connection with the purchase by such Persons of Equity Interests of Holdings so long as the cash proceeds of such purchase received by Holdings are contemporaneously remitted by Holdings to the Company as a capital contribution; (11) investments in account debtors received in connection with the bankruptcy or reorganization, or in settlement of delinquent obligations, of customers; (12) investments in existence on the date of this Indenture; and (13) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (13) that are at the time outstanding not to exceed $5.0 million. "Permitted Liens" means: (1) Liens on assets of the Company and any Guarantor securing Indebtedness and other Obligations under Credit Facilities that were permitted by the terms of this Indenture to be incurred; (2) Liens in favor of the Company or the Guarantors; (3) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company or the Subsidiary; (4) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the second paragraph of Section 4.09 covering only the assets acquired with such Indebtedness; (7) Liens existing on the date of this Indenture; (8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (9) zoning restrictions, easements, licenses, covenants and other similar restrictions and encumbrances affecting the use of real property not interfering in any material respect with the ordinary conduct of the business of the Company and its Restricted Subsidiaries; (10) judgment liens not giving rise to an Event of Default; 11 (11) Liens, rights of setoff and credit balances with respect to deposit accounts and other Cash Equivalents; (12) deposits with the owner or lessor of premises leased and operated in the ordinary course of business; (13) nonconsensual liens that do not individually or in the aggregate detract materially from the value or transferability of the assets of the Company or any of its Restricted Subsidiaries, or impair materially the use of any such assets in the operation of the respective businesses of the Company and its Restricted Subsidiaries; (14) Liens securing Hedging Obligations; and (15) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest thereon and the amount of all expenses and premiums incurred in connection therewith); (2) such Permitted Refinancing Indebtedness has a final maturity date not earlier than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (4) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "Principals" means (1) each of (x) Pegasus Partners, L.P., (y) Pegasus Related Partners, L.P. and (z) Pegasus G&G Retail, L.P. and Pegasus G&G Retail II, L.P. for so long as they are directly or indirectly controlled by or under common control with either Pegasus Partners, L.P. or Pegasus Related Partners, L.P. (together, the "Pegasus Funds") and (2) Jay Galin and Scott Galin (together, the "Galins"). "Private Placement Legend" means the legend set forth in Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. "Public Equity Offering" means an underwritten public offering of Capital Stock (other than Disqualified Stock) of Holdings or the Company pursuant to a registration statement filed with the SEC in accordance with the Securities Act; provided that in the event of a Public Equity Offering by Holdings, Holdings contributes to the capital of the Company net cash proceeds of such Public Equity 12 Offering in an amount sufficient to redeem the Notes called for redemption in accordance with the terms thereof. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the date of this Indenture, by and among the Company and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Note" means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as appropriate. "Regulation S Permanent Global Note" means a permanent global Note in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Note upon expiration of the Restricted Period. "Regulation S Temporary Global Note" means a temporary global Note in the form of Exhibit A2 hereto bearing the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S. "Related Party" means: (1) any controlling general partner or controlling stockholder, 80% (or more) owned Subsidiary, or immediate family member (in the case of an individual) of any Principal; (2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of any one or more Principals and/or such other Persons referred to in the immediately preceding clause (1); or (3) any controlling general partner or controlling stockholder of any Related Party described in clause (1) above or any controlling general partner or controlling stockholder of any such Related Party described in clause (1) above. In addition, (1) each of the Galins shall be the Related Party of the other and (2) each of the Pegasus Funds shall be a Related Party of the other. "Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend. "Restricted Global Note" means a Global Note bearing the Private Placement Legend. "Restricted Investment" means any Investment other than a Permitted Investment. "Restricted Period" means the 40-day restricted period as defined in Regulation S. 13 "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated the Securities Act. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of this Indenture. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Subsidiary Guarantee" means the Guarantee by each Guarantor of the Company's payment obligations under this Indenture and on the Notes, executed pursuant to the provisions of this Indenture. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unit Agreement" means the Unit Agreement among the Company, G&G Retail Holdings, Inc. and the Unit Agent, dated as of the date hereof and amended from time to time. 14 "Unrestricted Global Note" means a permanent global Note substantially in the form of Exhibit A1 attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "Unrestricted Definitive Note" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "Unrestricted Subsidiary" means any Subsidiary of the Company that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries. Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the preceding conditions and was permitted by Section 4.07. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09, the Company shall be in default of such Section. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if: (1) such Indebtedness is permitted under Section 4.09, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. Any Subsidiary so designated as a Restricted Subsidiary must become a Guarantor and execute a supplemental indenture and deliver an Opinion of Counsel to the Trustee within ten Business Days of the date on which it was so designated. "U.S. Person" means a U.S. person as defined in Rule 902(o) under the Securities Act. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness. 15 "Wholly Owned Restricted Subsidiary" of any specified Person means a Restricted Subsidiary of such Person, all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. Section 1.02. Other Definitions.
Defined in Term Section ---- ------- "Affiliate Transaction".................................. 4.11 "Asset Sale Offer"....................................... 3.09 "Authentication Order"................................... 2.02 "Bankruptcy Law"......................................... 4.01 "Change of Control Offer"................................ 4.15 "Change of Control Payment".............................. 4.15 "Change of Control Payment Date"......................... 4.15 "Covenant Defeasance".................................... 8.03 "Event of Default"....................................... 6.01 "Excess Proceeds"........................................ 4.10 "incur".................................................. 4.09 "Legal Defeasance"....................................... 8.02 "Offer Amount"........................................... 3.09 "Offer Period"........................................... 3.09 "Paying Agent"........................................... 2.03 "Payment Default"........................................ 6.01 "Permitted Debt"......................................... 4.09 "Purchase Date".......................................... 3.09 "Registrar".............................................. 2.03 "Restricted Payments".................................... 4.07
Section 1.03. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes and the Subsidiary Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Subsidiary Guarantees, respectively. 16 All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. Section 1.04. Rules of Construction. Unless the context otherwise requires: (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (c) "or" is not exclusive; (d) words in the singular include the plural, and in the plural include the singular; (e) provisions apply to successive events and transactions; and (f) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. ARTICLE 2. THE NOTES Section 2.01. Form and Dating. (a) General. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Notes. Notes issued in global form shall be substantially in the form of Exhibits A1 or A2 attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A1 attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of 17 the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. (c) Temporary Global Notes. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Temporary Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel Bank, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Restricted Period shall be terminated upon the receipt by the Trustee of (i) a written certificate from the Depositary, together with copies of certificates from Euroclear and Cedel Bank certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note or an IAI Global Note bearing a Private Placement Legend, all as contemplated by Section 2.06(b)(iii) hereof), and (ii) an Officers' Certificate from the Company. Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Note shall be exchanged for beneficial interests in Regulation S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Notes, the Trustee shall cancel the Regulation S Temporary Global Note. The aggregate principal amount of the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. (d) Euroclear and Cedel Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be applicable to transfers of beneficial interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes that are held by Participants through Euroclear or Cedel Bank. Section 2.02. Execution and Authentication. Two Officers shall sign the Notes for the Company by manual or facsimile signature. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by two Officers (an "Authentication Order"), authenticate Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference 18 in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. Section 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes. Section 2.04. Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium or Liquidated Damages, if any, or interest on the Notes, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. Section 2.05. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA ss. 312(a). Section 2.06. Transfer and Exchange. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a 19 successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary, (ii) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee or the Depositary in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes following an Event of Default and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Temporary Global Note be exchanged by the Company for Definitive Notes prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act. Upon the occurrence of any of the preceding events in (i), (ii) or (iii) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (i) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Temporary Regulation S Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(i). (ii) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(i) above, the transferor of such beneficial interest must deliver to the Registrar either (A) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged, (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase and (3) instructions given by the Depositary to effect the transfer or exchange referred 20 to in (1) above or (B) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above; provided that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act. Upon consummation of an Exchange Offer by the Company in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof. (iii) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(ii) above and the Registrar receives the following: (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Note or the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transferee will take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications and certificates and Opinion of Counsel required by item (3) thereof, if applicable. (iv) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in the Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(b)(ii) above and: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; 21 (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note. (v) Notation by the Trustee of Transfer of Beneficial Interests Among Global Notes. Upon satisfaction of the requirements for transfer of beneficial interests in a Global Note pursuant to clauses (iii) or (iv) above, the Trustee, as Registrar, shall reduce or cause to be reduced the aggregate principal amount of the relevant Global Note from which the beneficial interest is being transferred, and increase or cause to be increased the aggregate principal amount of Global Note to which the beneficial interest is being transferred, in each case, by the principal amount of the beneficial interest being transferred and shall direct the Depositary to make corresponding adjustments in its book-entry system. No transfer of beneficial interests in a Global Note shall be effected until, and any transferee pursuant thereto shall succeed to the rights of a holder of beneficial interests in a Global Note only when, the Registrar has made appropriate adjustments to the applicable Global Note in accordance with this paragraph. (c) Transfer or Exchange of Beneficial Interests for Definitive Notes. 22 (i) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear 23 the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (ii) Beneficial Interests in Regulation S Temporary Global Note to Definitive Notes. Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Note may not be exchanged for a Definitive Note or transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (iii) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. 24 (iv) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii) shall not bear the Private Placement Legend. (d) Transfer and Exchange of Definitive Notes for Beneficial Interests. (i) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof; (B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; 25 (F) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (C) above, the Regulation S Global Note, and in all other cases, the IAI Global Note. (ii) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or (2) (if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. 26 Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. (iii) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred. (e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e). (i) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (ii) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: 27 (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or (2) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02, the Trustee shall authenticate (i) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes tendered for acceptance by Persons that certify in the applicable Letters of Transmittal that (x) they are not broker-dealers, (y) they are not participating in a distribution of the Exchange Notes and (z) they are not affiliates (as defined in Rule 144) of the Company, and accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with the issuance of such Notes, the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall 28 authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Definitive Notes in the appropriate principal amount. (g) Legends. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (i) Private Placement Legend. (A) Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR 904 UNDER THE SECURITIES ACT OR (C) IT IS AN ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a)(1), (2), (3), OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR"), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR 904 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT." (B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(iii), (c)(iv), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or 29 (f) to this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend. (ii) Global Note Legend. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY." (iii) Regulation S Temporary Global Note Legend. The Regulation S Temporary Global Note shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON." (h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. (i) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon the Company's order or at the Registrar's request. (ii) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar 30 governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof). (iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (viii) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. Section 2.07. Replacement Notes. If any mutilated Note is surrendered to the Trustee or the Company and the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.08. Outstanding Notes. 31 The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note; however, Notes held by the Company or a Subsidiary of the Company shall not be deemed to be outstanding for purposes of Section 3.07(b) hereof. If a Note is replaced pursuant to Section 2.07 hereof (other than a mutilated Note surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.07. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. Section 2.09. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded. Section 2.10. Temporary Notes. Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. Section 2.11. Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy canceled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. 32 Section 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01. Notices to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. Section 3.02. Selection of Notes to Be Redeemed. If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee shall select the Notes to be redeemed or purchased among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. Section 3.03. Notice of Redemption. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. 33 The notice shall identify the Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Section 3.05. Deposit of Redemption Price. One Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with 34 the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. Section 3.06. Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. Section 3.07. Optional Redemption. (a) Except as set forth in clause (b) of this Section 3.07, the Company shall not have the option to redeem the Notes pursuant to this Section 3.07 prior to May 15, 2003. On or after May 15, 2003, the Company may redeem all or a part of the Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on May 15 of the years indicated below:
Year Percentage ---- ---------- 2003.................................................. 105.50% 2004.................................................. 102.75% 2005 and thereafter................................... 100.00%
(b) Notwithstanding the provisions of clause (a) of this Section 3.07, at any time prior to May 15, 2002, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes issued under this Indenture at a redemption price of 111% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the redemption date, with the net cash proceeds of one or more Public Equity Offerings; provided that: (1) at least 65% of the aggregate principal amount of Notes issued under this Indenture remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and (2) the redemption must occur within 60 days of the date of the closing of such Public Equity Offering. (c) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. Section 3.08. Mandatory Redemption. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. Section 3.09. Offer to Purchase by Application of Excess Proceeds. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the 35 "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered or accepted for payment shall continue to accrete or accrue interest; (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in integral multiples of $1,000 only; (f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and 36 (i) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. ARTICLE 4. COVENANTS Section 4.01. Payment of Notes. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company shall pay all Liquidated Damages, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace period) at the same rate to the extent lawful. Section 4.02. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or 37 agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03. Section 4.03. Reports. (a) Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company shall furnish to the Holders of Notes, within the time periods specified in the SEC's rules and regulations (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports, in each case. In addition, following consummation of the Exchange Offer, whether or not required by the rules and regulations of the SEC, the Company shall file a copy of all such information and reports referred to above with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. The Company shall at all times comply with TIA ss. 314(a). (b) For so long as any Notes remain outstanding, the Company and the Guarantors shall furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Section 4.04. Compliance Certificate. (a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. 38 (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 4.05. Taxes. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. Section 4.06. Stay, Extension and Usury Laws. The Company and each of the Guarantors covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each of the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. Section 4.07. Restricted Payments. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary of the Company); (2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes or the Subsidiary Guarantees, except a payment of interest or principal at the Stated Maturity thereof; or (4) make any Restricted Investment (all such payments and other actions set 39 forth in clauses (1) through (4) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (1) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (2) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09; and (3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of this Indenture (excluding Restricted Payments permitted by clauses (2), (3) and (4) of the next succeeding paragraph), is less than the sum, without duplication, of: (a) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of this Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (b) 100% of the aggregate net cash proceeds received by the Company since the date of this Indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests (other than Disqualified Stock) of the Company or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company), plus (c) to the extent that any Restricted Investment that was made after the date of this Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment, plus (d) in the event that any Unrestricted Subsidiary is designated as a Restricted Subsidiary in accordance with the provisions of this Indenture, the lesser of (i) the aggregate fair market value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in such Subsidiary at the time of such designation or (ii) the aggregate amount of Restricted Investments made in such Unrestricted Subsidiary since the date of this Indenture. So long as no Default has occurred and is continuing or would be caused thereby, the preceding provisions will not prohibit: (1) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (2) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness of the Company or any Guarantor or of any Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, 40 repurchase, retirement, defeasance or other acquisition shall be excluded from clause (3)(b) of the preceding paragraph; (3) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness of the Company or any Guarantor with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (4) the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; (5) payments to Holdings to enable Holdings to repurchase, redeem or otherwise acquire or redeem for value any Equity Interests of Holdings held by any current or former member of the Company's (or any of its Restricted Subsidiaries') management or any of its current or former directors; provided that the aggregate price paid for all such repurchased, redeemed or acquired Equity Interests shall not exceed $500,000 in any twelve-month period (excluding for purposes of calculating such amounts during any period loans incurred to finance the purchase of such Equity Interests that are repaid); (6) payments to Holdings to enable Holdings to (i) pay franchise taxes and other fees and expenses necessary to maintain its corporate existence, (ii) pay reasonable fees to its directors and (iii) perform accounting, legal, corporate reporting and other administrative functions in the ordinary course of business, provided that such payments do not exceed $1.0 million in the aggregate; and (7) payments to Holdings to enable Holdings to fund payments under any plan implemented in the ordinary course of business to compensate management of the Company or any of its Restricted Subsidiaries based on the value of Holdings' common stock. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair market value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary so designated will be deemed to be an Investment made as of the time of such designation and will either reduce the amount available for Restricted Payments under the first paragraph of this Section 4.07 or reduce the amount available for future Investments under one or more clauses of the definition of Permitted Investments, as the Company shall determine. That designation will only be permitted if such Investment would be permitted at that time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a Default. Any Subsidiary so designated as a Restricted Subsidiary must become a Guarantor and execute a supplemental indenture and deliver an Opinion of Counsel to the Trustee within ten Business Days of the date on which it was so designated. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued to or by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee. The Board of Directors' determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the fair market value exceeds $5.0 million. Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to the Company or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Company or any of its 41 Restricted Subsidiaries; (2) make loans or advances to the Company or any of its Restricted Subsidiaries; or (3) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. The preceding paragraph will not apply to encumbrances or restrictions existing under or by reason of: (1) Existing Indebtedness (including the Credit Agreement) as in effect on the date of this Indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in such Existing Indebtedness (including the Credit Agreement), as in effect on the date of this Indenture; (2) this Indenture, the Notes and the Subsidiary Guarantees; (3) applicable law; (4) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be incurred; (5) customary non-assignment provisions in leases and other agreements entered into in the ordinary course of business and consistent with past practices; (6) purchase money obligations (including Capital Lease Obligations) for property acquired in the ordinary course of business that impose restrictions on the property so acquired of the nature described in clause (3) of the preceding paragraph; (7) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition; (8) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (9) Liens securing Indebtedness that limit the right of the debtor to dispose of the assets subject to such Lien; (10) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, assets sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business; and (11) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock. 42 The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the Company will not issue any Disqualified Stock and will not permit any of its Subsidiaries to issue any shares of Preferred Stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.5 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. The proceeding paragraph will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (1) the incurrence by the Company and its Restricted Subsidiaries of additional Indebtedness under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Restricted Subsidiaries thereunder) not to exceed the lesser of (x) $30.0 million less the aggregate amount of all Net Proceeds of Asset Sales applied by the Company or any of its Restricted Subsidiaries to repay Indebtedness under a Credit Facility and effect a corresponding commitment reduction thereunder pursuant to Section 4.10 and (y) the amount of the Borrowing Base as of the date of such incurrence; (2) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (3) the incurrence by the Company and the Guarantors of Indebtedness represented by the Notes and the related Subsidiary Guarantees to be issued on the date of this Indenture and the Exchange Notes and the related Subsidiary Guarantees to be issued pursuant to the Registration Rights Agreement; (4) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (4), not to exceed $5.0 million at any time outstanding; (5) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price of point of sale equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (5), not to exceed $5.0 million; (6) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace 43 Indebtedness (other than intercompany Indebtedness) that was permitted by this Indenture to be incurred under the first paragraph of this covenant or clauses (2), (3), (4), (5), (6) or (13) of this paragraph; (7) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Wholly Owned Restricted Subsidiaries or a Guarantor; provided, however, that: (a) if the Company or any Guarantor is the obligor on such Indebtedness and the obligor is not a Guarantor or the Company, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes, in the case of the Company, or the Subsidiary Guarantee, in the case of a Guarantor; and (b) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Wholly Owned Restricted Subsidiary thereof or a Guarantor and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Restricted Subsidiary thereof or a Guarantor; shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (7); (8) the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging (i) interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding or (ii) currency values with respect to transactions entered into by the Company or a Restricted Subsidiary in the ordinary course of business; (9) the guarantee by the Company or any of the Guarantors of Indebtedness of the Company or a Restricted Subsidiary of the Company to the extent such Indebtedness was permitted to be incurred by another provision of this covenant; (10) the accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant; provided, in each such case, that the amount thereof is included in Fixed Charges of the Company as accrued; (11) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness consisting of performance, bid or advance payment bonds, surety bonds, custom bonds, utility bonds and similar obligations arising in the ordinary course of business; (12) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, in each case incurred or assumed in connection with the disposition of any business, asset or Subsidiary of the Company, provided that the maximum assumable Indebtedness shall at no time exceed the gross proceeds actually received by the Company and its Restricted Subsidiaries in connection with such disposition; and (13) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (13), not to exceed $5.0 million. 44 The Company will not incur any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Company unless such Indebtedness is also contractually subordinated in right of payment to the Notes on substantially identical terms; provided, however, that no Indebtedness of the Company shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Company solely by virtue of being unsecured. For purposes of determining compliance with this Section 4.09, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (13) above, or is entitled to be incurred pursuant to the first paragraph of this Section 4.09, the Company will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this Section. Indebtedness under Credit Facilities outstanding on the date on which Notes are first issued and authenticated under this Indenture shall be deemed to have been incurred on such date in reliance on the exception provided by clause (1) of the definition of Permitted Debt. Section 4.10. Asset Sales. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: (1) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of; (2) such fair market value is determined by the Company's Board of Directors and evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee; and (3) at least 85% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash. For purposes of this provision, each of the following shall be deemed to be cash: (a) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet) of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Subsidiary Guarantee) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability; and (b) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted by the Company or such Subsidiary into cash (to the extent of the cash received in that conversion) within 90 days following the closing of such Asset Sale. Within 180 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply any such Net Proceeds: (1) to repay any Indebtedness under the Credit Facilities to the extent that such Indebtedness is secured by a Lien on the assets and/or Equity Interests so issued or sold or otherwise disposed of in the Asset Sale; (2) to acquire all or substantially all of the assets of, or a majority of the Voting Stock of, another Permitted Business; (3) to make a capital expenditure in a Permitted Business; or (4) to acquire other long-term assets that are used or useful in a Permitted Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph will constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will make an Asset Sale Offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets to purchase the 45 maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of principal amount plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of Notes and such other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of Notes and such other pari passu Indebtedness tendered. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sales provisions of this Indenture, the Company shall comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of this Indenture by virtue of such conflict. Section 4.11. Transactions with Affiliates. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"), unless: (1) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and (2) the Company delivers to the Trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. The following items shall not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph: (1) any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary; (2) any consulting, advisory or management agreement entered into by the Company or any of its Restricted Subsidiaries; provided that the aggregate compensation paid to affiliates of the Company, its Restricted Subsidiaries or Related Parties under all such agreements (excluding the Jay Galin Consulting Agreement) does not exceed $500,000 in any twelve-month period; (3) transactions between or among the Company and/or its Restricted Subsidiaries; (4) agreements in effect on the date of this Indenture and any modification thereto or any transaction contemplated thereby (including pursuant to any modification thereto) in any replacement agreement therefor so long as such modification or replacement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on the date of this Indenture; (5) the Jay Galin 46 Consulting Agreement; (6) payments to Holdings to enable Holdings to pay, and payments by the Company or any of its Restricted Subsidiaries of, fees and compensation paid to and indemnity provided on behalf of, officers, directors, employees or consultants of Holdings, the Company or any Restricted Subsidiary thereof for their service to the Company or its Restricted Subsidiaries; (7) sales of Equity Interests (other than Disqualified Stock) to Affiliates of the Company; and (8) Restricted Payments that are permitted by Section 4.07. Section 4.12. Liens. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, except Permitted Liens. Section 4.13. Business Activities. The Company shall not, and shall not permit any Subsidiary to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. Section 4.14. Corporate Existence. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.15. Offer to Repurchase Upon Change of Control. (a) Upon the occurrence of a Change of Control, the Company shall make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 10 days following any Change of Control, the Company shall mail a notice to each Holder describing the transaction or transactions that constitute a Change of Control and stating: (1) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Notes tendered will be accepted for payment; (2) the purchase price and the purchase date, which shall be no later than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); (3) that any Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address 47 specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (7) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes in connection with a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with this Section 4.15, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Section 4.15 by virtue of such conflict. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful, (1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Notes so tendered the Change of Control Payments for the Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered by such Holder, if any; provided, that each such new Note shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (c) Notwithstanding anything to the contrary in this Section 4.15, the Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section 4.15 and Section 3.09 hereof and all other provisions of this Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. Section 4.16. Limitation on Sale and Leaseback Transactions. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company or any Restricted Subsidiary may enter into a sale and leaseback transaction if: (1) the Company or that Restricted Subsidiary, as applicable, could have incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under the Fixed Charge Coverage Ratio test in the first paragraph of Section 4.09; (2) the gross cash proceeds of that sale and leaseback transaction are at least equal to the fair market value, as determined in good faith by the Board of Directors and set forth in an Officers' Certificate delivered to the Trustee, of the property that is the subject of that sale and leaseback transaction; and (3) the transfer of assets in that sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with Section 4.10. Section 4.17. Limitation on Issuances and Sales of Capital Stock of Wholly Owned Subsidiaries. 48 The Company shall not, and shall not permit any of its Restricted Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Wholly Owned Restricted Subsidiary of the Company to any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company), unless: (1) (x) such transfer, conveyance, sale, lease or other disposition is of all the Equity Interests in such Wholly Owned Restricted Subsidiary or (y) if such transfer, conveyance, sale, lease or other disposition is of less than all of the Equity Interests in such Wholly Owned Restricted Subsidiary, such transfer, conveyance, sale, lease or other disposition is made in compliance with Section 4.07 and (2) the cash Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 4.10. In addition, the Company will not permit any Wholly Owned Restricted Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Restricted Subsidiary of the Company. Section 4.18. Payments for Consent. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Section 4.19. Additional Subsidiary Guarantees. If the Company or any of its Restricted Subsidiaries acquires or creates another domestic Restricted Subsidiary after the date of this Indenture, then that newly acquired or created Restricted Subsidiary must become a Guarantor and execute a supplemental indenture in the form of Exhibit F, a Notation of Guarantee in the form of Exhibit E and deliver an Opinion of Counsel to the Trustee within ten Business Days of the date on which it was acquired or created. If any Subsidiary that is not a Guarantor at any time guarantees Indebtedness of the Company or a Guarantor, the Company will cause such Subsidiary to contemporaneously execute and deliver a supplemental Indenture providing for the guarantee of the payment of the Notes by such Subsidiary in the form of Exhibit F. ARTICLE 5. SUCCESSORS Section 5.01. Merger, Consolidation, or Sale of Assets. The Company shall not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person; unless: (1) either: (a) the Company is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (2) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, conveyance or other disposition shall have been made assumes all the obligations of 49 the Company under the Notes, this Indenture, the Unit Agreement and the Registration Rights Agreement pursuant to agreements reasonably satisfactory to the Trustee; (3) immediately after such transaction no Default or Event of Default exists; and (4) the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition shall have been made: (a) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction; and (b) will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09. In addition, the Company may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. This Section 5.01 will not apply to a sale, assignment, transfer, conveyance, lease or other disposition of assets between or among the Company and any of its Wholly Owned Restricted Subsidiaries. Section 5.02. Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.01 hereof. ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01. Events of Default. An "Event of Default" occurs if: (1) the Company defaults in the payment when due of interest on, or Liquidated Damages with respect to, the Notes and such default continues for a period of 30 days; (2) the Company defaults in the payment when due of principal of, or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise; (3) the Company or any of its Restricted Subsidiaries fails to comply with any of the provisions of Section 4.07, 4.09, 4.10, 4.15 or 5.01 hereof; (4) the Company or any of its Significant Subsidiaries fails to observe or perform any other covenant, representation, warranty or other agreement in this Indenture for 60 days after notice to the 50 Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class; (5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Significant Subsidiaries (or the payment of which is guaranteed by the Company or any of its Significant Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of this Indenture, if that default: (a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (b) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (6) failure by the Company or any of its Significant Subsidiaries to pay final judgments aggregating in excess of $5.0 million (net of amounts covered by insurance policies issued by insurers rated at least "A" by A.M. Best Company that have not denied or disclaimed coverage and with respect to which an enforcement proceeding has not been commenced), which judgments are not paid, discharged or stayed within 60 days; (7) except as permitted by this Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (8) the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; or (9) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (ii) appoints a custodian of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all 51 or substantially all of the property of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (iii) orders the liquidation of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days. Section 6.02. Acceleration. If any Event of Default (other than an Event of Default specified in clause (8) or (9) of Section 6.01 hereof with respect to the Company, any Significant Subsidiary or any group of Significant Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (8) or (9) of Section 6.01 hereof occurs with respect to the Company, any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to Section 3.07, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to May 15, 2003, by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to May 15, 2003, then, upon acceleration of the Notes, an additional premium shall also become and be immediately due and payable in an amount, for each of the years beginning on May 15 of the years set forth below, as set forth below (expressed as a percentage of the principal amount of the Notes on the date of payment that would otherwise be due but for the provisions of this sentence): Year Percentage ---- ---------- 1999.................................................. 116.50% 2000.................................................. 113.75% 2001.................................................. 111.00% 2002.................................................. 108.25% Section 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in 52 exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.04. Waiver of Past Defaults. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium and Liquidated Damages, if any, or interest on, the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05. Control by Majority. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. Section 6.06. Limitation on Suits. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. Section 6.07. Rights of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and Liquidated Damages, if any, and interest on the Note, on or 53 after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. Section 6.08. Collection Suit by Trustee. If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Liquidated Damages, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.09. Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Liquidated Damages, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Liquidated Damages, if any and interest, respectively; and 54 Third: to the Company, any Guarantor or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. Section 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7. TRUSTEE Section 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and 55 (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.02. Rights of Trustee. Subject to Section 7.01, (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. Section 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or 56 resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.04. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.05. Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. Section 7.06. Reports by Trustee to Holders of the Notes. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA ss. 313(a) (but if no event described in TIA ss. 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA ss. 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA ss. 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA ss. 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the reasonable costs and expenses of enforcing this Indenture against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its 57 powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence, bad faith or willful misconduct. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder, except to the extent the Company is materially prejudiced as a result of such failure. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(8) or (9) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to the extent applicable. Section 7.08. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the 58 then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. Section 7.09. Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10. Eligibility; Disqualification. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA ss. 310(b). Section 7.11. Preferential Collection of Claims Against Company. The Trustee is subject to TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article Eight. Section 8.02. Legal Defeasance and Discharge. 59 Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company and each Guarantor shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes and the Subsidiary Guarantees on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company and each Guarantor shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes and the Subsidiary Guarantees, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest and Liquidated Damages, if any, on such Notes when such payments are due, (b) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (d) this Article Eight. Subject to compliance with this Article Eight, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. Section 8.03. Covenant Defeasance. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from their obligations under the covenants contained in Sections 4.03(a), 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19 hereof and clause (4) of Section 5.01 hereof with respect to the outstanding Notes and Subsidiary Guarantees on and after the date the conditions set forth in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the Notes and Subsidiary Guarantees shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes and Subsidiary Guarantees, the Company and Guarantors may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes and Subsidiary Guarantees shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(3) through 6.01(7) hereof shall not constitute Events of Default. Section 8.04. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: 60 (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium and Liquidated Damages, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Notes pursuant to this Article Eight concurrently with such incurrence) or insofar as Section 6.01(8) or 6.01(9) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel (which may be subject to customary exceptions) to the effect that on the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. 61 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.06. Repayment to Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 8.07. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any 62 payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01. Without Consent of Holders of Notes. Notwithstanding Section 9.02 of this Indenture, the Company, the Guarantors and the Trustee may amend or supplement this Indenture, the Subsidiary Guarantees or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article 2 hereof (including the related definitions) in a manner that does not materially adversely affect any Holder; (c) to provide for the assumption of the Company's or a Guarantor's obligations to the Holders of the Notes by a successor to the Company or a Guarantor pursuant to Article 5 or Article 10 hereof; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Note; (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; and (f) to allow any Guarantor to execute a supplemental indenture and/or a Subsidiary Guarantee with respect to the Notes. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company and the Guarantors in the execution of any amended or supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Section 9.02. With Consent of Holders of Notes. Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including Section 3.09, 4.10 and 4.15 hereof), the Subsidiary Guarantees and the Notes with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest or Liquidated Damages, if any, on the Notes, except a payment default 63 resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Section 2.08 hereof shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof; (c) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest or Liquidated Damages, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or interest or premium or Liquidated Damages, if any, on the Notes; 64 (g) waive a redemption payment with respect to any Note (other than a payment required by either of Section 4.10 or Section 4.15); (h) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions; or (i) release any Guarantor from any of its obligations under its Subsidiary Guarantee or this Indenture, except in accordance with the terms of this Indenture. Section 9.03. Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. Section 9.04. Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.05. Notation on or Exchange of Notes. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. Section 9.06. Trustee to Sign Amendments, etc. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article Nine if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully protected in relying upon, in addition to the documents required by Section 11.04 hereof, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. ARTICLE 10. SUBSIDIARY GUARANTEES Section 10.01. Guarantee. 65 Subject to this Article 10, each of the Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (a) the principal of and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. The Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that this Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Subsidiary Guarantee. The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee. Section 10.02. Limitation on Guarantor Liability. Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Subsidiary Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any 66 Subsidiary Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of such Guarantor under this Indenture and the Subsidiary Guarantees shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 10, result in the obligations of such Guarantor under its Subsidiary Guarantee not constituting a fraudulent transfer or conveyance. Section 10.03. Execution and Delivery of Subsidiary Guarantee. To evidence its Subsidiary Guarantee set forth in Section 10.01, each Guarantor hereby agrees that a notation of such Subsidiary Guarantee substantially in the form included in Exhibit E shall be endorsed by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture shall be executed on behalf of such Guarantor by its President or one of its Vice Presidents. Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in Section 10.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee. If an Officer whose signature is on this Indenture or on the Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee set forth in this Indenture on behalf of the Guarantors. In the event that the Company creates or acquires any new Subsidiaries subsequent to the date of this Indenture, if required by Section 4.19 hereof, the Company shall cause such Subsidiaries to execute supplemental indentures to this Indenture and Subsidiary Guarantees in accordance with Section 4.19 hereof and this Article 10, to the extent applicable. Section 10.04. Guarantors May Consolidate, etc., on Certain Terms. Except as otherwise provided in Section 10.05, no Guarantor may sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person, other than the Company or another Guarantor, unless: (1) immediately after giving effect to that transaction, no Default or Event of Default exists; and (2) either: (a) the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger assumes all the obligations of that Guarantor under this Indenture, its Subsidiary Guarantee, the Registration Rights Agreement and the Unit Agreement pursuant to a supplemental indenture satisfactory to the Trustee; or 67 (b) the Net Proceeds of such sale or other disposition are applied in accordance with Section 4.10. In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor Person shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under this Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof. Except as set forth in Articles 4 and 5 hereof, and notwithstanding clauses (1) and (2) above, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor. Section 10.05. Releases Following Sale of Assets and Certain Other Events. A Guarantor will be released and relieved of any obligations under its Subsidiary Guarantee (1) in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation ) to a Person that is not (either before or after giving effect to such transaction) a Subsidiary of the Company, if the Guarantor applies the Net Proceeds of that sale or other disposition in accordance with Section 4.10, (2) in connection with any sale of all of the Capital Stock of a Guarantor to a Person that is not (either before or after giving effect to such transaction) a Subsidiary of the Company, if the Company applies the Net Proceeds of that sale in accordance with Section 4.10, or (3) if the Company designates any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary in accordance with this Indenture. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale, other disposition or designation was made by the Company in accordance with the provisions of this Indenture, including without limitation Section 4.10 hereof, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Subsidiary Guarantee. Any Guarantor not released from its obligations under its Subsidiary Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 10. ARTICLE 11. MISCELLANEOUS Section 11.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA ss.318(c), the imposed duties shall control. 68 Section 11.02. Notices. Any notice or communication by the Company, any Guarantor or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company or any Guarantor: G+G Retail, Inc. 520 Eighth Avenue New York, New York 10018 Telecopier No.: (212) 643-4319 Attention: Chief Financial Officer With a copy to: Kaye, Scholer, Fierman, Hays & Handler, LLP 425 Park Avenue New York, New York 10022 Telecopier No.: (212) 836-8689 Attention: Mark S. Selinger, Esq. and Shack & Siegel, PC 530 Fifth Avenue 16th Floor New York, New York 10036 Telecopier No.: (212) 730-1964 Attention: Donald D. Shack, Esq. If to the Trustee: U.S. Bank Trust National Association 100 Wall Street 16th Floor New York, New York 10005 Telecopier No.: (212) 809-5459 Attention: Glenn Anderson The Company, any Guarantor or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. 69 Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA ss. 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 11.03. Communication by Holders of Notes with Other Holders of Notes. Holders may communicate pursuant to TIA ss. 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA ss. 312(c). Section 11.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. Section 11.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA ss. 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and 70 (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. Section 11.06. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 11.07. No Personal Liability of Directors, Officers, Employees and Stockholders. No past, present or future director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Section 11.08. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Section 11.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 11.10. Successors. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. All agreements of each Guarantor in this Indenture shall bind its successors, except as otherwise provided in Section 10.05. Section 11.11. Severability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 11.12. Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 11.13. Table of Contents, Headings, etc. 71 The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 72 SIGNATURES Dated as of May 17, 1999 G+G RETAIL, INC. By: /s/ Scott Galin ------------------------------------ Name: Scott Galin Title: President and Chief Operating Officer U.S. BANK TRUST NATIONAL ASSOCIATION By: /s/ Glenn W. Andersen ------------------------------------ Name: Glenn W. Andersen Title: Vice President 73 EXHIBIT A1 [Face of Note] ================================================================================ CUSIP/CINS ____________ 11% [Series A] [Series B] Senior Notes due 2006 No. ___ $_____________ G+G RETAIL, INC. promises to pay to _____________________________________________________________ or registered assigns, the principal sum of ___________________________________________________________ Dollars on May 15, 2006. Interest Payment Dates: May 15 and November 15 Record Dates: May 1 and November 1 Dated: _______________, ____ G+G RETAIL, INC. By:______________________________________ Name: Scott Galin Title: President By:______________________________________ Name: Michael Kaplan Title: Chief Financial Officer (SEAL) This is one of the Notes referred to in the within-mentioned Indenture: U.S. BANK TRUST NATIONAL ASSOCIATION, as Trustee By: __________________________________ Authorized Signatory ================================================================================ A1-1 [Back of Note] 11% [Series A] [Series B] Senior Notes due 2006 [Insert the Global Note Legend, if applicable pursuant to the provisions of the Indenture] [Insert the Private Placement Legend, if applicable pursuant to the provisions of the Indenture] Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. G+G Retail, Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at 11% per annum from May 17, 1999 until maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages semi-annually in arrears on May 15 and November 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be November 15, 1999. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on the May 1 or November 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Liquidated Damages, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, U.S. Bank Trust National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. 4. INDENTURE. The Company issued the Notes under an Indenture dated as of May 17, 1999 ("Indenture") between the Company and the Trustee. The terms of the Notes include those stated A1-2 in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are obligations of the Company limited to $107 million in aggregate principal amount. 5. OPTIONAL REDEMPTION. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Company shall not have the option to redeem the Notes prior to May 15, 2003. On or after May 15, 2003, the Company may redeem all or a part of the Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on May 15 of the years indicated below: Year Percentage ---- ---------- 2003.................................................. 105.50% 2004.................................................. 102.75% 2005 and thereafter................................... 100.00% (b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to May 15, 2002, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes issued under this Indenture at a redemption price of 111% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the redemption date, with the net cash proceeds of one or more Public Equity Offerings; provided that: (1) at least 65% of the aggregate principal amount of Notes issued under the Indenture remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and (2) the redemption must occur within 60 days of the date of the closing of such Public Equity Offering. 6. MANDATORY REDEMPTION. Except as set forth in Paragraph 7 below, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. 7. REPURCHASE AT OPTION OF HOLDER. (a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 10 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $5 million, the Company shall commence an offer to all Holders of Notes (an "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes that may be purchased out of the Excess A1-3 Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Subsidiary) may use such deficiency for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes voting as a single class, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class. Without the consent of any Holder of a Note, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or Guarantor's obligations to Holders of the Notes in case of a merger or consolidation or sale of all or substantially all of the Company's assets, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, or to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Subsidiary Guarantee with respect to the Notes. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest or Liquidated Damages on the Notes; (ii) default in payment when due of A1-4 principal of or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise, (iii) failure by the Company or any of its Restricted Subsidiaries to comply with Section 4.07, 4.09, 4.10, 4.15 or 5.01 of the Indenture; (iv) failure by the Company or any of its Significant Subsidiaries for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding to comply with certain other agreements in the Indenture; (v) default under certain other agreements relating to Indebtedness of the Company or any of its Significant Subsidiaries which default results in the acceleration of, or constitutes a payment default with respect to, such Indebtedness prior to its express maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Material Subsidiaries; and (viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest, premium or Liquidated Damages, if any, on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company or any Guarantor, as such, shall not have any liability for any obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 15. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). A1-5 17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the A/B Exchange Registration Rights Agreement dated as of May 17, 1999, between the Company and the parties named on the signature pages thereof (the "Registration Rights Agreement"). 18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: G+G Retail, Inc. 520 Eighth Avenue New York, New York 10018 Attention: Chief Financial Officer A1-6 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to: __________________________________ (Insert assignee's legal name) - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: _____________________ Your Signature: ____________________________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee*:__________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A1-7 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below: |_| Section 4.10 |_| Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $__________________ Date: _______________ Your Signature: ____________________________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No.: ____________________________________ Signature Guarantee*: __________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A1-8 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE* The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made: Amount of Amount of decrease in increase in Principal Amount Signature of Principal Principal at maturity of authorized Amount Amount this Global Note officer of at maturity of at maturity of following such Trustee or Date of this Global this Global decrease Note Exchange Note Note (or increase) Custodian -------- ---- ---- ------------- --------- A1-9 EXHIBIT A2 [Face of Regulation S Temporary Global Note] ================================================================================ CUSIP/CINS ____________ 11% [Series A] [Series B] Senior Notes due 2006 No. ___ $_____________ G+G RETAIL, INC. promises to pay to _____________________________________________________________ or registered assigns, the principal sum of ___________________________________________________________ Dollars on May 15, 2006. Interest Payment Dates: May 15 and November 15 Record Dates: May 1 and November 1 Dated: _______________, ____ G+G RETAIL, INC. By:______________________________________ Name: Scott Galin Title: President By:______________________________________ Name: Michael Kaplan Title: Chief Financial Officer (SEAL) This is one of the Notes referred to in the within-mentioned Indenture: U.S. BANK TRUST NATIONAL ASSOCIATION, as Trustee By: __________________________________ Authorized Signatory ================================================================================ A2-1 [Back of Regulation S Temporary Global Note] 11% [Series A] [Series B] Senior Notes due 2006 THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE NOTE EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION PROVIDED BY RULE 144A UNDER THE SECURITIES ACT. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN OF RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (1) ABOVE. A2-2 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. G+G Retail, Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at 11% per annum from May 17, 1999 until maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages semi-annually in arrears on May 15 and November 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be November 15, 1999. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Until this Regulation S Temporary Global Note is exchanged for one or more Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Senior Subordinated Notes under the Indenture. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on the May 1 or November 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, interest and Liquidated Damages, if any, at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, U.S. Bank Trust National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. 4. INDENTURE. The Company issued the Notes under an Indenture dated as of May 17, 1999 ("Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as A2-3 amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are obligations of the Company limited to $107 million in aggregate principal amount. 5. OPTIONAL REDEMPTION. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Company shall not have the option to redeem the Notes prior to May 15, 2003. On or after May 15, 2003, the Company may redeem all or a part of the Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on May 15 of the years indicated below:
Year Percentage ---- ---------- 2003.................................................. 105.50% 2004.................................................. 102.75% 2005 and thereafter................................... 100.00%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to May 15, 2002, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes issued under this Indenture at a redemption price of 111% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the redemption date, with the net cash proceeds of one or more Public Equity Offerings; provided that: (1) at least 65% of the aggregate principal amount of Notes issued under the Indenture remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and (2) the redemption must occur within 60 days of the date of the closing of such Public Equity Offering. 6. MANDATORY REDEMPTION. Except as set forth in Paragraph 7 below, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. 7. REPURCHASE AT OPTION OF HOLDER. (a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 10 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $5 million, the Company shall commence an offer to all Holders of Notes (an "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus A2-4 accrued and unpaid interest and Liquidated Damages thereon, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Subsidiary) may use such deficiency for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. This Regulation S Temporary Global Note is exchangeable in whole or in part for one or more Global Notes only (i) on or after the termination of the 40-day restricted period (as defined in Regulation S) and (ii) upon presentation of certificates (accompanied by an Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary Global Note for one or more Global Notes, the Trustee shall cancel this Regulation S Temporary Global Note. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes voting as a single class, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class. Without the consent of any Holder of a Note, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or Guarantor's obligations to Holders of the Notes in case of a merger or consolidation or sale of all or substantially all of the Company's assets, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements A2-5 of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, or to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Subsidiary Guarantee with respect to the Notes. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest or Liquidated Damages on the Notes; (ii) default in payment when due of principal of or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise, (iii) failure by the Company or any of its Restricted Subsidiaries to comply with Section 4.07, 4.09, 4.10, 4.15 or 5.01 of the Indenture; (iv) failure by the Company or any of its Significant Subsidiaries for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding to comply with certain other agreements in the Indenture; (v) default under certain other agreements relating to Indebtedness of the Company or any of its Significant Subsidiaries which default results in the acceleration of, or constitutes a payment default with respect to, such Indebtedness prior to its express maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Material Subsidiaries; and (viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest, premium or Liquidated Damages, if any, on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company or any of the Guarantors, as such, shall not have any liability for any obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. A2-6 15. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the A/B Exchange Registration Rights Agreement dated as of May 17, 1999, between the Company and the parties named on the signature pages thereof (the "Registration Rights Agreement"). 18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: G+G Retail, Inc. 520 Eighth Avenue New York, New York 10018 Attention: Chief Financial Officer A2-7 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to: __________________________________ (Insert assignee's legal name) - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: _____________________ Your Signature: ____________________________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee*:__________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A2-8 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below: |_| Section 4.10 |_| Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $__________________ Date: _______________ Your Signature: ____________________________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No.: ____________________________________ Signature Guarantee*: __________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A2-9 SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE The following exchanges of a part of this Regulation S Temporary Global Note for an interest in another Global Note, or of other Restricted Global Notes for an interest in this Regulation S Temporary Global Note, have been made:
Amount of Amount of decrease in increase in Principal Amount Signature of Principal Principal at maturity of authorized Amount Amount this Global Note officer of at maturity of at maturity of following such Trustee or Date of this Global this Global decrease Note Exchange Note Note (or increase) Custodian -------- ---- ---- ------------- ---------
A2-10 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER G+G Retail, Inc. 520 Eighth Avenue New York, New York 10019 [Registrar address block] Re: 11% Senior Notes, due 2006 Reference is hereby made to the Indenture, dated as of May 17, 1999 (the "Indenture"), between G+G Retail, Inc., as issuer (the "Company"), and U.S. Bank Trust National Association, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ___________________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to ___________________________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. |_| Check if Transferee will take delivery of a beneficial interest in the 144A Global Note or a Definitive Note Pursuant to Rule 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 2. |_| Check if Transferee will take delivery of a beneficial interest in the Temporary Regulation S Global Note, the Regulation S Global Note or a Definitive Note pursuant to Regulation S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a B-1 U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note, the Temporary Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 3. |_| Check and complete if Transferee will take delivery of a beneficial interest in the IAI Global Note or a Definitive Note pursuant to any provision of the Securities Act other than Rule 144A or Regulation S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) |_| such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) |_| such Transfer is being effected to the Company or a subsidiary thereof; or (c) |_| such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) |_| such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Definitive Notes and in the Indenture and the Securities Act. 4. |_| Check if Transferee will take delivery of a beneficial interest in an Unrestricted Global Note or of an Unrestricted Definitive Note. (a) |_| Check if Transfer is pursuant to Rule 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the B-2 United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (b) |_| Check if Transfer is Pursuant to Regulation S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (c) |_| Check if Transfer is Pursuant to Other Exemption. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ________________________________________ [Insert Name of Transferor] By:_____________________________________ Name: Title: Dated: ____________ B-3 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) |_| a beneficial interest in the: (i) |_| 144A Global Note (CUSIP ___________), or (ii) |_| Regulation S Global Note (CUSIP ___________), or (iii) |_| IAI Global Note (CUSIP ___________); or (b) |_| a Restricted Definitive Note. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) |_| a beneficial interest in the: (i) |_| 144A Global Note (CUSIP ___________), or (ii) |_| Regulation S Global Note (CUSIP ___________), or (iii) |_| IAI Global Note (CUSIP ___________); or (iv) |_| Unrestricted Global Note (CUSIP ___________); or (b) |_| a Restricted Definitive Note; or (c) |_| an Unrestricted Definitive Note, in accordance with the terms of the Indenture. B-4 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE G+G Retail, Inc. 520 Eighth Avenue New York, New York 10018 [Registrar address block] Re: 11% Senior Notes, due 2006 (CUSIP ____________) Reference is hereby made to the Indenture, dated as of _________________ (the "Indenture"), between G+G Retail, Inc., as issuer (the "Company"), and U.S. Bank Trust National Association, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. __________________________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. Exchange of Restricted Definitive Notes or Beneficial Interests in a Restricted Global Note for Unrestricted Definitive Notes or Beneficial Interests in an Unrestricted Global Note (a) |_| Check if Exchange is from beneficial interest in a Restricted Global Note to beneficial interest in an Unrestricted Global Note. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (b) |_| Check if Exchange is from beneficial interest in a Restricted Global Note to Unrestricted Definitive Note. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (c) |_| Check if Exchange is from Restricted Definitive Note to beneficial interest in an Unrestricted Global Note. In connection with the Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial C-1 interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (d) |_| Check if Exchange is from Restricted Definitive Note to Unrestricted Definitive Note. In connection with the Owner's Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. 2. Exchange of Restricted Definitive Notes or Beneficial Interests in Restricted Global Notes for Restricted Definitive Notes or Beneficial Interests in Restricted Global Notes (a) |_| Check if Exchange is from beneficial interest in a Restricted Global Note to Restricted Definitive Note. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. (b) Check if Exchange is from Restricted Definitive Note to beneficial interest in a Restricted Global Note. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE] |_| 144A Global Note, |_| Regulation S Global Note, |_| IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act. C-2 This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ________________________________________ [Insert Name of Transferor] By:_____________________________________ Name: Title: Dated: ____________ C-3 EXHIBIT D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR G+G Retail, Inc. 520 Eighth Avenue New York, New York 10019 [Registrar address block] Re: 11% Senior Notes, due 2006 Reference is hereby made to the Indenture, dated as of May 17, 1999 (the "Indenture"), between G+G Retail, Inc., as issuer (the "Company"), and U.S. Bank Trust National Association, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $____________ aggregate principal amount of: (a) |_| a beneficial interest in a Global Note, or (b) |_| a Definitive Note, we confirm that: 1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the United States Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein. 3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies D-1 with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. ________________________________________ [Insert Name of Accredited Investor] By:_____________________________________ Name: Title: Dated: ____________ D-2 EXHIBIT E FORM OF NOTATION OF GUARANTEE For value received, each Guarantor (which term includes any successor Person under the Indenture) has, jointly and severally, unconditionally guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture dated as of May 17, 1999 (the "Indenture") among G+G Retail, Inc., the Guarantors listed on Schedule I thereto and U.S. Bank Trust National Association, as trustee (the "Trustee"), (a) the due and punctual payment of the principal of, premium, if any, and interest on the Notes (as defined in the Indenture), whether at maturity, by acceleration, redemption or otherwise, the due and punctual payment of interest on overdue principal and premium, and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms of the Indenture and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth in Article 10 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Subsidiary Guarantee. [NAME(S) OF GUARANTOR(S)] By: _____________________________________ Name: Title: E-1 EXHIBIT F FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY SUBSEQUENT GUARANTORS SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of ________________, among __________________ (the "Guaranteeing Subsidiary"), a subsidiary of G+G Retail, Inc. (or its permitted successor), a Delaware corporation (the "Company"), the Company, the other Guarantors (as defined in the Indenture referred to herein) and ____________________, as trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of May 17, 1999 providing for the issuance of an aggregate principal amount of up to $107 million of 11% Senior Notes due 2006 (the "Notes"); WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Subsidiary Guarantee"); and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees as follows: (a) Along with all Guarantors named in the Indenture, to jointly and severally guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, that: (i) the principal of and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. F-1 (b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. (c) The following is hereby waived: diligence presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever. (d) This Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture, and the Guaranteeing Subsidiary accepts all obligations of a Guarantor under the Indenture. (e) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. (f) The Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. (g) As between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Subsidiary Guarantee. (h) The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee. (i) Pursuant to Section 10.02 of the Indenture, after giving effect to any maximum amount and any other contingent and fixed liabilities that are relevant under any applicable Bankruptcy or fraudulent conveyance laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under Article 10 of the Indenture, this new Subsidiary Guarantee shall be limited to the maximum amount permissible such that the obligations of such Guarantor under this Subsidiary Guarantee will not constitute a fraudulent transfer or conveyance. F-2 3. EXECUTION AND DELIVERY. Each Guaranteeing Subsidiary agrees that the Subsidiary Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee. 4. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. (a) Except as otherwise provided in the Indenture, no Guarantor may sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person, other than the Company or another Guarantor, unless: (i) immediately after giving effect to that transaction, no Default or Event of Default exists; and (ii) either: (x) the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger assumes all the obligations of that Guarantor under this Indenture, its Subsidiary Guarantee, the Registration Rights Agreement and the Unit Agreement pursuant to a supplemental indenture satisfactory to the Trustee; or (y) the Net Proceeds of such sale or other disposition are applied in accordance with Section 4.10 of the Indenture. (b) In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of the Indenture to be performed by the Guarantor, such successor Person shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under this Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof. (c) Except as set forth in Articles 4 and 5 and Section 10.05 of Article 10 of the Indenture, and notwithstanding clauses (1) and (2) above, nothing contained in the Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor. 5. RELEASES. (a) A Guarantor will be released and relieved of any obligations under its Subsidiary Guarantee (i) in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation ) to a Person that is not (either before or after giving effect to such transaction) a Subsidiary of the Company, if the Guarantor applies the Net F-3 Proceeds of that sale or other disposition in accordance with Section 4.10 of the Indenture, (ii) in connection with any sale of all of the Capital Stock of a Guarantor to a Person that is not (either before or after giving effect to such transaction) a Subsidiary of the Company, if the Company applies the Net Proceeds of that sale in accordance with Section 4.10 of the Indenture, or (iii) if the Company designates any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary in accordance with the Indenture. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale, other disposition or designation was made by the Company in accordance with the provisions of the Indenture, including without limitation Section 4.10 of the Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Subsidiary Guarantee. (b) Any Guarantor not released from its obligations under its Subsidiary Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 10 of the Indenture. 6. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy. 7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 8. COUNTERPARTS The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 9. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. 10. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company. F-4 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: _______________, ____ [GUARANTEEING SUBSIDIARY] By: ________________________________ Name: Title: G+G RETAIL, INC. By: ________________________________ Name: Title: [EXISTING GUARANTORS] By:_________________________________ Name: Title: [TRUSTEE], as Trustee By:_________________________________ Authorized Signatory F-5 EX-4.02 9 FORM OF 11% SERIES B SENIOR NOTE DUE 2006 EXHIBIT 4.02 FORM OF 11% SERIES B SENIOR NOTE DUE 2006 OF G+G RETAIL, INC. [Face of Note] ________________________________________________________________________________ CUSIP/CINS ____________ 11% Series B Senior Notes due 2006 No. ___ $____________ G+G RETAIL, INC. promises to pay to______________________________________________________________ or registered assigns, the principal sum of____________________________________________________________ Dollars on May 15, 2006. Interest Payment Dates: May 15 and November 15 Record Dates: May 1 and November 1 Dated: _______________, ____ G+G RETAIL, INC. By:_____________________________________ Name: Scott Galin Title: President By:_____________________________________ Name: Michael Kaplan Title: Chief Financial Officer (SEAL) This is one of the Notes referred to in the within-mentioned Indenture: U.S. Bank Trust National Association, as Trustee By: __________________________________ Authorized Signatory ________________________________________________________________________________ 1 [Back of Note] 11% Series B Senior Notes due 2006 [Insert the Global Note Legend, if applicable pursuant to the provisions of the Indenture] Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. Interest. G+G Retail, Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at 11% per annum from May 17, 1999 until maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages semi-annually in arrears on May 15 and November 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be November 15, 1999. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on the May 1 or November 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Liquidated Damages, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. Paying Agent and Registrar. Initially, U.S. Bank Trust National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. 4. Indenture. The Company issued the Notes under an Indenture dated as of May 17, 1999 ("Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code (S)(S)77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are obligations of the Company limited to $107 million in aggregate principal amount. 5. Optional Redemption. 2 (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Company shall not have the option to redeem the Notes prior to May 15, 2003. On or after May 15, 2003, the Company may redeem all or a part of the Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on May 15 of the years indicated below:
Year Percentage ---- ---------- 2003..................................................... 105.50% 2004..................................................... 102.75% 2005 and thereafter...................................... 100.00%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to May 15, 2002, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes issued under this Indenture at a redemption price of 111% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the redemption date, with the net cash proceeds of one or more Public Equity Offerings; provided that: (1) at least 65% of the aggregate principal amount of Notes issued under the Indenture remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and (2) the redemption must occur within 60 days of the date of the closing of such Public Equity Offering. 6. Mandatory Redemption. Except as set forth in Paragraph 7 below, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. 7. Repurchase at Option of Holder. (a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 10 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $5 million, the Company shall commence an offer to all Holders of Notes (an "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Subsidiary) may use such deficiency for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 3 8. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes. 11. Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes voting as a single class, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class. Without the consent of any Holder of a Note, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or Guarantor's obligations to Holders of the Notes in case of a merger or consolidation or sale of all or substantially all of the Company's assets, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, or to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Subsidiary Guarantee with respect to the Notes. 12. Defaults and Remedies. Events of Default include: (i) default for 30 days in the payment when due of interest or Liquidated Damages on the Notes; (ii) default in payment when due of principal of or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise, (iii) failure by the Company or any of its Restricted Subsidiaries to comply with Section 4.07, 4.09, 4.10, 4.15 or 5.01 of the Indenture; (iv) failure by the Company or any of its Significant Subsidiaries for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding to comply with certain other agreements in the Indenture; (v) default under certain other agreements relating to Indebtedness of the Company or any of its Significant Subsidiaries which default results in the acceleration of, or constitutes a payment default with respect to, such Indebtedness prior to its express maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Material Subsidiaries; and (viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders 4 of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest, premium or Liquidated Damages, if any, on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. Trustee Dealings with Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. No Recourse Against Others. A director, officer, employee, incorporator or stockholder, of the Company or any Guarantor, as such, shall not have any liability for any obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 15. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: G+G Retail, Inc. 520 Eighth Avenue New York, New York 10018 Attention: Chief Financial Officer 5 Assignment Form To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to:_________________________________ (Insert assignee's legal name) ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint___________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date:________________ Your Signature:____________________________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee*:___________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). 6 Option of Holder to Elect Purchase If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below: [_] Section 4.10 [_] Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $____________________ Date:________________ Your Signature:_____________________________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No.:_____________________________________ Signature Guarantee*:________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). 7 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE* The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
Principal Amount Amount of decrease in Amount of increase in at maturity of Signature of Principal Amount Principal Amount this Global Note authorized officer of at maturity of at maturity of following such decrease Trustee or Note Date of Exchange this Global Note this Global Note (or increase) Custodian - ------------------- ------------------------ ----------------------- --------------------------- -----------------------
8 EX-4.03 10 A/B EXCHANGE REGISTRATION RIGHTS AGREEMENT 5/17/99 EXHIBIT 4.03 - -------------------------------------------------------------------------------- A/B EXCHANGE REGISTRATION RIGHTS AGREEMENT Dated as of May 17, 1999 by and among G+G Retail, Inc. and U.S. Bancorp Investments, Inc. CIBC World Markets Corp. - -------------------------------------------------------------------------------- This Registration Rights Agreement (this "Agreement") is made and entered into as of May 17, 1999, by and among G+G Retail, Inc., a Delaware corporation (the "Company"), and U.S. Bancorp Investments Inc. and CIBC World Markets Corp. (each an "Initial Purchaser" and, collectively, the "Initial Purchasers"), each of whom has agreed to purchase the Company's 11% Series A Senior Notes due 2006 (the "Series A Notes") pursuant to the Purchase Agreement (as defined below). This Agreement is made pursuant to the Purchase Agreement, dated May 16, 1999, (the "Purchase Agreement"), by and among the Company and the Initial Purchasers. In order to induce the Initial Purchasers to purchase the Series A Notes, the Company has agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the obligations of the Initial Purchasers set forth in Section 3 of the Purchase Agreement. Capitalized terms used herein and not otherwise defined shall have the meaning assigned to them in the Indenture, dated May 17, 1999, between the Company and U.S. Bank Trust National Association, as Trustee, relating to the Series A Notes and the Series B Notes (the "Indenture"). The parties hereby agree as follows: SECTION 1. DEFINITIONS As used in this Agreement, the following capitalized terms shall have the following meanings: Act: The Securities Act of 1933, as amended. Affiliate: As defined in Rule 144 of the Act. Broker-Dealer: Any broker or dealer registered under the Exchange Act. Certificated Securities: Definitive Notes, as defined in the Indenture. Closing Date: The date hereof. Commission: The Securities and Exchange Commission. Consummate: An Exchange Offer shall be deemed "Consummated" for purposes of this Agreement upon the occurrence of (a) the filing and effectiveness under the Act of the Exchange Offer Registration Statement relating to the Series B Notes to be issued in the Exchange Offer, (b) the maintenance of such Exchange Offer Registration Statement continuously effective and the keeping of the Exchange Offer open for a period not less than the period required pursuant to Section 3(b) hereof and (c) the delivery by the Company to the Registrar under the Indenture of Series B Notes in the same aggregate principal amount as the aggregate principal amount of Series A Notes tendered by Holders thereof pursuant to the Exchange Offer. Consummation Deadline: As defined in Section 3(b) hereof. Effectiveness Deadline: As defined in Section 3(a) and 4(a) hereof. 1 Exchange Act: The Securities Exchange Act of 1934, as amended. Exchange Offer: The exchange and issuance by the Company of a principal amount of Series B Notes (which shall be registered pursuant to the Exchange Offer Registration Statement) equal to the outstanding principal amount of Series A Notes that are tendered by such Holders in connection with such exchange and issuance. Exchange Offer Registration Statement: The Registration Statement relating to the Exchange Offer, including the related Prospectus. Exempt Resales: The transactions in which the Initial Purchasers propose to sell the Series A Notes to certain "qualified institutional buyers," as such term is defined in Rule 144A under the Act and in an offshore transaction complying with Rule 903 of Regulation S under the Act. Filing Deadline: As defined in Sections 3(a) and 4(a) hereof. Holders: As defined in Section 2 hereof. Prospectus: The prospectus included in a Registration Statement at the time such Registration Statement is declared effective, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. Recommencement Notice: As defined in Section 6(e) hereof. Registration Default: As defined in Section 5 hereof. Registration Statement: Any registration statement of the Company relating to (a) an offering of Series B Notes pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, in each case, (i) that is filed pursuant to the provisions of this Agreement and (ii) including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. Regulation S: Regulation S promulgated under the Act. Rule 144: Rule 144 promulgated under the Act. Series B Notes: The Company's 11% Series B Senior Notes due 2006 to be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii) as contemplated by Section 4 hereof. Shelf Registration Statement: As defined in Section 4 hereof. Suspension Notice: As defined in Section 6(e) hereof. TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Indenture. 2 Transfer Restricted Securities: Each (A) Series A Note, until the earliest to occur of (i) the date on which such Series A Note is exchanged in the Exchange Offer for a Series B Note which is entitled to be resold to the public by the Holder thereof without complying with the prospectus delivery requirements of the Act, (ii) the date on which such Series A Note has been disposed of in accordance with a Shelf Registration Statement (and the purchasers thereof have been issued Series B Notes), or (iii) the date on which such Series A Note is distributed to the public pursuant to Rule 144 under the Act and each (B) Series B Note held by a Broker Dealer until the date on which such Series B Note is disposed of by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the Exchange Offer Registration Statement (including the delivery of the Prospectus contained therein). SECTION 2. HOLDERS A Person is deemed to be a holder of Transfer Restricted Securities (each, a "Holder") whenever such Person owns Transfer Restricted Securities. SECTION 3. REGISTERED EXCHANGE OFFER (a) Unless the Exchange Offer shall not be permitted by applicable federal law (after the procedures set forth in Section 6(a)(i) below have been complied with), the Company shall (i) cause the Exchange Offer Registration Statement to be filed with the Commission as soon as practicable after the Closing Date, but in no event later than 90 days after the Closing Date (such 90th day being the "Filing Deadline"), (ii) use its reasonable best efforts to cause such Exchange Offer Registration Statement to become effective at the earliest possible time, but in no event later than 150 days after the Closing Date (such 150th day being the "Effectiveness Deadline"), (iii) in connection with the foregoing, (A) file all pre-effective amendments to such Exchange Offer Registration Statement as may be necessary in order to cause it to become effective, (B) file, if applicable, a post-effective amendment to such Exchange Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause all necessary filings, if any, in connection with the registration and qualification of the Series B Notes to be made under the Blue Sky laws of such jurisdictions as are necessary to permit Consummation of the Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer Registration Statement, commence and Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate form permitting (i) registration of the Series B Notes to be offered in exchange for the Series A Notes that are Transfer Restricted Securities and (ii) resales of Series B Notes by Broker-Dealers that tendered into the Exchange Offer Series A Notes that such Broker-Dealer acquired for its own account as a result of market making activities or other trading activities (other than Series A Notes acquired directly from the Company or any of its Affiliates) as contemplated by Section 3(c) below. (b) The Company shall use its reasonable best efforts to cause the Exchange Offer Registration Statement to be effective continuously, and shall keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Exchange Offer; provided, however, that in no event shall such period be less than 20 Business Days. The Company shall cause the Exchange Offer to comply with all applicable federal and state securities laws. No securities other than the Series B Notes shall be included in the Exchange Offer Registration Statement. The Company shall use its reasonable best efforts to cause the Exchange Offer to be Consummated on the earliest practicable date after the 3 Exchange Offer Registration Statement has become effective, but in no event later than 30 business days thereafter (such 30th day being the "Consummation Deadline"). (c) The Company shall include a "Plan of Distribution" section in the Prospectus contained in the Exchange Offer Registration Statement and indicate therein that any Broker-Dealer who holds Transfer Restricted Securities that were acquired for the account of such Broker-Dealer as a result of market-making activities or other trading activities (other than Series A Notes acquired directly from the Company or any Affiliate of the Company), may exchange such Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of Distribution" section shall also contain all other information with respect to such sales by such Broker-Dealers that the Commission may require in order to permit such sales pursuant thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer or disclose the amount of Transfer Restricted Securities held by any such Broker-Dealer, except to the extent required by the Commission as a result of a change in policy, rules or regulations after the date of this Agreement. See the Shearman & Sterling no-action letter (available July 2, 1993). Because such Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Act and must, therefore, deliver a prospectus meeting the requirements of the Act in connection with its initial sale of any Series B Notes received by such Broker-Dealer in the Exchange Offer, the Company shall permit the use of the Prospectus contained in the Exchange Offer Registration Statement by such Broker-Dealer to satisfy such prospectus delivery requirement. To the extent necessary to ensure that the prospectus contained in the Exchange Offer Registration Statement is available for sales of Series B Notes by Broker- Dealers, the Company agrees to use its reasonable best efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented, amended and current as required by and subject to the provisions of Section 6(a) and (c) hereof and in conformity with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of one year from the Consummation Deadline or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold pursuant thereto. The Company shall provide sufficient copies of the latest version of such Prospectus to such Broker-Dealers, promptly upon request, and in no event later than one day after such request, at any time during such period. SECTION 4. SHELF REGISTRATION (a) Shelf Registration. If (i) the Exchange Offer is not permitted by applicable law (after the Company has complied with the procedures set forth in Section 6(a)(i) below) or (ii) any Holder of Transfer Restricted Securities shall notify the Company within 20 Business Days following the Consummation Deadline that (A) such Holder was prohibited by law or Commission policy from participating in the Exchange Offer or (B) such Holder may not resell the Series B Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder or (C) such Holder is a Broker-Dealer and holds Series A Notes acquired directly from the Company or any of its Affiliates, then the Company shall: (x) cause to be filed, on or prior to 90 days after the earlier of (i) the date on which the Company determines that the Exchange Offer Registration Statement cannot be filed as a result of 4 clause (a)(i) above and (ii) the date on which the Company receives the notice specified in clause (a)(ii) above, (such earlier date, the "Filing Deadline"), a shelf registration statement pursuant to Rule 415 under the Act (which may be an amendment to the Exchange Offer Registration Statement (the "Shelf Registration Statement")), relating to all Transfer Restricted Securities, and (y) use its reasonable best efforts to cause such Shelf Registration Statement to become effective on or prior to 150 days after the Filing Deadline for the Shelf Registration Statement (such 150th day the "Effectiveness Deadline"). If, after the Company has filed an Exchange Offer Registration Statement that satisfies the requirements of Section 3(a) above, the Company is required to file and make effective a Shelf Registration Statement solely because the Exchange Offer is not permitted under applicable federal law (i.e., clause (a)(i) above), then the filing of the Exchange Offer Registration Statement shall be deemed to satisfy the requirements of clause (x) above; provided that, in such event, the Company shall remain obligated to meet the Effectiveness Deadline set forth in clause (y). To the extent necessary to ensure that the Shelf Registration Statement is available for sales of Transfer Restricted Securities by the Holders thereof entitled to the benefit of this Section 4(a) and the other securities required to be registered therein pursuant to Section 6(b)(ii) hereof, the Company shall use its reasonable best efforts to keep any Shelf Registration Statement required by this Section 4(a) continuously effective, supplemented, amended and current as required by and subject to the provisions of Sections 6(b) and (c) hereof and in conformity with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of at least two years (as extended pursuant to Section 6(c)(i)) following the Closing Date, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Shelf Registration Statement have been sold pursuant thereto. (b) Provision by Holders of Certain Information in Connection with the Shelf Registration Statement. No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 20 days after receipt of a request therefor, the information specified in Item 507 or 508 of Regulation S-K, as applicable, of the Act for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. No Holder of Transfer Restricted Securities shall be entitled to liquidated damages pursuant to Section 5 hereof unless and until such Holder shall have provided all such information. Each selling Holder agrees to promptly furnish additional information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. SECTION 5. LIQUIDATED DAMAGES If (i) any Registration Statement required by this Agreement is not filed with the Commission on or prior to the applicable Filing Deadline, (ii) any such Registration Statement has not been declared effective by the Commission on or prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not been Consummated on or prior to the Consummation Deadline or (iv) subject to Section 6(d), any Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective or fail to be usable for its intended 5 purpose without being succeeded immediately by a post-effective amendment to such Registration Statement that cures such failure and that is itself declared effective immediately (each such event referred to in clauses (i) through (iv), a "Registration Default"), then the Company hereby agrees to pay to each Holder of Transfer Restricted Securities affected thereby liquidated damages in an amount equal to $.05 per week per $1,000 in principal amount of Transfer Restricted Securities held by such Holder for each week or portion thereof that the Registration Default continues for the first 90-day period immediately following the occurrence of such Registration Default. The amount of the liquidated damages shall increase by an additional $.05 per week per $1,000 in principal amount of Transfer Restricted Securities with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of liquidated damages of $.25 per week per $1,000 in principal amount of Transfer Restricted Securities; provided that the Company shall in no event be required to pay liquidated damages for more than one Registration Default at any given time. Notwithstanding anything to the contrary set forth herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon the filing of a post-effective amendment to the Registration Statement or an additional Registration Statement that causes the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement) to again be declared effective or made usable in the case of (iv) above, the liquidated damages payable with respect to the Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease. All accrued liquidated damages shall be paid to the Holders entitled thereto, in the manner provided for the payment of interest in the Indenture, on each Interest Payment Date, as more fully set forth in the Indenture and the Notes. Notwithstanding the fact that any securities for which liquidated damages are due cease to be Transfer Restricted Securities, all obligations of the Company to pay liquidated damages with respect to securities shall survive until such time as such obligations with respect to such securities shall have been satisfied in full. SECTION 6. REGISTRATION PROCEDURES (a) Exchange Offer Registration Statement. In connection with the Exchange Offer, the Company shall (x) comply with all applicable provisions of Section 6(c) below, (y) use its reasonable best efforts to effect such exchange and to permit the resale of Series B Notes by Broker-Dealers that tendered in the Exchange Offer Series A Notes that such Broker-Dealer acquired for its own account as a result of its market making activities or other trading activities (other than Series A Notes acquired directly from the Company or any of its Affiliates) being sold in accordance with the intended method or methods of distribution thereof, and (z) comply with all of the following provisions: (i) If, following the date hereof there has been announced a change in Commission policy with respect to exchange offers such as the Exchange Offer, that in the reasonable opinion of counsel to the Company raises a substantial question as to whether the Exchange Offer is permitted by applicable federal law, the Company hereby agrees to seek a no-action letter or other favorable decision from the Commission allowing the 6 Company to Consummate an Exchange Offer for such Transfer Restricted Securities. The Company hereby agrees to pursue the issuance of such a decision to the Commission staff level. In connection with the foregoing, the Company hereby agrees to take all such other actions as may be requested by the Commission or otherwise required in connection with the issuance of such decision, including without limitation (A) participating in telephonic conferences with the Commission, (B) delivering to the Commission staff an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that such an Exchange Offer should be permitted and (C) diligently pursuing a resolution (which need not be favorable) by the Commission staff. (ii) As a condition to its participation in the Exchange Offer, each Holder of Transfer Restricted Securities (including, without limitation, any Holder who is a Broker Dealer) shall furnish, upon the request of the Company, prior to the Consummation of the Exchange Offer, a written representation to the Company (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that (A) it is not an Affiliate of the Company, (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Series B Notes to be issued in the Exchange Offer and (C) it is acquiring the Series B Notes in its ordinary course of business. As a condition to its participation in the Exchange Offer, each Holder using the Exchange Offer to participate in a distribution of the Series B Notes shall acknowledge and agree that, if the resales are of Series B Notes obtained by such Holder in exchange for Series A Notes acquired directly from the Company or an Affiliate thereof, it (1) could not, under Commission policy as in effect on the date of this Agreement, rely on the position of the Commission enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993, and similar no-action letters (including, if applicable, any no-action letter obtained pursuant to clause (i) above), and (2) must comply with the registration and prospectus delivery requirements of the Act in connection with a secondary resale transaction and that such a secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K. (iii) Prior to effectiveness of the Exchange Offer Registration Statement, the Company shall provide a supplemental letter to the Commission (A) stating that the Company is registering the Exchange Offer in reliance on the position of the Commission enunciated in Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993, and, if applicable, any no-action letter obtained pursuant to clause (i) above, (B) including a representation that the Company has not entered into any arrangement or understanding with any Person to distribute the Series B Notes to be received in the Exchange Offer and that, to the best of the Company's information and belief, each Holder participating in the Exchange Offer is acquiring the Series B Notes in its ordinary course of business and has no arrangement or understanding with any Person to participate in the distribution of the Series B Notes received in the Exchange Offer and (C) any other undertaking or representation required by the 7 Commission as set forth in any no-action letter obtained pursuant to clause (i) above, if applicable. (b) Shelf Registration Statement. In connection with the Shelf Registration Statement, the Company shall: (i) comply with all the provisions of Section 6(c) below and use its reasonable best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof (as indicated in the information furnished to the Company pursuant to Section 4(b) hereof), and pursuant thereto the Company will prepare and file with the Commission a Registration Statement relating to the registration on any appropriate form under the Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof within the time periods and otherwise in accordance with the provisions hereof, and (ii) issue, upon the request of any Holder or purchaser of Series A Notes covered by any Shelf Registration Statement contemplated by this Agreement, Series B Notes having an aggregate principal amount equal to the aggregate principal amount of Series A Notes sold pursuant to the Shelf Registration Statement and surrendered to the Company for cancellation; the Company shall register Series B Notes on the Shelf Registration Statement for this purpose and issue the Series B Notes to the purchaser(s) of securities subject to the Shelf Registration Statement in the names as such purchaser(s) shall designate. (c) General Provisions. In connection with any Registration Statement and any related Prospectus required by this Agreement, the Company shall: (i) use its reasonable best efforts to keep such Registration Statement continuously effective and provide all requisite financial statements for the period specified in Section 3 or 4 of this Agreement, as applicable. Upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain an untrue statement of material fact or omit to state any material fact necessary to make the statements therein not misleading or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, the Company shall file promptly an appropriate amendment to such Registration Statement curing such defect, and, if Commission review is required, use its reasonable best efforts to cause such amendment to be declared effective as soon as practicable. (ii) prepare and file with the Commission such amendments and post- effective amendments to the applicable Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period set forth in Section 3 or 4 hereof, as the case may be; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully with Rules 424, 430A and 462, as applicable, under the Act in a timely manner; and comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in 8 accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (iii) advise each Holder promptly and, if requested by such Holder, confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any applicable Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Registration Statement in order to make the statements therein not misleading, or that requires the making of any additions to or changes in the Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company shall use its reasonable best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (iv) subject to Section 6(c)(i), if any fact or event contemplated by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (v) furnish to each Holder in connection with such exchange or sale, if any, before filing with the Commission, copies of any Registration Statement or any Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Registration Statement), which documents will be subject to the review and comment of such Holders in connection with such sale, if any, for a period of at least three Business Days, and the Company will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus (including all such documents incorporated by reference) to which such Holders shall reasonably object within three Business Days after the receipt thereof. A Holder shall be deemed to have reasonably objected to such filing if such Registration Statement, amendment, Prospectus or 9 supplement, as applicable, as proposed to be filed, contains an untrue statement of a material fact or omits to state any material fact necessary to make the statements therein not misleading or fails to comply with the applicable requirements of the Act; (vi) upon the request of any Holder upon reasonable notice, promptly prior to the filing of any document that is to be incorporated by reference into a Registration Statement or Prospectus, provide copies of such document to each Holder in connection with such exchange or sale, if any, make the Company's representatives available for discussion of such document and other customary due diligence matters, and include such information in such document prior to the filing thereof as such Holders may reasonably request; (vii) make available, at reasonable times, for inspection by each Holder and any attorney or accountant retained by such Holders, all financial and other records, pertinent corporate documents of the Company and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Holder, attorney or accountant in connection with such Registration Statement or any post- effective amendment thereto subsequent to the filing thereof and prior to its effectiveness; (viii) if requested by any Holders in connection with such exchange or sale, promptly include in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such Holders may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be included in such Prospectus supplement or post-effective amendment; (ix) furnish to each Holder in connection with such exchange or sale without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (x) deliver to each Holder without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; the Company hereby consents to the use (in accordance with law) of the Prospectus and any amendment or supplement thereto by each selling Holder in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto; (xi) upon the request of any Holder, enter into such agreements (including underwriting agreements) and make such representations and warranties and take all such other actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to any applicable Registration Statement contemplated by this Agreement as may be reasonably requested by any Holder in connection with any sale or resale pursuant to any applicable Registration Statement. In such connection, the Company shall: 10 (A) upon request of any Holder, furnish (or in the case of paragraphs (2) and (3), use its reasonable best efforts to cause to be furnished) to each Holder, upon the effectiveness of the Shelf Registration Statement and to each Broker-Dealer who holds Transfer Restricted Securities that were acquired for the account of such Broker-Dealer as a result of market-making activities or other trading activities (other than Series A Notes acquired directly from the Company or any Affiliate of the Company) upon Consummation of the Exchange Offer, as the case may be: (1) a certificate, dated such date, signed on behalf of the Company by (x) the President or any Vice President and (y) a principal financial or accounting officer of the Company, confirming, as of the date thereof, the matters set forth in Sections 6(dd), 9(a) and 9(b) of the Purchase Agreement and such other similar matters as such Holders and/or such Broker- Dealers may reasonably request; (2) an opinion, dated the date of Consummation of the Exchange Offer or the date of effectiveness of the Shelf Registration Statement, as the case may be, of counsel for the Company covering matters similar to those set forth in paragraph (e) of Section 9 of the Purchase Agreement and such other matters as are mutually agreed to by the Company and such Holders and/or such Broker-Dealers, and in any event including a statement to the effect that, while such counsel does not opine upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and such counsel has not made any independent check or verification thereof, it has participated in conferences with officers and other representatives of the Company and its representatives in connection with the preparation of the Registration Statement and the Prospectus contained in the Registration Statement, and based upon these conferences and such counsel's review of the documents referenced above (such counsel's determination of materiality being based in part upon the opinions, representations and statements of the officers and other representatives of the Company), no facts have come to such counsel's attention which lead it to believe that the Registration Statement or the Prospectus contained in the Registration Statement at the time it or any post-effective amendment thereto became effective and, in the case of the Exchange Offer Registration Statement, as of the date of the Consummation of the Exchange Offer, contained or contains any untrue statement of a material fact or omitted or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel expresses no opinion or belief on the financial data, statements and related notes, the financial statement schedules and other financial and accounting and statistical data and the teen market data included in the Registration Statement or the related Prospectus or omitted therefrom); and (3) a customary comfort letter, dated the date of Consummation of the Exchange Offer, or as of the date of effectiveness of the Shelf Registration Statement, as the case may be, from the Company's independent 11 accountants, in the customary form and covering matters of the type customarily covered in comfort letters to underwriters in connection with underwritten offerings, and affirming the matters set forth in the comfort letters delivered pursuant to Section 9(g) of the Purchase Agreement; and (B) deliver such other documents and certificates as may be reasonably requested by the selling Holders and/or Broker-Dealers who hold Transfer Restricted Securities that were acquired for the account of such Broker-Dealer as a result of market-making activities or other trading activities (other than Series A Notes acquired directly from the Company or any Affiliate of the Company) to evidence compliance with the matters covered in clause (A) above and with any customary conditions contained in any agreement entered into by the Company pursuant to this clause (xi); (xii) prior to any public offering of Transfer Restricted Securities, cooperate with the selling Holders and their counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders may request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the applicable Registration Statement; provided, however, that the Company shall not be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in suits or to taxation, in any jurisdiction where it is not now so subject; (xiii) in connection with any sale of Transfer Restricted Securities that will result in such securities no longer being Transfer Restricted Securities, cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and to register such Transfer Restricted Securities in such denominations and such names as the selling Holders may request at least two Business Days prior to such sale of Transfer Restricted Securities; (xiv) use its reasonable best efforts to cause the disposition of the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (xii) above; (xv) provide a CUSIP number for all Transfer Restricted Securities not later than the effective date of a Registration Statement covering such Transfer Restricted Securities and provide the Trustee under the Indenture with printed certificates for the Transfer Restricted Securities which are in a form eligible for deposit with the Depository Trust Company; (xvi) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders with regard to any applicable Registration Statement, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 (which need not be audited) 12 covering a twelve-month period beginning after the effective date of the Registration Statement (as such term is defined in paragraph (c) of Rule 158 under the Act); (xvii) cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement required by this Agreement and, in connection therewith, cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute and use its reasonable best efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner; and (xviii) provide promptly to each Holder, upon request, each document filed with the Commission pursuant to the requirements of Section 13 or Section 15(d) of the Exchange Act. (d) Notwithstanding Section 6(c)(i), if the Board of Directors of the Company determines in good faith that it is in the best interest of the Company not to disclose the existence of or facts surrounding any proposed or pending material corporate transaction or other material development involving the Company, the Company may allow the Shelf Registration Statement to fail to be effective and usable as a result of such nondisclosure for up to 60 days during the two-year period of effectiveness required by Section 4 hereof, provided that the Company shall not allow the Exchange Offer Registration Statement to fail to be effective and usable for a period in excess of 30 days during the one-year period of effectiveness required by Section 3 hereof. (e) Restrictions on Holders. Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of the notice referred to in Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof (in each case, a "Suspension Notice"), such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until (i) such Holder has received copies of the supplemented or amended Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus (in each case, the "Recommencement Notice"). Each Holder receiving a Suspension Notice hereby agrees that it will either (i) destroy any Prospectuses, other than permanent file copies, then in such Holder's possession which have been replaced by the Company with more recently dated Prospectuses or (ii) deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of the Suspension Notice. The time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended by a number of days equal to the number of days in the period from and including the date of delivery of the Suspension Notice to the date of delivery of the Recommencement Notice. 13 SECTION 7. REGISTRATION EXPENSES (a) All expenses incident to the Company's performance of or compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses; (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing certificates for the Series B Notes to be issued in the Exchange Offer and printing of Prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company, and, subject to Section 7(b), all reasonable fees and disbursements of counsel for the Holders of Transfer Restricted Securities; (v) all application and filing fees in connection with listing the Series B Notes on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance). The Company will, in any event, bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company. (b) In connection with any Registration Statement required by this Agreement (including, without limitation, the Exchange Offer Registration Statement and the Shelf Registration Statement), the Company will reimburse the Initial Purchasers and the Holders of Transfer Restricted Securities who are tendering Series A Notes into in the Exchange Offer and/or selling or reselling Series A Notes or Series B Notes pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be Latham & Watkins, unless another firm shall be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. SECTION 8. INDEMNIFICATION (a) The Company agrees to indemnify and hold harmless each Holder, its directors, officers and each Person, if any, who controls such Holder (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act), from and against any and all losses, claims, damages, liabilities, and judgments (including without limitation, any reasonable legal or other expenses incurred in connection with investigating or defending any matter, including any action, that could give rise to any such losses, claims, damages, liabilities or judgments) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, preliminary prospectus or Prospectus (or any amendment or supplement thereto) provided by the Company to any Holder or any prospective purchaser of Series B Notes or registered Series A Notes, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by an untrue statement or omission or alleged untrue statement or omission that is based upon information relating to any of the Holders furnished in writing to the Company by any of the Holders. 14 (b) Each Holder of Transfer Restricted agrees, severally and not jointly, to indemnify and hold harmless the Company, and its directors and officers, and each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company, to the same extent as the foregoing indemnity from the Company set forth in section (a) above, but only with reference to information relating to such Holder furnished in writing to the Company by such Holder expressly for use in any Registration Statement. In no event shall any Holder, its directors, officers or any Person who controls such Holder be liable or responsible for any amount in excess of the amount by which the total amount received by such Holder with respect to its sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages that such Holder, its directors, officers or any Person who controls such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the "indemnified party"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "indemnifying person") in writing and the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, to assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred. Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action, or employ counsel reasonably satisfactory to the indemnified party, within a reasonable amount of time after notice of the institution of such action by the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case as described in clause (i), (ii) or (iii) of the preceding sentence, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such single firm shall be designated in writing by a majority of the Holders, in the case of the parties indemnified pursuant to Section 8(a), and by the Company, in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action (i) effected with the indemnifying party's written consent or (ii) effected without its written consent only if the settlement is entered into more than 75 days after the indemnifying party shall have received a request from the indemnified party for reimbursement for the fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request and not contested its indemnification obligations in good faith. No 15 indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to, or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) To the extent that the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Holders, on the other hand, from their sale of Transfer Restricted Securities or (ii) if the allocation provided by clause 8(d)(i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(d)(i) above but also the relative fault of the Company, on the one hand, and of the Holder, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or by the Holder, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and judgments referred to above shall be deemed to include, subject to the limitations set forth in Section 8(a), any reasonable legal or other fees or expenses incurred by such party in connection with investigating or defending any action or claim. The Company and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses incurred by such indemnified party in connection with investigating or defending any matter, including any action, that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 8, no Holder, its directors, its officers or any Person, if any, who controls such Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total received by such Holder with respect to the sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the 16 meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute pursuant to this Section 8(d) are several in proportion to the respective principal amount of Transfer Restricted Securities held by each Holder hereunder and not joint. SECTION 9. RULE 144A AND RULE 144 The Company agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in which the Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to such Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby in a timely manner in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144. SECTION 10. MISCELLANEOUS (a) Remedies. The Company acknowledges and agrees that any failure by the Company to comply with its obligations under Sections 3 and 4 hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required (to the extent permissible under applicable law) to specifically enforce the Company's obligations under Sections 3 and 4 hereof. The Company further agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company will not, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The Company has not previously entered into any agreement granting any registration rights with respect to its securities to any Person. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any agreement in effect on the date hereof. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless (i) in the case of Section 5 hereof and this Section 10(c)(i), the Company has obtained the written consent of Holders of all outstanding Transfer Restricted Securities and (ii) in the case of all other provisions hereof, the Company has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities (excluding Transfer Restricted Securities held by the Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders whose Transfer Restricted Securities are being tendered pursuant to the Exchange Offer, and that does not affect directly or indirectly the rights of other Holders whose Transfer Restricted Securities are not being tendered pursuant to such Exchange Offer, may be given by the Holders of 17 a majority of the outstanding principal amount of Transfer Restricted Securities subject to such Exchange Offer. (d) Third Party Beneficiary. The Holders shall be third party beneficiaries to the agreements made hereunder among the Company, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Registrar under the Indenture, with a copy to the Registrar under the Indenture; and (ii) if to the Company: G+G Retail, Inc. 520 Eighth Avenue New York, NY 10018 Telecopier No.: (212) 643-4319 Attention: Chief Financial Officer With a copy to: Kaye, Scholer, Fierman, Hays & Handler, LLP 425 Park Avenue New York, New York 10022 Telecopier: (212)836-8689 Attention: Mark Selinger, Esq. and Shack & Siegel 530 Fifth Avenue 16th Floor New York, New York 10036 Telecopier No.: (212) 730-1964 Attention: Donald Shack, Esq. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture. 18 (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders; provided, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms hereof or of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Transfer Restricted Securities in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Transfer Restricted Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such Person shall be entitled to receive the benefits hereof. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 19 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. G+G RETAIL, INC. By: /s/ Scott Galin ------------------------------------ Name: Scott Galin Title: President and Chief Operating Officer U.S. BANCORP INVESTMENTS, INC. CIBC WORLD MARKETS CORP. By: /s/ Jean Smith ---------------------------- Name: Jean Smith Title: Managing Director 20 EXHIBIT A NOTICE OF FILING OF A/B EXCHANGE OFFER REGISTRATION STATEMENT To: U.S. Bancorp Libra, a division of U.S. Bancorp Investments, Inc. 11766 Wilshire Blvd. Suite 870 Los Angles, California 90025 Attention: General Counsel From: G+G Retail, Inc. _____% Senior Notes due 2006 Date: ___, 1999 For your information only (NO ACTION REQUIRED): Today, ______, 1999, we filed an A/B Exchange Registration Statement/a Shelf Registration Statement with the Securities and Exchange Commission. We currently expect this registration statement to be declared effective within __ business days of the date hereof. 21 EX-5.01 11 OPINION OF KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, LLP EXHIBIT 5.01 [LETTER HEAD OF KAYE, SCHOLER, FIERMAN, HAYS AND HANDLER,LLP APPEARS HERE] June 22, 1999 G+G Retail, Inc. 520 Eighth Avenue New York, New York 10018 Ladies and Gentlemen: We have acted as special counsel to G+G Retail, Inc. (the "Issuer") in connection with its offer to exchange $1,000 principal amount of 11% Senior Notes due 2006, Series B, of the Issuer (the "Exchange Notes"), for each $1,000 principal amount of outstanding unregistered 11% Senior Notes due 2006, Series A, of the Issuer (the "Private Notes"), which Exchange Notes are the subject of the Registration Statement on Form S-4, to which this opinion is an Exhibit, filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act") on the date hereof and as may be amended and supplemented (the "Registration Statement"). In connection herewith, we have examined the Registration Statement as filed on the date hereof, the Indenture, dated as of May 17, 1999, among the Issuer and U.S. Bank Trust National Association, as trustee (the "Indenture"), and the Private Notes, together with such corporate records, certificates and other documents, and such questions of law, as we have considered necessary or appropriate for the purposes of this opinion. The Indenture and the Exchange Notes are collectively referred to herein as the "Documents." In rendering the opinions expressed below, we have assumed the genuineness of all signatures, other than those of officers of the Company, the authenticity of all documents submitted to us as originals, the conformity with the original of all documents submitted to us as reproduced copies and the authenticity of all such latter documents. On the basis of the foregoing examination, we advise you that, upon the (i) Exchange Notes being duly executed as provided in the Indenture and delivered in exchange for the Private Notes, as described in the Registration Statement, and assuming due authentication thereof by the trustee in accordance with the terms of the Indenture, (ii) Registration Statement becoming effective under the Act, and (iii) qualification of the Indenture under the Trust G+G Retail,Inc. June 22, 1999 Indenture Act of 1939, as amended, in our opinion the Exchange Notes will have been duly authorized and will constitute valid and binding obligations of the Issuer, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting creditors' rights generally and general principles of equity (regardless of whether such principles are considered in a proceeding in equity or at law). The foregoing opinion is limited to the laws of the State of New York and the General Corporation Law of the State of Delaware. The foregoing opinions are subject to the qualification that the enforceability of certain rights, remedies and waivers provided in the Documents may be unavailable or limited by certain laws and judicial decisions. In respect of such qualification, however, we are of the opinion that such laws and judicial decisions do not, subject to the other exceptions and limitations contained in this letter, make the remedies generally afforded by the Documents inadequate to permit enforcement of the rights and obligations arising thereunder. We consent to the filing of this opinion with the Commission as an Exhibit to the Registration Statement and to the use of our name under the caption "Legal Matters" in the Prospectus included therein. Our opinion is rendered solely for your information in connection with the foregoing, and may not be relied upon by any other person or for any other purpose without our prior written consent. In giving this opinion, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Act or the Rules and Regulations of the Commission. Very truly yours, /s/ Kaye, Scholer, Fierman, Hays & Handler, LLP 2 EX-10.01 12 AGREEMENT OF LEASE 11/28/88 EXHIBIT 10.01 111688 111088 103188 100588 100488 091688 --------------------------------------------------------------- --------------------------------------------------------------- HARTZ-83RD STREET ASSOCIATES Landlord, and G & G SHOPS OF WOODBRIDGE, INC. Tenant -------------------- LEASE -------------------- Premises: 8501 Westside Avenue North Bergen, New Jersey --------------------------------------------------------------- --------------------------------------------------------------- TABLE OF CONTENTS Article Page - ------- ---- 1. Definitions ....................................... 1 2. Demise and Term ................................... 7 3. Rent .............................................. 8 4. Use of Demised Premises ................ .......... 9 5. Preparation of Demised Premises ................... 9 6. Tax and Operating Expense Payments ................ 11 7. Common Areas ...................................... 12 8. Deleted ........................................... 13 9. Subordination ..................................... 13 10. Quiet Enjoyment ................................... 14 11. Assignment, Subletting and Mortgaging ............. 15 12. Compliance with Laws .............................. 18 13. Insurance and Indemnity ........................... 19 14. Rules and Regulations ............................. 23 15. Alterations and Signs ............................. 23 16. Landlord's and Tenant's Property .................. 25 17. Repairs and Maintenance ........................... 26 18. Public Utility Charges ............................ 28 19. Access, Changes and Name .......................... 29 20. Mechanics' Liens and Other Liens .................. 30 21. Non-Liability ..................................... 31 22. Damage or Destruction ............................. 32 (i) 23. Eminent Domain .................................... 34 24. Surrender ......................................... 36 25. Conditions of Limitation .......................... 36 26. Re-Entry by Landlord .............................. 37 27. Damages ........................................... 38 28. Affirmative Waivers ............................... 40 29. No Waivers ........................................ 40 30. Curing Tenant's Defaults .......................... 40 31. Broker ............................................ 41 32. Notices ........................................... 41 33. Estoppel Certificates ............................. 42 34. Arbitration ....................................... 42 35. Memorandum of Lease ............................... 43 36. Compliance with ECRA .............................. 43 37. Miscellaneous ..................................... 44 EXHIBITS Exhibit A - Description of Land Exhibit B - Site Plan (and designation of parking) Exhibit B1 - Floor Plan of Demised Premises Exhibit C - Work and Installations to Be Performed and Furnished in the Demised Premises Exhibit C1 - Floor Plan of Section A Exhibit C2 - Landlord's Standard Design Criteria Exhibit C3 - Lighting Layout - Section A Exhibit D - Rules and Regulations (ii) 111688 111088 103188 100688 100488 091688 LEASE, dated November 28th, 1988, between HARTZ-83RD STREET ASSOCIATES, a New Jersey partnership, having an office at 400 Plaza Drive (P. O. Box 1411), Secaucus, New Jersey 07094 ("Landlord"), and G & G SHOPS OF WOODBRIDGE, INC., a New Jersey corporation, having an office at 520 Eighth Avenue, New York, New York 10018 ("Tenant"). ARTICLE 1 - DEFINITIONS 1.01. As used in this Lease (including in all Exhibits and any Riders attached hereto, all of which shall be deemed to be part of this Lease) the following words and phrases shall have the meanings indicated: A. Advance Rent: $37,319.13 B. Additional Charges: All amounts that become payable by Tenant to Landlord hereunder other than the Fixed Rent. C. Architect: Kenneth Carl Bonte, or as Landlord may designate. D. Broker: None E. Building: The building (including the addition to be constructed and containing Section B of the Demised Premises as delineated on the attached Exhibit B1) located on the Land in North Bergen, New Jersey and known as 8501 West Side Avenue. F. Business Days: All days except Saturdays, Sundays, and days observed by the federal or New Jersey government as legal holidays. Notwithstanding the Business Days and Business Hours, Tenant shall have access to and use of the Demised Premises and Common Areas on a twenty four (24) hour, three hundred sixty five (365) day basis. G. Business Hours: Generally customary daytime business hours, but not before 8:00 A.M. or after 6:00 P.M. H. Calendar Year: Each twelve-month period commencing on a January 1. I. Commencement Date as to Section "A" (hereinafter defined): The earlier of (a) the date on which both: (i) Section A shall be -1- Ready for Occupancy, and (ii) actual possession of Section A shall have been delivered to Tenant by notice to Tenant (and Tenant shall have access to the Demised Premises), or (b) the date Tenant, or anyone claiming under or through Tenant, first occupies Section A or any part thereof for any purpose other than the performance of Tenant's Work. J. Commencement Date as to Section "B" (hereinafter defined): The earlier of (a) the date on which both: (i) Section B shall be Ready for Occupancy, and (ii) actual possession of Section B shall have been delivered to Tenant by notice to Tenant (and Tenant shall have access to the Demised Premises), or (b) the date Tenant, or anyone claiming under or through Tenant, first occupies Section B or any part thereof for any purpose other than the performance of Tenant's Work. K. Common Areas: All areas, spaces and improvements in the Building and on the Land which Landlord makes available from time to time for the common use and benefit of the tenants and occupants of the Building and which are not exclusively available for use by a single tenant or occupant, including, without limitation, parking areas, roads, walkways, sidewalks, landscaped and planted areas, if any, community rooms, if any, the managing agent's office, if any, and public rest rooms, if any. L. Demised Premises: The portion of the Building that is outlined in orange on the floor plan(s) attached hereto as Exhibit B1. The Demised Premises contains or will contain approximately 164,840 square feet of Floor Space of which 80,690 square feet are designated as Section "A" on Exhibit B1 and 84,150 square feet are designated as Section "B" on Exhibit B1. Landlord shall provide Tenant with a certification of Landlord's architect as to the Floor Space of the Demised Premises. The Demised Premises also include Tenant's parking spaces which are as depicted in red on the attached site plan (Exhibit B). M. Expiration Date: The date that is the day before the fifth (5th) anniversary of the Commencement Date of Section B of the Demised Premises if the Commencement Date of Section B of the Demised Premises is the first day of a month, or the fifth (5th) anniversary of the last day of the month in which the Commencement Date of Section B of the Demised Premises occurs if the Commencement Date of Section B of the Demised Premises is not the first day of a month. However, if the Term is extended by Tenant's effective exercise of Tenant's right, if any, to extend the Term, the "Expiration Date" shall be changed to the last day of the Latest Extended Period as to which Tenant shall have effectively exercised its right to extend the Term. For the purposes of this definition, the earlier termination of this Lease shall not affect the "Expiration Date." Notwithstanding anything herein -2- contained to the contrary, the initial five (5) year term of this Lease shall not extend beyond the date which is seven (7) years from the Commencement Date of Section A of the Demised Premises, which date shall be the "Expiration Date" subject to Tenant's exercise of any option to extend the Lease Term. N. Fixed Rent: An amount at the annual rate of Six and 00/100 Dollars ($6.00) per square foot from the Commencement Date of each of the respective Sections of the Demised Premises until the Expiration Date multiplied by the Floor Space of the Demised Premises. O. Floor Space: As to the Demised Premises, the sum of the floor area stated in square feet bounded by the exterior faces of the exterior walls, or by the exterior or Common Areas face of any wall between the Premises and any portion of the Common Areas, or by the center line of any wall between the Premises and space leased or available to be leased to a tenant or occupant. Any reference to the Floor Space is intended to refer to the Floor Space of the entire area in question irrespective of the Person(s) who may be the owner(s) of all or any part thereof. The Floor Space shall not include that area above the mezzanine. P. Guarantor: G & G Shops, Inc. Q. Insurance Requirements: Rules, regulations, orders and other requirements of the applicable board of underwriters and/or the applicable fire insurance rating organization and/or any other similar body performing the same or similar functions and having jurisdiction or cognizance over the Land and Building, whether now or hereafter in force. R. Land: The land described on Exhibit A, upon which the Building is located. S. Landlord's Work: The materials and work to be furnished, installed and performed by Landlord at its expense in accordance with the provisions of Exhibit C. Landlord represents that Landlord's Work will be performed in a good and workmanlike manner, free of defects in labor and materials, and in accordance with all Legal and Insurance Requirements. T. Legal Requirements: Laws and ordinances of all federal, state, county, and municipal governments, and rules, regulations, orders and directives of all departments, subdivisions, bureaus, agencies or offices thereof, and of any other governmental, public or quasi-public authorities having jurisdiction over the Land and Building, whether now or hereafter in force, including, but not limited to, those pertaining to environmental matters. -3- U. Mortgage: A mortgage and/or a deed of trust. V. Mortgagee: A holder of a mortgage or a beneficiary of a deed of trust. W. Operating Expenses: The sum of the following: (1) the cost and expense (whether or not within the contemplation of the parties) for the repair, replacement, maintenance, policing, insurance and operation of the Demised Premises and Land not otherwise the obligation of Landlord or Tenant pursuant to this Lease and (2) the sum of (a) the Building's pro-rata share of the cost and expense (whether or not within the contemplation of the parties) for the repair, replacement, maintenance, policing and operation of the privately maintained roads that, from time to time, service the Building and Land, and (b) the Building's pro-rata share of the Real Estate Taxes attributable to said roads. Landlord represents and warrants that all expenses hereunder shall be reasonably commensurate to and in accordance with customary industry practice. The "Operating Expenses" shall include, without limitation, the following: (i) the cost for rent, casualty, liability, boiler and fidelity insurance, (ii) if an independent managing agent is employed by Landlord, the fees payable to such agent (provided the same are competitive with the fees payable to independent managing agents of comparable facilities in Hudson County), and (iii) reasonable legal, accounting and other professional fees pertaining to the operation, management and maintenance of the Land and Building but not with respect to the leasing, sale or finance of same. All items included in Operating Expenses shall be determined in accordance with generally accepted accounting principles consistently applied. Operating Expenses shall specifically exclude the following: (a) leasing commissions; (b) legal and accounting fees (including those attributable to disputes with tenants other than Tenant) to the extent not related to the management and/or operation of the Building; (c) income and franchise taxes; (d) debt service on any Mortgage; (e) any ground rents; (f) advertising and promotional costs unless requested by Tenant in connection with any retail operation; (g) costs which are specific to a particular tenant in the Building but which are not expenses common to all tenants of the Building; (h) insurance costs attributable to another tenant's use in the Building; (i) costs of overtime usage (site lights, etc.) directly attributable to a particular tenant of the Building not the Tenant; (j) costs attributable to repairs which are directly attributable to the negligence of Landlord or as a result of Landlord's breach of an obligation of the Lease; (k) costs for structural repairs or replacements not otherwise Tenant's responsibility under the Lease; (1) charges or expenses associated with re-lighting, repaving or restriping the parking lot for a period of eighteen (18) months from the Commencement Date of Section A of the Demised Premises. Landlord represents that there shall be no duplication of charges hereunder. -4- Landlord further represents that to the extent Landlord receives a rebate regarding any charge hereunder, Tenant shall receive a pro-rata credit for any amount previously paid by Tenant in connection with the charge the subject of such rebate. X. Permitted Uses: Warehouse distribution and ancillary offices, and retail outlet (if permitted by law). Y. Person: A natural person or persons, a partnership, a corporation, or any other form of business or legal association or entity. Z. Ready for Occupancy: The condition of the Demised Premises when for the first time the Landlord's Work shall have been substantially completed (as certified to Tenant by Landlord's architect), the Demised Premises broom clean and free of debris, the utilities and HVAC connected and in good working order, a temporary or permanent Certificate of Occupancy issued permitting use of the Demised Premises for the Permitted Uses, and Tenant shall have access to the Demised Premises, the loading docks and entrances. The Landlord's Work shall be deemed substantially completed notwithstanding the fact that minor or insubstantial details of construction, mechanical adjustment or decoration remain to be performed, the noncompletion of which does not interfere with the completion of Tenant's Work or with Tenant's use of the Demised Premises. Landlord hereby agrees to complete any such minor or insubstantial details as soon as is possible or feasible under the existing circumstances. AA. Real Estate Taxes: The real estate taxes, assessments and special assessments, sewer rents, water charges and all other similar charges and impositions imposed upon the Building and Land by any federal, state, municipal or other governments or governmental bodies or authorities, and any reasonable expenses incurred by Landlord in contesting such taxes or assessments and/or the assessed value of the Building and Land, which expenses shall be allocated to the period of time to which such expenses relate. If at any time during the Term the methods of taxation prevailing on the date hereof shall be altered so that in lieu of or as a substitute for (but in the nature of a real estate tax), the whole or any part of such real estate taxes, assessments and special assessments now imposed on real estate there shall be levied, assessed or imposed (a) a tax, assessment, levy, imposition, license fee or charge wholly or partially as a capital levy or otherwise on the rents received therefrom, or (b) any other such additional or substitute tax, assessment, levy, imposition or charge, then all such taxes, assessments, levies, impositions, fees or charges or the part thereof so measured or based shall be deemed to be included within the term "Real Estate Taxes" for the purposes hereof. Real Estate Taxes shall not include income, transfer, franchise or -5- business corporation taxes, no fines or penalties, or taxes imposed on adjacent parcels of land. BB. Rent: The Fixed Rent and the Additional Charges. CC. Rules and Regulations: The reasonable rules and regulations that may be promulgated by Landlord from time to time, which may be reasonably changed by Landlord from time to time. The Rules and Regulations now in effect are attached hereto as Exhibit D. Landlord represents that the Rules and Regulations will only be changed and modified upon reasonable notice to Tenant (unless in the event of an emergency) and that same shall not be enforced discriminately as to Tenant vis-a-vis the other tenants of the Building. DD. Security Deposit: None EE. Successor Landlord: As defined in Section 9.03. FF. Superior Lease: Any lease to which this Lease is, at the time referred to, subject and subordinate. GG. Superior Lessor: The lessor of a Superior Lease or its successor in interest, at the time referred to. HH. Superior Mortgage: Any Mortgage to which this Lease is, at the time referred to, subject and subordinate. II. Superior Mortgagee: The Mortgagee of a Superior Mortgage at the time referred to. JJ. Tenant's Fraction: 17.7% provided, however, when the Commencement Date with regard to that portion of the Building in which Section B of the Demised Premises is located has occurred, then Tenant's Fraction shall be 36.7%. If the size of the Demised Premises or the Building shall be changed from the initial size thereof, due to any taking, any construction, addition or alteration work, or due to verification by Landlord's architect or otherwise, the Tenant's Fraction shall be changed to the fraction the numerator of which shall be the Floor Space of the Demised Premises and the denominator of which shall be the Floor Space of the Building. Upon Tenant's request Landlord shall provide Tenant with a certification of Landlord's architect as to Tenant's Fraction. (Notwithstanding anything herein contained to the contrary, to the extent there is a reduction in the Floor Space of the Building as a result of casualty, condemnation, or act of Landlord (including, but not limited to an act of Landlord in accordance with Section 5.04 of the Lease), such that the ratio of the Floor Space of the Demised Premises to the Floor Space of the Building increases, Landlord represents and agrees that the denominator for determining the Tenant's Fraction (i.e. Floor Space of the Building) -6- shall be adjusted such that Tenant shall only be responsible to pay for those elements of Real Estate Taxes and Operating Expenses directly attributable to Tenant's use.) KK. Tenant's Property: As defined in Section 16.02. LL. Tenant's Work: The facilities, materials and work which may be undertaken by or for the account of Tenant (other than the Landlord's Work) to equip, decorate and furnish the Demised Premises for Tenant's occupancy substantially in accordance with the provisions of Exhibit C. MM. Term: The period commencing on the Commencement Date and ending at 11:59 p.m. of the Expiration Date, but in any event the Term shall end on the date when this Lease is earlier terminated. NN. Unavoidable Delays: A delay arising from or as a result of a strike, lockout, or labor difficulty which Landlord has no knowledge of at the time of the execution of this Lease, explosion, sabotage, accident, riot or civil commotion, act of war, fire or other catastrophe, Legal Requirement not in effect on the date of the execution of this Lease, or an act of the other party and any cause beyond the reasonable control of that party, provided that the party asserting such Unavoidable Delay has exercised its best efforts to minimize such delay. ARTICLE 2 - DEMISE AND TERM 2.01. Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the Demised Premises, for the Term. This Lease is subject to (a) any and all existing encumbrances, conditions, rights, covenants, easements, restrictions and rights of way, of record, and other matters of record applicable zoning and building laws, regulations and codes, and such matters as may be disclosed by an inspection or survey, and (b) easements now or hereafter created by landlord in, under, over, across and upon a strip of land twenty feet (20') in width running along all lot lines of the Building for sewer, water, electric, gas and other utility lines and services now or hereafter installed; provided, however, Landlord represents, covenants and warrants to Tenant that the Demised Premises may be used and occupied for the purposes set forth herein; and that the foregoing shall in no manner interfere with Tenant's use and quiet enjoyment of the Premises. Promptly following the Commencement Date, the parties hereto shall enter into an agreement in form and substance satisfactory to Landlord and Tenant setting forth the Commencement Date and confirming the Fixed Rent payable. -7- 2.02.Landlord hereby represents that the Demised Premises are presently encumbered by only one mortgage by and between Hartz 83rd Street Associates, as mortgagor, and The Northwestern Mutual Life Insurance Company, as mortgagee. The Landlord has no knowledge of any existing or pending assessment affecting the Land or Building except as otherwise provided in a certain policy of Title Insurance Commitment number 819-069225, issued by Commonwealth Land Title Insurance Company, a copy of which was provided to Tenant prior to execution of this Lease; provided, however, that the foregoing will not affect Landlord's ability to construct the Demised Premises. ARTICLE 3 - RENT 3.01. Tenant shall pay the Fixed Rent in equal monthly installments in advance on the first day of each and every calendar month during the Term (except that Tenant shall pay, upon the execution and delivery of this Lease by Tenant, the Advance Rent, to be applied against the first installment or installments of Fixed Rent becoming due under this Lease). If the Commencement Date occurs on a day other than the first day of a calendar month, the Fixed Rent for the partial calendar month at the commencement of the Term shall be prorated, based upon the actual number of days of the month. 3.02. The Rent shall be paid in lawful money of the United States to Landlord at its office, or such other place, or to Landlord's agent, as Landlord shall designate by notice to Tenant. Tenant shall pay the Rent promptly when due without notice or demand therefor (unless otherwise provided for in this Lease) and without any abatement, deduction or setoff for any reason whatsoever, except as may be expressly provided in this Lease. If Tenant makes any payment to Landlord by check, same shall be by check of Tenant and Landlord shall not be required to accept the check of any other Person, and any check received by Landlord shall be deemed received subject to collection. 3.03. No payment by Tenant or receipt or acceptance by Landlord of a lesser amount than the correct Rent shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance or pursue any other remedy in this Lease or at law provided. 3.04. If Tenant is in arrears in payment of Rent, Tenant waives Tenant's right, if any, to designate the items to which any payments made by Tenant are to be credited, and Landlord may apply any payments made by Tenant to such items as Landlord sees fit, irrespective of and -8- notwithstanding any designation or request by Tenant as to the items to which any such payments shall be credited. 3.05. Any payment due Landlord under this Lease which is not paid on or before five (5) days after Tenant receives written notice that same was due but is not paid, shall, from the due date, until such payment is received by Landlord, bear interest at the prime rate of Chemical Bank of New York then in effect plus 2% (the "Late Payment Rate") ARTICLE - 4 USE OF DEMISED PREMISES 4.01. Tenant shall use and occupy the Demised Premises for the Permitted Uses, and Tenant shall not use or permit or suffer the use of the Demised Premises or any part thereof for any other purpose. 4.02. If any governmental license or permit shall be required for the proper and lawful conduct of Tenant's business in the Demised Premises or any part thereof, Tenant shall duly procure and thereafter maintain such license or permit and submit the same to Landlord for inspection. Tenant shall at all times comply with the terms and conditions of each such license or permit. Tenant shall not at any time use or occupy, or suffer or permit anyone to use or occupy the Demised Premises, or do or permit anything to be done in the Demised Premises, in any manner which (a) violates the Certificate of Occupancy for the Demised Premises or for the Building; (b) causes or is liable to cause injury to the Building or any equipment, facilities or systems therein; (c) constitutes a violation of the Legal Requirements or Insurance Requirements of which Tenant has notice; (d) impairs the character, reputation or appearance of the Building; (e) unreasonably impairs the proper and economic maintenance, operation and repair of the Building and/or its equipment, facilities or systems; or (f) unreasonably annoys or inconveniences other tenants or occupants of the Building. Landlord hereby represents that, to the best of its knowledge, Tenant's Permitted Uses are in conformance with all local and municipal rules, regulations and ordinances. ARTICLE 5 - PREPARATION OF DEMISED PREMISES 5.01. The Demised Premises shall be completed and prepared for Tenant's occupancy in the manner described in, and subject to the provisions of, Exhibit C. Tenant shall occupy each of Section A and Section B of Demised Premises promptly after each Section, independently, is Ready for Occupancy and possession thereof is delivered to Tenant by Landlord giving to Tenant a notice to such effect as well as access to the Demised Premises. Except as expressly -9- provided to the contrary in this Lease, the taking of possession by Tenant of the Section A or Section B of the Demised Premises, as the case may be, shall be prima facie evidence as against Tenant that the Demised Premises and the Building were in good and satisfactory condition at the time such possession was taken. Except as expressly provided to the contrary in this Lease, Tenant is leasing Section A of the Demised Premises "as is" on the date hereof, subject to reasonable wear and tear. With regard to both Section A and Section B of the Demised Premises, Landlord hereby agrees to keep and maintain (as defined in Article 17.01), for the Term of this Lease, any structural defects in the Demised Premises and the roof provided Tenant gives Landlord written notice of such structural defect or damage to the roof and further provided that such structural defect or damage to the roof is not the result of Tenant's negligence or misuse of the Demised Premises or the roof. Landlord further warrants to Tenant Landlord's Work for a period of one (1) year from the date said Landlord's Work is substantially completed; Landlord hereby agrees to assign to Tenant the warranties, if any, obtained by Landlord in connection with Landlord's Work after said one (1) year period. 5.02. If the substantial completion of the Landlord's Work shall be delayed due to (a) any act or omission of Tenant or any of its employees, agents or contractors (after notice from Landlord) (including, without limitation, [i] any delays due to changes in or additions to the Landlord's Work, or [ii] any delays by Tenant in the submission of plans, drawings, specifications or other information or in approving any working drawings or estimates or in giving any authorizations or approvals), or (b) any additional time needed for the completion of the Landlord's Work by the inclusion in the Landlord's Work of any long lead time items selected by Tenant and with respect to which Tenant refuses to select a substitute item which is more readily available and of which delay Tenant is advised by Landlord prior to the order of such item, then the Demised Premises shall be deemed Ready for Occupancy on the date when they would have been ready but for such delay(s). Subject to structural defects, the Demised Premises shall be conclusively presumed to be in satisfactory condition on the Commencement Date except for the items with respect to which Tenant gives Landlord notice within thirty (30) days after the Commencement Date specifying such items with reasonable particularity. 5.03. Landlord represents and warrants that the roof will be delivered free of leaks. 5.04. Landlord reserves the right, at any time and from time to time, to increase, reduce or change the number, type, size, location, elevation, nature and use of any of the Common Areas and the Building, including, without limitation, the right to move and/or remove same, provided same shall not block or interfere with Tenant's means of -10- ingress or egress to and from the Demised Premises except to a de minimis extent, or adversely affect or interfere with Tenant's business operations, use of, or access to the Demised Premises, Common Areas, or designated parking. ARTICLE 6 - TAX AND OPERATING EXPENSE PAYMENTS 6.01. Throughout the Term, Tenant agrees to pay to Landlord as an Additional Charge hereunder within fifteen (15) days in advance of the final date for which such is due without interest or penalty, Tenant's Fraction of the Real Estate Taxes. If any assessment is payable in annual installments or in a lump sum and Tenant does not elect to reimburse Landlord for such assessment in a lump sum, there shall be added to the amount of the Real Estate Taxes payable for the Calendar Year in which such assessment is payable and such subsequent Calendar Year only that amount of such assessment, together with such interest thereon, as would have been payable to the municipality in said Calendar Year if Landlord had elected to pay said assessment in annual installments. Upon request, Landlord shall submit to Tenant copies of all bills covering Real Estate Taxes together with an invoice showing the calculation of Tenant's share of such Real Estate Taxes. 6.02. Real Estate Taxes, whether or not a lien upon the Premises shall be apportioned between Landlord and Tenant at the beginning and end of the Term; it being intended that Tenant shall pay only that portion of the Real Estate Taxes as is allocable to the Premises for the Term. 6.03. Tenant shall pay to Landlord Tenant's Fraction of the Operating Expenses within twenty (20) days after Landlord submits to Tenant an invoice (with details of the calculation) for Tenant's Fraction of the Operating Expenses. Upon request, Landlord shall submit to Tenant copies of all bills used to calculate the Operating Expenses. Operating Expenses shall be paid on a monthly basis in advance of the due date. 6.04. Each such statement or invoice given by Landlord pursuant to Section 6.01 or Section 6.03 shall be conclusive and binding upon Tenant unless within ninety (90) days after the receipt of such statement Tenant shall notify Landlord that it disputes the correctness of the statement, specifying the particular respects in which the statement is claimed to be incorrect. If such dispute is not settled by agreement, either party may submit the dispute to arbitration as provided in Article 34. Pending the determination of such dispute by agreement or arbitration as aforesaid, Tenant shall, within twenty (20) days after receipt of such statement, pay the -11- Additional Charges in accordance with Landlord's statement, without prejudice to Tenant's position. If the dispute shall be determined in Tenant's favor, Landlord shall forthwith pay to Tenant the amount of Tenant's overpayment resulting from compliance with Landlord's statement. 6.05. Landlord hereby grants Tenant the right, upon reasonable written notice to Landlord, and at Tenant's sole cost and expense, to inspect Landlord's books and records as same relate to Tenant's Operating Expenses and Real Estate Taxes. Any such inspection shall occur at Landlord's normal place of business and during Landlord's normal business hours. 6.06. In the event Landlord receives a rebate in the Real Estate Taxes, Tenant shall be entitled to its pro-rata portion thereof provided Tenant has so paid to Landlord its portion of the Real Estate Taxes which are the subject of any such rebate. 6.07. Tenant shall not be responsible for any increase in Real Estate Taxes which is attributable to any improvement to the Building made by Landlord or any other tenant of the Building, which improvement does not otherwise impact on Tenant's use or occupation of the Demised Premises. ARTICLE 7 - COMMON AREAS 7.01. Subject to the provisions of Section 5.04 and Article 17, Landlord will operate, manage, equip, light, repair and maintain, or cause to be operated, managed, equipped, lighted, repaired and maintained, the Common Areas for their intended purposes. Landlord reserves the right, at any time and from time to time, to construct within the Common Areas kiosks and to install vending machines, telephone booths, benches and the like, provided same shall not block or interfere with Tenant's means of ingress or egress to and from the Demised Premises. 7.02. Tenant and its subtenants and concessionaires, and their respective officers, employees, agents, suppliers, customers and invitees, shall have the non-exclusive right, in common with Landlord and all others to whom Landlord has granted or may hereafter grant such right, but subject to the Rules and Regulations, to use the Common Areas. Landlord reserves the right, at any time and from time to time, to close temporarily all or any portions of the Common Areas when any such closing is necessary or desirable (a) to make repairs or changes or to effect construction within the Building and Common Areas (but not the Demised Premises unless elsewhere in this Lease provided), (b) to prevent the acquisition of public rights in such areas, or (c) to protect or preserve natural persons or property. Landlord may do such other acts in and to the Common Areas as in its -12- judgment may be desirable to improve or maintain same. Landlord shall use its best efforts not to materially interfere with Tenant's business operation and use of the Demised Premises in connection with the above rights granted to Landlord. 7.03. Tenant agrees that it, any subtenant or licensee and their respective officers, employees, contractors and agents will park their automobiles and other vehicles only where and as permitted by this Lease. ARTICLE 8 - (DELETED) ARTICLE 9 - SUBORDINATION 9.01. Subject to the provisions of Section 9.05, this Lease, and all rights of Tenant hereunder, are and shall be subject and subordinate to all ground leases and underlying leases of the Land and/or the Building now or hereafter existing and to all Mortgages which may now or hereafter affect the Land and/or Building and/or any of such leases, whether or not such Mortgages or leases shall also cover other lands and/or buildings, to each and every advance made or hereafter to be made under such Mortgages, and to all renewals, modifications, replacements and extensions of such leases and such Mortgages and spreaders and consolidations of such Mortgages. The provisions of this Section 9.01 shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver any instrument that Landlord, the lessor under any such lease or the Mortgagee of any such Mortgage or any of their respective successors in interest may reasonably request to evidence such subordination and non-disturbance. 9.02. If any act or omission of Landlord would give Tenant the right, immediately or after lapse of a period of time, to cancel or terminate this Lease, or to claim a partial or total eviction, Tenant shall not exercise such right (a) until it has given written notice of such act or omission to Landlord and each Superior Mortgagee and each Superior Lessor whose name and address shall previously have been furnished to Tenant, and (b) until a reasonable period for remedying such act or omission shall have elapsed following the giving of such notice and following the time when such Superior Mortgagee or Superior Lessor shall have become entitled under such Superior Mortgage or Superior Lease, as the case may be, to remedy the same (which reasonable period shall in no event be less than the period to which Landlord would be entitled under this Lease or otherwise, after similar notice, to effect such remedy), provided such Superior Mortgagee or Superior Lessor shall with due diligence give Tenant -13- notice of intention to, and commence and continue to, remedy such act or omission. 9.03. If any Superior Lessor or Superior Mortgagee shall succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed, then at the request of such party so succeeding to Landlord's rights ("Successor Landlord") and upon such Successor Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn to and recognize such Successor Landlord as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment (provided such Successor Landlord assumes all Landlord's obligations under this Lease). Upon such attornment this Lease shall continue in full force and effect as a direct lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Lease except that the Successor Landlord (so long as any Successor Landlord is not related to Landlord) shall not (a) be liable for any previous act or omission of Landlord under this Lease; (b) be subject to any offset, not expressly provided for in this Lease, which theretofore shall have accrued to Tenant against Landlord; or (c) be bound by any previous prepayment of more than one month's Fixed Rent or Additional Charges (unless required pursuant to this Lease), unless such modification or prepayment shall have been expressly approved in writing by the Superior Lessor of the Superior Lease or the Mortgagee of the Superior Mortgage through or by reason of which the Successor Landlord shall have succeeded to the rights of Landlord under this Lease. 9.04. If any then present or prospective Superior Mortgagee shall require any modification(s) of this Lease, Tenant shall promptly execute and deliver to Landlord such instruments effecting such modification(s) as Landlord shall reasonably request, provided that such modification(s) do not adversely affect in any material respect any of Tenant's rights under this Lease, decrease Landlord's obligations under this Lease or increase Tenant's obligations under this Lease. 9.05. Landlord hereby agrees to provide Tenant with a Non-Disturbance Agreement from all present and future Superior Mortgagees, wherein such Mortgagees agree not to disturb the occupancy of Tenant under the Lease so long as Tenant is not in default beyond the applicable grace period. ARTICLE 10 - QUIET ENJOYMENT 10.01. So long as this Lease is in effect, Tenant shall peaceably and quietly have, hold and enjoy the Demised Premises without hindrance, ejection or molestation. -14- ARTICLE 11 - ASSIGNMENT, SUBLETTING AND MORTGAGING 11.01. Except as otherwise provided herein, Tenant shall not, whether voluntarily, involuntarily, or by operation of law or otherwise, (a) assign or otherwise transfer this Lease, or offer or advertise to do so, (b) sublet the Demised Premises or any part thereof, or offer or advertise to do so, or allow the same to be used, occupied or utilized by anyone other than Tenant, or (c) mortgage, pledge, encumber or otherwise hypothecate this Lease in any manner whatsoever, without in each instance obtaining the prior written consent of Landlord. Consent by Landlord shall not be required if a corporate tenant assigns this Lease to its parent corporation or to its wholly owned subsidiary or Affiliate, subject, however, to the further provisions of Articles 11.04 and 11.05 and prior notice to Landlord. "Affiliate" as that term is referred to hereinabove shall be defined as a person or entity directly controlling, controlled by or under common control with Tenant or any other Affiliate of Tenant. Notwithstanding anything herein contained to the contrary, consent by Landlord shall also not be required in the event (A) Tenant sells substantially all of its stock to a third party (which third party's principal asset is not this Lease) provided that (a) Tenant provides Landlord with written notice of such a sale; and (b) (i) the successor to Tenant has a net worth computed in accordance with generally accepted accounting principles at least equal to the greater of (1) the net worth of Tenant immediately prior to such merger, consolidation or transfer, or (2) the net worth of the original Tenant on the date of this Lease, and (ii) proof satisfactory to Landlord of such net worth shall have been delivered to Landlord (except as prohibited by law) at least ten (10) days prior to the effective date of any such transaction and (c) the provisions of Section 11.04 are complied with by Tenant; or (B) Tenant desires to sublet less than thirty five (35%) percent of the Floor Space of the Demised Premises provided that Landlord has notice of such sublease. 11.02. Subject to the provisions of Section 11.01, if at any time (a) the original Tenant named herein, (b) the then Tenant, (c) any Guarantor, or (d) any Person owning a majority of the voting stock of, or directly or indirectly controlling the then Tenant shall be a corporation or partnership, any transfer of voting stock or partnership interest resulting in the person(s) who shall have owned a majority of such corporation's shares of voting stock or the general partners' interest in such partnership, as the case may be, immediately before such transfer, ceasing to own a majority of such shares of voting stock or general partner's interest, as the case may be, except as the result of transfers by inheritance, shall be deemed to be an assignment of this Lease as to which Landlord's consent shall have been required, and in any such event Tenant shall notify Landlord. The provisions of this Section 11.02 shall not be applicable to any corporation all the outstanding voting stock of -15- which is listed on a national securities exchange (as defined in the Securities Exchange Act of 1934, as amended) or is traded in the over-the-counter market with quotations reported by the National Association of Securities Dealers through its automated system for reporting quotations and shall not apply to transactions with a corporation or other person into or with which the then Tenant is merged or consolidated or to which substantially all of the then Tenant's assets or stock are transferred or to any corporation which controls or is controlled by the then Tenant or is under common control with the then Tenant, provided that in any of such events (i) the successor to Tenant has a net worth computed in accordance with generally accepted accounting principles at least equal to the greater of (1) the net worth of Tenant immediately prior to such merger, consolidation or transfer, or (2) the net worth of the original Tenant on the date of this Lease, and (ii) proof satisfactory to Landlord of such net worth shall have been delivered to Landlord at least ten (10) days prior to the effective date of any such transaction. For the purposes of this Section, the words "voting stock" shall refer to shares of stock regularly entitled to vote for the election of directors of the corporation. Landlord shall have the right at any time and from time to time during the Term to inspect the stock record books of the corporation to which the provisions of this Section 11.02 apply, and Tenant will produce the same on request of Landlord. 11.03. If this Lease is assigned, whether or not in violation of this Lease, Landlord may collect rent from the assignee. If the Demised Premises or any part thereof are sublet or used or occupied by anybody other than Tenant, whether or not in violation of this Lease, Landlord may, after default by Tenant, and expiration of Tenant's time to cure such default, collect rent from the subtenant or occupant. In either event, Landlord may apply the net amount collected to the Rent, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of any of the provisions of Section 11.01 or Section 11.02, or the acceptance of the assignee, subtenant or occupant as tenant, or a release of Tenant from the performance by Tenant of Tenant's obligations under this Lease. The consent by Landlord to any assignment, mortgaging, subletting or use or occupancy by others shall not in any way be considered to relieve Tenant from obtaining the express written consent of Landlord to any other or further assignment, mortgaging or subletting or use or occupancy by others not expressly permitted by this Article 11. References in this Lease to use or occupancy by others (that is, anyone other than Tenant) shall not be construed as limited to subtenants and those claiming under or through subtenants but shall be construed as including also licensees and others claiming under or through Tenant, immediately or remotely. 11.04. In the event of permitted assignment or transfer, whether made with Landlord's consent pursuant to Section 11.01 or without -16- Landlord's consent if permitted by Sections 11.01 and 11.02, shall be made only if, and shall not be effective until (unless same would be unlawful, i.e. a violation of a Securities and Exchange [Commission regulation]), the assignee shall execute, acknowledge and deliver to Landlord an agreement in form and substance reasonably satisfactory to Landlord whereby the assignee shall assume Tenant's obligations under this Lease and whereby the assignee shall agree that all of the provisions in this Article 11 shall, notwithstanding such assignment or transfer, continue to be binding upon it in respect to all future assignments and transfers. Notwithstanding any assignment or transfer, whether or not in violation of the provisions of this Lease, and notwithstanding the acceptance of Rent by Landlord from an assignee, transferee, or any other party, the original Tenant shall remain fully liable for the payment of the Rent and for Tenant's other obligations under this Lease. 11.05. The liability of the original Tenant and any other Person who was responsible for Tenant's obligations under this Lease shall not be discharged, by any agreement made by Landlord extending the time of performance of, or any waiver or failure of Landlord to enforce, any of this Lease. 11.06. The listing of any name other than that of Tenant, whether on the doors of the Demised Premises or the Building directory, or otherwise, shall not operate to vest any right or interest in this Lease or in the Demised Premises, nor shall it be deemed to be the consent of Landlord to any assignment or transfer of this Lease or to any sublease of the Demised Premises or to the use or occupancy thereof by others. 11.07. Without limiting any of the provisions of Article 25, if pursuant to the Federal Bankruptcy Code (or any similar law hereafter enacted having the same general purpose), Tenant is permitted to assign this Lease notwithstanding the restrictions contained in this Lease, adequate assurance of future performance by an assignee expressly permitted under such Code shall be deemed to mean the deposit of cash security in an amount equal to the sum of three (3) months Fixed Rent plus an amount equal to the Additional Charges for the Calendar Year preceding the year in which such assignment is intended to become effective, which deposit shall be held by Landlord for the balance of the Term, without interest, as security for the full performance of all of Tenant's obligations under this Lease. 11.08. Where Landlord's consent for a subletting or assignment is required and if Tenant shall propose to assign or in any manner transfer this Lease or any interest therein, or sublet the Demised Premises or any part or parts thereof, or grant any concession or license or otherwise permit occupancy of all or any part of the Demised Premises by any person, Tenant shall give notice thereof to -17- Landlord, together with a copy of the proposed instrument or proposed document setting forth the terms of the deal that is to accomplish same and such financial and other information pertaining to the proposed assignee, transferee, subtenant, concessionaire or licensee as Landlord shall reasonably require, and Landlord shall as an alternative to Landlord's right to give consent (unless Landlord's consent is not required), terminate this Lease by notice given to Tenant within thirty (30) days after receipt of said proposed instrument and financial and other information, and upon the date specified in such notice, which date shall be not less than thirty (30) days and not more than sixty (60) days after the giving of said notice, this Lease shall terminate. (Provided, however, to the extent that the portion or portions of the Demised Premises sought to be sublet by Tenant are, in the sole discretion and determination of Landlord, usable, rentable and with sufficient access, then Landlord, in the event it elects to terminate as provided hereunder, shall only terminate the Lease and recapture that portion of the Floor Space which is the subject of the proposed sublease). If Landlord does not so terminate this Lease, and (if Landlord consents to the subject transaction) if Tenant does not consummate the subject transaction within sixty (60) days after the last day on which Landlord might have so terminated this Lease as a result of such transaction, Tenant shall again be required to comply with the provisions of this Section 11.08, in connection with any such transaction as if the notice by Tenant referred to above in this Section 11.08 had not been given. In the event Tenant enters into a sublease permitted under this Section 11.08, Tenant hereby agrees to pay Landlord, as Additional Rent, an amount equal to fifty percent (50%) of the difference between the rent Tenant receives from any permitted sublessee of the Demised Premises (less the following expenses expended in connection with same: real estate brokerage commission, reasonable legal fees and reasonable renovation costs) and the amount Tenant is required to pay Landlord as Fixed Rent under this Lease; same to be paid by Tenant to Landlord on a monthly basis throughout the Term. ARTICLE 12 - COMPLIANCE WITH LAWS 12.01. Except as otherwise in this Lease provided, including but not limited to any obligation of Landlord to comply with Legal Requirements, Tenant shall comply with all Legal Requirements which shall, in respect of the Demised Premises or the use and occupation thereof, or in respect of the abatement of any nuisance created by Tenant in, on or about the Demised Premises, impose any violation, order or duty on Landlord or Tenant; and Tenant shall pay all the costs, expenses, fines, penalties and damages which may be imposed upon Landlord or any Superior Lessor by reason of or arising out of Tenant's failure to fully and promptly comply with and observe the provisions of this Section 12.01. However, Tenant need not comply -18- with any such law or requirement of any public authority so long as Tenant shall be contesting the validity thereof, or the applicability thereof to the Demised Premises, in accordance with Section 12.02. 12.02. Tenant may contest, by appropriate proceedings prosecuted diligently and in good faith, the validity, or applicability to the Demised Premises, of any Legal Requirement, provided that (a) Landlord shall not be subject to criminal penalty or to prosecution for a crime, and neither the Demised Premises nor any part thereof shall be subject to being condemned or vacated, by reason of non-compliance or otherwise by reason of such contest; and (b) such non-compliance or contest shall not constitute or result in any violation of any Superior Lease or Superior Mortgage, or if any such Superior Lease and/or Superior Mortgage shall permit such non-compliance or contest on condition of the taking of action or furnishing of security by Landlord, such action shall be taken and Tenant shall keep Landlord advised as to the status of such proceedings. Without limiting the application of the above, Landlord shall be deemed subject to prosecution for a crime if Landlord, or its managing agent, or any officer, director, partner, shareholder or employee of Landlord or its managing agent, as an individual, is charged with a crime of any kind or degree whatsoever, whether by service of a summons or otherwise, unless such charge is withdrawn before Landlord or its managing agent, or such officer, director, partner, shareholder or employee of Landlord or its managing agent (as the case may be) is required to plead or answer thereto. 12.03. Notwithstanding anything herein contained to the contrary Tenant shall not be responsible to make any structural changes to the Building, the Demised Premises, or the roof necessitated by the Legal Requirements unless said structural change is imposed as a result of Tenant's specific use, occupancy, or business operation in the Demised Premises. ARTICLE 13 - INSURANCE AND INDEMNITY 13.01. Landlord shall maintain or cause to be maintained All Risk insurance in respect of the Land, Building and other improvements on the Land normally covered by such insurance (except for the property Tenant is required to cover with insurance under Section 13.02 and similar property of other tenants and occupants of the Building or buildings and other improvements which are on land neither owned by nor leased to Landlord) for the benefit of Landlord, any Superior Lessors, any Superior Mortgagees and any other parties Landlord may at any time and from time to time designate, as their interests may appear, but not for the benefit of Tenant, and shall maintain rent insurance as required by any Superior Lessor or any Superior Mortgagee. The All Risk insurance will be in the amounts -19- required by any Superior Lessor or any Superior Mortgagee but not less than the amount sufficient to avoid the effect of the co-insurance provisions of the applicable policy or policies. Landlord may also maintain any other forms and types of insurance which Landlord shall deem reasonable in respect to the Building and Land. Landlord shall have the right to provide any insurance maintained or caused to be maintained by it under blanket policies provided said insurance is customarily maintained for similar type properties owned or operated by Landlord. 13.02. Tenant shall maintain the following insurance: (a) comprehensive general public liability insurance in respect of the Demised Premises and the conduct and operation of business therein, with Landlord as an additional named insured, and at Landlord's request with any Superior Lessors as additional named insured(s), with limits of not less than $3,000,000 for bodily injury or death to any one person and $5,000,000 for bodily injury or death to any number of persons in any one occurrence, and $500,000 for property damage, including water damage and sprinkler leakage legal liability, (b) All Risk insurance in respect of Tenant's stock in trade, fixtures, furniture, furnishings, removable floor coverings, equipment, signs and all other property of Tenant in the Demised Premises in any amounts required by any Superior Lessor or any Superior Mortgagee but not less than 80% of the full insurable value of the property covered and not less than the amount sufficient to avoid the effect of the co-insurance provisions of the applicable policy or policies, and (c) any other insurance required for compliance with the Insurance Requirements. Landlord may, at any time and from time to time (but upon reasonable prior notice), require that the limits for the comprehensive general public liability insurance to be maintained by Tenant be increased to the limits that new Tenants in the Building are required by Landlord to maintain for similar uses. Tenant shall deliver to Landlord and any additional named insured(s) certificates for such fully paid-for policies on or before the Commencement Date. Tenant shall procure and pay for renewals of such insurance from time to time before the expiration thereof, and Tenant shall deliver to Landlord and any additional insured(s) certificates therefor at least thirty (30) days before the expiration of any existing policy. All such policies shall be issued by companies of recognized responsibility licensed to do business in New Jersey, and all such policies shall contain a provision whereby the same cannot be cancelled unless Landlord and any additional insured(s) are given at least twenty (20) days' prior written notice of such cancellation. 13.03. Tenant shall not do, permit or suffer to be done any act, matter, thing or failure to act in respect of the Demised Premises or use or occupy the Demised Premises or conduct or operate Tenant's business in any manner so as to cause any insurance company or companies issuing the fire insurance or any other insurance then in -20- effect in respect to the Land and Building or any part thereof shall become void or suspended or whereby any premiums in respect of insurance maintained by Landlord shall be higher than those which would normally have been in effect for the occupancy contemplated under the Permitted Uses. In case of a breach of the provisions of this Section 13.03, in addition to all other rights and remedies of Landlord hereunder, Tenant shall (a) indemnify Landlord and the Superior Lessors and hold Landlord and the Superior Lessors harmless from and against any loss which would have been covered by insurance which shall have become void or suspended because of such breach by Tenant and (b) pay to Landlord any and all increases of premiums on any insurance, including, without limitation, rent insurance, resulting from any such breach. 13.04. Tenant shall indemnify and hold harmless Landlord and all Superior Lessors and its and their respective partners, joint venturers, directors, officers, agents, servants and employees from and against any and all claims arising from or in connection with (a) the conduct or management of the Demised Premises or of any business therein, or any work or thing whatsoever done, or any condition created (other than by Landlord) in the Demised Premises during the Term; (b) any act, omission or negligence of Tenant or any of its subtenants or licensees or its or their partners, joint ventures, directors, officers, agents, employees or contractors during the Term or during the period of time, if any, prior to the Commencement Date that Tenant may have been given access to the Demised Premises; (c) any accident, injury or damage whatever (unless caused solely by Landlord's negligence) occurring in the Demised Premises during the Term; and (d) any breach or default by Tenant in the full and prompt payment and performance of Tenant's obligations under this Lease; together with all costs, expenses and liabilities incurred in or in connection with each such claim or action or proceeding brought thereon, including, without limitation, all attorneys' fees and expenses. In case any action or proceeding is brought against Landlord and/or any Superior Lessor and/or its or their partners, joint venturers, directors, officers, agents and/or employees by reason of any such claim, Tenant, upon notice from Landlord or such Superior Lessor, shall resist and defend such action or proceeding by counsel reasonably satisfactory to Landlord. 13.05. Landlord shall indemnify and hold harmless Tenant and all Superior Lessors and its and their respective partners, joint venturers, directors, officers, agents, servants and employees from and against any and all claims arising from or in connection with (a) the conduct or management of that portion of the Building and/or Common Areas for which Landlord is obligated to maintain in accordance with this Lease ("Landlord's Area") or any work or thing whatsoever done, or any condition created (other than by Tenant its employees, agents or contractors) in the Landlord's Area during the Term or -21- during the period of time, if any, prior to the Commencement Date that Landlord may have had access to the Landlord's Area; (b) any act, omission or negligence of Landlord or any of its licensees or its or their partners, joint venturers, directors, officers, agents, employees or contractors; (c) any accident, injury or damage whatever (unless caused solely by Tenant's negligence) occurring in the Landlord's Area; and (d) any breach or default by Landlord in the performance of Landlord's obligations under this Lease; together with all costs, expenses and liabilities incurred in or in connection with each such claim or action or proceeding brought thereon, including, without limitation, all attorneys' fees and expenses. In case any action or proceeding is brought against Tenant, its partners, joint venturers, directors, officers, agents and/or employees by reason of any such claim, Landlord, upon notice from Tenant, shall resist and defend such action or proceeding by counsel reasonably satisfactory to Tenant. 13.06. Neither party shall be liable or responsible for, and each party hereby releases the other from, all liability and responsibility to the other and any person claiming by, through or under the other, by way of subrogation or otherwise, for any injury, loss or damage to any person or property in or around the Demised Premises or to the other's business covered by insurance carried or required to be carried hereunder irrespective of the cause of such injury, loss or damage, and each party shall require its insurers to include in all of such party's insurance policies which could give rise to a right of subrogation against the other a clause or endorsement whereby the insurer waives any rights of subrogation against the other or permits the insured, prior to any loss, to agree with a third party to waive any claim it may have against said third party without invalidating the coverage under the insurance policy. 13.07. Notwithstanding anything herein contained to the contrary, Tenant shall be permitted to self-insure for the insurance required to be carried under Section 13.02(b) so long as all of the following conditions are met: (i) Tenant shall deliver to Landlord on an annual basis a written certification stating that Tenant is self-insured to the limits required hereunder, or the amounts, if any, of excess coverage insured by a third party carrier; (ii) Landlord shall be entitled to all the rights and benefits under such self-insurance as would have been available to Landlord had Tenant insured with a third party carrier; (iii) Tenant shall deliver to Landlord certificates for coverage in excess of the self-insured limits; and -22- (iv) There shall not have been a material adverse change in Tenant's financial condition since the date hereof. In the event Tenant ceases to self-insure, Tenant shall so notify Landlord at least sixty (60) days in advance of the termination of self-insurance and Tenant shall obtain the policies required pursuant to this Article and deliver insurance certificates to Landlord at least thirty (30) days in advance of the termination of self-insurance. ARTICLE 14 - RULES AND REGULATIONS 14.01. Tenant and its employees and agents shall faithfully observe and comply with the Rules and Regulations and such reasonable changes therein (whether by modification, elimination or addition) as Landlord at any time or times hereafter may make and communicate to Tenant, which in Landlord's reasonable judgment, shall be necessary for the reputation, safety, care or appearance of the Land and Building, or the preservation of good order therein, or the operation or maintenance of the Building or its equipment and fixtures, or the Common Areas, and which do not affect the conduct of Tenant's business in the Demised Premises; provided, however, that in case of any conflict or inconsistency between the provisions of this Lease and any of the Rules and Regulations, the provisions of this Lease shall control. Nothing in this Lease contained shall be construed to impose upon Landlord any duty or obligation to enforce the Rules and Regulations against any other tenant or any employees or agents of any other tenant, and Landlord shall not be liable to Tenant for violation of the Rules and Regulations by any other tenant or its employees, agents, invitees or licensees. ARTICLE 15 - ALTERATIONS AND SIGNS 15.01. Tenant shall not make any structural alterations or additions to the Demised Premises or modification to the Building systems, or make any holes or cuts in the walls, ceilings, roofs, or floors thereof, or change the exterior color or architectural treatment of the Demised Premises, without on each occasion first obtaining the consent of Landlord which consent shall not be unreasonably withheld or delayed. Tenant shall submit to Landlord plans and specifications for such work at the time Landlord's consent is sought. Tenant shall pay to Landlord upon demand the reasonable out-of-pocket cost and expense of Landlord in (a) reviewing said plans and specifications and (b) inspecting the alterations to determine whether the same are being performed in accordance with the approved plans and specifications and all Legal Requirements and Insurance Requirements, including, without limitation, the fees of any architect -23- or engineer employed by Landlord for such purpose. Before proceeding with any permitted alteration which will cost more than Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) (exclusive of the costs of decorating work and items constituting Tenant's Property), as estimated by a reputable contractor designated by Landlord, Tenant shall obtain and deliver to Landlord such security as shall be reasonably satisfactory to Landlord. Tenant shall fully and promptly comply with and observe the Rules and Regulations then in force in respect of the making of alterations. Any review or approval by Landlord of any plans and/or specifications with respect to any alterations is solely for Landlord's benefit, and without any representation or warranty whatsoever to Tenant in respect to the adequacy, correctness or efficiency thereof or otherwise, provided, however, to the extent Tenant obtains the consent or approval of Landlord in connection with any such alteration, Tenant can rely on such approval for "consent" purposes as required hereunder. The provisions of this Section 15.01 shall not apply to Landlord's Work or any of the initial improvements performed by Tenant in connection with the fit-up of Demised Premises (so long as Landlord is on notice of same). Tenant shall have the right to install racking and/or shelving in the Demised Premises, provided however, Tenant shall comply with the provisions of Section 15.02 in connection with such racking and/or shelving and provided Tenant repairs all holes and other damage to the Demised Premises attributable to said racking and/or shelving on or prior to the expiration or other termination of this Lease. 15.02. Tenant shall obtain all necessary governmental permits and certificates for the commencement and prosecution of permitted alterations and for final approval thereof upon completion, and shall cause alterations to be performed in compliance therewith and with all applicable Legal Requirements and Insurance Requirements. Alterations shall be diligently performed in a good and workmanlike manner, using new materials and equipment at least equal in quality and class to the better of (a) the original installations of the Building, or (b) the then standards for the Building established by Landlord which standards shall be uniformly applied to all tenants in circumstances similar to the Tenant. Alterations shall be performed by contractors first reasonably approved by Landlord; provided, however, that any alterations in or to the mechanical, electrical, sanitary, heating, ventilating, air conditioning or other systems of the Building shall be performed only by the contractor(s) designated by Landlord and whose costs shall be reasonable and competitive for any such alteration. Alterations shall be made in such manner as not to unreasonably interfere with or delay and as not to impose any additional out of pocket expense upon Landlord in the construction, maintenance, repair or operation of the Building; and if any such additional expense shall be incurred by Landlord as a result of Tenant's making of any alterations, Tenant shall pay any such additional expense within thirty (30) days after presentation of -24- itemized bills therefor. Throughout the making of alterations, Tenant shall carry, or cause to be carried, workmen's compensation insurance in statutory limits and general liability insurance, with completed operation endorsement, for any occurrence in or about the Building, under which Landlord and its managing agent and any Superior Lessor whose name and address shall previously have been furnished to Tenant shall be named as parties insured, in such limits as Landlord may reasonably require, with insurers reasonably satisfactory to Landlord. Tenant shall furnish Landlord with reasonably satisfactory evidence that such insurance is in effect at or before the commencement of alterations and, on request, at reasonable intervals thereafter during the making of alterations. 15.03. Tenant shall not place any signs on the roof, exterior walls or grounds of the Demised Premises without first obtaining Landlord's written consent thereto. In placing any signs on or about the Demised Premises, Tenant shall comply with the Legal Requirements and obtain all required permits and/or licenses at its expense. ARTICLE 16 - LANDLORD'S AND TENANT'S PROPERTY 16.01. All fixtures, equipment, improvements and appurtenances attached to or built into the Demised Premises at the commencement of or during the Term, whether or not by or at the expense of Tenant, shall be and remain a part of the Demised Premises, shall be deemed to be the property of Landlord and shall not be removed by Tenant, except as provided in Section 16.02. Further, any carpeting or other personal property in the Demised Premises on the Commencement Date, unless installed and paid for by Tenant, shall be and shall remain Landlord's property and shall not be removed by Tenant. 16.02. All movable partitions, business and trade fixtures, machinery and equipment, communications equipment and office equipment, whether or not attached to or built into the Demised Premises, which are installed in the Demised Premises by or for the account of Tenant without expense to Landlord and can be removed without structural damage to the Building and all furniture, furnishings, and other movable personal property owned by Tenant and located in the Demised Premises (collectively, "Tenant's Property") shall be and shall remain the property of Tenant and may be removed by Tenant at any time during the Term; provided that if any of the Tenant's Property is removed, Tenant shall repair or pay the cost of repairing any damage to the Demised Premises, the Building or the Common Areas resulting from the installation and/or removal thereof. Except as otherwise provided herein, any equipment or other property which shall not be deemed to have been installed by or for the account of Tenant without expense to Landlord, shall not be considered as the Tenant's Property and shall be deemed the property of Landlord. -25- 16.03. At or before the Expiration Date or the date of any earlier termination of this Lease, or within thirty (30) days after such an earlier termination date, Tenant shall remove from the Demised Premises all of the Tenant's Property and Tenant shall repair any damage to the Demised Premises, the Building and the Common Areas resulting from any installation and/or removal of the Tenant's Property. Any items of the Tenant's Property which shall remain in the Demised Premises after the Expiration Date or after a period of twenty (20) days following an earlier termination date, may, at the option of Landlord, be deemed to have been abandoned, and in such case such items may be retained by Landlord as its property or disposed of by Landlord, without accountability, in such manner as Landlord shall determine at Tenant's Expense. ARTICLE 17 - REPAIRS AND MAINTENANCE 17.01. Tenant shall, throughout the Term, take good care of the Demised Premises, the fixtures and appurtenances therein, and shall not do, suffer, or permit any waste with respect thereto. Tenant shall be responsible for all repairs, interior and exterior, structural and nonstructural, in and to the Demised Premises, and the Building (including the facilities, and systems thereof) and the Common Areas the need for which arises out of (a) the performance or existence of the Tenant's Work or alterations, (b) the installation, use or operation of the Tenant's Property in the Demised Premises, (c) the moving of the Tenant's Property in or out of the Building, or (d) any act not reasonably contemplated by the Permitted Uses, omission not reasonably contemplated by the Permitted Uses, misuse or neglect of Tenant or any of its subtenants or its or their employees, agents, contractors or invitees. In addition, Tenant shall keep and maintain all interior portions of the Demised Premises including, without limitation; all building equipment, windows, doors, loading bay doors and shelters, plumbing and electrical systems, heating, ventilating and air conditioning ("HVAC") systems in a clean and orderly condition. The phrase "keep and maintain" as used herein includes repairs, replacement and/or restoration as appropriate. Tenant shall not permit or suffer the over-loading of the floors of the Premises beyond Two Hundred Fifty (250) pounds per square foot. Tenant shall promptly replace all scratched, damaged or broken doors and glass in and about the Demised Premises and shall be responsible for all repairs, maintenance and replacement of wall and floor coverings in the Demised Premises and for the repair and maintenance of all sanitary and electrical fixtures and equipment therein. Tenant shall promptly make all repairs in or to the Demised Premises for which Tenant is responsible, and any repairs required to be made by Tenant to the mechanical, electrical, sanitary, heating, ventilating, air-conditioning or other systems of the Building shall be performed -26- only by contractor(s) designated by Landlord (and whose rates shall be reasonable and competitive). 17.02. Landlord shall be responsible for all repairs, maintenance and replacement in and to the Building (including all structural components of the Building, i.e. structural walls, foundation and load bearing columns, facilities and systems thereof), except for those repairs and maintenance for which Tenant is responsible pursuant to any of the provisions of this Lease. 17.03. Except as otherwise expressly provided in this Lease, Landlord shall have no liability to Tenant, nor shall Tenant's covenants and obligations under this Lease be reduced or abated in any manner whatsoever, by reason of any inconvenience, annoyance, interruption or injury to business arising from Landlord's doing any repairs, maintenance, or changes which Landlord is required or permitted by this Lease, or required by Law, to make in or to any portion of the Building. 17.04. Landlord shall also be responsible for the repair, maintenance and replacement of the roof for the Term and Tenant shall pay Landlord's cost for the repair, replacement and maintenance of the roof as an element of Tenant's Operating Expenses. Landlord hereby estimates that the annual cost for Landlord's repair, replacement and maintenance of the roof above the Demised Premises shall be approximately three cents ($.03) per square foot multiplied by the Floor Space of the Demised Premises. Tenant understands and agrees that this figure is merely a good faith estimate and shall not obligate Landlord in any manner. Tenant shall pay Landlord, an amount for such repair, replacement, and maintenance which is the actual annual cost to Landlord for such maintenance, repair and replacement of the roof provided, however, in no event shall Tenant be responsible for Landlord's cost for the repair, replacement or maintenance of the roof in excess of the four cents ($.04) per square foot as increased, on an annual basis throughout the Term, by one hundred percent (100%) of the yearly change in the Consumer Price Index. "Consumer Price Index," as that term is used herein shall mean The Consumer Price Index for All Urban Consumers, All Items, New York, New York-Northeastern New Jersey, published by the Bureau of Labor Statistics of the United States Department of Labor or substitute index properly adjusted. 17.05. Notwithstanding the foregoing, if Landlord has not commenced repair or maintenance work for which Landlord is responsible within thirty (30) days after written notice (or such shorter period in emergencies or as a result of an Unavoidable Delay) from Tenant, then Tenant shall have the right to make such repairs and Landlord shall reimburse Tenant the reasonable cost thereof within thirty (30) days after receipt of a bill therefor from Tenant. -27- 17.06. Notwithstanding the foregoing, Tenant shall not be required to do any structural work or any other work which under the terms of this Lease is the responsibility of Landlord. 17.07. Landlord shall make the repairs provided for herein with due diligence and due care in a good and workmanlike manner in compliance with all applicable Legal Requirements, Insurance Requirements and shall use all reasonable efforts to cause minimal interference with Tenant's use of the Demised Premises during the making of such repairs. Landlord shall promptly restore any damage to any portion of the Demised Premises resulting from any acts, faults, default or negligence of Landlord, its agents, servants, employees or contractors in connection with such repair. ARTICLE 18 - PUBLIC UTILITY CHARGES 18.01. Tenant shall purchase the electric energy required by it in the Demised Premises at its own expense on a direct-metered basis from the public utility servicing the Building, and Landlord shall permit the risers, conduits and feeders in the Building, to the extent available, suitable and safely capable, to be used for the purpose of transmitting such electric energy to the Demised Premises. Landlord shall not be liable for any failure, inadequacy or defect in the character or supply of electric current furnished to the Demised Premises except for actual damage suffered by Tenant by reason of any such failure, inadequacy or defect caused by the negligence of Landlord. If Landlord is permitted by law to provide electric energy to the Demised Premises by re-registering meters or otherwise and to collect any charges for electric energy, Landlord shall have the right to do so, in which event Tenant shall pay to Landlord upon receipt of bills therefor charges for electric energy provided the rates for such electric energy shall not be more than the rates Tenant would be charged for electric energy if furnished directly to Tenant by the public utility which would otherwise have furnished electric energy. (The cost of any conversion as provided hereinabove shall be borne by Landlord.) 18.02. Tenant's use of electric energy in the Demised Premises shall not at any time exceed the capacity of any of the electrical conductors and equipment in or otherwise serving the Demised Premises. In order to insure that such capacity is not exceeded and to avert possible adverse effect upon the Building's electric service, Tenant shall not, without Landlord's prior consent in each instance (which shall not be unreasonably withheld), connect any fixtures, appliances or equipment to the Building's electric distribution system or make any alteration or addition to the electric system of the Demised -28- Premises existing on the Commencement Date. Should Landlord grant such consent, all additional risers or other equipment required therefor shall be provided by Landlord and the cost thereof shall be paid by Tenant to Landlord on demand. 18.03. Tenant shall have the right to use all existing wires, feeders, lines, conduits and all other utility equipment existing in the Demised Premises without charge for the provision of utility service to the Demised Premises. 18.04. Tenant shall have the right, upon reasonable notice to Landlord from time-to-time during the Term to inspect and test all meters measuring utility service to the Demised Premises for accuracy. 18.05. Landlord shall install the heating, ventilating and air-conditioning systems ("HVAC") serving the Demised Premises in accordance with Exhibit C-2, the Landlord's Design Criteria. 18.06. Landlord hereby represents that the electric capacity of the Demised Premises is 300 Amps - 265/460 Volts. ARTICLE 19 - ACCESS, CHANGES AND NAME 19.01. Except for the space within the inside surfaces of all walls, hung ceilings (if any), floors, windows and doors bounding the Demised Premises, all of the Building, including, without limitation, exterior Building walls, core corridor walls and doors and any core corridor entrance, any terraces or roofs adjacent to the Demised Premises, and any space in or adjacent to the Demised Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other utilities, sinks or other Building facilities and the use thereof, as well as access thereto through the Demised Premises for the purpose of operating, maintenance, decoration and repair, are reserved to Landlord. Landlord also reserves the right, to install, erect, use and maintain pipes, ducts and conduits in and through the Demised Premises, provided such are properly enclosed, and are below the floors, in the walls, or above hung ceilings. 19.02. Landlord and its agents shall have the right to enter and/or pass through the Demised Premises at reasonable times and on reasonable advance notice (except in the event of an emergency when no notice is required) (a) to examine the Demised Premises and to show them to actual and prospective Superior Lessors, Superior Mortgagees, or prospective purchasers of the Building, and (b) to make such repairs, alterations, additions and improvements in or to the Demised Premises and/or in or to the Building or its facilities and equipment as Landlord is required or desires to make. Landlord shall be allowed to take all materials into and upon the Demised Premises that may be -29- required in connection therewith, without any liability to Tenant and without any reduction of Tenant's obligations hereunder provided, however, Landlord agrees to store said materials in an area mutually agreed upon by Landlord and Tenant and provided same is for a reasonable period of time. During the period of nine (9) months prior to the Expiration Date, Landlord and its agents may exhibit the Demised Premises to prospective tenants (provided said exhibition is upon prior notice and during regular Business Hours). Landlord agrees to use its best efforts to minimize any interference with Tenant's business operation in connection with the rights granted to Landlord hereunder. 19.03. If at any time any windows of the Demised Premises are temporarily darkened or obstructed by reason of any repairs, improvements, maintenance and/or cleaning in or about the Building, or if any part of the Building or the Common Areas, other than the Demised Premises, is temporarily or permanently closed or inoperable, the same shall not be deemed a constructive eviction and shall not result in any reduction or diminution of Tenant's obligations under this Lease. 19.04. (Deleted) 19.05. Landlord reserves the right, at any time and from time to time, to make such changes, alterations, additions and improvements in or to the Building but not the Demised Premises and the fixtures and equipment thereof as Landlord shall deem necessary or desirable, subject to the other terms and conditions of this Lease. 19.06. Landlord may adopt any name for the Building. Landlord reserves the right to change the name and/or address of the Building at any time. ARTICLE 20 - MECHANICS' LIENS AND OTHER LIENS 20.01. Nothing contained in this Lease shall be deemed, construed or interpreted to imply any consent or agreement on the part of Landlord to subject Landlord's interest or estate to any liability under any mechanic's or other lien law. If any mechanic's or other lien or any notice of intention to file a lien is filed against the Land, or any part thereof, or the Demised Premises, or any part thereof, for any work, labor, service or materials claimed to have been performed or furnished for or on behalf of Tenant or anyone holding any part of the Demised Premises through or under Tenant, Tenant shall cause the same to be cancelled and discharged of record by payment, bond or order of a court of competent jurisdiction within twenty (20) days after notice by Landlord to Tenant. -30- ARTICLE 21 - NON-LIABILITY 21.01. Neither Landlord nor any partner, joint venturer, director, officer, agent, servant or employee of Landlord shall be liable to Tenant for any loss, injury or damage to Tenant or to any other Person, or to its or their property, irrespective of the cause of such injury, damage or loss, unless caused by or resulting from the negligence of Landlord, its agents, servants or employees in the operation or maintenance of the Land or Building. Further, neither Landlord nor any partner, joint venturer, director, officer, agent, servant or employee of Landlord shall be liable (a) for any such damage caused by other tenants or Persons in, upon or about the Land or Building, or caused by operations in construction of any private, public or quasi-public work; or (b) even if negligent, for consequential damages arising out of any loss of use of the Demised Premises or any equipment or facilities therein by Tenant or any Person claiming through or under Tenant. 21.02. Notwithstanding any provision to the contrary, Tenant shall look solely to the interest, estate and equity in the property of Landlord in and to the Land and Building (or the proceeds received by Landlord on a sale of such estate and property including the proceeds of any financing or refinancing thereof) in the event of any claim against Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant's use of the Demised Premises or the Common Areas, and Tenant agrees that the liability of Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant's use of the Demised Premises or the Common Areas shall be limited to such interest, estate and equity in the property of Landlord (or the proceeds received by Landlord on a sale of such estate and property including the proceeds of any financing or refinancing thereof). No other properties or assets of Landlord or any partner, joint venturer, director, officer, agent, servant or employee of Landlord shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgement (or other judicial process) or for the satisfaction of any other remedy of Tenant arising out of, or in connection with, this Lease, the relationship of Landlord and Tenant or Tenant's use of the Demised Premises or the Common Areas and if Tenant shall acquire a lien on or interest in any other properties or assets by judgment or otherwise, Tenant shall promptly release such lien on or interest in such other properties and assets by executing, acknowledging and delivering to Landlord an instrument to that effect prepared by Landlord's attorneys. Tenant hereby waives the right of specific performance and any other remedy allowed in equity if specific performance or such other remedy could result in any liability of Landlord for the payment of money to Tenant, or to any court or governmental authority (by way of fines or otherwise) for Landlord's -31- failure or refusal to observe a judicial decree or determination, or to any third party. ARTICLE 22 - DAMAGE OR DESTRUCTION 22.01. If the Building or the Demised Premises shall be partially or totally damaged or destroyed by fire or other casualty (and if this Lease shall not be terminated as in this Article 22 hereinafter provided), Landlord shall repair the damage and restore and rebuild the Building and/or the Demised Premises (except for the Tenant's Property) with reasonable dispatch after notice to it of the damage or destruction. 22.02. Subject to the provisions of Section 22.05, if all or part of the Demised Premises shall be damaged or destroyed or rendered completely or partially untenantable on account of fire or other casualty, the Rent shall be abated or reduced, as the case may be, in the proportion that the untenantable area of the Demised Premises bears to the total area of the Demised Premises, for the period from the date of the damage or destruction to (a) the date the damage to the Demised Premises shall be substantially repaired, or (b) if the Building and not the Demised Premises is so damaged or destroyed, the date on which the Demised Premises shall be made tenantable (provided Tenant has access to the Demised Premises and the condition of the balance of the Building [and parking] does not affect, in Tenant's reasonable business judgment, Tenant's ability to conduct it's business); provided, however, should Tenant reoccupy a portion of the Demised Premises during the period the repair or restoration work is taking place and prior to the date that the Demised Premises are substantially repaired or made tenantable the Rent allocable to such reoccupied portion, based upon the proportion which the area of the reoccupied portion of the Demised Premises bears to the total area of the Demised Premises, shall be payable by Tenant from the date of such occupancy. 22.03. (A) If (a) the Demised Premises shall be totally damaged or destroyed by fire or other casualty, or (b) the Demised Premises shall be so damaged or destroyed by fire or other casualty that its repair or restoration requires the expenditure, as estimated by a reputable contractor or architect designated by Landlord, of more than fifty percent (50%) [or twenty percent [20%] if such casualty occurs during the last two [2] years of the Term (unless Tenant exercises any option to extend as provided in this Lease, in which event the fifty percent (50%) figure shall apply)] of the full insurable value of the Demised Premises immediately prior to the casualty, then in either such case Landlord may terminate this Lease by giving Tenant notice to such effect within ninety (90) days after the date of the fire or other casualty. -32- (B) If during the last two (2) years of the Term, the Demised Premises shall be so damaged or destroyed by fire or other casualty that its repair or restoration requires the expenditure, as estimated by a reputable contractor or architect designated by Landlord, of more than twenty percent (20%) of the full insurable value of the Demised Premises immediately prior to the casualty, then Tenant may terminate this Lease by giving Landlord notice to such effect within ninety (90) days after the date of the fire or other casualty. (C) Notwithstanding anything herein contained to the contrary, in the event Landlord is obligated to restore the Demised Premises in accordance with this Article 22, Landlord shall advise Tenant, by written notice to be given within thirty (30) days of any casualty, whether Landlord shall be able to restore the Demised Premises to a tenantable condition within twelve (12) months from the date of such casualty. In the event Landlord advises Tenant that it is unable to restore the Demised Premises within twelve (12) months of such casualty, Tenant shall have the option to terminate this Lease, by written notice to Landlord to that effect, which termination shall be effective upon Landlord's receipt of Tenant's notice of termination. To the extent that (i) Landlord advises Tenant that it shall restore the Demised Premises as provided hereinabove, and (ii) the Demised Premises are not restored to a tenantable condition within said twelve (12) month period from the date of any casualty (subject to Unavoidable Delays), then Tenant shall have the option to terminate this Lease by written notice to Landlord to that effect which termination shall be effective upon Landlord's receipt of Tenant's notice as provided hereunder. Tenant must exercise its option hereunder within ten (10) days of the date which is the twelve (12) month anniversary of any such casualty; to the extent Tenant fails to exercise said option within the time constraints provided herein, it shall be deemed to have waived such option. 22.04. Tenant shall not be entitled to terminate this Lease and no damages, compensation or claim shall be payable by Landlord for inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the Demised Premises or of the Building pursuant to this Article 22. Landlord shall use its best efforts to make such repair or restoration promptly and in such manner as to not unreasonably interfere with Tenant's use and occupancy of the Demised Premises, but Landlord shall not be required to do such repair or restoration work except during Business Hours on Business Days. 22.05. Notwithstanding any of the foregoing provisions of this Article 24, if by reason of some act or omission on the part of Tenant or any of its subtenants or its or their employees, agents or -33- contractors, Landlord or any Superior Lessor or any Superior Mortgagee shall be unable to collect all of the insurance proceeds (including, without limitation, rent insurance proceeds) applicable to damage or destruction of the Demised Premises or the Building by fire or other casualty, then, without prejudice to any other remedies which may be available against Tenant, there shall be no abatement or reduction of the Rent. Further, nothing contained in this Article 22 shall relieve Tenant from any liability that may exist as a result of any damage or destruction by fire or other casualty. 22.06. Landlord will not carry insurance of any kind on the Tenant's Property, and, except as provided by law or by reason of Landlord's breach of any of its obligations hereunder, shall not be obligated to repair any damage to or replace the Tenant's Property. 22.07. The provisions of this Article 22 shall be deemed an express agreement governing any case of damage or destruction of the Demised Premises and/or Building by fire or other casualty, and any law providing for such a contingency in the absence of an express agreement, now or hereafter in force, shall have no application in such case. ARTICLE 23 - EMINENT DOMAIN 23.01 If the whole of the Demised Premises shall be taken by any public or quasi-public authority under the power of condemnation, eminent domain or expropriation, or in the event of conveyance of the whole of the Demised Premises in lieu thereof, this Lease shall terminate as of the day possession shall be taken by such authority. If twenty percent (20%) or less of the Floor Space of the Demised Premises shall be so taken or conveyed, this Lease shall terminate only in respect of the part so taken or conveyed as of the day possession shall be taken by such authority. If more than twenty percent (20%) of the Floor Space of the Demised Premises shall be so taken or conveyed, this Lease shall terminate only in respect of the part so taken or conveyed as of the day possession shall be taken by such authority, but either party shall have the right to terminate this Lease upon notice given to the other party within 30 days after such taking possession. If so much of the parking facilities shall be so taken or conveyed that the number of parking spaces necessary, in Tenant's reasonable business judgment, for the continued operation of the Tenant's business operation shall not be available, Tenant may, by notice to Landlord, terminate this Lease which termination shall be effective as of the day possession shall be taken. If this Lease shall continue in effect as to any portion of the Demised Premises not so taken or conveyed, the Rent shall be computed as of the day possession shall be taken on the basis of the remaining Floor Space of the Demised Premises. Except as specifically provided herein, in the event of any such taking or conveyance there shall be no reduction in Rent. If this Lease shall continue in effect, Landlord shall, at its -34- expense, but shall be obligated only to the extent of the net award or other compensation (after deducting all expenses in connection with obtaining same) available to Landlord for the improvements taken or conveyed (excluding any award or other compensation for land or for the unexpired portion of the term of any Superior Lease), make all necessary alterations so as to constitute the remaining Building a complete architectural and tenantable unit, except for the Tenants' property, and Tenant shall make all alterations or replacements to the Tenant's Property and decorations in the Demised Premises. All awards and compensation for any taking or conveyance, whether for the whole or a part of the Land or Building, the Demised Premised or otherwise, shall be property of Landlord, and Tenant hereby assigns to Landlord all of Tenant's right, title and interest in and to any and all such awards and compensation, including, without limitation, any award or compensation for the value of the unexpired portion of the Term. Tenant shall be entitled to claim, prove and receive in the condemnation proceeding such award or compensation as may be allowed for the Tenant's property, or other expenses to the extent permitted by law. 23.02. If the temporary use or occupancy of all or any part of the Demised Premises shall be taken during the Term, Tenant shall be entitled, except as hereinafter set forth, to receive that portion of the award or payment for such taking which represents compensation for the use and occupancy of the Demised Premises, for the taking of the Tenant's Property and for moving expenses, and Landlord shall be entitled to receive that portion which represents reimbursement for the cost of restoration of the Demised Premises. This Lease shall be and remain unaffected by such taking and Tenant shall continue responsible for all of its obligations hereunder insofar as such obligations are not affected by such taking and shall continue to pay the Rent in full when due. If the period of temporary use or occupancy shall extend beyond the Expiration Date, that part of the award or payment which represents compensation for the use and occupancy of the Demised Premises (or a part thereof) shall be divided between Landlord and Tenant so that Tenant shall receive (except as otherwise provided below) so much thereof as represents compensation for the period up to and including the Expiration Date and Landlord shall receive so much thereof as represents compensation for the period after the Expiration Date. All monies to be paid to Tenant as, or as part of, an award or payment for temporary use and occupancy for a period beyond the date to which the Rent has been paid shall be received, held and applied by the first Superior Mortgagee (or if there is no Superior Mortgagee, by Landlord as a trust fund) for payment of the Rent becoming due hereunder. -35- ARTICLE 24 - SURRENDER 24.01. On the Expiration Date, or upon any earlier termination of this Lease, or upon any re-entry by Landlord upon the Demised Premises, Tenant shall quit and surrender the Demised Premises to Landlord "broom-clean" and in reasonably good order, condition and repair, except for ordinary wear and tear and such damage or destruction as Landlord is required to repair or restore under this Lease, and Tenant shall remove all of Tenant's property therefrom except as otherwise expressly provided in this Lease. 24.02. If Tenant remains in possession of the Demised Premises after the expiration of the Term, Tenant shall be deemed to be occupying the Demised Premises as a tenant from month to month at the sufferance of Landlord subject to all of the provisions of this Lease, except that the monthly Fixed Rent shall be twice the Fixed Rent in effect during the last month of the Term. 24.03. No act or thing done by Landlord or its agents shall be deemed an acceptance of a surrender of the Demised Premises, and no agreement to accept such surrender shall be valid unless in writing and signed by Landlord. ARTICLE 25 - CONDITIONS OF LIMITATION 25.01. This Lease is subject to the limitation that whenever Tenant or any Guarantor (a) shall make an assignment for the benefit of creditors, or (b) shall commence a voluntary case or have entered against it an order for relief under any chapter of the Federal Bankruptcy Code (Title 11 of the United States Code) or any similar order or decree under any federal or state law, now in existence, or hereafter enacted having the same general purpose, and such order or decree, shall have not been stayed or vacated within ninety (90) days after entry, or (c) shall cause, suffer, permit or consent to the appointment of a receiver, trustee, administrator, conservator, sequestrator, liquidator or similar official in any federal, state or foreign judicial or nonjudicial proceeding, to hold, administer and/or liquidate all or substantially all of its assets, and such appointment shall not have been revoked, terminated, stayed or vacated and such official discharged of his duties within ninety (90) days of his appointment and (in each such case), at the same time, Tenant fails to fulfill any of its obligations under this Lease, then Landlord, at any time after the occurrence of any such event, may give Tenant a notice of intention to end the Term at the expiration of five (5) days from the date of service of such notice of intention, and upon the expiration of said five (5) day period, whether or not the Term shall theretofore have commenced, this Lease shall terminate with the same effect as if that day were the expiration date of this Lease, but Tenant shall remain liable for damages as provided in Article 27. -36- 25.02. This Lease is subject to the further limitations that: (a) if Tenant shall default in the payment of any Rent, and such default shall continue for ten (10) days after notice or (b) if Tenant shall, whether by action or inaction, be in default of any of its obligations under this Lease (other than a default in the payment of Rent) and such default shall continue and not be remedied within twenty (20) days after Landlord shall have given to Tenant a notice specifying the same, or, in the case of a default which cannot with due diligence be cured within a period of twenty (20) days and the continuance of which for the period required for cure will not subject Landlord or any Superior Lessor for prosecution for a crime (as more particularly described in the last sentence of Section 12.02) or termination of any Superior Lease or foreclosure of any Superior Mortgage, if Tenant shall not, (i) within said twenty (20) day period advise Landlord of Tenant's intention to take all steps necessary to remedy such default, (ii) duly commence within said twenty (20) day period, and thereafter diligently prosecute to completion all steps necessary to remedy the default, and (iii) complete such remedy within a reasonable time after the date of said notice by Landlord, or (c) if any event shall occur or any contingency shall arise whereby this Lease would, by operation of law or otherwise, devolve upon or pass to any person, firm or corporation other than Tenant, except as expressly permitted by Article 11, then in any of said cases Landlord may give to Tenant a notice of intention to end the Term at the expiration of five (5) days from the date of the service of such notice of intention, and upon the expiration of said five (5) days, whether or not the Term shall theretofore have commenced, this Lease shall terminate with the same effect as if that day were the expiration date of this Lease, but Tenant shall remain liable for damages as provided in Article 27. ARTICLE 26 - RE-ENTRY BY LANDLORD 26.01. If Tenant shall default in the payment of any Rent, and such default shall continue for ten (10) days after notice, or if this Lease shall terminate as provided in Article 25, Landlord or Landlord's agents and employees may immediately or at any time thereafter re-enter the Demised Premises, or any part thereof, either by summary dispossess proceedings or by any suitable action or proceeding at law without being liable to indictment, prosecution or damages therefor, and may repossess the same, and may remove any Person therefrom, to the end that Landlord may have, hold and enjoy the Demised Premises. The word "re-enter," as used herein, is not restricted to its technical legal meaning. If this Lease is terminated under the provisions of Article 25, or if Landlord shall re-enter the Demised Premises under the provisions of this Article 26, or in the event of the termination of this Lease, or of re-entry, by or under any summary dispossess or other proceedings or action or any -37- provision of law by reason of default hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord the Rent payable up to the time of such termination of this Lease, or of such recovery of possession of the Demised Premises by Landlord, as the case may be, and shall also pay to Landlord damages as provided in Article 27. 26.02. In the event of a breach or threatened breach by Landlord or Tenant as the case may be, of any of its obligations under this Lease, Landlord or Tenant, as the case may be, shall also have the right of injunction. The special remedies to which Landlord or Tenant, as the case may be, may resort hereunder are cumulative and are not intended to be exclusive of any other remedies to which Landlord or Tenant, as the case may be, may lawfully be entitled at any time and Landlord or Tenant, as the case may be, may invoke any remedy allowed at law or in equity as if specific remedies were not provided for herein. 26.03. If this Lease shall terminate under the provisions of Article 25, or if Landlord shall re-enter the Demised Premises under the provisions of this Article 26, or in the event of the termination of this Lease, or of re-entry, by or under any summary dispossess or other proceeding or action or any provision of law by reason of default hereunder on the part of Tenant, Landlord shall be entitled to, retain all monies, if any, paid by Tenant to Landlord, whether as Advance Rent, security or otherwise, but such monies shall be credited by Landlord against any Rent or other sum due from Tenant at the time of such termination or re-entry or, at Landlord's option, against any damages payable by Tenant under Article 27 or pursuant to law. ARTICLE 27 - DAMAGES 27.01. If this Lease is terminated under the provisions of Article 25, or if Landlord shall re-enter the Demised Premises under the provisions of Article 26, or in the event of the termination of this Lease, or of re-entry, by or under any summary dispossess or other legal proceeding or action or any provision of law by reason of default hereunder on the part of Tenant, Tenant shall pay as Additional Charges to Landlord as a condition precedent to the dismissal of any summary dispossess or other proceeding or action as liquidated damages: sums equal to the Fixed Rent and the Additional Charges which would have been payable by Tenant had this Lease not so terminated, or had Landlord not so re-entered the Demised Premises, payable upon the due dates therefor specified herein following such termination or such re-entry and until the Expiration Date, provided, however, that if Landlord shall relet the Demised Premises during said period, -38- Landlord shall credit Tenant with the net rents received by Landlord from such reletting, such net rents to be determined by first deducting from the gross rents as and when received by Landlord from such reletting the expenses incurred or paid by Landlord in terminating this Lease or in re-entering the Demised Premises and in securing possession thereof, as well as the reasonable expenses of reletting, including, without limitation, altering and preparing the Demised Premises for new tenants, brokers' commissions, legal fees, and all other expenses properly chargeable against the Demised Premises and the rental therefrom, it being understood that any such reletting may be for a period shorter or longer than the period ending on the Expiration Date; but in no event shall Tenant be entitled to receive any excess of such net rents over the sums payable by Tenant to Landlord hereunder, nor shall Tenant be entitled in any suit for the collection of damages pursuant to this Section to a credit in respect of any rents from a reletting, except to the extent that such net rents are actually received by Landlord. If the Demised Premises or any part thereof should be relet in combination with other space, then proper apportionment on a square foot basis shall be made of the rent received from such reletting and of the expenses of reletting. If the Demised Premises or any part thereof be relet by Landlord before presentation of proof of such damages to any court, commission or tribunal, the amount of rent reserved upon such reletting shall, prima facie, be the fair and reasonable rental value for the Demised Premises, or part thereof, so relet during the term of the reletting. Landlord shall not be liable in any way whatsoever for its failure or refusal to relet the Demised Premises or any part thereof, or if the Demised Premises or any part thereof are relet, for its failure to collect the rent under such reletting, and no such refusal or failure to relet or failure to collect rent shall release or affect Tenant's liability for damages or otherwise under this Lease. 27.02. Suit or suits for the recovery of such damages or, any installments thereof, may be brought by Landlord at any time and from time to time at its election, and nothing contained herein shall be deemed to require Landlord to postpone suit until the date when the Term would have expired if it had not been so terminated under the provisions of Article 25, or under any provision of law, or had Landlord not re-entered the Demised Premises. Nothing herein contained shall be construed to limit or preclude recovery by Landlord against Tenant of any sums or damages to which, in addition to the damages particularly provided above, Landlord may lawfully be entitled by reason of any default hereunder on the part of Tenant. 27.03. (Deleted) -39- 27.04. In addition to any other remedies Landlord may have under this Lease, and without reducing or adversely affecting any of Landlord's rights and remedies under this Article 27, if any Rent or damages payable hereunder by Tenant to Landlord are not paid within five (5) days after demand that such amount was not paid when due, the same shall bear interest at the Late Payment Rate or the maximum rate permitted by law, whichever is less, from the due date thereof until paid, and the amounts of such interest shall be Additional Charges hereunder. ARTICLE 28 - AFFIRMATIVE WAIVERS 28.01. (Deleted) 28.02. Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, and Tenant's use or occupancy of the Demised Premises and use of the Common Area, including, without limitation, any claim for injury or damage, and any emergency and other statutory remedy with respect thereto. ARTICLE 29 - NO WAIVERS 29.01. The failure of either party to insist in any one or more instances upon the strict performance of any one or more of the obligations of this Lease, or to exercise any election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such one or more obligations of this Lease or of the right to exercise such election, but the same shall continue and remain in full force and effect with respect to any subsequent breach, act or omission. The receipt by Landlord of Fixed Rent or Additional Charges with knowledge of breach by Tenant of any obligation of this Lease shall not be deemed a waiver of such breach. ARTICLE 30 - CURING TENANT'S DEFAULTS 30.01. If either Landlord or Tenant shall default in the performance of any of their respective obligations under this Lease, the non-defaulting party, without thereby waiving such default, may (but shall not be obligated to) perform the same for the account and at the expense of the defaulting party, without notice in a case of emergency, and in any other case only if such default continues after the expiration of thirty (30) days from the date the non-defaulting party gives the defaulting party notice of the default. Bills for any expenses incurred by the non-defaulting party in connection with any such performance by it for the account of the defaulting party, and -40- bills for all costs, expenses and disbursements of every kind and nature whatsoever, including reasonable attorneys' fees and expenses, involved in collecting or endeavoring to collect the Rent or any part thereof or enforcing or endeavoring to enforce any rights against the defaulting party or the defaulting parties' obligations hereunder, under or in connection with this Lease or pursuant to law, including any such cost, expense and disbursement involved in instituting and prosecuting summary proceedings or in recovering possession of the Demised Premises after default by the defaulting party or upon the expiration of the Term or sooner termination of this Lease, and interest on all sums advanced by the non-defaulting party under this Article at the rate of four percent (4%) per month or the maximum rate permitted by law, whichever is less, may be sent by the non-defaulting party to the defaulting party monthly, or immediately, at the non-defaulting party's option, and such amounts shall be due and payable in accordance with the terms of such bills. ARTICLE 31 - BROKER 31.01. Tenant and Landlord represent that no broker except the Broker was instrumental in bringing about or consummating this Lease and that neither Landlord nor Tenant had conversations or negotiations with any broker except the Broker concerning the leasing of the Demised Premises. Tenant and Landlord agrees to indemnify and hold harmless the other against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith, including, without limitation, attorneys' fees and expenses, arising out of any conversations or negotiations had by Tenant or Landlord with any broker other than the Broker. Landlord shall pay any brokerage commissions due the Broker pursuant to a separate agreement between Landlord and the Broker. ARTICLE 32 - NOTICES 32.01. Any notice, statement, demand, consent, approval or other communication required or permitted to be given, rendered or made by either party to the other, pursuant to this Lease or pursuant to any applicable Legal Requirement, shall be in writing and shall be deemed to have been properly given, rendered or made only if hand delivered or sent by United States registered or certified mail, return receipt requested, addressed to the other party at the address hereinabove set forth as to Landlord, to the attention of General Counsel with a concurrent Notice to the attention of Controller, and as to Tenant, to the attention of Scott Galin, Senior Vice President with a concurrent copy to the attention of the President and to the Guarantor, Attention: Scott Galin, Senior Vice President at 520 Fifth Avenue, New York, New York and shall be deemed to have been given, rendered or -41- made on the third (3rd) day after the day so mailed, unless mailed outside the State of New Jersey, in which case it shall be deemed to have been given, rendered or made on the fourth (4th) business day after the day so mailed. Either party may, by notice as aforesaid, designate a different address or addresses for notices, statements, demands, consents, approvals or other communications intended for it. Notice shall be deemed sufficient if directed from the office of an attorney designated by the party giving notice to transmit such notice provided said attorney includes in its notice a statement regarding its authority to give any such notice. ARTICLE 33 - ESTOPPEL CERTIFICATES 33.01. Each party shall, at any time and from time to time, as requested by the other party, upon not less than twenty (20) days' prior notice, execute and deliver to the requesting party a statement certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), certifying the dates to which the Fixed Rent and Additional Charges have been paid, stating whether or not, to the best knowledge of the party giving the statement, the requesting party is in default in performance of any of its obligations under this Lease, and, if so, specifying each such default of which the party giving the statement shall have knowledge, and stating whether or not, to the best knowledge of the party giving the statement, any event has occurred which with the giving of notice or passage of time, or both, would constitute such a default of the requesting party, and, if so, specifying each such event; any such statement delivered pursuant hereto shall be deemed a representation and warranty to be relied upon by the party requesting the certificate and by others with whom such party may be dealing, regardless of independent investigation. Tenant and Landlord shall include in any such statement such other information concerning this Lease as the other may reasonably request. ARTICLE 34 - ARBITRATION 34.01. Landlord and Tenant may at any time request arbitration, of any matter in dispute but only where arbitration is expressly provided for in this Lease. The party requesting arbitration shall do so by giving notice to that effect to the other party, specifying in said notice the nature of the dispute, and said dispute shall be determined in Newark, New Jersey, by a single arbitrator, in accordance with the rules then obtaining of the American Arbitration Association (or any organization which is the successor thereto). The award in such arbitration may be enforced on the application of either party by the order or judgment of a court of competent jurisdiction. -42- The fees and expenses of any arbitration shall be borne by the parties equally, but each party shall bear the expense of its own attorneys and experts and the additional expenses of presenting its own proof. If Tenant gives notice requesting arbitration as provided in this Article, Tenant shall simultaneously serve a duplicate of the notice on each Superior Mortgagee and Superior Lessor whose name and address shall previously have been furnished to Tenant, and such Superior Mortgagees and Superior Lessor shall have the right to participate in such arbitration. ARTICLE 35 - MEMORANDUM OF LEASE 35.01. Tenant shall not record this Lease. However, at the request of Landlord or Tenant, Tenant or Landlord, as the case may be, shall promptly execute, acknowledge and deliver to Landlord a memorandum of lease in respect of this Lease sufficient for recording. Such memorandum shall not be deemed to change or otherwise affect any of the obligations or provisions of this Lease. Whichever party records such memorandum of Lease shall pay all recording costs and expenses, including any taxes that are due upon such recording. ARTICLE 36 - COMPLIANCE WITH ECRA 36.01. Landlord, to the best of its knowledge, warrants and represents to Tenant that the Demised Premises are in full compliance with all applicable present environmental laws, rules, requirements, orders, directives, ordinances and regulations of the United States of America or any state, city or municipal government or lawful authority having jurisdiction, affecting the Demised Premises including but not limited to the New Jersey Environmental Cleanup Responsibility Act, (the "Environmental Laws"). Landlord shall defend, indemnify and save Tenant, its officers, directors, agents and employees, harmless from and against all claims, obligations, demands, actions, proceedings and judgements, loss, damage, liability and expense (including reasonable attorney's fees and expenses) which the Tenant may sustain as a result of or on account of non-compliance of the Leased Premises with the Environmental Laws as the result of conditions existing on the Leased Premises (a) prior to the Commencement Date and (b) which were caused by Landlord or by third parties other than Landlord or Tenant either before or after the Commencement Date (except to the extent caused by Tenant, its agents, invitees, employees or subcontractors). 36.02. Except as provided in Article 36.01. above, and except for any violations of Legal Requirements existing prior to the date hereof or caused by acts or omissions of Landlord, from and after the date of this Lease, Tenant shall at Tenant's own cost and expense, timely comply with all applicable, rules, requirements, orders, -43- directives, ordinances and regulations arising from Tenant's use and occupancy of the Demised Premises, including but not limited to the Environmental Laws of the United States of America or of the state, county and city governments, or of any other municipal, governmental or lawful authority whatsoever, having jurisdiction affecting the Demised Premises and of all their departments, bureaus or officials (all of the foregoing being hereinafter called "Environmental Legal Requirements"), the Insurance Requirements as the same shall be in force and shall relate to all or part of the Demised Premises, and shall indemnify, defend, save and hold harmless Landlord, its directors, officers, agents and employees from and against any and all claims, demands, losses and liabilities (including reasonably attorneys' fees) resulting from or with respect to any violation of the Environmental Legal Requirements or any environmental impairment created during the Term of this Lease by Tenant, its agents, invitees, employees or subcontractors, and Tenant shall, at its own expense, complete the clean-up of such environmental impairment. Tenant's obligation to comply with Article 36.02. shall be limited to restoration and/or maintenance of the Demised Premises to their condition at the Commencement Date. 36.03. The provisions of this Article 36 shall survive the expiration or termination of this Lease. 36.04. The parties hereto specifically agree that the indemnities of Landlord and Tenant contained herein shall not extend to loss of business, lost rentals, or consequential damages. ARTICLE 37 - MISCELLANEOUS 37.01. Tenant expressly acknowledges and agrees that Landlord has not made and is not making, and Tenant, in executing and delivering this Lease, is not relying upon, any warranties, representations, promises or statements, except to the extent that the same are expressly set forth in this Lease or in any other written agreement(s) which may be made between the parties concurrently with the execution and delivery of this Lease. All understandings and agreements heretofore had between the parties are merged in this Lease and any other written agreement(s) made concurrently herewith, which alone fully and completely express the agreement of the parties and which are entered into after full investigation. Neither party has relied upon any statement or representation not embodied in this Lease or in any other written agreement(s) made concurrently herewith. 37.02. No agreement shall be effective to change, modify, waive, release, discharge, terminate or effect an abandonment of this Lease, in whole or in part, unless such agreement is in writing, refers expressly to this Lease and is signed by the party against whom enforcement of the change, modification, waiver, release, discharge, termination or effectuation of abandonment is sought. -44- 37.03. (Deleted) 37.04. Except as otherwise expressly provided in this Lease, the obligations under this Lease shall bind and benefit the successors and assigns of the parties hereto with the same effect as if mentioned in each instance where a party is named or referred to; provided, however, that (a) no violation of the provisions of Article 11 shall operate to vest any rights in any successor or assignee of Tenant and (b) the provisions of this Section 37.04 shall not be construed as modifying the conditions of limitation contained in Article 25. 37.05. Except for Tenant's obligations to pay Rent, the time for Landlord or Tenant, as the case may be, to perform any of its respective obligations hereunder shall be extended if and to the extent that the performance thereof shall be prevented due to any Unavoidable Delays. 37.06. Any liability for payments hereunder (including, without limitation, Additional Charges) shall survive the expiration of the Term or earlier termination of this Lease. 37.07. (a) If Tenant shall request Landlord's consent and Landlord shall fail or refuse to give such consent, Tenant shall not be entitled to any damages for any withholding by Landlord of its consent, it being intended that Tenant's sole remedy shall be an action for specific performance or injunction, and that such remedy shall be available only in those cases where Landlord has expressly agreed in writing not to unreasonably withhold its consent or where as a matter of law Landlord may not unreasonably withhold its consent. Notwithstanding the foregoing, the provisions of this Section 37.07 shall not apply in any instance in which there has been a final judicial determination of a court of competent jurisdiction that Landlord has withheld or delayed its consent arbitrarily, maliciously or in bad faith to any consent which is not to be unreasonably withheld or delayed under this Lease. (b) If Tenant desires to determine any dispute between Landlord and Tenant as to the reasonableness of Landlord's decision to refuse to consent or approve any item as to which Landlord has specifically agreed that its consent or approval shall not be unreasonably withheld, such dispute shall be settled and finally determined by arbitration in the City of New York in accordance with the following provisions of this Section. Within ten (10) Business Days next following the giving of any notice by Tenant stating that it wishes such dispute to be so determined, Landlord and Tenant shall each give notice to the other setting forth the name and address of an arbitrator designated by the party giving such notice. If the two arbitrators shall fail to agree upon the designation of a third arbitrator within five (5) Business Days after the designation of the -45- second arbitrator then either party may apply to the Chairman of the Management Division of the Real Estate Board of New York, Inc. for the designation of such arbitrator and if he is unable or refuses to act within ten (10) Business Days then either party may apply to the Supreme Court in New York County or to any other court having jurisdiction for the designation of such arbitrator. The three arbitrators shall conduct such hearings as they deem appropriate, making their determination in writing and giving notice to Landlord and Tenant of their determination as soon as practicable, and if possible, within five (5) Business Days after the designation of the third arbitrator; the concurrence of or, in the event no two of the arbitrators shall render a concurrent determination, then the determination of the third arbitrator designated, shall be binding upon Landlord and Tenant. Judgment upon any decision rendered in any arbitration held pursuant to this subsection 37.07(b) shall be final and binding upon Landlord and Tenant, whether or not a judgment shall be entered in any court. Each party shall pay its own counsel fees and expenses, if any, in connection with any arbitration under this subsection 37.07(b), including the expenses and fees of any arbitrator selected by it in accordance with the provisions of this Subsection 37.07(b), and the parties shall share all other expenses and fees of any such arbitration. The arbitrators shall be bound by the provisions of this Lease, and shall not add to, subtract from or otherwise modify such provisions. The sole function of the arbitrators shall be to determine whether Landlord has acted reasonably and to require Landlord to grant such consent or approval or to take such action, and they may not award damages or grant any other monetary award or relief in the proceeding. 37.08. Tenant shall not exercise its rights under Article 15 or any other provision of this Lease in a manner which would violate Landlord's union contracts (of which Tenant has notice) or create any work stoppage, picketing labor disruption or dispute or any interference with the business of Landlord or any tenant or occupant of the Building. 37.09. Tenant shall give prompt notice (after discovery) to Landlord of (a) any occurrence in or about the Demised Premises for which Landlord might be liable, (b) any fire or other casualty in the Demised Premises, (c) any damage to or defect in the Demised Premises, including the fixtures and equipment thereof, for the repair of which Landlord might be responsible, and (d) any damage to or defect in any part of the Building's sanitary, electrical, heating, ventilating, air-conditioning, elevator or other systems located in passing through the Demised Premises or any part thereof. 37.10. This Lease shall be governed by and construed in accordance with the laws of the State of New Jersey. If any provision of this Lease shall be invalid or unenforceable, the remainder of this -46- Lease shall not be affected and shall be enforced to the extent permitted by law. The table of contents, captions, headings and titles in this Lease are solely for convenience of reference and shall not affect its interpretation. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease to be drafted. If any words or phrases in this Lease shall have been stricken out or otherwise eliminated, whether or not any other words or phrases have been added, this Lease shall be construed as if the words or phrases so stricken out or otherwise eliminated were never included in this Lease and no implication or inference shall be drawn from the fact that said words or phrases were so stricken out or otherwise eliminated. Each covenant, agreement, obligation or other provision of this Lease on Tenant's part to be performed, shall be deemed and construed as a separate and independent covenant of Tenant, not dependent on any other provision of this Lease. All terms and words used in this Lease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require. 37.11. Upon request of Landlord, Tenant shall annually furnish to Landlord a copy of its then most current balance sheet certified by its Chief Financial Officer which shall be employed by Landlord for purposes of financing the Premises and not distributed otherwise without prior authorization of Tenant. Any material adverse change of Tenant's financial condition shall be furnished to Landlord in writing forthwith and without request by Landlord for same. IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written. HARTZ-83RD STREET ASSOCIATES ("Landlord") BY: HARTZ MOUNTAIN INDUSTRIES, INC. ("a general partner") By: /s/ Irwin A. Horowitz ----------------------------- Irwin A. Horowitz Vice President [Corporate Seal] G & G SHOPS OF WOODBRIDGE, INC. ("Tenant") By: /s/ Scott Galin -------------------------------- Scott Galin Vice President [Corporate Seal] -47- RIDER TO LEASE DATED NOVEMBER 28th, 1988 BETWEEN HARTZ-83RD STREET ASSOCIATES, AS LANDLORD AND G & G SHOPS OF WOODBRIDGE, INC., AS TENANT. - -------------------------------------------------------------------------------- R1. If any of the provisions of this Rider shall conflict with any of the provisions, printed or typewritten, of this Lease, such conflict shall resolve in every instance in favor of the provisions of this Rider. R2. Provided this Lease is in full force and effect, Tenant shall have the option to extend the Term of this lease of the Demised Premises, from the date upon which this Lease would otherwise expire for three (3) extended periods of five (5) years each ("First Extended Period", "Second Extended Period" and "Third Extended Period"), upon the following terms and conditions: 1. If Tenant elects to exercise said options, it shall do so by giving notice of such election to Landlord on or before the date which is nine (9) months prior to the beginning of each of the First Extended Period, Second Extended Period and Third Extended Period for which the Term is to be extended by the exercise of such options. Tenant agrees that it shall have forever waived its right to exercise any such option if it shall fail for any reason whatsoever to give such notice to Landlord by the time provided herein for the giving of such notice, whether such failure is inadvertent or intentional, time being of the essence as to the exercise of such options. 2. If Tenant elects to exercise said options, the Term shall be automatically extended for the First Extended Period, Second Extended Period and Third Extended Period covered by the option so exercised without execution of an extension or renewal lease. However, within ten (10) days after request of either party following the effective exercise of any such options, Landlord and Tenant shall execute, acknowledge and deliver to each other duplicate originals of an instrument in recordable form confirming that such option was effectively exercised. 3. The First Extended Period, Second Extended Period and Third Extended Period shall be upon the same terms and conditions as are in effect immediately preceding the commencement of such First Extended Period, Second Extended Period and Third Extended Period; provided, however, that Tenant shall have no right or option to extend the Term for any period of time beyond the expiration of the Third Extended Period provided further, that in the Fixed Rent in the First Extended Period, Second Extended Period and Third Extended Period shall be as follows: - R1 - (a) The Fixed Rent during the First Extended Period shall be at the rate of Six and 90/100 Dollars ($6.90) per square foot of Floor Space per annum. The Fixed Rent during the Second Extended Period shall be at the rate of Seven and 94/100 Dollars ($7.94) per square foot of Floor Space per annum. The Fixed Rent during the Third Extended Period shall be at Ninety Percent (90%) of Fair Market Value. Fair Market Value shall be determined by mutual agreement of the parties. If the parties are unable to agree on the Fair Market Value, the parties shall choose a licensed real Estate Appraiser who shall determine the Fair Market Value. The cost of said Real Estate Appraiser shall be borne equally by the parties. If the parties are unable to agree on a licensed Real Estate Appraiser, each party shall select one Appraiser to appraise the Fair Market Value. If the difference between the two appraisals is 20% or less of the lower appraisal then the Fair Market Value shall be the average of the two appraisals. If the difference between the two appraisals is greater than 20% of the lower appraisal, the two Appraisers shall select a third licensed Real Estate Appraiser to appraise the Fair Market Value. The Fair Market Value shall in such case be the average of the three appraisals. The cost of the third appraisal shall be borne equally by the parties. Anything to the contrary contained herein notwithstanding, the Fixed Rent for any extended period shall not be less than the Fixed Rent for the previous year of the Term. Any appraisal to be performed hereunder shall consider the Building and Demised Premises as "unimproved" by Tenant's Work, if any. 4. Any termination, expiration, cancellation or surrender of this Lease shall terminate any right or option for the Extended Period not yet exercised. 5. The option provided herein to extend the Term of the Lease may not be severed from the Lease or separately sold, assigned or otherwise transferred. R3. Notwithstanding anything herein contained to the contrary, Tenant shall be entitled to a six (6) month abatement of Fixed Rent relative to Section "A" of the Demised Premises upon Commencement of the Lease relative to said Section "A". R4. Landlord hereby represents the following: (i) At the time of the execution of the Lease, it is the owner of the Land and Building; (ii) It has complete authority to enter into and perform the transaction contemplated by this Lease; (iii) The Building or Demised Premises are not constructed of any materials containing asbestos. - R2 - R5. Landlord hereby agrees to provide Tenant, upon Tenant's written request, with information concerning the date or dates upon which the Lease of other tenants of the Building shall terminate, as well as information concerning whether said tenant(s) have exercised an option to extend their term, if any. HARTZ-83RD STREET ASSOCIATES ("Landlord") BY: HARTZ MOUNTAIN INDUSTRIES, INC. ("a general partner") BY: /s/ Irwin A. Horowitz -------------------------------- Irwin A. Horowitz Vice President G & G SHOPS OF WOODBRIDGE, INC. ("Tenant") BY: /s/ Scott Galin ---------------------------------- Scott Galin Senior, Vice President - R3 - EXHIBIT "A" DESCRIPTION OF LAND 8501 WEST SIDE AVENUE NORTH BERGEN Subject to a Utility and Access Easement described as follows: Beginning at the point of beginning of the original description and running: thence Deed description of a parcel of land situate near the northern side of 83rd Street in the Township of North Bergen, Hudson County, New Jersey. Beginning at a point on curve on the westerly side of lands N/F New York Susquehanna and Western Railroad, said point being northern on a curve to the left having a radius of 2831.79 feet an arc length of 962.70 feet along said westerly side of land N/F New York Susquehanna and Western Railroad from its intersection with the northern side of 83rd Street (60' wide) and running: thence 1. N 62 degrees 58' 30" W 727.21 feet to a point; thence 2. N 14 degrees 27' 00" W 680.73 feet to a point; thence 3. N 62 degrees 58' 30" W 185.89 feet to a point; thence 4. S 82 degrees 09' 00" W 702.43 feet to a point on the westerly side of lands N/F New York Susquehanna and Western Railroad; thence 5. S 14 degrees 27' 00" E 706.00 feet along the westerly side of lands N/F New York Susquehanna and Western Railroad to a point of curvature; thence 6. Along a curve to the left having a radius of 2831.79 feet and arc length of 497.82 feet still along the westerly side of the lands N/F New York Susquehanna and Western Railroad to the point of beginning: Containing 13.683 Acres. Being part of Plot 4A1.4 Block 474 Subject to a 30' wide Parcel Reserved for Future Roadway Right of Way described as follows: Beginning at the point of beginning of the original description and running: thence A-1 Description of Land 8501 West Side Avenue North Bergen, New Jersey Page 2 1. N 62 degrees 58' 30" W 35.22 feet to a point on curve; thence 2. Northerly along a curve to the left having a radius of 2801.79 feet an arc length of 474.00 feet to a point of tangency; thence 3. N 14 degrees 27' 00" W 709.47 feet to a point; thence 4. N 82 degrees 09' 00" E 30.20 feet to a point; thence 5. S 14 degrees 27' 00" E 706.00 feet to a point of curvature; thence 6. Along a curve to the right having a radius of 2831.79 feet an arc length of 497.82 to the point of beginning: Subject to a Utility and Access Easement described as follows: Beginning at the point of beginning of the original description and running: thence 1. N 62 degrees 58' 30" W 727.71 feet to a point; thence 2. N 14 degrees 27' 00" W 53.39 feet to a point; thence 3. S 62 degrees 58' 30" E 506.71 feet to a point of curvature; thence 4. Along a curve to the left having a radius of 100.00 feet an arc length of 72.39 feet to a point of tangency; thence 5. N 75 degrees 33' 00" E 124.38 feet to a point of curve; thence 6. Southerly along a curve to the right having a radius of 2831.79 feet an arc length of 176.22 feet to the point of beginning: Subject to and together with a 30' wide and 15' wide drainage easement along the second thru fourth courses of the original description. Subject to all easements, rights of ways and agreements of record. A-2 EXHIBIT "B" Graphic of Site Plan (and designation of parking) B-1 EXHIBIT "B1" Graphic of Floor Plan of Demised Premises B1-1 EXHIBIT "C" WORKLETTER G & G SHOPS OF WOODBRIDGE, INC. 1. Reference is made to Section "A" of the Demised Premises; Landlord agrees, at its cost and expense, to construct the office space within Section A as well, as build out the warehouse area of Section A in accordance with the attached floor plan (Exhibit C-1) and in conformance with the attached Design Criteria (Exhibit C-2) and Tenant's Plans delivered to Landlord in accordance with Paragraph 4(a) hereinbelow. 2. Reference is made to Section "B" of the Demised Premises; Landlord agrees, at its cost and expense, to construct the addition depicted as Section B in accordance with the attached site plan (Exhibit B) and in conformance with the attached Design Criteria (Exhibit C-2) and Tenant's plans delivered to Landlord in accordance with Paragraph 5(a) hereinbelow. 3. Tenant hereby represents that it has accepted and approved Exhibit B, C-1, and C-2 contemporaneously with the execution of this Lease. 4. (a) Tenant shall be obligated to provide Landlord with an "approved" architectural layout of the Office Space (detailing with specificity, the location of all plumbing, mechanical and electrical fixtures as well as the required electrical capacity) within thirty (30) days from the date of the execution of the Lease. (b) Provided Landlord is in receipt of said approved architectural drawings within said thirty (30) day period, Landlord agrees to complete the Office Space within one hundred fifty (150) days from the date of the execution of this Lease. (c) In the event Tenant fails to provide Landlord with said architectural drawings within thirty (30) days from the execution of this Lease, then the one hundred fifty (150) day period, (for completion of the Office Space), shall be extended one (1) day for each one (1) day of delay in Tenant's approval of the architectural drawings; provided, however, Landlord shall be entitled to commence the Lease as to Section A of the Demised Premises on the date on which Section A would have been completed but not for Tenant's delay in the approval in the architectural drawings. C-1 5. (a) Tenant hereby further agrees to provide Landlord with approved criteria concerning Tenant's lighting, electrical, plumbing, mechanical, and other systems, as well as the specific location of Tenant's loading docks, as each relates to Section B of the Demised Premises, within one hundred twenty (120) days from the date of execution of this Lease. (Said information shall hereinafter be collectively referred to as "Section B Criteria"). (b) Provided Landlord is in receipt of said Section B Criteria within said one hundred twenty (120) day period, Landlord agrees to use its best efforts (but shall not be subject to any penalty or damages for failure) to complete Section B within eleven (11) months from the date of the execution of this Lease. (c) In the event Tenant fails to provide Landlord with the Section B Criteria within one hundred twenty (120) days from the execution date of this Lease, then the eleven (11) month period (for best efforts to complete Section B) shall be extended one (1) day for each (1) day of delay in Tenant's approval of the Section B Criteria; provided, however, Landlord shall be entitled to commence the Lease as to Section B of the Demised Premises on the date on which Section B would have been completed but not for Tenant's delay in the approval in the Section B Criteria. (d) In the event Landlord has not completed Section B on or prior to the date which is the sixteenth month anniversary of the execution of the Lease (subject to the provisions of Section 5(c) hereinabove) then Tenant shall have the right, by written notice to Landlord, to request that Landlord advise Tenant if Section B will be completed on or prior to the date which is the twenty fourth (24th) month anniversary ("24 Month Anniversary") of the execution of the Lease. If Landlord responds negatively (i.e., that Section B will not be completed), the following applies: (i) Tenant shall have the right to terminate the Lease by written notice to Landlord to that effect. In such event, the Lease and Tenant's obligations thereunder (including Tenant's obligations with respect to Section A) shall terminate eight (8) months from the date of such notice; or (ii) Tenant shall have the right to continue with its Lease obligations by written notice to the Landlord to that effect. In such event Tenant shall receive a one (1) day abatement in Fixed Rent relative to Section B for each day after the sixteenth (16th) month anniversary of the execution of the Lease that C-2 Section B is not completed. Said abatement of Fixed Rent shall continue to the earlier of (A) the date Section B is completed or (B) the date which is the twenty fourth (24th) month anniversary of the execution of the Lease (regardless of whether Section B is completed on such date). (iii) Tenant shall not be able to exercise its right to terminate under Section 5(d)(i) unless it provides Landlord with written request concerning Landlord's ability to complete Section B on or prior to the 24 Month Anniversary and only to the extent that Tenant receives written notice from Landlord that Landlord cannot complete Section B of the Demised Premises on or prior to the 24 Month Anniversary. (e) In the event Tenant exercises its option to terminate the Lease in accordance with Section 5(d)(i) hereinabove, Landlord shall pay to Tenant as provided hereinbelow an amount equal to the reasonable cost incurred by Tenant to remove, move and/or replace and install its equipment and inventory from Section A of the Demised Premises to another site, hereinafter referred to as the "Move Out Costs". Tenant's consultant has delivered a letter to Landlord to the effect that Tenant's approximate Move Out Costs shall be in an amount equal to One Million Two Hundred Thousand and 00/100 Dollars ($1,200,000.00) as is more fully detailed in said letter (attached) from Ken Bonning, Vice President, Garr Consulting Group, to Scott Galin, Senior Vice President, G&G/Rave and dated October 24, 1988. Landlord agrees to pay Tenant an amount not to exceed One Million Two Hundred Thousand and 00/100 Dollars ($1,200,000.00) in accordance with the terms and conditions provided herein. Landlord agrees to pay Tenant the amount of Five Hundred Thousand Dollars and 00/100 ($500,000.00) on account of said Move Out Costs within ninety (90) days of the date of Landlord's receipt of Tenant's notice of intention to terminate the Lease in accordance with Section 5(d)(i). The remaining balance in full satisfaction of Landlord's obligations to pay Tenant's Move Out Costs shall be paid within fifteen (15) days of Tenant's vacation of the Building and subject to Landlord's receipt of the necessary back-up materials and calculations of Tenant detailing the remaining balance of said Move Out Costs. (Any dispute as to the nature and extent of Tenant's Move Out Costs shall be subject to arbitration as provided in this Lease). Landlord shall be entitled to a complete accounting from Tenant regarding said Move Out Costs as well as any other information reasonably requested by Landlord relative to same. C-3 (f) Tenant shall have the right at any time between the 16th and 24th Month Anniversary of the execution of the Lease to request information from Landlord concerning completion of Section B. The fact that Tenant may have previously exercised its right not to terminate in accordance with Section 5(d)(ii) shall not preclude Tenant from exercising, at a later date and after written request to Landlord, its right to terminate the Lease in accordance with Section 5(d)(i). In the event Tenant does so terminate the Lease after having previously advised Landlord that it intends to continue its Lease obligations in accordance with Section 5(d)(ii), then any entitlement to an abatement of Fixed Rent which may have accrued shall thereby be rendered null and void, and Tenant's remedy shall be as provided in Section 5(e). Notwithstanding Tenant's exercise of its right to terminate as provided hereinabove, the eight month period referred to in Section 5(d)(i) shall not commence until Landlord receives written notice of Tenant's exercise of its right to terminate. 6. If, in the alternative, Tenant provides Landlord with written request, as provided in Section 5(d) and Landlord responds in the affirmative, (i.e., that Section B will be completed on or prior to the 24 Month Anniversary) Tenant shall be obligated to continue with its Lease obligations as to both Section A and Section B and the provisions of Section 5(d)(ii) concerning an abatement of Fixed Rent shall apply. 7. In the event Section B of the Demised Premises are not completed by the twenty-four (24) month anniversary of the execution of the Lease, Tenant shall have one final option to proceed in accordance with Article 5(d), 5(e) and 5(f) to terminate this Lease. Said option must be exercised on the date which is the twenty four (24) month anniversary of the execution of the Lease. If not so exercised, Tenant shall have forever waived such right and the Lease and the parties obligations thereunder shall proceed in accordance with Section 5(d)(ii). 8. All dates, deadlines, or other time constraints imposed herein shall be extended as reasonably necessary to accommodate any Unavoidable Delays, provided that, Landlord shall give Tenant notice of any Unavoidable Delay within a reasonable time period after Landlord has knowledge of such Unavoidable Delay. 9. At any time after the date of this Lease, Tenant shall have the right to undertake work to be performed by Tenant in connection with readying the Demised Premises for its occupancy, provided (i) Tenant complies with the terms and conditions of this Lease, (ii) does not violate any of Landlord union contracts and (iii) does not interfere with Landlord's completion of Landlord's Work. C-4 10. Landlord shall also perform the following work in Section A of the Demised Premises at its cost and expense: a. Install insulation in the ceiling in the offices closest to the warehouse; b. Install a security mesh (cyclone fence or its equal) to separate the warehouse from the mechanical and electrical rooms; c. Remove two (2) existing sheetrock walls; d. Remove two (2) cyclone fences; same to be re-installed by Landlord at the completion of Tenant's Work; e. Install a canopy over the main entrance to the Demised Premises and over the entrance to the main warehouse personnel door. f. Install one double glass entry door to the offices and one personnel door (the personnel door in a location to be mutually agreed upon by Landlord and Tenant); g. Install a sidewalk along front of Demised Premises to the main warehouse personnel door. 11. Landlord hereby consents to the installation by Tenant, at Tenant's sole cost and expense, of additional HVAC units in order to accommodate Tenant's computer facility. In connection with such installation, Tenant shall: (i) provide Landlord with prior written notice of any such installation; (ii) deliver to Landlord detailed plans and specifications regarding such installation; and (iii) be responsible for all repairs and damage (including structural repair or damage), resulting from such installation. C-5 EXHIBIT C1 Graphic of Floor Plan of Section A C1-1 EXHIBIT C2 Graphic of Landlord's Standard Design Criteria C2-1 EXHIBIT C3 Graphic of Lighting Layout - Section A C3-1 EXHIBIT "D" RULES AND REGULATIONS 1. The rights of each tenant in the entrances and corridors servicing the Building are limited to ingress and egress from such Tenant's premises for the tenant and its employees, licensees and invitees, and no tenant shall use, or permit the use of, the entrances, corridors, escalators or elevators for any other purpose. Fire exits and stairways are for emergency use only, and they shall not be used for any other purpose by the tenants, their employees, licensees or invitees. No tenant shall encumber or obstruct, or permit the encumbrance or obstruction of, any of the sidewalks, entrances, corridors, elevators, fire exits or stairways of the Building. Landlord reserves the right to control and operate the public portions of the Building and the public facilities as well as facilities furnished for the common use of the tenants, in such manner as it deems best for the benefit of the tenants generally. 2. Any person whose presence in the Building at any time shall, in the judgment of Landlord, be prejudicial to the safety, character or reputation of the Building or of its tenants may be denied access to the Building or may be ejected therefrom. During any invasion, riot, public excitement or other commotion, Landlord may prevent all access to the Building by closing the doors or otherwise for the safety of the tenants and protection of property in the Building. 3. Except as otherwise provided in this Lease, no awnings or other projections shall be attached to the outside walls of the Building. No curtains, blinds, shades or screens shall be attached to or hung in, or be used in connection with, any window or door of the premises of any tenant, without the prior written consent of Landlord. Such curtains, blinds, shades or screens must be of a quality, type, design and color, and attached in the manner approved by Landlord. 4. Except as otherwise provided in this Lease, no lettering, sign, advertisement, notice or object shall be displayed in or on the windows or doors, or on the outside of any tenant's premises, or at any point inside any tenant's premises where the same might be visible outside of such premises, without the prior written consent of Landlord. In the event of the violation of the foregoing by any tenant, Landlord may remove the same without any liability, and may charge the expense incurred in such removal to the tenant violating this rule. Interior signs, elevator cab designations and lettering on doors and the Building directory shall, if and when approved by Landlord, be inscribed, painted or affixed for each tenant by Landlord at the expense of such tenant, and shall be of a size, color and style acceptable to landlord. D-1 5. The sashes, sash doors, skylights, windows and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by any tenant, nor shall any bottles, parcels or other articles be placed on the window sills or on the peripheral air conditioning enclosures, if any. 6. No showcase or other articles shall be put in front of or affixed to any part of the exterior of the Building, nor placed in the halls, corridors or vestibules. 7. Except as otherwise provided in this Lease, linoleum, tile or other floor covering shall be laid in a tenant's premises only in a manner first approved in writing by Landlord which approval shall not be unreasonably withheld or delayed. 8. Except as otherwise provided in this Lease, no tenant shall mark, paint, drill into, or in any way deface any part of its premises or the Building. No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord which consent shall not be unreasonably withheld or delayed, and as Landlord may reasonably direct. 9. No noise, including, but not limited to, music or the playing of musical instruments, recordings, radio or television, which, in the judgment of Landlord, might disturb other tenants in the Building, shall be made or permitted by any tenant. Nothing shall be done or permitted in the premises of any tenant which would impair or interfere with the use or enjoyment by any other tenant of any other space in the Building. 10. No tenant, nor any tenant's contractors, employees, agents, visitors or licensees, shall at any time bring into or keep upon the premises or the Building any inflammable, combustible, explosive or otherwise dangerous fluid, chemical or substance. 11. Landlord reserves the right to inspect all objects and matter to be brought into the Building and to exclude from the Building all objects and matter which violate any of these Rules and Regulations or this Lease. Landlord may require any person leaving the Building with any package or other object or matter to submit a pass, listing such package or object or matter, from the tenant from whose premises the package or object or matter is being removed, but the establishment and enlargement of such requirement shall not impose any responsibility on Landlord for the protection of any tenant against the removal of property from the premises of such tenant. Landlord shall in no way be liable to any tenant for damages or loss arising from the admission, exclusion or ejection of any person to or from the premises or the Building under the provisions of this RULE or of RULE 2 hereof. D-2 12. No tenant shall occupy or permit any portion of its premises to be occupied as an office for the possession, storage, manufacture or sale of liquor, narcotics, dope, tobacco in any form, or as a barber, beauty or manicure shop, or as a school. 13. Landlord shall have the right to prohibit any advertising or identifying sign by any tenant which, in Landlord's judgment, tends to impair the reputation of the Building or its desirability as a building for others, and upon written notice from Landlord, such tenant shall refrain from and discontinue such advertising or identifying sign. 14. Landlord, its contractors, and their respective employees, shall have the right to use, without charge therefor all light, power and water in the premises of any tenant while cleaning or making repairs or alterations in the premises of such tenant. 15. No premises of any tenant shall be used for lodging or sleeping or for any immoral or illegal purpose. 16. Canvassing, soliciting and peddling in the Building are prohibited and each tenant shall cooperate to prevent the same. 17. Nothing shall be done or permitted in any tenant's premises, and nothing shall be brought into or kept in any tenant's premises, which would impair or interfere with any of the Building's services or the proper and economic heating, cleaning or other servicing of the Building or the premises, or the use or enjoyment by any other tenant of any other premises nor shall there be installed by any tenant any ventilating, air-conditioning, electrical or other equipment of any kind which, in the judgment of Landlord, might cause any such impairment or interference. 18. No acids, vapors or other materials shall be discharged or permitted to be discharged into the waste lines, vents or flues of the Building which may damage them. The water and wash closets and other plumbing fixtures in or serving any tenant's premises shall not be used for any purpose other than the purposes for which they were designed or constructed, and no sweepings, rubbish, rags, acids or other foreign substances shall be deposited therein. All damages resulting from any misuse of the fixtures shall be borne by the tenants who, or whose servants, employees, agents, visitors or licensees shall have, caused the same. Any cuspidors or containers or receptacles used as such in the premises of any tenant or for garbage or similar refuse, shall be emptied, cared for and cleaned by and at the expense of such tenant. 19. Landlord reserves the right to rescind, alter or waive any rule or regulation at any time prescribed for the Building when, in D-3 its reasonable judgment, it deems it necessary, desirable or proper for its best interest and for the best interests of the tenants, and no alteration or waiver of any rule or regulation in favor of one tenant shall operate as an alteration or waiver in favor of any other tenant. Landlord shall not be responsible to any tenant for the non-observance or violation by any other tenant of any of the rules and regulations at any time prescribed for the Building provided Landlord uses reasonable efforts to insure that tenants comply with the Rules and Regulations. Any conflict between these Rules and Regulations and the Lease to which they are attached shall be resolved in favor of the provisions contained in the Lease. D-4 EX-10.02 13 LEASE ADDENDUM 4/10/90 EXHIBIT 10.02 LEASE ADDENDUM THIS LEASE ADDENDUM, is made this 10th day of April, 1990, between HARTZ 83RD STREET ASSOCIATES, a New Jersey partnership, having an office at 400 Plaza Drive, P.O. Box 1411, Secaucus, New Jersey 07094 (hereinafter referred to as "Landlord") and G & G SHOPS OF WOODBRIDGE, INC., a New Jersey corporation having an office at 8501 Westside Avenue, North Bergen, New Jersey (hereinafter referred to as ("Tenant"). WITNESSETH: WHEREAS, by Agreement of Lease dated November 28, 1988, (the "Lease") Landlord leased to Tenant and Tenant hired from Landlord 164,840 total square feet located at 8501 Westside Avenue in North Bergen, New Jersey (hereinafter the "Demised Premises"); and WHEREAS, Landlord wishes to grant and Tenant wishes to receive a revocable license to use a certain area of land owned by Landlord. NOW, THEREFORE, for and in consideration of the Lease, the mutual covenants herein contained and the consideration set forth herein, the parties agree as follows: 1. Tenant shall have the right to use the area outlined in red on Exhibit "A" attached hereto and made a part hereof. Tenant shall be permitted, at its sole cost and expense, to erect a fence and gate in the outlined area. Tenant shall, at its own cost and expense obtain any consents, approvals and permits necessary to effect such construction and shall comply with Legal Requirements. -1- 2. Upon thirty (30) days' notice from Landlord, Tenant shall remove the fence and gate and shall permit access over and through the outlined area. 3. Tenant shall maintain the same insurance coverage required to be maintained by Tenant pursuant to Article 13 of the Lease on the outlined area and Tenant's use thereof. 4. Words capitalized herein shall have the meanings ascribed to them in the Lease. 5. Except as provided herein, all of the terms and conditions of the Lease dated November 28, 1988 as amended above are in full force and effect and are confirmed as if fully set forth herein. IN WITNESS WHEREOF, the parties hereto have caused this Lease Modification Agreement to be duly executed as of the day and year first above written. ATTEST: HARTZ 83RD STREET ASSOCIATES ("Landlord") BY: HARTZ MOUNTAIN INDUSTRIES, INC. ("General Partner") /s/ Sirena G. Terr BY: /s/ Irwin A. Horowitz - ------------------------- ---------------------------------- Sirena G. Terr Irwin A. Horowitz Ass't Secretary Vice President ATTEST: G & G SHOPS OF WOODBRIDGE, INC. ("Tenant") /s/ Deborah McGrane BY: /s/ Scott D. Galin - ------------------------- -------------------------------------- Deborah McGrane Name: Scott D. Galin Ass't Secretary Title: Sr. Vice President -2- Exhibit "A" Graphic of Land Granted to Tenant by a Revocable Lease EX-10.03 14 SECOND LEASE MODIFICATION AGREEMENT 2/24/94 EXHIBIT 10.03 SECOND LEASE MODIFICATION AGREEMENT THIS SECOND LEASE MODIFICATION AGREEMENT, made this 24th day of February, 1994, between HARTZ 83RD STREET ASSOCIATES, a New Jersey partnership, having an office at 400 Plaza Drive, Secaucus, New Jersey 07094 (hereinafter referred to as "Landlord") and G & G SHOPS OF WOODBRIDGE, INC., a New Jersey corporation having an office at 8501 West Side Avenue, North Bergen, New Jersey (hereinafter referred to as "Tenant"). W I T N E S S E T H : --------------------- WHEREAS, by Agreement of Lease dated November 28, 1988, as amended by Lease Addendum dated April 10, 1990 (collectively the "Lease") Landlord leased to Tenant and Tenant hired from LandLord 165,450 square feet of floor space located at 8501 West Side Avenue in North Bergen, New Jersey (hereinafter the "Demised Premises"); and WHEREAS, Landlord and Tenant wish to modify the Lease to reflect an extention of the term of the Demised Premises, and amend the Lease accordingly; NOW, THEREFORE, for and in consideration set forth herein, the parties agree as follows: 1. Article 1.01 M (Expiration Date) of the Lease is hereby replaced to provide that the Expiration Date with respect to the Demised Premises shall be August 31, 1999. However, if the Term is extended by Tenant's effective exercise of Tenant's right, if any; to extend the Term, the "Expiration Date" shall be changed to the last day off the latest Extended Period as to which Tenant shall have effectively exercised its right to extend the Term. For the purposes of this definition, the earlier termination of this Lease shall not affect the "Expiration Date." 2. Article 1.10 N (Fixed Rent) of the Lease is hereby amended and shall be reduced from Six and 00/100 Dollars ($6.00) per square foot per annum to Five and 00/100 Dollars ($5.00) per square foot per annum, effective July 1, 1994 and shall remain at this rent rate until August 31, 1999. 3. Tenant shall have one (1) option to extend the Term of the Lease for a period of five (5) years commencing on September 1, 1999 (the "First Extended Period") at an annual Fixed Rent of Six and 00/100 Dollars per square foot multiplied by the Floor Space of the Demised Premises, provided that Tenant shall provide Landlord with notice of its intention to extend the Term prior to August 31, 1998, time being off the essence. Tenant shall have a second option to extend the Term of the Lease for an additional period of five (5) years commencing on September 1, 2004 (the 1 "Second Extended Period") at an annual Fixed Rent of ninety percent (90%) of the Fair Market Value (as determined pursuant to Section R2.3 (a) of the Rider to Lease), provided that Tenant shall provide Landlord with notice of its intention to extend the Term prior to August 31, 2003, time being of the essence. Except as modified in this paragraph 3, the provisions contained in paragraph R2 of the Rider to the Lease shall govern with respect to Tenant's option to renew for the Extended Period. 4. Tenant shall have an option to terminate the Lease effective as of August 3l, 1997 (the "Termination Date"). Such Option to terminate shall be conditioned on Tenant providing Landlord with prior notice of same no later than August 31, 1996, time being of the essence, and Tenant shall be responsible to pay a termination fee equal to three (3) months' Fixed Rent on the Termination Date. 5. Except as provided herein, all of the terms and conditions of the Lease dated November 28, l988, as amended on April 10, 1990 and as amended above are in full force and effect and are confirmed as if fully set forth herein. IN WITNESS WHEREOF, the parties hereto have caused this Second Lease Modification Agreement to be duly executed as of the day and year first above written. HARTZ-83RD STREET ASSOCIATES ("Landlord") BY: HARTZ MOUNTAIN INDUSTRIES, INC. ("General Partner") By: /s/ Irwin A. Horowitz ------------------------------------ Irwin A. Horowitz Executive Vice President G & G SHOPS OF WOODBRIDGE, INC. ("Tenant") By: /s/ Scott D. Galin --------------------------------- Scott D. Galin Senior Vice President ACCEPTED AND AGREED: G & G SHOPS, INC. ("Guarantor") By: /s/ Scott D. Galin ---------------------------- Scott D. Galin Senior Vice President 2 EX-10.04 15 NOTIFICATION LETTER 11/20/95 EXHIBIT 10.04 [LOGO AND LETTERHEAD OF AID ASSOCIATION FOR LUTHERANS APPEARS HERE] CERTIFIED MAIL - -------------- RETURN RECEIPT REQUESTED ------------------------ G & G Shops of Woodbridge, Inc. 520 Fifth Avenue New York, NY 10018 Attn: Scott Galin Executive Vice President Subject: 11/28/88 Lease with HG Property, Inc. ("Lease") West Side Avenue, North Bergen, NJ To Whom It May Concern: Recently, the owner of your building borrowed money from Aid Association for Lutherans ("AAL"). The loan was secured by a deed of trust/mortgage on the property. As part of that transaction, the landlord's interest in your Lease was assigned to AAL by an assignment of rents and leases ("Assignment"). This transfer will not change the manner in which you are making your rental payments. Unless you are otherwise notified in writing by AAL, continue to make your rental payments as you are currently doing now. However, your attention is particularly called to the following matters: 1. The Assignment specifically provides that, unless approved in writing by AAL, no cancellation, surrender, or modification may be made of the Lease, no rentals shall be paid other than as now provided in the Lease, and rent may not be collected in advance for more than one month. 2. Although the Assignment is absolute in nature, there is a license back to the landlord, and the landlord remains solely liable to you under the Lease. AAL does not assume any duty, liability, or obligation under the Lease or any extension or renewal of the Lease either by virtue of the Assignment or by any subsequent receipt or collection of rentals under the Assignment. 3. Upon receipt of written notice from AAL, you will make your monthly payments as directed in such notice. 4. All notices required under the terms of the Lease shall also be sent to AAL at 4321 North Ballard Road, Appleton, WI 54919, Attention: Investment Department. Sincerely, HG Property, Inc., a New Jersey corporation /s/ Kenneth E. Podell By: /s/ Richard J. Milder Kenneth E. Podell -------------------------- Associate General Counsel Richard J. Milder Law Department Assistant Secretary Nov. 20, 1995 - ------- cc G & G Shops, Inc., 520 Fifth Avenue, New York, NY 10018, Attn: Scott Galin 520 Eighth Avenue, New York, NY 10018, Attn: President EX-10.05 16 ASSIGNMENT AND ASSUMPTION AGREEMENT 8/28/98 EXHIBIT 10.05 ASSIGNMENT AND ASSUMPTION AGREEMENT KNOW ALL MEN BY THESE PRESENTS, that the Sellers (the "Assignors" hereunder), pursuant to the terms of that certain Asset Purchase Agreement, dated July 6, 1998, by and among the Sellers and Purchaser, as amended by the Order of the Bankruptcy Court dated August 24, 1998 and by an Amendment dated as of August 24, 1998 (the "Agreement"), for and in consideration of Ten Dollars ($10.00) and other good and valuable consideration from G+G Retail, Inc., a Delaware corporation ("Assignee"), the receipt and sufficiency of which are hereby acknowledged by Assignors, do hereby assign, transfer, sell and convey unto Assignee, its successors and assigns, all of Assignors' right, title and interest in, to and under the Assigned Contracts described on Exhibit A attached hereto and incorporated herein by reference, together with all renewal options, if any, options to purchase and all other rights privileges and benefits belonging to or held by Assignors under the Assigned Contracts. TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns forever, subject, however, to all terms, conditions and provisions in the Assigned Contracts. In consideration for the foregoing assignment, Assignee hereby accepts the foregoing assignment and agrees to assume, perform and be bound by all of the duties, obligations and liabilities of Assignors under the Assigned Contracts arising on and after the date hereof. Assignors further agree to execute and deliver to Assignee such further instruments of transfer and assignment as Assignee may from time to time reasonably request in order to transfer and assign to and vest in Assignee all of the rights, privileges and property hereby transferred and assigned or intended so to be. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Agreement. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed to be effective as of the 28th day of August, 1998. G & G SHOPS, INC. By: /s/ Gerald M. Chaney ----------------------------------- Name: Gerald M. Chaney Title: Executive Vice President, Chief Administrative Officer and Chief Financial Officer PSL, INC. By: /s/ Gerald M. Chaney ----------------------------------- Name: Gerald M. Chaney Title: Executive Vice President, Chief Administrative Officer and Chief Financial Officer -2- 78 Nassau Street Corp. 458 Seventh Avenue Corporation G & G Island Corporation G & G Shops of Brooklyn, Inc. G & G Shops of Maryland, Inc. G & G Shops of Mid-Island Corp. G & G Shops of Nanuet, Inc. G & G Shops of New England, Inc. G & G Shops of New York, Inc. G & G Shops of North Carolina, Inc. G & G Shops of Pennsylvania, Inc. G & G Shops of Woodbridge, Inc. Sco-Jef Mercantile Corp. By: /s/ Gerald M. Chaney ----------------------------------- Name: Gerald M. Chaney Title: Executive Vice President, Chief Administrative Officer and Chief Financial Officer -3- 157 De Diego Corporation 61 Dr. Veve Corporation Caribe Apparel Corporation Christina El Senorial Corp. Cumbres Apparel Corp. Dayson's Cupey Corp. Dayson's of Ponce, Inc. El Canton Apparel Corp. Franklin 198 Corp. Franklin 203 Corp. Franklin 203 Corp. Franklin 221 Corp. Franklin 253 Corp. Marianne Estrella Corp. Noya Carolina Corp. N. Calimano MPA Corp. Progresso-Corchado Corp. Rave Apparel of Bayamon Corporation Rave Apparel Corporation of Humacao Whitney Stores, Inc. By: /s/ Gerald M. Chaney ---------------------------------------- Name: Gerald M. Chaney Title: Executive Vice President, Chief Administrative Officer and Chief Financial Officer -4- G+G RETAIL, INC. By: /s/ Jonathan Berger ----------------------------- Name: Jonathan Berger Title: Vice President -5- Exhibit A Leases
- ----------------------------------------------------------------------------------------------------------- Store Mall City State Seller - ----------------------------------------------------------------------------------------------------------- Home Office 520 Eighth Avenue New York NY G & G Shops, Inc. - ----------------------------------------------------------------------------------------------------------- Warehouse 8501 West Side Avenue North Bergen NJ G & G Shops of Woodbridge, Inc. - ----------------------------------------------------------------------------------------------------------- 5001 Gallery I Philadelphia PA G & G Shops of Pennsylvania, Inc. - ----------------------------------------------------------------------------------------------------------- 5003 Gallery II Philadelphia PA G & G Shops of Pennsylvania, Inc. - ----------------------------------------------------------------------------------------------------------- 5006 Chapel Square Mall New Haven CT G & G Shops of New England, Inc. - ----------------------------------------------------------------------------------------------------------- 5007 Manhattan Mall New York City NY G & G Shops, Inc. - ----------------------------------------------------------------------------------------------------------- 5008 Greens Acres Mall Valley Stream NY G & G Shops, Inc. - ----------------------------------------------------------------------------------------------------------- 5009 Pyramid mall Ithaca NY G & G Shops, Inc. - ----------------------------------------------------------------------------------------------------------- 5010 Nanuet mall Nanuet NY G & G Shops, Inc. - ----------------------------------------------------------------------------------------------------------- 5012 Kings Plaza Brooklyn NY G & G Shops, Inc. - ----------------------------------------------------------------------------------------------------------- 5014 Roosevelt Field Center Garden City NY G & G Shops of Mid Island, Inc. - ----------------------------------------------------------------------------------------------------------- 5015 The Source #J04 Westbury NY G & G Shops, Inc. - ----------------------------------------------------------------------------------------------------------- 5016 Broadway Mall Hicksville NY G & G Shops of Mid Island, Inc. - ----------------------------------------------------------------------------------------------------------- 5017 Willowbrook Mall Wayne NJ G & G Shops of Woodbridge, Inc. - ----------------------------------------------------------------------------------------------------------- 5018 Rockaway Town Mall Rockaway NJ G & G Shops of Woodbridge, Inc. - ----------------------------------------------------------------------------------------------------------- 5019 Menlo Park Mall Edison NJ G & G Shops of Woodbridge, Inc. - ----------------------------------------------------------------------------------------------------------- 5021 Echelon Mall Voorhees NJ G & G Shops of Woodbridge, Inc. - ----------------------------------------------------------------------------------------------------------- 5022 Gwinnett Place Duluth GA G & G Shops of North Carolina, Inc. - ----------------------------------------------------------------------------------------------------------- 5023 Freehold Raceway Freehold NJ G & G Shops of Woodbridge, Inc. - ----------------------------------------------------------------------------------------------------------- 5025 Walden Galleria Buffalo NY G & G Shops, Inc. - ----------------------------------------------------------------------------------------------------------- 5026 Mall at Hamilton Mayslanding NJ G & G Shops of Woodbridge, Inc. - ----------------------------------------------------------------------------------------------------------- 5027 Southshore Mall Bay Shore NY G & G Shops, Inc. - ----------------------------------------------------------------------------------------------------------- 5028 Smith Haven Mall Lakegrove NY G & G Shops, Inc. - ----------------------------------------------------------------------------------------------------------- 5029 Oakdale Mall Johnson City NY G & G Shops, Inc. - ----------------------------------------------------------------------------------------------------------- 5030 Staten Island Mall Staten Island NY G & G Shops, Inc. - ----------------------------------------------------------------------------------------------------------- 5031 Sunrise Mall Masssapequa NY G & G Shops, Inc. - -----------------------------------------------------------------------------------------------------------
A-1 Leases
- ---------------------------------------------------------------------------------------------------------- Store Mall City State Seller - ---------------------------------------------------------------------------------------------------------- 5032 Paramus Park Mall Paramus NJ G & G Shops of Woodbridge, Inc. - ---------------------------------------------------------------------------------------------------------- 5033 Greenbriar Mall Atlanta GA G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------------- 5034 Huntington Square Mall East Northport NY G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------------- 5035 Monmouth S.C. Eatontown NJ G & G Shops of Woodbridge, Inc. - ---------------------------------------------------------------------------------------------------------- 5036 Queens Center Elmhurst NY G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------------- 5037 Rockingham Park Salem NH G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------------- 5040 Tampa Bayy Center Tampa FL G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------------- 5041 Orange Park Mall Orange Park FL G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------------- 5042 University Mall Pensacola FL G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------------- 5043 Berkshire Mall Lanesborough MA G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------------- 5044 Macon Mall Macon GA G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------------- 5045 Peach Tree Mall Columbus GA G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------------- 5046 1627-21 Opelika Road Auburn AL G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------------- 5047 Bay Harbor Mall Lawrence NY G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------------- 5048 Albany Mall Albany GA G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------------- 5049 Woodbridge I Woodbridge NJ G & G Shops of Woodbridge, Inc. - ---------------------------------------------------------------------------------------------------------- 5050 Main Place Mall Buffalo NY G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------------- 5051 Boulevard Mall Amherst NY G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------------- 5052 Summitt Park Mall Niagara Falls NY G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------------- 5053 Frederick Town Mall Frederick MD G & G Shops of Maryland, Inc. - ---------------------------------------------------------------------------------------------------------- 5056 Forest Village Park Forestville MD G & G Shops of Maryland, Inc. - ---------------------------------------------------------------------------------------------------------- 5057 Valley Mall Hagerstown MD G & G Shops of Maryland, Inc. - ---------------------------------------------------------------------------------------------------------- 5058 Ocean County mall Toms River NJ G & G Shops of Woodbridge, Inc. - ---------------------------------------------------------------------------------------------------------- 5059 Parmatown S.C. Parma OH G & G Shops, Inc. - ----------------------------------------------------------------------------------------------------------
A-2 Leases
- ---------------------------------------------------------------------------------------------------------- Store Mall City State Seller - ---------------------------------------------------------------------------------------------------------- 5060 Galleria Mall White Plains NY G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------- 5061 Mondawin Mall Baltimore MD G & G Shops of Maryland, Inc. - ------------------------------------------------------------------------------------------------------------- 5062 Assembly Square Somerville MA G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------- 5064 Liberty Tree Mall Canvers MA G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------- 5065 Broward Mall Plantation FL G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------- 5066 Whitman Plaza Philadelphia PA G & G Shops of Pennsylvania. Inc. - ------------------------------------------------------------------------------------------------------------- 5067 Georgia Square Athens GA G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------- 5071 Trumbell Shopping Park Trumbell CT G & G Shops of New England, Inc. - ------------------------------------------------------------------------------------------------------------- 5073 Eastland Mall Charlotte NC G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------- 5074 Monroeville Mall Monroeville PA G & G Shops of Pennsylvania, Inc. - ------------------------------------------------------------------------------------------------------------- 5075 Seminole Town Center Sanford FL G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------- 5080 Oak Hollow Mall Highpoint NC G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------- 5082 Arsenal Market Place Watertown MA G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------- 5084 Twin River Mall Newbern NC Whitney Stores, Inc. - ------------------------------------------------------------------------------------------------------------- 5085 Crabtree Valley Mall Raleigh NC G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------- 5088 Clear Meadow Mall East Meadow NY G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------- 5089 Hanes Mall Winston Salem NC G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------- 5092 Ohio Valley mall Saint Clairsville OH G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------- 5097 Four Seasons Greensboro NC G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------- 5102 Greece Town Mall Rochester NY G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------- 5103 South Square Mall Durham NC G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------- 5105 Southlake Mall Merrillville IN G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------- 5106 Great Lakes Mall Mentor OH G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------- 5112 Randall Park Mall North Randall OH G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------
A-3 Leases
- ------------------------------------------------------------------------------------------------------------ Store Mall City State Seller - ------------------------------------------------------------------------------------------------------------ 5115 Auburn Mall Auburn ME G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------ 5116 Tell Twelve Center Southfield MI G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------ 5117 Bell Promenade Marrero LA G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------ 5118 Westalnd Mall Westland MI G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------ 5119 Fairlane Town Center Dearborn MI G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------ 5120 Southland Center Taylor MI G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------ 5121 Oakland Mall Troy MI G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------ 5122 Estland S.C. Harper Woods MI G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------ 5123 Twelve Oaks Center Novi MI G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------ 5125 Western Hill Mall Fairfield AL G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------ 5126 East Town Mall Knoxville TN G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------ 5127 Madison Square Huntsville AL G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------ 5128 South Dekalb Mall Decatur GA G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------ 5129 Meadowbrook Mall Bridgeport WV G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------ 5130 Kentuck Oaks Paducah KY G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------ 5132 Northgate Mall Lafayette LA G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------ 5134 Eastwood Mall Niles OH G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------ 5136 Rooselvelt Mall Philadelphia PA G & G Shops of Pennsylvania, Inc. - ------------------------------------------------------------------------------------------------------------ 5137 Raleigh Springs Mall Memphis TN G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------ 5138 Park City Center Lancaster PA G & G Shops of Pennsylvania, Inc. - ------------------------------------------------------------------------------------------------------------ 5140 Aventura Mall Miami FL G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------ 5141 Coral Square Mall Coral Springs FL G & G Shops of North Carolina, Inc. - ------------------------------------------------------------------------------------------------------------ 5145 Cherry Hill II Cherry Hill NJ G & G Shops of Woodbridge, Inc. - ------------------------------------------------------------------------------------------------------------ 5149 Yorktown Mall Lombard IL G & G Shops, Inc. - ------------------------------------------------------------------------------------------------------------
A-4 Leases
- ---------------------------------------------------------------------------------------------------------- Store Mall City State Seller - ---------------------------------------------------------------------------------------------------------- 5150 Reistertown Plaza Baltimore MD G & G Shops of Maryland, Inc. - ---------------------------------------------------------------------------------------------------------- 5151 Southland Mall Memphis TN G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------------- 5152 Glenbrook Square Fort Wayne IN G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------------- 5153 Laurel Center Laurel MD G & G Shops of Maryland, Inc. - ---------------------------------------------------------------------------------------------------------- 5154 Salem Mall Dayton OH G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------------- 5155 Midway Mall Elyria OH G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------------- 5157 Lafayette Square Indianapolis IN G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------------- 5158 Enfield Mall Enfield CT G & G Shops of New England, Inc. - ---------------------------------------------------------------------------------------------------------- 5159 Gulfview Square Port Richey FL G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------------- 5161 Prince Georges Place Hyattsville MD G & G Shops of Maryland, Inc. - ---------------------------------------------------------------------------------------------------------- 5162 Oakwood Plaza Hollywood FL G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------------- 5163 Cloverleaf Mall Richmond VA G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------------- 5165 Cutler Ridge Mall Miami FL G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------------- 5166 Gadsden Mall Gadsden AL G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------------- 5169 East Point Mall Baltimore MD G & G Shops of Maryland, Inc. - ---------------------------------------------------------------------------------------------------------- 5170 Tallahassee Mall Tallahassee FL G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------------- 5171 Hanover Mall Hanover MA G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------------- 5173 Midtown Plaza Rochester NY G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------------- 5175 Brandon Towne Center Brandon FL G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------------- 5176 Southern Park Mall Youngstown OH G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------------- 5177 Miami International Miami FL G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------------- 5181 Eastern Hill Williamsville NY G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------------- 5182 The Brickyard Chicago IL G & G Shops, Inc. - ----------------------------------------------------------------------------------------------------------
A-5 Leases
- -------------------------------------------------------------------------------------------------------------- Store Mall City State Seller - -------------------------------------------------------------------------------------------------------------- 5183 Universal City Warren MI G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5184 Springdale Mall Mobile AL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5185 Altamonte Mall Space Altamonte Springs FL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5187 Valley View Mall Roanoke VA G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5189 North Riverside Mall North Riverside IL G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5190 Lincoln Mall Matteson IL G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5191 Hickory Hollow Atioch TN G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5192 Kendall Mall Bay Miami FL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5193 Belair Mall Mobile AL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5195 North Shore Square Slidell LA G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5198 Wonderland Mall Livonia MI G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5199 Macomb Mall Roseville MI G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5203 Towne Center at Cobb Kennesaw GA G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5205 Esplanade Mall Kenner LA G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5206 Connecticut Post Milford CT G & G Shops of New England, Inc. - -------------------------------------------------------------------------------------------------------------- 5207 Bald Hill Plaza Warwick RI G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5208 Indian River Mall Vero Beach FL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5209 Florida Mall Orlando FL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5211 Millcreek Mall Erie PA G & G Shops of Pennsylvania, Inc. - -------------------------------------------------------------------------------------------------------------- 5212 Eagle Ridge Mall Lake Wales FL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5214 Dedham Mall Dedham MA G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5215 Greetree Mall Clarksville IN G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5217 Pecanland Mall Monroe LA G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5218 Boynton Beach Boynton FL G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------------------
A-6 Leases
- -------------------------------------------------------------------------------------------------------------- Store Mall City State Seller - -------------------------------------------------------------------------------------------------------------- 5219 Dayton Mall Dayton OH G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5220 Volusia Mall Daytona FL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5221 Concord Mall Wilmington DE G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5222 Briarcliff Mall Myrtle Beach SC G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5227 Lansing Mall Lansing MI G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5228 Coastland Mall Naples FL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5232 Eastfield Mall Springfield MA G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5234 Salisbury Mall Salisbury NC G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5235 Southland Mall Houma LA G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5236 Lincoln Mall London RI G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5237 Westland Mall Hialeah FL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5239 Courtland Center Burton MI G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5240 Wiregrass Commons Houston AL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5241 Pheasant Lane Nashau NH G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5242 Alexandria Mall Alexandria LA G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5244 Ford City Mall Chicago IL G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5245 Mall at Millcreek Secaucus NJ G & G Shops of Woodbridge, Inc. - -------------------------------------------------------------------------------------------------------------- 5247 Danbury Fair Mall Danburry CT G & G Shops of New England, Inc. - -------------------------------------------------------------------------------------------------------------- 5249 Chapel Hill Mall Akron OH G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5252 Northlake Mall Tucker GA G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5253 Searstown Shop. Ctr. Leominster MA G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5254 Penrose Plaza Philadelphia PA G & G Shops of Pennsylvania, Inc. - -------------------------------------------------------------------------------------------------------------- 5255 Govenors Square Clarksville TN G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5256 Halem Irving Norridge IL G & G Shops, Inc. - --------------------------------------------------------------------------------------------------------------
A-7 Leases
- -------------------------------------------------------------------------------------------------------------- Store Mall City State Seller - -------------------------------------------------------------------------------------------------------------- 5257 Logan Valley Altoona PA G & G Shops of Pennsylvania, Inc. - -------------------------------------------------------------------------------------------------------------- 5258 Plaza in Lake Forest New Orleans LA G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5262 Westgate Mall Spartanburg SC G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5264 Marley Station Glen Burnie MD G & G Shops of Maryland, Inc. - -------------------------------------------------------------------------------------------------------------- 5265 Salmon Run Watertown NY G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5266 Marketplace Mall Rochester NY G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5269 Lincolnwood Town Center Lincolnwood IL G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5270 Mall of New Hampshire Manchester NH G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5273 Oakland Pointe Pontiac MI G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5274 Mayfair S.C. Philadelphia PA G & G Shops of Pennsylvania, Inc. - -------------------------------------------------------------------------------------------------------------- 5275 Chicago Ridge Mall Chicago Ridge IL G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5277 Century III West Mifflin PA G & G Shops of Pennsylvania, Inc. - -------------------------------------------------------------------------------------------------------------- 5278 Mall of Louisiana Baton Rouge LA G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5279 Eastgate Mall Cincinnati OH G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5282 Champlain Centre Plattsburg NY G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5284 Regency Square Jacksonville FL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5285 Military Crossing Norfolk VA G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5286 Square One Mall Saugus MA G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5287 One Olney Plaza Philadelphia PA G & G Shops of Pennsylvania, Inc. - -------------------------------------------------------------------------------------------------------------- 5288 Waterworks Pittsburgh PA G & G Shops of Pennsylvania, Inc. - -------------------------------------------------------------------------------------------------------------- 5290 Brass Mill Ctr. Waterbury CT G & G Shops of New England, Inc. - -------------------------------------------------------------------------------------------------------------- 5291 Northgate Mall Durham NC G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5292 Grand Traverse Mall Traverse City MI G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5294 Oviedo Crossing Oviedo FL G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------------------
A-8 Leases
- -------------------------------------------------------------------------------------------------------------- Store Mall City State Seller - -------------------------------------------------------------------------------------------------------------- 5295 East Town Mall Madison WI G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5296 Wheaton Plaza Wheaton MD G & G Shops of Maryland, Inc. - -------------------------------------------------------------------------------------------------------------- 5297 Northgate Mall Cincinnati OH G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5300 Regency Mall Racine WI G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5301 Treasure Coast Jensen Beach FL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5303 Rivergate Mall Goodlettsville TN G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5304 Fashion Sq. Mall Saginaw MI G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5306 The Sands Oceanside NY G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5309 Greendale Mall Worcester MA G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5310 Lakeland Square Lakeland FL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5311 Meriden Square Meridan CT G & G Shops of New England, Inc. - -------------------------------------------------------------------------------------------------------------- 5312 Frenchtown Square Monroe MI G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5314 Kitsap Mall Silverdale WA G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5315 Bellis Fair Mall Billingham WA G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5318 Towson Towne Center Towson MD G & G Shops of Maryland, Inc. - -------------------------------------------------------------------------------------------------------------- 5319 Clearwater Mall Clearwater FL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5320 University Square Tampa FL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5322 Bridgewater Commons Bridgewater NJ G & G Shops of Woodbridge, Inc. - -------------------------------------------------------------------------------------------------------------- 5324 Columbia Mall Kennewick WA G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5326 Omni International Miami FL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5327 Tyrone Square St. Petersburg FL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------------------------------------- 5329 Clackmas Towne Center Portland OR G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5332 St. Clair Square Fairview IL G & G Shops, Inc. - -------------------------------------------------------------------------------------------------------------- 5333 Riverside Mall Utica NY G & G Shops, Inc. - --------------------------------------------------------------------------------------------------------------
A-9 Leases
- --------------------------------------------------------------------------------------------------- Store Mall City State Seller - --------------------------------------------------------------------------------------------------- 5337 So. County Center St. Louis MO G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5338 St. Louis Center St. Louis MO G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5340 Harford Mall Bel Air MD G & G Shops of Maryland, Inc. - --------------------------------------------------------------------------------------------------- 5341 South Mall Allentown PA G & G Shops of Pennsylvania, Inc. - --------------------------------------------------------------------------------------------------- 5343 College Hill Normol IL G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5344 Bradlees S.C. Yonkers NY G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5345 Cape Cod Mall Hyannis MA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5348 Everett Mall Everett WA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5349 Hudson Valley Mall Kingston NY G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5350 McCain Mall North Little Rock AR G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5351 University Mall Little Rock AR G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5352 Sunset Mall Holbrook NY G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5353 Stroud Mall Stroudsburg PA G & G Shops of Pennsylvania, Inc. - --------------------------------------------------------------------------------------------------- 5354 Chesterfield Mall Richmond VA G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5355 Eastland Mall Columbus OH G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5356 Westland Mall Columbus OH G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5357 Northland Mall Columbus OH G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5360 South Park Mall Colonial Heights VA G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5361 Tacoma Mall Tacoma WA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5362 Lakewood Mall Tacoma WA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5367 Coliseum Mall Hampton VA G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5369 Meadow Glen Mall Medford MA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5370 Port Charlotte Center Port Charlotte FL G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5371 Emerald Square North Attleborough MA G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------
A-10 Leases
- --------------------------------------------------------------------------------------------------- Store Mall City State Seller - --------------------------------------------------------------------------------------------------- 5372 Mall of Amricas Miami FL G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5373 Louis Joliet Mall Joliet IL G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5375 Randhurst Mall Mt. Prospect IL G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5376 Huntington Mall Barboursville WV G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5378 Irondequoit Mall Rochester NY G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5379 Stratford Square Mall Bloomingdale IL G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5380 Cascade Mall Burlington WA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5382 Tower City Cleveland OH G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5383 Montgomery Mall Montgomery AL G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5384 Silver Lakes Mall Coeur D'Alene ID G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5387 Lakeside Mall Metairie LA G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5388 Dartmouth Mall North Dartmouth MA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5389 Independence Mall Kingston MA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5394 Southport S.C. Shirley NY G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5395 Chesterfield Mall St. Louis MO G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5399 Buckland Hills Mall Manchester CT G & G Shops of New England, Inc. - --------------------------------------------------------------------------------------------------- 5401 Northwest Plaza Saint Ann MO G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5402 Golden Ring Mall Baltimore MD G & G Shops of Maryland, Inc. - --------------------------------------------------------------------------------------------------- 5406 Center at Salisbury Salisbury MD G & G Shops of Maryland, Inc. - --------------------------------------------------------------------------------------------------- 5407 Steeplegate Mall Concord NH G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5408 Northfield Square Bourbonnais IL G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5409 Maple Hill Mall Kalamazoo MI G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5410 Morgantown Mall Morgantown WV G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5412 Augusta Mall Augusta GA G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------
A-11 Leases
- --------------------------------------------------------------------------------------------------- Store Mall City State Seller - --------------------------------------------------------------------------------------------------- 5414 Savannah Mall Savannah GA G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5417 Birchwood Mall Fort Gratiot MI G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5418 Carousel Center Syracuse NY G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5419 Countryside Mall Clearwater FL G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5420 Mid Rivers Mall Saint Peters MO G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5422 Evergreen Mall Evergreen IL G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5424 Edgewood Town Center Edgewood PA G & G Shops of Pennsylvania, Inc. - --------------------------------------------------------------------------------------------------- 5425 The Avenues Jacksonville FL G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5426 Lloyd Center Space Portland OR G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5428 Galleria at Cyrstal Run Middletown NY G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5429 Washington Square Mall Indianapolis IN G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5431 Paddock Mall Ocala FL G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5432 Desoto Square Bradenton FL G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5433 The Brickyard Mall Chicago IL G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5434 Northtown Mall Spokane WA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5435 Coolsprings Galleria Franklin TN G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5436 Westmoreland Mall Greensburg PA G & G Shops of Pennsylvania, Inc. - --------------------------------------------------------------------------------------------------- 5437 Melbourne Square Mall Melbourne FL G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5438 Virginia Center Commons Glen Allen VA G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5440 Crossroad S.C. Omaha NE G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5442 South Center Seattle WA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5443 The Florida Mall Orlando FL G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5445 Willow Woods Shoppes Wantaugh NY G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5446 Orlando Fashion Center Orlando FL G & G Shops of North Carolina, Inc. - ---------------------------------------------------------------------------------------------------
A-12 Leases
- --------------------------------------------------------------------------------------------------- Store Mall City State Seller - --------------------------------------------------------------------------------------------------- 5447 Westchester Mall Miami FL G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5448 Lakeshore Mall Sebring FL G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5450 Silver City Galleria Taunton MA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5451 Granite Run Mall Media PA G & G Shops of Pennsylvania, Inc. - --------------------------------------------------------------------------------------------------- 5452 Springhill Mall West Dundee IL G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5453 Montgomery Mall North Wales PA G & G Shops of Pennsylvania, Inc. - --------------------------------------------------------------------------------------------------- 5454 Mall at 163rd Street North Miami FL G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5455 Westgate Mall Brockton MA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5457 Sarasota Square Sarasota FL G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5458 Holyoke Mall Holyoke MA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5459 Oakwood Mall Gretna LA G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5460 Pembroke Lakes Mall Pembroke Pines FL G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5462 The Mall at Johnson City Johnson City TN G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5463 Mall at Barnes Crossing Tupelo MS G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5464 Beltway Plaza Greenbelt MD G & G Shops of Maryland, Inc. - --------------------------------------------------------------------------------------------------- 5465 Jefferson mall Louisville KY G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5466 Palm Beach Mall West Palm Beach FL G & G Shops of North Carolina, Inc. - --------------------------------------------------------------------------------------------------- 5468 Crossroad Mall Boulder CO G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5469 Buckingham Square Aurora CO G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5472 Greeley Mall Greeley CO G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5477 Mall at Steam Town Scranton PA G & G Shops of Pennsylvania, Inc. - --------------------------------------------------------------------------------------------------- 5600 Carousel mall San Bernardino CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5601 Victor Valley mall Victorville CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5602 Panorama mall Panorama City CA G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------
A-13 Leases
- --------------------------------------------------------------------------------------------------- Store Mall City State Seller - --------------------------------------------------------------------------------------------------- 5603 Fallbrook Mall Canoga Park CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5604 Northridge Center Mall Salinas CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5605 Mall at Northgate San Farael CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5606 Montebello Town Center Montebello CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5608 Lakewood Center Mall Lakewood CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5609 Valley Plaza Bakersfield CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5610 Buena Park Buena Park CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5611 Bayshore Mall Eureka CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5612 Sierra Vista Mall Copvos CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5614 East Hills Mall Bakersfield CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5615 Vallco Fashion Park Cupertino CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5617 County East Mall Antioch CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5620 Chico Mall Chico CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5622 Westminster Mall Westminster CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5623 Plaza Camino Real Carlsbad CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5625 Southbay Pavilion @ Carson Carson CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5627 Mall at Yuba City Yuba CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5628 Chula Vista Center Chula Vista CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5629 Baldwin Hills Los Angeles CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5631 Arden Fair Sacramento CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5633 Fresno fashion Fair Fresno CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5634 Paradise Valley Mall Phoenix AZ G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5635 Westridge Mall Phoenix AZ G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5636 Metro Center Phoenix AZ G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------
A-14 Leases
- --------------------------------------------------------------------------------------------------- Store Mall City State Seller - --------------------------------------------------------------------------------------------------- 5638 Superstition Springs Mesa AZ G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5639 Antelope Valley Palmdale CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5640 Stonewood Mall Downey CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5641 Coddingtown Mall Santa Rosa CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5642 Galleria at Tyler Riverside CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5644 Plaza West Covina West Covina CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5645 Mission Valley Center San Diego CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5646 Buenaventura Mall Ventura CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5647 Plaza Bonita National City CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5648 Manchester S.C. Fresno CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5650 Park Lane Mall Reno NV G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5651 Valencia Town Center Valencia CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5653 Vintage Faire Modesto CA G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5681 Pearlridge Phase II Aiea HI G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5700 Ingram Park mall San Antonio TX G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5702 Windsor Park Mall San Antonio TX G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5703 Sunland Park Mall El Paso TX G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5704 Cielo Vista Mall El Paso TX G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5705 Valle Vista Mall Harlingen TX G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5706 Amigo Land Mall Brownsville TX G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5707 Sunrise Mall Brownsville TX G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5708 Plaza Mall Mcallen TX G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5710 Bassett Center El Paso TX G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5711 Greenspoint Mall Houston TX G & G Shops, Inc. - ---------------------------------------------------------------------------------------------------
A-15 Leases
- --------------------------------------------------------------------------------------------------- Store Mall City State Seller - --------------------------------------------------------------------------------------------------- 5712 Parkdale Mall Beaumont TX G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5714 Barton Creek Mall Austin TX G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5715 Lakeline Mall Austin TX G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5716 Sharpstown Mall Houston TX G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5717 Valley View Mall Dallas TX G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5718 South Park Mall San Antonio TX G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5719 South Plains Mall Lubbock TX G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5724 North East Mall Hurst TX G & G Shops, Inc. - --------------------------------------------------------------------------------------------------- 5800 Plaza Las Americas Hato Rey PR Dayson's Cupey Corp. - --------------------------------------------------------------------------------------------------- 5801 Ponce Mall Ponce PR Dayson's of Ponce, Inc. - --------------------------------------------------------------------------------------------------- 5802 Mayaguez Mall Mayaguez PR Franklin 198 Corp. - --------------------------------------------------------------------------------------------------- 5803 Santa Rosa Mall Bayamon PR Rave Apparel Corp of Bayamon - --------------------------------------------------------------------------------------------------- 5804 Oriental Plaza Humacao PR Rave Apparel Corp of Humacao - --------------------------------------------------------------------------------------------------- 5805 Plaza Palma Real Humacao PR 61 Dr. Veve Corporation - --------------------------------------------------------------------------------------------------- 5806 Plaza Del Carmen Caguas PR Caribe Apparel Corporation - --------------------------------------------------------------------------------------------------- 5807 El Senoral Mall Rio Piedras PR Christina El Senorial Corp. - --------------------------------------------------------------------------------------------------- 5808 Once De Diego Street Cayey PR Marianne Estrella Corp. - --------------------------------------------------------------------------------------------------- 5810 Plaza Del Oeste San German PR 61 Dr. Veve Corporation - --------------------------------------------------------------------------------------------------- 5811 Plaza Carolina Carolina PR Noya Carolina Corp. - --------------------------------------------------------------------------------------------------- 5814 #6 Progresso Street Aquadilla PR Progresso-Corchado, Corp. - --------------------------------------------------------------------------------------------------- 5815 Ponce De Leon Street Santruce PR Cumbres Apparel Corp. - --------------------------------------------------------------------------------------------------- 5816 44 Noya and Hernandez Humacao PR Noya Carolina Corp. - --------------------------------------------------------------------------------------------------- 5817 25 North Calimano Street Guayama PR N. Calimano MDA Corp. - --------------------------------------------------------------------------------------------------- 5818 De Diego St. #83/84 Rio Piedras PR Marianne Estrella Corp. - ---------------------------------------------------------------------------------------------------
A-16 Leases
- --------------------------------------------------------------------------------------------------- Store Mall City State Seller - --------------------------------------------------------------------------------------------------- 5819 Barcelo Street Barranquitas PR 61 Dr. Veve Corporation - --------------------------------------------------------------------------------------------------- 5820 Baymon Oeste Hato Tejas PR Dayson's of Ponce, Inc. - --------------------------------------------------------------------------------------------------- 5822 De Diego Street Rio Piedras PR El Canton Apparel Corp. - --------------------------------------------------------------------------------------------------- 5823 Sunny Isles Center St. Croix VI G & G Island Corp. - --------------------------------------------------------------------------------------------------- 5825 Guatier Benitez Caguas PR El Canton Apparel Corp. - --------------------------------------------------------------------------------------------------- 5826 Dorado S.C Dorado PR Caribe Apparel Corporation - --------------------------------------------------------------------------------------------------- 5828 Caparra Heights Guaynabo PR Franklin 203 Corp. - --------------------------------------------------------------------------------------------------- 5829 Plaza Rio Hondo Bayamon PR Marianne Estrella Corp. - --------------------------------------------------------------------------------------------------- 5831 Post Street Mayaguez PR Marianne Estrella Corp. - --------------------------------------------------------------------------------------------------- 5833 Vega Baja Vega Baja PR 157 De Diego Corporation - --------------------------------------------------------------------------------------------------- 5834 De Diego Street #204 Arecibo PR 157 De Diego Corporation - --------------------------------------------------------------------------------------------------- 5835 Calle Ruis Belvis San Sebastian PR Marianne Estrella Corp. - --------------------------------------------------------------------------------------------------- 5836 Atocha Mall Ponce PR Franklin 203 Corp. - --------------------------------------------------------------------------------------------------- 5837 Bayamon S.C. Baymon PR Noya Carolina Corp. - --------------------------------------------------------------------------------------------------- 5838 Plaza Guayama Guayama PR 61 Dr. Veve Corporation - --------------------------------------------------------------------------------------------------- 5839 Plaza Juana Diaz Juana Diaz PR Noya Carolina Corp. - --------------------------------------------------------------------------------------------------- 5840 El Canton Mall Bayamon PR Franklin 221 Corp. - --------------------------------------------------------------------------------------------------- 5841 Plaza Carolina Carolina PR El Canton Apparel Corp. - --------------------------------------------------------------------------------------------------- 5842 Plaza Centro Caguas PR Franklin 221 Corp. - --------------------------------------------------------------------------------------------------- 5843 Fajardo Consumer Mall Fajardo PR Franklin 203 Corp. - --------------------------------------------------------------------------------------------------- 5844 53 McKinley Street Manati PR Franklin 223 Corp. - --------------------------------------------------------------------------------------------------- 5846 Yauco Plaza Yauco PR Rave Apparel Corp of Humacao - --------------------------------------------------------------------------------------------------- 5847 Plaza Del Caribe Ponce PR Dayson's of Ponce, Inc. - ---------------------------------------------------------------------------------------------------
A-17 Leases
- --------------------------------------------------------------------------------------------------- Store Mall City State Seller - --------------------------------------------------------------------------------------------------- 5848 Plaza Del Norte #116 Hatillo PR 61 Dr. Veve Corporation - --------------------------------------------------------------------------------------------------- 5850 Aguadilla Mall #9 Aquadilla PR 61 Dr. Veve Corporation - --------------------------------------------------------------------------------------------------- 5851 Tutu Park St. Thomas VI G & G Island Corp. - --------------------------------------------------------------------------------------------------- 5902 South Hills Pittsburgh PA G & G Shops of New York, Inc. - --------------------------------------------------------------------------------------------------- 5905 Dadeland Mall Miami FL G & G Shops of New York, Inc. - ---------------------------------------------------------------------------------------------------
A-18 Additional Leases - -------------------------------------------------------------------------------- Store Mall City State Seller - ----- ---- ---- ----- ------ - -------------------------------------------------------------------------------- 5923 Edison Mall Fort Myers FL G & G Shops of North Carolina, Inc. - -------------------------------------------------------------------------------- 5720 Vista Ridge Lewisville TX G & G Shops, Inc. Mall - -------------------------------------------------------------------------------- 5723 Mall del Laredo TX G & G Shops, Inc. Norte - -------------------------------------------------------------------------------- 5726 San Jacinto Baytown TX G & G Shops, Inc. Mall - -------------------------------------------------------------------------------- 5722 Midland Park Midland TX G & G Shops, Inc. Mall - -------------------------------------------------------------------------------- 5721 Padre Corpus TX G & G Shops, Inc. Staples Mall Christi - -------------------------------------------------------------------------------- 8678 Springfield Springfield VA G & G Shops, Inc. Mall - -------------------------------------------------------------------------------- A-19 Petrie Seller Leases
- ------------------------------------------------------------------------------------------- Store Mall City State Seller - ------------------------------------------------------------------------------------------- 5834 De Diego Street #204 Arecibo PR 157 De Diego Corporation - ------------------------------------------------------------------------------------------- 5833 Vega Baja Vega Baja PR 157 De Diego Corporation - ------------------------------------------------------------------------------------------- 5805 Plaza Palma Real Humacao PR 61 Dr. Veve Corporation - ------------------------------------------------------------------------------------------- 5838 Plaza Guayama Guayama PR 61 Dr. Veve Corporation - ------------------------------------------------------------------------------------------- 5810 Plaza Del Oeste San German PR 61 Dr. Veve Corporation - ------------------------------------------------------------------------------------------- 5819 Barcelo Street Barranquitas PR 61 Dr. Veve Corporation - ------------------------------------------------------------------------------------------- 5848 Plaza Del Norte #116 Hatillo PR 61 Dr. Veve Corporation - ------------------------------------------------------------------------------------------- 5850 Aguadilla Mall #9 Aquadilla PR 61 Dr. Veve Corporation - ------------------------------------------------------------------------------------------- 5806 Plaza Del Carmen Caguas PR Caribe Apparel Corporation - ------------------------------------------------------------------------------------------- 5826 Dorado S.C Dorado PR Caribe Apparel Corporation - ------------------------------------------------------------------------------------------- 5807 El Senoral Mall Rio Piedras PR Christina El Senorial Corp. - ------------------------------------------------------------------------------------------- 5815 Ponce De Leon Street Santruce PR Cumbres Apparel Corp. - ------------------------------------------------------------------------------------------- 5800 Plaza Las Americas Hato Rey PR Dayson's Cupey Corp. - ------------------------------------------------------------------------------------------- 5820 Baymon Oeste Hato Tejas PR Dayson's of Ponce, Inc. - ------------------------------------------------------------------------------------------- 5801 Ponce Mall Ponce PR Dayson's of Ponce, Inc. - ------------------------------------------------------------------------------------------- 5847 Plaza Del Caribe Ponce PR Dayson's of Ponce, Inc. - ------------------------------------------------------------------------------------------- 5822 De Diego Street Rio Piedras PR El Canton Apparel Corp. - ------------------------------------------------------------------------------------------- 5841 Plaza Carolina Carolina PR El Canton Apparel Corp. - ------------------------------------------------------------------------------------------- 5825 Guatier Benitez Caguas PR El Canton Apparel Corp. - ------------------------------------------------------------------------------------------- 5802 Mayaguez Mall Mayaguez PR Franklin 198 Corp. - ------------------------------------------------------------------------------------------- 5836 Atocha Mall Ponce PR Franklin 203 Corp. - ------------------------------------------------------------------------------------------- 5828 Caparra Heights Guaynabo PR Franklin 203 Corp. - ------------------------------------------------------------------------------------------- 5843 Fajardo Consumer Mall Fajardo PR Franklin 203 Corp. - ------------------------------------------------------------------------------------------- 5842 Plaza Centro Caguas PR Franklin 221 Corp. - ------------------------------------------------------------------------------------------- 5840 El Canton Mall Bayamon PR Franklin 221 Corp. - -------------------------------------------------------------------------------------------
A-20 Petrie Seller Leases
- -------------------------------------------------------------------------------------------------- Store Mall City State Seller - -------------------------------------------------------------------------------------------------- 5844 53 McKinley Street Manati PR Franklin 223 Corp. - -------------------------------------------------------------------------------------------------- 5831 Post Street Mayaguez PR Marianne Estrella Corp. - -------------------------------------------------------------------------------------------------- 5829 Plaza Rio Hondo Bayamon PR Marianne Estrella Corp. - -------------------------------------------------------------------------------------------------- 5818 De Diego St. #83/84 Rio Piedras PR Marianne Estrella Corp. - -------------------------------------------------------------------------------------------------- 5835 Calle Ruis Belvis San Sebastian PR Marianne Estrella Corp. - -------------------------------------------------------------------------------------------------- 5808 Once De Diego Street Cayey PR Marianne Estrella Corp. - -------------------------------------------------------------------------------------------------- 5811 Plaza Carolina Carolina PR Noya Carolina Corp. - -------------------------------------------------------------------------------------------------- 5839 Plaza Juana Diaz Juana Diaz PR Noya Carolina Corp. - -------------------------------------------------------------------------------------------------- 5837 Bayamon S.C. Baymon PR Noya Carolina Corp. - -------------------------------------------------------------------------------------------------- 5816 44 Noya and Hernandez Humacao PR Noya Carolina Corp. - -------------------------------------------------------------------------------------------------- 5817 25 North Calimano Street Guayama PR N. Calimano MDA Corp. - -------------------------------------------------------------------------------------------------- 5814 #6 Progresso Street Aquadilla PR Progresso-Corchado, Corp. - -------------------------------------------------------------------------------------------------- 5803 Santa Rosa Mall Bayamon PR Rave Apparel Corp of Bayamon - -------------------------------------------------------------------------------------------------- 5846 Yauco Plaza Yauco PR Rave Apparel Corp of Humacao - -------------------------------------------------------------------------------------------------- 5804 Oriental Plaza Humacao PR Rave Apparel Corp of Humacao - -------------------------------------------------------------------------------------------------- 5084 Twin River Mall Newbern NC Whitney Stores, Inc. - --------------------------------------------------------------------------------------------------
A-21 Other Contracts - -------------------------------------------------------------------------------- Lessor Date Type - -------------------------------------------------------------------------------- Accu-Sort Systems, Inc. 02/26/97 Distribution - -------------------------------------------------------------------------------- ADT 05/10/90 Stores - -------------------------------------------------------------------------------- ADT 10/19/94 Stores - -------------------------------------------------------------------------------- ADT 02/07/89 Stores - -------------------------------------------------------------------------------- ADT 03/01/91 Stores - -------------------------------------------------------------------------------- ADT 10/11/91 Stores - -------------------------------------------------------------------------------- ADT 01/30/90 Stores - -------------------------------------------------------------------------------- ADT 11/26/86 Stores - -------------------------------------------------------------------------------- ADT 03/05/93 Stores - -------------------------------------------------------------------------------- ADT 02/10/94 Stores - -------------------------------------------------------------------------------- ADT 08/02/90 Stores - -------------------------------------------------------------------------------- ADT 05/04/92 Stores - -------------------------------------------------------------------------------- ADT 07/10/87 Stores - -------------------------------------------------------------------------------- ADT 06/04/92 Stores - -------------------------------------------------------------------------------- AFA Protective Systems 12/05/86 Stores - -------------------------------------------------------------------------------- Applied Sound and Communications 10/28/94 MIS - -------------------------------------------------------------------------------- Asset Conservation, Inc. 03/30/87 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 02/05/87 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 08/22/86 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 07/31/86 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 10/20/86 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 11/17/86 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 07/10/87 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 10/09/87 Stores - -------------------------------------------------------------------------------- A-22 Other Contracts - -------------------------------------------------------------------------------- Lessor Date Type - -------------------------------------------------------------------------------- Asset Conservation, Inc. 02/17/87 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 06/08/87 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 06/08/87 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 07/30/87 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 11/12/90 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 11/13/90 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 08/24/87 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 08/05/86 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 08/12/87 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 07/09/87 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 08/18/87 Stores - -------------------------------------------------------------------------------- Asset Conservation, Inc. 04/23/87 Stores - -------------------------------------------------------------------------------- Atlantic Scale Company, Inc. 11/27/97 Distribution - -------------------------------------------------------------------------------- Cannon 05/25/96 Office Equipment - -------------------------------------------------------------------------------- Central Station Protective Service 05/01/92 Stores - -------------------------------------------------------------------------------- Central Station Protective Service 02/21/92 Stores - -------------------------------------------------------------------------------- Coverall of No. America, Inc. 11/21/97 Distribution - -------------------------------------------------------------------------------- Eastern DataComm #1105 01/26/98 MIS - -------------------------------------------------------------------------------- Eastern DataComm #1106 01/26/98 MIS - -------------------------------------------------------------------------------- Eastern DataComm #597 01/26/98 MIS - -------------------------------------------------------------------------------- Eastern DataComm #598 01/26/98 MIS - -------------------------------------------------------------------------------- Eastern DataComm #601 02/09/98 MIS - -------------------------------------------------------------------------------- Eastern DataComm #856 02/09/98 MIS - -------------------------------------------------------------------------------- Eastern DataComm #858 01/26/98 MIS - -------------------------------------------------------------------------------- A-23 Other Contracts - -------------------------------------------------------------------------------- Lessor Date Type - -------------------------------------------------------------------------------- Energy Engineering 10/17/97 Distribution - -------------------------------------------------------------------------------- Fitzgerald and Long MIS - -------------------------------------------------------------------------------- GRC Mechanical Services 10/14/97 Distribution - -------------------------------------------------------------------------------- Holmes Protection of Philadelphia, Inc. 02/05/92 Stores - -------------------------------------------------------------------------------- Holmes Protection, Inc. 05/01/91 Stores - -------------------------------------------------------------------------------- IBM 11/06/97 MIS - -------------------------------------------------------------------------------- James River Technical Incorporated 07/14/94 MIS - -------------------------------------------------------------------------------- Liebert CS&S 11/07/97 MIS - -------------------------------------------------------------------------------- Mannesmann Tally 02/17/98 MIS - -------------------------------------------------------------------------------- MCS Cannon 11/29/94 Office Equipment - -------------------------------------------------------------------------------- Millsoft, Inc. 08/12/94 MIS - -------------------------------------------------------------------------------- Monarch Marketing Systems 01/01/98 Distribution - -------------------------------------------------------------------------------- Net Manage 12/08/97 MIS - -------------------------------------------------------------------------------- OCE Acquisition Alternatives 07/02/97 Office Equipment - -------------------------------------------------------------------------------- Output Technology 10/08/97 MIS - -------------------------------------------------------------------------------- Peak Technologies 01/28/98 MIS - -------------------------------------------------------------------------------- Pitney Bowes Credit Corporation 02/01/96 Office Equipment - -------------------------------------------------------------------------------- Retail Store Systems, Inc. 11/11/97 MIS - -------------------------------------------------------------------------------- Siemens Business Communications Systems, Inc. 01/26/98 MIS - -------------------------------------------------------------------------------- T&G Industries, Inc. 01/07/96 MIS - -------------------------------------------------------------------------------- Vanstar MIS - -------------------------------------------------------------------------------- V-Mark 02/01/95 MIS - -------------------------------------------------------------------------------- Xerox 05/20/93 Office Equipment - -------------------------------------------------------------------------------- A-24 Other Contracts - -------------------------------------------------------------------------------- Contracting Party Date Type - -------------------------------------------------------------------------------- Jay Galin 3/4/97 Employment Contract - -------------------------------------------------------------------------------- Scott Galin 4/23/97 Employment Contract - -------------------------------------------------------------------------------- A-25 EX-10.06 17 EMPLOYMENT AGREEMENT 8/28/98 -- JAY GALIN EXHIBIT 10.06 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is made as of August 28, 1998 (the "Effective Date"), by and between G+G Retail, Inc., a Delaware corporation (the "Company"), and Jay Galin, an individual resident in 167 East 71st Street, New York, NY 10021 (the "Executive"). RECITALS Concurrently with the execution of this Agreement (i) the Company is purchasing certain assets and assuming certain liabilities pursuant to the Asset Purchase Agreement, dated as of July 6, 1998 among the Company, G & G Shops, Inc., the subsidiaries of G & G Shops, Inc. named therein, the subsidiaries of Petrie Retail, Inc. named therein and PSL, Inc., as amended (the "Asset Purchase Agreement") and (ii) Pegasus G&G Retail, L.P., Pegasus G&G Retail II, L.P. (collectively, the "Investors"), the Executive and the other stockholders of G&G Retail Holdings, Inc., the Company's parent company ("Parent Company") are entering into a stockholders agreement (the "Stockholders Agreement"), providing for various rights and obligations of the Parent Company's stockholders. The Company and the Investors desire the Executive's continued employment with the Company, and the Executive wishes to accept such continued employment, upon the terms and subject to the conditions set forth in this Agreement. AGREEMENT The parties, intending to be legally bound, agree as follows: 1. DEFINITIONS For purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1. "Agreement" shall mean this Employment Agreement, including the schedules and exhibits hereto, as modified, supplemented or amended from time to time. "Asset Purchase Agreement" shall have the meaning set forth in the Recitals to this Agreement. "Basic Compensation" shall have the meaning set forth in Section 3.1(b). "Benefits" shall have the meaning set forth in Section 3.1(b). "Board of Directors" shall mean the board of directors of the Company. "Bonus Compensation" shall have the meaning set forth in Section 3.2(a). "Cause" shall have the meaning set forth in Section 4.3. "Company" shall have the meaning set forth in the first paragraph of this Agreement. "Confidential Information" shall mean any and all knowledge and information relating to the business and affairs of the Company or any of its affiliates, their products, processes and/or services and their customers, suppliers, landlords, creditors, shareholders, contractors, agents, consultants and employees ("Related Persons"), that is or is intended by any of them to be of a confidential nature, including, but not limited to, any and all knowledge and information relating to products, research, development, inventions, manufacture, purchasing, accounting, finances, costs, profit margins, marketing, merchandising, selling, customer lists, customer requirements and personnel, pricing, pricing methods, computer programs and software, databases and data processing and any and all other such knowledge, information and materials, heretofore or hereafter during the term of this Agreement, conceived, designed, created, used or developed by or relating to the Company, any of its affiliates or any Related Person; Confidential Information does not include any information that may be in the public domain or come into the public domain not as a result of a breach by the Executive of any of the terms or provisions of this Agreement. "Designated Beneficiary" shall have the meaning set forth in Section 5.5. "Disability" shall have the meaning set forth in Section 4.2. "Effective Date" shall have the meaning set forth in the first paragraph of this Agreement. "Employment Period" shall have the meaning set forth in Section 2.2(a). "Executive" shall have the meaning set forth in the first paragraph of this Agreement. "Good Reason" shall have the meaning set forth in Section 4.4. "Investors" shall have the meaning set forth in the Recitals to this Agreement. "Parent Company" shall have the meaning set forth in the first paragraph of this Agreement. "Person" shall mean any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, governmental body or other entity. "Post-Employment Period" shall have the meaning set forth in Section 6.2. "Proprietary Items" shall have the meaning set forth in Section 5.2(d). 2 "Salary" shall have the meaning set forth in Section 3.1(a). "Stockholders Agreement" shall have the meaning set forth in the Recitals to this Agreement. 2. EMPLOYMENT TERMS AND DUTIES 2.1 EMPLOYMENT Upon consummation of the transactions contemplated in the Asset Purchase Agreement, the Company employs the Executive, and the Executive accepts employment by the Company, upon the terms and subject to the conditions set forth in this Agreement. 2.2 TERM (a) Subject to the provisions of Section 4 and paragraph (b) below, the term of the Executive's employment under this Agreement shall be two years, beginning on the Effective Date and ending on the second anniversary of the Effective Date (the "Employment Period"). (b) At any time during the Employment Period, the Executive may, by written notice to the Company in accordance with Section 7.7 (the "Consulting Notice"), terminate this Agreement and serve as a consultant to the Company (the "Consulting Option"), substantially upon the terms and conditions set forth in the consulting agreement attached hereto as Exhibit A (the "Consulting Agreement"). Following the exercise by the Executive of the Consulting Option, this Agreement shall terminate and the Consulting Agreement shall take effect in place of this Agreement in all respects on the later of (i) the date on which the Company and the Executive enter into the Consulting Agreement and (ii) the date which is three full months following receipt by the Company of the Consulting Notice. 2.3 DUTIES The Executive shall have such duties as are assigned or delegated to the Executive by the Board of Directors, and shall initially serve as Chairman and Chief Executive Officer of the Company. The Executive shall (a) devote his entire business time, attention, skill and energy exclusively to the business of the Company, (b) serve the Company faithfully, diligently and to the best of his ability under the direction of the Board of Directors, (c) use his best efforts to promote the success of the Company's business and (d) cooperate fully with the Board of Directors in the advancement of the best interests of the Company. The Executive shall not, without the prior written consent of the Board of Directors (x) do anything or permit anything to be done at his direction inconsistent with his duties to the Company or its affiliates or opposed to their best interests, or (y) become an officer, director, employee or consultant of, or otherwise become associated with or engaged in, any business other than that of the Company and the Parent Company, except that the Executive may continue to serve as a non-employee or "outside" director of Ark Restaurants Corp., 3 a publicly-held company. Nothing in this Section 2.3 shall prevent the Executive from engaging in additional activities in connection with personal investments and community affairs that are not inconsistent with the Executive's duties under this Agreement. If the Executive is elected as a director of the Company or as a director or officer of any of its affiliates, the Executive shall fulfill his duties as such director or officer without additional compensation. During the Employment Period, the Executive shall be headquartered in New York City. 3. COMPENSATION AND BENEFITS 3.1 BASIC COMPENSATION (a) Salary. The Executive shall be paid an initial annual salary of $1,050,000 ("Salary"), which shall be payable in equal periodic installments according to the Company's customary payroll practices, but no less frequently than monthly. On each anniversary of the commencement of the Employment Period, the Executive's Salary shall be increased by $25,000. (b) Benefits. The Company shall maintain for the Executive during the Employment Period, at no cost to the Executive, hospitalization, medical, surgical, dental and other employee benefit plans of the Company currently in effect, as set forth on Schedule 3.1 hereto including, without limitation, so called Blue Cross-Blue Shield and major medical coverage, (collectively the "Benefits" and, together with the Salary, "Basic Compensation"), providing for direct payment or reimbursement to the Executive of substantially all medical and dental expenses incurred by the Executive, his spouse and dependent members of his family during the Employment Period. The Company shall furnish to the Executive, during the Employment Period, an automobile comparable to that currently being furnished to the Executive by G&G Shops, Inc. The Company shall pay all expenses relating to the maintenance and business use of such automobile, including, without limitation, insurance, repairs and fuel. (c) Expenses. The Company shall pay on behalf of the Executive (or reimburse the Executive for) reasonable expenses incurred by the Executive at the request of, or on behalf of, the Company in the performance of the Executive's duties pursuant to this Agreement, and in accordance with the Company's employment policies. The Executive shall file expense reports with respect to such expenses in accordance with the Company's policies. 3.2 BONUS COMPENSATION The Company shall implement a bonus plan for the benefit of the senior management of the Company which plan shall provide for annual bonuses to be paid to eligible members of the Company's management based on the Company attaining certain annual EBITDA targets to be agreed upon and specified by the holders of the Parent Company's shares of Class A common stock, par value $.001 per share and Class B common stock, par value $.001 per share. 4 The Executive will be eligible to receive collectively with Scott Galin up to (and no more than) 50% of the aggregate bonus pool amount, provided, that in no event shall the Executive receive a bonus amount greater than the amount of his annual salary. The remainder of the bonus pool shall be distributed as determined by the Executive and Scott Galin jointly. The bonus plan shall terminate upon consummation by the Company of an initial public offering of its common stock, at which time the Company will consider replacing the bonus plan with a plan more appropriate for public companies. 4. TERMINATION 4.1 EVENTS OF TERMINATION The Employment Period, the Executive's Basic Compensation and Bonus Compensation and any and all other rights of the Executive under this Agreement or otherwise as an employee of the Company shall terminate (except as otherwise provided in this Section 4): (a) upon the death of the Executive; (b) upon the Disability (as defined in Section 4.2) of the Executive, immediately upon notice from either party to the other; (c) upon termination by the Company for Cause (as defined in Section 4.3), on the date specified in Section 4.3; or (d) upon termination by the Executive for Good Reason (as defined in Section 4.4), on the date specified in Section 4.4. 4.2 DEFINITION OF "DISABILITY" (a) For the purposes of this Section 4.2, the Executive shall be deemed to have a Disability if (i) by reason of physical or mental incapacity, the Executive shall not be able to perform his duties hereunder for a consecutive period of six months or more or for a period in the aggregate of six months in any consecutive period of twelve months; or (ii) when the Executive's physician shall have determined that he shall not be able, by reason of physical or mental disability, to devote his time and energy to the business of the Company for a continuous period of six months or for a period in the aggregate of six months in a consecutive period of twelve months. In the event that the Executive or the Company shall dispute any determination of his Disability hereunder, the matter shall be resolved by the determination of three physicians qualified to practice medicine in the State of New York, one to be selected by each of the Company and the Executive and the third to be selected by the designated physicians. During the period in which the determination of the Executive's Disability shall be under such review, the Executive shall continue to be treated for all 5 purposes of this Agreement as an employee of the Company, enjoying the full status with full pay to which he would otherwise be entitled under this Agreement. (b) The Company may, but shall not be obligated to, apply for and pay the premiums upon disability insurance covering the Executive under policies providing for the payment thereunder directly to the Executive. If the Executive shall receive benefits under any of such policies, the Company shall be entitled to deduct the amount equal to the benefits so received from the Salary which it otherwise would be required to pay to the Executive as provided in Section 4.5(c). 4.3 DEFINITION OF FOR "CAUSE" For purposes of Section 4.1, the phrase for "Cause" means: (i) the failure, neglect or refusal by the Executive to perform his duties hereunder (including, without limitation, his inability to perform his duties hereunder as a result of alcohol abuse, chronic alcoholism or drug addiction); (ii) any willful, intentional or grossly negligent act by the Executive having the effect of injuring the reputation or business of the Company; (iii) the Executive's conviction of a felony or a crime involving moral turpitude (including the entry of a nolo contendere plea); and (iv) any other default, nonperformance or violation by the Executive of any of the covenants, provisions or terms of this Agreement. A termination for Cause as defined in clause (i) or (iv) of the preceding sentence shall become effective only if (A) the Company shall have given Executive notice thereof describing the basis for such termination for Cause, and (B) the Executive fails to cure such Cause within 10 business days after receiving such notice (and the termination for Cause shall be effective upon the expiration of such 10-business-day period if the Executive fails to effect such cure); and a termination for Cause as defined in clause (ii) or (iii) of the preceding sentence shall be effective at the time the Company gives notice thereof to the Executive. 4.4 DEFINITION OF FOR "GOOD REASON" For purposes of Section 4.1, the phrase for "Good Reason" means (i) the Company effects a material reduction in the Executive's position or duties from those set forth in Section 2.3 hereof, the Company fails to provide the Executive with any material compensation or benefits to which he is entitled pursuant to Section 3 hereof, or the Company commits any other material breach of this Agreement; (ii) the Executive gives the Company notice of the event described in clause (i) within 20 business days after its occurrence; and (iii) the Company fails to cure such event within 10 business days after receiving notice thereof (and the termination for Good Reason shall be effective upon the expiration of such 10-business-day period if the Company, as applicable, fails to effect such cure). 4.5 TERMINATION PAY Effective upon the termination of this Agreement, the Company shall be obligated to pay the Executive (or, in the event of his death, his Designated Beneficiary, as defined below) 6 only such compensation as is provided in this Section 4.5, and in lieu of all other amounts and in settlement and complete release of all claims the Executive may have against the Company. For purposes of this Section 4.5, the Executive's "Designated Beneficiary" shall be such individual beneficiary or trust, located at such address, as the Executive may designate by notice to the Company from time to time or, if the Executive fails to give notice to the Company of such a beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the Company shall have no duty, in any circumstances, to attempt to open an estate on behalf of the Executive, to determine whether any beneficiary designated by the Executive is alive or to ascertain the address of any such beneficiary, to determine the existence of any trust, to determine whether any Person purporting to act as the Executive's personal representative (or the trustee of a trust established by the Executive) is duly authorized to act in that capacity or to locate or attempt to locate any beneficiary, personal representative or trustee. (a) Termination by the Executive for Good Reason or by the Company Without Cause. In the event that during the Employment Period, the Executive terminates his employment with the Company for Good Reason, or the Company terminates the Executive's employment without Cause, then the Executive shall receive from the Company (as severance pay and liquidated damages, in lieu of any other rights or remedies which might otherwise be available to him under this Agreement, and to the extent permitted by law, without any obligation on the Executive's part to mitigate damages by seeking other employment or otherwise and without any offset for any compensation earned as a result of any such other employment or performance of other services) amounts equal to (and payable at the same time and in the same manner as) the Salary payable pursuant to Section 3.1(a) above and the bonus compensation described in Section 3.2(a) above and all of the Benefits provided for in Section 3.1(b) above, which the Executive would otherwise have been entitled to receive pursuant to this Agreement, had he remained employed by the Company throughout the remainder of the Employment Period as in effect immediately before such termination. In case of any dispute as to the propriety of the termination of the Executive's employment by the Company, the Company agrees to continue to provide to the Executive all of the cash compensation and benefits that would be payable to the Executive pursuant to the preceding sentence pending final resolution of such dispute; the Executive shall be entitled to such legal or equitable damages or relief as may be available to enforce his rights hereunder; and the Executive shall be obligated to reimburse the Company for all such compensation and benefits if it is finally determined that he was not entitled thereto. If such termination is determined to be improper, the Company agrees to pay to the Executive all of his attorney's fees and expenses arising from such dispute. (b) Termination by the Company for Cause or by the Executive Without Good Reason. If the Company terminates this Agreement for Cause, or if the Executive terminates his employment other than for Good Reason, the Executive shall be entitled to receive his Salary only through the date such termination is effective, and shall not be entitled to any Bonus Compensation for the fiscal year during which such termination occurs or any subsequent fiscal year. 7 (c) Termination upon Disability. The Company shall continue to pay the Executive his Salary pursuant to Section 3.1(a) and continue to provide the Executive with Benefits pursuant to Section 3.1(b) for a period of one year after he shall be deemed to have a Disability. Thereafter, the Executive shall be entitled to receive a salary at an annual rate equal to one-half of the Salary as then in effect and shall continue to receive Benefits, in each case for a further period of six months. Upon the expiration of such further six- month period, the Executive shall not be entitled to receive any further Salary or other compensation or benefits from the Company, until he shall cease to have a Disability and shall have resumed his duties hereunder. In the event the Executive dies as the result of a Disability, payments under this Section 4.5(c) shall cease and payments shall be made to the Executor's estate or otherwise as provided in Section 4.5(d). (d) Termination upon Death. In the event that the Executive shall die during the Employment Period, or as a result of a Disability, the Company shall pay to the Executive's Designated Beneficiary, the Salary and Bonus Compensation otherwise payable to the Executive pursuant to Section 3 above for a period of one year following the date of the Executive's death; provided, that the foregoing obligation shall be contingent on the Company obtaining key man life insurance to fund such obligation at a reasonable cost. (e) Benefits. Upon the termination of this Agreement, the Executive shall not receive, as part of his termination pay pursuant to this Section 4, any payment or other compensation for any vacation, holiday, sick leave or other leave unused on the date the notice of termination is given under this Agreement. Notwithstanding the foregoing, in the event this Agreement is terminated other than by the Company for Cause or by the Executive without Good Reason or by exercise of the Consulting Option, if the Company is able to do so, the Company shall continue to include the Executive in its hospitalization, medical, surgical, dental and other health benefit plans and shall pay all premiums under such plans on behalf of the Executive; provided, however, that the Executive shall be solely responsible for any expenses or co-payments incurred by the Executive, his spouse and dependent members of his family, except as otherwise provided in this Agreement. Following the Executive's death, unless this Agreement has been terminated by the Company for Cause or by the Executive without Good Reason or by exercise of the Consulting Option, until the death of the Executive's spouse, the Company shall use reasonable efforts to include the Executive's spouse and dependent children in hospitalization, medical, surgical, dental and other health benefit plans of the Company currently in effect; provided, however, that the Executive's spouse and dependent children shall be solely responsible for any costs incurred by the Company as a result of the inclusion of such people in such plans. Notwithstanding anything to the contrary contained herein, the provisions of this Section 4.5(e) shall survive any termination of this Agreement other than a termination by the Company for Cause or by the Executive without Good Reason or by the exercise of the Consulting Option, and shall terminate upon the death of the Executive's spouse. 8 Notwithstanding anything to the contrary contained in this Section 4.5(e), in the event this Agreement terminates pursuant to exercise of the Consulting Option, the Executive's benefits following termination shall be governed by the Consulting Agreement. 5. NON-DISCLOSURE COVENANT 5.1 ACKNOWLEDGMENTS BY THE EXECUTIVE The Executive acknowledges that (a) during the Employment Period and as a part of his employment, the Executive shall be afforded access to Confidential Information; (b) public disclosure of such Confidential Information could have an adverse effect on the Company and its business; (c) the Company has required that the Executive make the covenants in this Section 5 as a condition to its consummation of the transactions contemplated in the Asset Purchase Agreement and the Investors have required that the Executive make the covenants in this Section 5 as a condition to their investment in the Parent Company and their entering into the Stockholders Agreement; and (d) the provisions of this Section 5 are reasonable and necessary to prevent the improper use or disclosure of Confidential Information. 5.2 AGREEMENTS OF THE EXECUTIVE In consideration of the compensation and benefits to be paid or provided to the Executive by the Company under this Agreement, the Executive covenants as follows: (a) During and following the Employment Period, the Executive shall hold in confidence the Confidential Information and shall not disclose it to any Person except with the specific prior written consent of the Company or except as otherwise expressly permitted by the terms of this Agreement or as required by law or a court of competent jurisdiction; provided, that in the event disclosure is required by law or a court of competent jurisdiction, the Executive shall, prior to disclosing any Confidential Information, promptly notify the Company of such disclosure requirement and provide the Company with an opportunity to contest such disclosure requirement. (b) Any trade secrets of the Company shall be entitled to all of the protections and benefits under applicable law. If any information that the Company deems to be a trade secret is found by a court of competent jurisdiction not to be a trade secret for purposes of this Agreement, such information shall, nevertheless, be considered Confidential Information for purposes of this Agreement. The Executive hereby waives any requirement that the Company submit proof of the economic value of any trade secret or post a bond or other security. (c) None of the foregoing obligations and restrictions applies to any part of the Confidential Information that the Executive demonstrates was or became generally available to the public other than as a result of disclosure by the Executive. 9 (d) The Executive shall not remove from the Company's premises (except to the extent such removal is for purposes of the performance of the Executive's duties at home or while traveling, or except as otherwise specifically authorized by the Company), any design, document, record, notebook, plan, model, or computer software, whether embodied in a disk or in any other form (collectively, the "Proprietary Items"). The Executive recognizes that, as between the Company and the Executive, all of the Proprietary Items, whether or not developed by the Executive, are the exclusive property of the Company. Upon termination of this Agreement by either party, or upon the request of the Company during the Employment Period, the Executive shall return to the Company all of the Proprietary Items in the Executive's possession or subject to the Executive's control, and the Executive shall not retain any copies, abstracts, sketches or other physical embodiment of any of the Proprietary Items. 5.3 DISPUTES OR CONTROVERSIES The Executive recognizes that should a dispute or controversy arising from or relating to this Agreement be submitted for adjudication to any court, arbitration panel or other third party, the preservation of the secrecy of Confidential Information may be jeopardized. All pleadings, documents, testimony and records relating to any such adjudication shall be maintained in secrecy and shall be available for inspection by the Company, the Executive and their respective attorneys and experts, who shall agree, in advance and in writing, to receive and maintain all such information in secrecy, except as may be limited by them in writing. 6. NON-COMPETITION AND NON-INTERFERENCE 6.1 ACKNOWLEDGMENTS BY THE EXECUTIVE The Executive acknowledges that: (a) the services to be performed by him under this Agreement are of a special, unique, unusual, extraordinary and intellectual character; (b) the Company's business is national in scope and its products are marketed throughout the United States and in other countries, territories and possessions; (c) the Company competes with other businesses that are or could be located in any part of the United States and in other countries, territories and possessions; (d) the Company has required that the Executive make the covenants set forth in this Section 6 as a condition to the Company's consummation of the transactions contemplated by the Asset Purchase Agreement and the Investors have required that the Executive make the covenants in this Section 6 as a condition to their investment in the Parent Company and their entering into the Stockholders Agreement; and (e) the provisions of this Section 6 are reasonable and necessary to protect the Company's business. 6.2 COVENANTS OF THE EXECUTIVE In consideration of the acknowledgments by the Executive, and in consideration of the compensation and benefits to be paid or provided to the Executive by the Company, the Executive covenants that he shall not, directly or indirectly: 10 (a) during the Employment Period, except in the course of his employment hereunder, and during the Post-Employment Period (as defined below), engage or invest in, own, manage, operate, finance, control or participate in the ownership, management, operation, financing or control of, be employed by, associated with or in any manner connected with, lend the Executive's name or any similar name to, lend the Executive's credit to or render services or advice to, any Person (other than the Company and the Parent Company) engaged in the retail apparel business anywhere within the United States or in any other country, territory or possession in which the Company is then doing business; provided, however, that the Executive may purchase or otherwise acquire up to (but not more than) one percent of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934, as amended; (b) whether for the Executive's own account or for the account of any other Person, at any time during the Employment Period and the Post- Employment Period, solicit business of the same or similar type being carried on by the Company, from any Person known by the Executive to be a customer of the Company, whether or not the Executive had personal contact with such Person during and by reason of the Executive's employment with the Company; (c) whether for the Executive's own account or the account of any other Person at any time during the Employment Period and the Post-Employment Period (i) solicit, employ or otherwise engage as an employee, independent contractor or otherwise, any person who is or was an employee of the Company at any time during the Employment Period, or in any manner induce or attempt to induce any employee of the Company to terminate his employment with the Company; or (ii) interfere with the Company's relationship with any Person, including any Person who, at any time during the Employment Period, was an employee, contractor, supplier or customer of the Company; or (d) at any time during or after the Employment Period, disparage the Company or any of its shareholders, directors, officers, employees or agents. For purposes of this Section 6.2, the term "Post-Employment Period" means the period from the date of termination of this Agreement until the earlier of (i) the date on which the Employment Period would have terminated pursuant to Section 2.2(a) without earlier termination of this Agreement by the Company or the Executive and (ii) the date which is eighteen months following the date of termination of the Executive's employment with the Company. 6.3 BINDING NATURE AND DURATION OF COVENANTS; DISCLOSURE If any covenant in Section 6.2 is held to be unreasonable, arbitrary or against public policy, such covenant shall be considered to be divisible with respect to scope, time and geographic area, and such lesser scope, time or geographic area, or all of them, as a court of competent jurisdiction may determine to be reasonable, not arbitrary and not against public policy, shall be 11 effective, binding, and enforceable against the Executive. The period of time applicable to any covenant in Section 6.2 shall be extended by the duration of any violation by the Executive of such covenant. The Executive shall, while the covenant under Section 6.2 is in effect, give notice to the Company, within ten days after accepting any other employment, of the identity of the Executive's employer. The Company may notify such employer that the Executive is bound by this Agreement and, at the Company's election, furnish such employer with a copy of this Agreement or relevant portions thereof. 7. GENERAL PROVISIONS 7.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY The Executive acknowledges that the injury that would be suffered by the Company as a result of a breach of any of the provisions of this Agreement (including, without limitation, any provision of Section 5 or 6) would be irreparable and that an award of monetary damages to the Company for such a breach would be an inadequate remedy. Consequently, the Company shall have the right, in addition to any other rights it may have, to obtain injunctive relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement, and the Company shall not be obligated to post bond or other security in seeking such relief. Without limiting the Company's rights under this Section 7 or any other remedies of the Company, if the Executive breaches any of the provisions of Section 5 or 6, the Company shall have the right to cease making any payments otherwise due to the Executive under this Agreement. 7.2 COVENANTS OF SECTIONS 5 AND 6 ARE ESSENTIAL AND INDEPENDENT COVENANTS The covenants by the Executive in Sections 5 and 6 are essential elements of this Agreement, and without the Executive's agreement to comply with such covenants, the Company would not have consummated the transactions contemplated by the Asset Purchase Agreement, the Investors would not have purchased interests in the Parent Company or entered into the Stockholders Agreement, and the Company would not have entered into this Agreement or employed or continued the employment of the Executive. The Company and the Executive have independently consulted their respective counsel and have been advised in all respects concerning the reasonableness and propriety of such covenants, with specific regard to the nature of the business conducted by the Company. The Executive's covenants in Sections 5 and 6 are independent covenants, and the existence of any claim by the Executive against the Company under this Agreement or otherwise, or against the Company, the Parent Company or the Investors, shall not excuse the Executive's breach of any covenant in Section 5 and 6. If the Executive's employment hereunder expires or is terminated, this Agreement shall continue in full force and effect as is necessary or appropriate to enforce the covenants and agreements of the Executive in Sections 5 and 6. 12 7.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE The Executive represents and warrants to the Company that the execution and delivery by the Executive of this Agreement do not, and the performance by the Executive of the Executive's obligations hereunder shall not, with or without the giving of notice or the passage of time, or both (a) violate any judgment, writ, injunction or order of any court, arbitrator or governmental agency applicable to the Executive; or (b) conflict with, result in the breach of any provisions of or the termination of, or constitute a default under, any agreement to which the Executive is a party or by which the Executive is or may be bound. 7.4 OBLIGATIONS CONTINGENT ON PERFORMANCE The obligations of the Company hereunder, including its obligation to pay the compensation provided for herein, are contingent upon the Executive's performance of the Executive's obligations hereunder. 7.5 WAIVER The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by either party in exercising any right, power or privilege under this Agreement shall operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege shall preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement may be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party shall be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party shall be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement. 7.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs and legal representatives. This Agreement is personal to the parties hereto and shall not be assignable by either party without the prior written consent of the other. 7.7 NOTICES All notices, consents, waivers and other communications under this Agreement shall be made in writing and shall be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt) or 13 (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties): If to the Company: G+G Retail, Inc. 520 Eighth Avenue New York, NY 10018 Attention: Scott Galin Facsimile: (212) 695-4952 with a copy to: Kaye, Scholer, Fierman, Hays & Handler, LLP 425 Park Avenue New York, NY 10022-3598 Attention: Mark S. Selinger, Esq. Facsimile: (212) 836-8689 If to the Executive: Jay Galin 167 East 71st Street New York, NY 10021 Facsimile: (212) 772-0474 with a copy to: Shack & Siegel, P.C. 530 Fifth Avenue, 16th Floor New York, NY 10036 Attention: Donald Shack, Esq. Facsimile: (212) 730-1964 7.8 ENTIRE AGREEMENT; AMENDMENTS This Agreement, the Asset Purchase Agreement, the Stockholders Agreement and the documents executed in connection with the Asset Purchase Agreement and the Stockholders Agreement, contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, between the parties hereto 14 with respect to the subject matter hereof. This Agreement may not be amended orally, but only by an agreement in writing signed by the parties hereto. 7.9 GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles. 7.10 ARBITRATION Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the City of New York on an expedited basis by a panel of three qualified independent arbitrators selected on an expedited basis, one by the Executive, the second by the Company and the third by the first two selected. If no arbitrator can be agreed upon by the first two arbitrators within three business days of their selection, such arbitrator shall be selected on an expedited basis in accordance with the rules for commercial arbitration of the American Arbitration Association. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent, or to prevent any continuation of, any violation of Sections 5 and 6. The fees and expenses of such arbitration shall be fixed by the arbitrators and paid in accordance with their determination. 7.11 SECTION HEADINGS, CONSTRUCTION The headings of Sections in this Agreement are provided for convenience only and shall not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement unless otherwise specified. All words used in this Agreement shall be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 7.12 SEVERABILITY If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree shall remain in full force and effect to the extent not held invalid or unenforceable. 7.13 COUNTERPARTS This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original copy of this Agreement and all of which, when taken together, shall be deemed to constitute one and the same agreement. 15 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. G+G RETAIL, INC. By: /s/ Scott Galin ------------------------------ Name: Scott Galin Title: President and Chief Operating Officer /s/ Jay Galin --------------------------------- Jay Galin 16 CONSULTING AGREEMENT EXHIBIT A THIS CONSULTING AGREEMENT (the "Agreement"), is made as of _____________ ____ ,_____, by and between G+G Retail, Inc., a Delaware corporation (the "Company"), and Jay Galin, an individual residing at 167 East 71st Street, New York, New York 10021 (the "Consultant"). RECITALS WHEREAS, the Company purchased certain assets and assumed certain liabilities pursuant to the Asset Purchase Agreement, dated as of July 6, 1998 among the Company, G & G Shops, Inc., the subsidiaries of G & G Shops, Inc. named therein, the subsidiaries of Petrie Retail, Inc. named therein and PSL, Inc., as amended (the "Asset Purchase Agreement"). WHEREAS, concurrently with the closing of the transactions contemplated by the Asset Purchase Agreement, the Company, desirous of maintaining Consultant's continued employment, entered into an Employment Agreement, dated August 28, 1998, with Consultant (the "Employment Agreement"). WHEREAS, Consultant desires to terminate the Employment Agreement pursuant to Section 2.2 thereof. WHEREAS, The Company desires to retain the services of the Consultant and the Consultant desires to perform certain services for the Company. WHEREAS, the Company and the Consultant desire to enter into a written agreement evidencing the foregoing. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, agree as follows: 8.DEFINITIONS For purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1. "Agreement" shall mean this Consulting Agreement, including the schedules and exhibits hereto, as modified, supplemented or amended from time to time. "Asset Purchase Agreement" shall have the meaning set forth in the Recitals to this Agreement. A-1 "Basic Compensation" shall have the meaning set forth in Section 3(b). "Benefits" shall have the meaning set forth in Section 3(b). "Board of Directors" shall mean the board of directors of the Company. "Cause" shall have the meaning set forth in Section 4.3. "Company" shall have the meaning set forth in the first paragraph of this Agreement. "Confidential Information" shall mean any and all knowledge and information relating to the business and affairs of the Company or any of its affiliates, their products, processes and/or services and their customers, suppliers, landlords, creditors, shareholders, contractors, agents, consultants and employees ("Related Persons"), that is or is intended by any of them to be of a confidential nature, including, but not limited to, any and all knowledge and information relating to products, research, development, inventions, manufacture, purchasing, accounting, finances, costs, profit margins, marketing, merchandising, selling, customer lists, customer requirements and personnel, pricing, pricing methods, computer programs and software, databases and data processing and any and all other such knowledge, information and materials, heretofore or hereafter during the term of this Agreement, conceived, designed, created, used or developed by or relating to the Company, any of its affiliates or any Related Person; Confidential Information does not include any information that may be in the public domain or come into the public domain not as a result of a breach by the Consultant of any of the terms or provisions of this Agreement. "Consultant" shall have the meaning set forth in the first paragraph of this Agreement. "Consultation Fees" shall have the meaning set forth in Section 3(a). "Consultation Period" shall have the meaning set forth in Section 2.2. "Designated Beneficiary" shall have the meaning set forth in Section 4.5. "Disability" shall have the meaning set forth in Section 4.2. "Employment Agreement" shall have the meaning set forth in the Recitals to this Agreement. "Good Reason" shall have the meaning set forth in Section 4.4. "Parent Company" shall mean G&G Retail Holdings, Inc., the Company's parent company. "Person" shall mean any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, governmental body or other entity. A-2 "Post-Consultation Period" shall have the meaning set forth in Section 6.2. "Proprietary Items" shall have the meaning set forth in Section 5.2. 2. ENGAGEMENT TERMS AND DUTIES 2.1 ENGAGEMENT Upon termination of the Employment Agreement, the Company engages the Consultant, and the Consultant accepts engagement by the Company, upon the terms and subject to the conditions set forth in this Agreement. 2.2 TERM Subject to earlier termination pursuant to Section 4, this Agreement shall commence on the date hereof and shall continue until the third anniversary hereof (the "Consultation Period"). 2.3 DUTIES The Consultant agrees to perform, during the Consultation Period (as defined below), such consulting, advisory and related services to and for the Company as the Company shall reasonably request, for up to half normal working time. Unless otherwise requested by the Company, (i) the Consultant shall not be required to report to the Company's offices on a regular basis in order to perform his duties hereunder, and (ii) if appropriate, may perform certain of his services from his home or by telephone. If the Consultant is elected as a director of the Company or as a director or officer of any of its affiliates, the Consultant shall fulfill his duties as such director or officer without additional compensation. 2.4 COOPERATION The Consultant shall use his best efforts in the performance of his obligations under this Agreement. The Company shall provide such access to its information and property as may be reasonably required in order to permit the Consultant to perform his obligations hereunder. 2.5 INDEPENDENT CONTRACTOR STATUS The Consultant shall perform all services under this Agreement as an "independent contractor" and not as an employee or agent of the Company. The Consultant is not authorized to assume or create any obligation or responsibility, express or implied, on behalf of, or in the name of, the Company or to bind the Company in any manner. A-3 3. COMPENSATION AND BENEFITS (a) Consultation Fees. The Company shall pay to the Consultant consultation fees in an aggregate amount equal to __________1 (the "Consultation Fees"). Such Consultation Fees shall be payable in equal periodic installments according to the Company's customary payroll practices, but not less frequently than monthly. (b) Benefits. The Company shall maintain for the Consultant during the Consultation Period, at no cost to the Consultant, hospitalization, medical, surgical, dental and other employee benefit plans of the Company currently in effect, as set forth on Schedule 3.1 hereto, including, without limitation, so called Blue Cross-Blue Shield and major medical coverage, (collectively the "Benefits" and, together with the Consultation Fees, "Basic Compensation"), providing for direct payment or reimbursement to the Consultant of substantially all medical and dental expenses incurred by the Consultant, his spouse and dependent members of his family during the Consultation Period. The Company shall furnish to the Consultant, during the Consultation Period, an automobile comparable to that currently being furnished to the Consultant by the Company under the terms of the Employment Agreement, with a similar model automobile being furnished to the Consultant every two years during the Consultation Period. The Company shall pay all expenses relating to the maintenance and business use of such automobile, including, without limitation, insurance, repairs and fuel. (c) Expenses. The Company shall pay on behalf of the Consultant (or reimburse the Consultant for) reasonable expenses incurred by the Consultant at the request of, or on behalf of, the Company in the performance of the Consultant's duties pursuant to this Agreement, and in accordance with the Company's employment policies. The Consultant shall file expense reports with respect to such expenses in accordance with the Company's policies. 4. TERMINATION 4.1 EVENTS OF TERMINATION The Consultation Period, the Consultant's Basic Compensation and any and all other rights of the Consultant under this Agreement shall terminate (except as otherwise provided in this Section 4): (a) upon the death of the Consultant; (b) upon the Disability (as defined in Section 4.2) of the Consultant, immediately upon notice from either party to the other; - -------- 1 One-half of his aggregate annual compensation in effect at the time Consultant delivers written notice to the Company of his intent to terminate the Employment Agreement. A-4 (c) upon termination by the Company for Cause (as defined in Section 4.3), on the date specified in Section 4.3; or (d) upon termination by the Consultant for Good Reason (as defined in Section 4.4), on the date specified in Section 4.4. 4.2 DEFINITION OF "DISABILITY" (a) For the purposes of this Section 4.2, the Consultant shall be deemed to have a Disability if (i) by reason of physical or mental incapacity, the Consultant shall not be able to perform his duties hereunder for a consecutive period of six months or more or for a period in the aggregate of six months in any consecutive period of twelve months; or (ii) when the Consultant's physician shall have determined that he shall not be able, by reason of physical or mental disability, to devote his time and energy to the business of the Company for a continuous period of six months or for a period in the aggregate of six months in a consecutive period of twelve months. In the event that the Consultant or the Company shall dispute any determination of his Disability hereunder, the matter shall be resolved by the determination of three physicians qualified to practice medicine in the State of New York, one to be selected by each of the Company and the Consultant and the third to be selected by the designated physicians. During the period in which the determination of the Consultant's Disability shall be under such review, the Consultant shall continue to be treated for all purposes of this Agreement as an employee of the Company, enjoying the full status with full pay to which he would otherwise be entitled under this Agreement. (b) The Company may, but shall not be obligated to, apply for and pay the premiums upon disability insurance covering the Consultant under policies providing for the payment thereunder directly to the Consultant. If the Consultant shall receive benefits under any of such policies, the Company shall be entitled to deduct the amount equal to the benefits so received from the Consultation Fees which it otherwise would be required to pay to the Consultant as provided in Section 4.5(c). 4.3 DEFINITION OF FOR "CAUSE" For purposes of this Section 4.3, the phrase for "Cause" means: (i) the failure, neglect or refusal by the Consultant to perform his duties hereunder (including, without limitation, his inability to perform his duties hereunder as a result of alcohol abuse, chronic alcoholism or drug addiction); (ii) any willful, intentional or grossly negligent act by the Consultant having the effect of injuring the reputation or business of the Company; (iii) the Consultant's conviction of a felony or a crime involving moral turpitude (including the entry of a nolo contendere plea); and (iv) any other default, nonperformance or violation by the Consultant of any of the covenants, provisions or terms of this Agreement. A termination for Cause as defined in clause (i) or (iv) of the preceding sentence shall become effective only if (A) the Company shall have given Consultant notice thereof describing the basis for such termination for Cause, and (B) the Consultant fails to cure such Cause within 10 business days after receiving such notice (and the termination for Cause shall be effective upon the expiration of such 10-business-day period if the Consultant fails to effect such cure); and A-5 a termination for Cause as defined in clause (ii) or (iii) of the preceding sentence shall be effective at the time the Company gives notice thereof to the Consultant. 4.4 DEFINITION OF FOR "GOOD REASON" For purposes of Section 4.4, the phrase for "Good Reason" means (i) the Company effects a material reduction in the Consultant's position or duties from those set forth in Section 2 hereof, the Company fails to provide the Consultant with any material compensation or benefits to which he is entitled pursuant to Section 3 hereof, or the Company commits any other material breach of this Agreement; (ii) the Consultant gives the Company notice of the event described in clause (i) within 20 business days after its occurrence; and (iii) the Company fails to cure such event within 10 business days after receiving notice thereof (and the termination for Good Reason shall be effective upon the expiration of such 10-business-day period if the Company, as applicable, fails to effect such cure). 4.5 TERMINATION PAY Effective upon the termination of this Agreement, the Company shall be obligated to pay the Consultant (or, in the event of his death, his Designated Beneficiary, as defined below) only such compensation as is provided in this Section 4.5, and in lieu of all other amounts and in settlement and complete release of all claims the Consultant may have against the Company. For purposes of this Section 4.5, the Consultant's "Designated Beneficiary" shall be such individual beneficiary or trust, located at such address, as the Consultant may designate by notice to the Company from time to time or, if the Consultant fails to give notice to the Company of such a beneficiary, the Consultant's estate. Notwithstanding the preceding sentence, the Company shall have no duty, in any circumstances, to attempt to open an estate on behalf of the Consultant, to determine whether any beneficiary designated by the Consultant is alive or to ascertain the address of any such beneficiary, to determine the existence of any trust, to determine whether any Person purporting to act as the Consultant's personal representative (or the trustee of a trust established by the Consultant) is duly authorized to act in that capacity or to locate or attempt to locate any beneficiary, personal representative or trustee. (a) Termination by the Consultant for Good Reason or by the Company Without Cause. In the event that during the Consultation Period, the Consultant terminates his engagement with the Company for Good Reason, or the Company terminates the Consultant's engagement without Cause, then the Consultant shall receive from the Company (as severance pay and liquidated damages, in lieu of any other rights or remedies which might otherwise be available to him under this Agreement, and to the extent permitted by law, without any obligation on the Consultant's part to mitigate damages by seeking other employment or otherwise and without any offset for any compensation earned as a result of any such other employment or performance of other services) an amount equal to (and payable at the same time and in the same manner as) the Consultation Fees payable pursuant to Section 3(a) above and all of the Benefits provided for in Section 3(b) above, which the Consultant would otherwise have been entitled to receive pursuant A-6 to this Agreement, had he remained engaged by the Company throughout the remainder of the Consultation Period as in effect immediately before such termination. In case of any dispute as to the propriety of the termination of the Consultant's engagement by the Company, the Company agrees to continue to provide to the Consultant all of the cash compensation and benefits that would be payable to the Consultant pursuant to the preceding sentence pending final resolution of such dispute; the Consultant shall be entitled to such legal or equitable damages or relief as may be available to enforce his rights hereunder; and the Consultant shall be obligated to reimburse the Company for all such compensation and benefits if it is finally determined that he was not entitled thereto. If such termination is determined to be improper, the Company agrees to pay to the Consultant all of his attorney's fees and expenses arising from such dispute. (b) Termination by the Company for Cause or by the Consultant Without Good Reason. If the Company terminates this Agreement for Cause, or if the Consultant terminates his engagement other than for Good Reason, the Consultant shall be entitled to receive his Consultation Fee only through the date such termination is effective, and shall not be entitled to any other compensation for the fiscal year during which such termination occurs or any subsequent fiscal year. (c) Termination upon Disability. The Company shall continue to pay the Consultant Consultation Fees pursuant to Section 3(a) and continue to provide the Executive with Benefits pursuant to Section 3(b) for a period of one year after he shall be deemed to have a Disability. Thereafter, the Consultant shall be entitled to receive consultation fees at an annual rate equal to one-half of the Consultation Fees as then in effect and shall continue to receive Benefits, in each case for a further period of six months. Upon the expiration of such further six-month period, the Consultant shall not be entitled to receive any further Consultation Fees or other compensation or benefits from the Company, until he shall cease to have a Disability and shall have resumed his duties hereunder. In the event the Consultant dies as the result of a Disability, payments under this Section 4.5(c) shall cease and payments shall be made to the Executor's estate or otherwise as provided in Section 4.5(d). (d) Termination upon Death. In the event that the Consultant shall die during the Consultation Period, or as a result of a Disability, the Company shall pay to the Consultant's Designated Beneficiary, the Consultation Fees otherwise payable to the Consultant pursuant to Section 3 above for a period of one year following the date of the Consultant's death; provided, that the foregoing obligation shall be contingent on the Company obtaining key man life insurance to fund such obligation at a reasonable cost. (e) Benefits. Upon the termination of this Agreement, the Consultant shall not receive, as part of his termination pay pursuant to this Section 4, any payment or other compensation for any vacation, holiday, sick leave or other leave unused on the date the notice of termination is given under this Agreement. Notwithstanding the foregoing, in the event this Agreement is terminated other than by the Company for Cause or by the Consultant without Good Reason, if the A-7 Company is able to do so, the Company shall continue to include the Consultant in its hospitalization, medical, surgical, dental and other health benefit plans and shall pay all premiums under such plans on behalf of the Consultant; provided, however, that the Consultant shall be solely responsible for any expenses or co-payments incurred by the Consultant, his spouse and dependent members of his family, except as otherwise provided in this Agreement. Following the Consultant's death, unless this Agreement has been terminated by the Company for Cause or by the Consultant without Good Reason, until the death of Consultant's spouse, the Company shall use reasonable efforts to include the Consultant's spouse and dependent children in hospitalization, medical, surgical, dental and other health benefit plans of the Company currently in effect; provided, however, that the Consultant's spouse and dependent children shall be solely responsible for any costs incurred by the Company as a result of the inclusion of such people in such plans. Notwithstanding anything to the contrary contained herein, the provisions of this Section 4.5(e) shall survive any termination of this Agreement other than a termination by the Company for Cause or by the Consultant without Good Reason, and shall terminate upon the death of the Consultant's spouse. 5. NON-DISCLOSURE COVENANT 5.1 ACKNOWLEDGMENTS BY THE CONSULTANT The Consultant acknowledges that (a) during the Consultation Period and as a part of his engagement, the Consultant shall be afforded access to Confidential Information (as defined below); (b) public disclosure of such Confidential Information could have an adverse effect on the Company and its business; (c) the Company has required that the Consultant make the covenants in this Section 5 as a condition to entering into this Agreement; and (d) the provisions of this Section 5 are reasonable and necessary to prevent the improper use or disclosure of Confidential Information. 5.2 AGREEMENTS OF THE CONSULTANT In consideration of the compensation to be paid or provided to the Consultant by the Company under this Agreement, the Consultant covenants as follows: (a) During and following the Consultation Period, the Consultant shall hold in confidence the Confidential Information and shall not disclose it to any Person except with the specific prior written consent of the Board of Directors or except as otherwise expressly permitted by the terms of this Agreement or as required by law or a court of competent jurisdiction; provided, that in the event disclosure is required by law or a court of competent jurisdiction, the Executive shall, prior to disclosing any Confidential Information, promptly notify the Company of such disclosure requirement and provide the Company with an opportunity to contest such disclosure requirement. A-8 (b) Any trade secrets of the Company shall be entitled to all of the protections and benefits under applicable law. If any information that the Company deems to be a trade secret is found by a court of competent jurisdiction not to be a trade secret for purposes of this Agreement, such information shall, nevertheless, be considered Confidential Information for purposes of this Agreement. The Consultant hereby waives any requirement that the Company submit proof of the economic value of any trade secret or post a bond or other security. (c) None of the foregoing obligations and restrictions applies to any part of the Confidential Information that the Consultant demonstrates was or became generally available to the public other than as a result of disclosure by the Consultant. (d) The Consultant shall not remove from the Company's premises (except to the extent such removal is for purposes of the performance of the Consultant's duties at home or while traveling, or except as otherwise specifically authorized by the Company), any design, document, record, notebook, plan, model, or computer software, whether embodied in a disk or in any other form (collectively, the "Proprietary Items"). The Consultant recognizes that, as between the Company and the Consultant, all of the Proprietary Items, whether or not developed by the Consultant, are the exclusive property of the Company. Upon termination of this Agreement by either party, or upon the request of the Company during the Consultation Period, the Consultant shall return to the Company all of the Proprietary Items in the Consultant's possession or subject to the Consultant's control, and the Consultant shall not retain any copies, abstracts, sketches or other physical embodiment of any of the Proprietary Items. 5.3 DISPUTES OR CONTROVERSIES The Consultant recognizes that should a dispute or controversy arising from or relating to this Agreement be submitted for adjudication to any court, arbitration panel or other third party, the preservation of the secrecy of Confidential Information may be jeopardized. All pleadings, documents, testimony and records relating to any such adjudication shall be maintained in secrecy and shall be available for inspection by the Company, the Consultant and their respective attorneys and experts, who shall agree, in advance and in writing, to receive and maintain all such information in secrecy, except as may be limited by them in writing. 6. NON-COMPETITION AND NON-INTERFERENCE 6.1 ACKNOWLEDGMENTS BY THE CONSULTANT The Consultant acknowledges that: (a) the services to be performed by him under this Agreement are of a special, unique, unusual, extraordinary and intellectual character; (b) the Company's business is national in scope and its products are marketed throughout the United States and in other countries, territories and possessions; (c) the Company competes with other businesses that are or could be located in any part of the United States and in other countries, territories and possessions; (d) the Company has required that the Consultant make the covenants in this Section 6 A-9 as a condition to entering into this Agreement; and (e) the provisions of this Section 6 are reasonable and necessary to protect the Company's business. 6.2 COVENANTS OF THE CONSULTANT In consideration of the acknowledgments by the Consultant, and in consideration of the compensation to be paid or provided to the Consultant by the Company, the Consultant covenants that he shall not, directly or indirectly: (a) during the Consultation Period, except in the course of his engagement hereunder, and during the Post-Consultation Period (as defined below), engage or invest in, own, manage, operate, finance, control or participate in the ownership, management, operation, financing or control of, be employed by, associated with or in any manner connected with, lend the Consultant's name or any similar name to, lend the Consultant's credit to or render services or advice to any Person (other than the Company and the Parent Company) engaged in the retail apparel business anywhere within the United States or in any other country, territory or possession in which the Company is then doing business; provided, however, that the Consultant may purchase or otherwise acquire up to (but not more than) one percent of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934, as amended; (b) whether for the Consultant's own account or for the account of any other Person, at any time during the Consultation Period and during the Post-Consultation Period, solicit business of the same or similar type being carried on by the Company, from any Person known by the Consultant to be a customer of the Company, whether or not the Consultant had personal contact with such Person during and by reason of the Consultant's employment with the Company; (c) whether for the Consultant's own account or the account of any other Person at any time during the Consultation Period and during the Post-Consultation Period (i) solicit, employ or otherwise engage as an employee, independent contractor or otherwise, any person who is or was an employee of the Company at any time during the Consultation Period, or in any manner induce or attempt to induce any employee of the Company to terminate his employment with the Company; or (ii) interfere with the Company's relationship with any Person, including any Person who, at any time during the Consultation Period, was an employee, contractor, supplier or customer of the Company; or (d) at any time during or after the Consultation Period, disparage the Company or any of its shareholders, directors, officers, employees or agents. For purposes of this Section 6.2, the term "Post-Consultation Period" means the period from the date of termination of this Agreement until the earlier of (i) the date on which the Consultation Period would have terminated pursuant to Section 2.2 without earlier termination of this Agreement A-10 by the Company or the Consultant and (ii) the date which is eighteen months following the date of termination of the Consultant's consultation with the Company. 6.3 BINDING NATURE AND DURATION OF COVENANTS; DISCLOSURE If any covenant in Section 6.2 is held to be unreasonable, arbitrary or against public policy, such covenant shall be considered to be divisible with respect to scope, time and geographic area, and such lesser scope, time or geographic area, or all of them, as a court of competent jurisdiction may determine to be reasonable, not arbitrary and not against public policy, shall be effective, binding, and enforceable against the Consultant. The period of time applicable to any covenant in Section 6.2 shall be extended by the duration of any violation by the Consultant of such covenant. The Consultant shall, while the covenant under Section 6.2 is in effect, give notice to the Company, within ten days after accepting any other employment, of the identity of the Consultant's employer. The Company may notify such employer that the Consultant is bound by this Agreement and, at the Company's election, furnish such employer with a copy of this Agreement or relevant portions thereof. 7. GENERAL PROVISIONS 7.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY The Consultant acknowledges that the injury that would be suffered by the Company as a result of a breach of any of the provisions of this Agreement (including, without limitation, any provision of Section 5 or 6) would be irreparable and that an award of monetary damages to the Company for such a breach would be an inadequate remedy. Consequently, the Company shall have the right, in addition to any other rights it may have, to obtain injunctive relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement, and the Company shall not be obligated to post bond or other security in seeking such relief. Without limiting the Company's rights under this Section 7 or any other remedies of the Company, if the Consultant breaches any of the provisions of Section 5 or 6, the Company shall have the right to cease making any payments otherwise due to the Consultant under this Agreement. 7.2 COVENANTS OF SECTIONS 5 AND 6 ARE ESSENTIAL AND INDEPENDENT COVENANTS The Company and the Consultant have independently consulted their respective counsel and have been advised in all respects concerning the reasonableness and propriety of such covenants, with specific regard to the nature of the business conducted by the Company. The Consultant's covenants in Sections 5 and 6 are independent covenants, and the existence of any claim by the Consultant against the Company under this Agreement or otherwise shall not excuse the Consultant's breach of any covenant in Section 5 and 6. If the Consultant's engagement hereunder expires or is terminated, this Agreement shall continue in full force and effect as is necessary or appropriate to enforce the covenants and agreements of the Consultant in Sections 5 and 6. A-11 7.3 REPRESENTATIONS AND WARRANTIES BY THE CONSULTANT The Consultant represents and warrants to the Company that the execution and delivery by the Consultant of this Agreement do not, and the performance by the Consultant of the Consultant's obligations hereunder shall not, with or without the giving of notice or the passage of time, or both (a) violate any judgment, writ, injunction or order of any court, arbitrator or governmental agency applicable to the Consultant; or (b) conflict with, result in the breach of any provisions of or the termination of, or constitute a default under, any agreement to which the Consultant is a party or by which the Consultant is or may be bound. 7.4 OBLIGATIONS CONTINGENT ON PERFORMANCE The obligations of the Company hereunder, including its obligation to pay the compensation provided for herein, are contingent upon the Consultant's performance of the Consultant's obligations hereunder. 7.5 WAIVER The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by either party in exercising any right, power or privilege under this Agreement shall operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege shall preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement may be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party shall be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party shall be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement. 7.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs and legal representatives. This Agreement is personal to the parties hereto and shall not be assignable by either party without the prior written consent of the other. 7.7 NOTICES All notices, consents, waivers and other communications under this Agreement shall be made in writing and shall be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt) or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service A-12 (receipt requested), in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties): If to the Company: G+G Retail, Inc. 520 Eighth Avenue New York, NY 10018 Attention: Scott Galin Facsimile: (212) 695-4952 with a copy to: Attention: Facsimile: If to the Consultant: Jay Galin 167 East 71st Street New York, NY 10021 Facsimile: (212) 772-0474 with a copy to: Shack & Siegel, P.C. 530 Fifth Avenue, 16th Floor New York, NY 10036 Attention: Donald Shack, Esq. Facsimile: (212) 730-1964 7.8 ENTIRE AGREEMENT; AMENDMENTS This Agreement, the Asset Purchase Agreement, the Employment Agreement and the documents executed in connection with the Asset Purchase Agreement and the Employment Agreement, contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof. This Agreement may not be amended orally, but only by an agreement in writing signed by the parties hereto. A-13 7.9 GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles. 7.10 ARBITRATION Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the City of New York on an expedited basis by a panel of three qualified independent arbitrators selected on an expedited basis, one by the Consultant, the second by the Company and the third by the first two selected. If no arbitrator can be agreed upon by the first two arbitrators within three business days of their selection, such arbitrator shall be selected on an expedited basis in accordance with the rules for commercial arbitration of the American Arbitration Association. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent, or to prevent any continuation of, any violation of Sections 5 and 6. The fees and expenses of such arbitration shall be fixed by the arbitrators and paid in accordance with their determination. 7.11 SECTION HEADINGS, CONSTRUCTION The headings of Sections in this Agreement are provided for convenience only and shall not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement unless otherwise specified. All words used in this Agreement shall be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 7.12 SEVERABILITY If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree shall remain in full force and effect to the extent not held invalid or unenforceable. 7.13 COUNTERPARTS This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original copy of this Agreement and all of which, when taken together, shall be deemed to constitute one and the same agreement. A-14 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. G+G RETAIL, INC. By:_______________________________ Name: Title: __________________________________ Jay Galin A-15 EX-10.07 18 EMPLOYMENT AGREEMENT 8/28/98 -- SCOTT GALIN EXHIBIT 10.07 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is made as of August 28, 1998 (the "Effective Date"), by and between G+G Retail, Inc., a Delaware corporation (the "Company"), and Scott Galin, an individual resident in 60 Hickory Drive, East Hills, NY 11576 (the "Executive"). RECITALS Concurrently with the execution of this Agreement (i) the Company is purchasing certain assets and assuming certain liabilities pursuant to the Asset Purchase Agreement, dated as of July 6, 1998 among the Company, G & G Shops, Inc., the subsidiaries of G & G Shops, Inc. named therein, the subsidiaries of Petrie Retail, Inc. named therein and PSL, Inc., as amended (the "Asset Purchase Agreement") and (ii) Pegasus G&G Retail, L.P., Pegasus G&G Retail II, L.P., (collectively, the "Investors"), the Executive and the other stockholders of G&G Retail Holdings, Inc., the Company's parent company ("Parent Company") are entering into a stockholders agreement (the "Stockholders Agreement"), providing for various rights and obligations of Parent Company's stockholders. The Company and the Investors desire the Executive's continued employment with the Company, and the Executive wishes to accept such continued employment, upon the terms and subject to the conditions set forth in this Agreement. AGREEMENT The parties, intending to be legally bound, agree as follows: 1. DEFINITIONS For purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1. "Agreement" shall mean this Employment Agreement, including the schedules and exhibits hereto, as modified, supplemented or amended from time to time. "Asset Purchase Agreement" shall have the meaning set forth in the Recitals to this Agreement. "Basic Compensation" shall have the meaning set forth in Section 3.1(b). "Benefits" shall have the meaning set forth in Section 3.1(b). "Board of Directors" shall mean the board of directors of the Company. "Bonus Compensation" shall have the meaning set forth in Section 3.2(a). "Cause" shall have the meaning set forth in Section 4.3. "Company" shall have the meaning set forth in the first paragraph of this Agreement. "Confidential Information" shall mean any and all knowledge and information relating to the business and affairs of the Company or any of its affiliates, their products, processes and/or services and their customers, suppliers, landlords, creditors, shareholders, contractors, agents, consultants and employees ("Related Persons"), that is or is intended by any of them to be of a confidential nature, including, but not limited to, any and all knowledge and information relating to products, research, development, inventions, manufacture, purchasing, accounting, finances, costs, profit margins, marketing, merchandising, selling, customer lists, customer requirements and personnel, pricing, pricing methods, computer programs and software, databases and data processing and any and all other such knowledge, information and materials, heretofore or hereafter during the term of this Agreement, conceived, designed, created, used or developed by or relating to the Company, any of its affiliates or any Related Person; Confidential Information does not include any information that may be in the public domain or come into the public domain not as a result of a breach by the Executive of any of the terms or provisions of this Agreement. "Designated Beneficiary" shall have the meaning set forth in Section 4.5. "Disability" shall have the meaning set forth in Section 4.2. "Effective Date" shall have the meaning set forth in the first paragraph of this Agreement. "Employment Period" shall have the meaning set forth in Section 2.2(a). "Executive" shall have the meaning set forth in the first paragraph of this Agreement. "Good Reason" shall have the meaning set forth in Section 4.4. "Investors" shall have the meaning set forth in the Recitals to this Agreement. "Jay Galin Employment Agreement" shall mean the Employment Agreement, dated as of the date hereof, between the Company and Jay Galin. "Parent Company" shall have the meaning set forth in the first paragraph of this Agreement. "Person" shall mean any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, governmental body or other entity. 2 "Post-Employment Period" shall have the meaning set forth in Section 6.2. "Proprietary Items" shall have the meaning set forth in Section 5.2(d). "Salary" shall have the meaning set forth in Section 3.1(a). "Stockholders Agreement" shall have the meaning set forth in the Recitals to this Agreement. 2. EMPLOYMENT TERMS AND DUTIES 2.1 EMPLOYMENT Upon consummation of the transactions contemplated in the Asset Purchase Agreement, the Company employs the Executive, and the Executive accepts employment by the Company, upon the terms and subject to the conditions set forth in this Agreement. 2.2 TERM Subject to the provisions of Section 4, the term of the Executive's employment under this Agreement shall be five years, beginning on the Effective Date and ending on the fifth anniversary of the Effective Date (the "Employment Period"). 2.3 DUTIES (a) Subject to paragraph (b) below, the Executive shall have such duties as are assigned or delegated to the Executive by the Board of Directors, and shall initially serve as President and Chief Operating Officer of the Company. The Executive shall (a) devote his entire business time, attention, skill and energy exclusively to the business of the Company, (b) serve the Company faithfully, diligently and to the best of his ability under the direction of the Board of Directors, (c) use his best efforts to promote the success of the Company's business and (d) cooperate fully with the Board of Directors in the advancement of the best interests of the Company. The Executive shall not, without the prior written consent of the Board of Directors (x) do anything or permit anything to be done at his direction inconsistent with his duties to the Company or its affiliates or opposed to their best interests, or (y) become an officer, director, employee or consultant of, or otherwise become associated with or engaged in, any business other than that of the Company or the Parent Company. Nothing in this Section 2.3 shall prevent the Executive from engaging in additional activities in connection with personal investments and community affairs that are not inconsistent with the Executive's duties under this Agreement. If the Executive is elected as a director of the Company or as a director or officer of any of its affiliates, the Executive shall fulfill his duties as such director or officer without additional compensation. During the Employment Period, the Executive shall be headquartered in New York City. 3 (b) In the event Jay Galin exercises his Consulting Option (as such term is defined in the Jay Galin Employment Agreement) or his employment with the Company is terminated for any reason, the Executive shall serve as the Chief Executive Officer of the Company and shall perform the duties of such office in accordance with the standards and provisions set forth above in paragraph (a) for the remainder of the Employment Period. 3. COMPENSATION AND BENEFITS 3.1 BASIC COMPENSATION (a) Salary. The Executive shall be paid an initial annual salary of $525,000 ("Salary"), which shall be payable in equal periodic installments according to the Company's customary payroll practices, but no less frequently than monthly. On each anniversary of the commencement of the Employment Period, the Executive's Salary shall be increased by $25,000 until the Executive becomes the Chief Executive Officer of the Company in accordance with Section 2.3(b). In the event that the Executive becomes the Chief Executive Officer of the Company in accordance with Section 2.3(b), the Executive's Salary shall be increased to $750,000. Thereafter, on each anniversary of the date on which the Executive became the Chief Executive Officer of the Company, the Executive's Salary shall be increased by $25,000. (b) Benefits. The Company shall maintain for the Executive during the Employment Period, at no cost to the Executive, hospitalization, medical, surgical, dental and other employee benefit plans of the Company currently in effect, as set forth on Schedule 3.1 hereto including, without limitation, so called Blue Cross-Blue Shield and major medical coverage, (collectively the "Benefits" and, together with the Salary, "Basic Compensation"), providing for direct payment or reimbursement to the Executive of substantially all medical and dental expenses incurred by the Executive, his spouse and dependent members of his family during the Employment Period. The Company shall furnish to the Executive, during the Employment Period, an automobile comparable to that currently being furnished to Jay Galin by G&G Shops, Inc., with a similar model automobile being furnished to the Executive every two years during the Employment Period. The Company shall pay all expenses relating to the maintenance and business use of such automobile, including, without limitation, insurance, repairs and fuel. (c) Expenses. The Company shall pay on behalf of the Executive (or reimburse the Executive for) reasonable expenses incurred by the Executive at the request of, or on behalf of, the Company in the performance of the Executive's duties pursuant to this Agreement, and in accordance with the Company's employment policies. The Executive shall file expense reports with respect to such expenses in accordance with the Company's policies. 4 3.2 BONUS COMPENSATION (a) The Company shall implement a bonus plan for the benefit of the senior management of the Company which plan shall provide for annual bonuses to be paid to eligible members of the Company's management based on the Company attaining certain annual EBITDA targets to be agreed upon and specified by the holders of the Parent Company's shares of Class A common stock, par value $.001 per share and Class B common stock, par value $.001 per share. The Executive will be eligible to receive collectively with Jay Galin up to (and no more than) 50% of the aggregate bonus pool amount, provided, that in no event shall the Executive receive a bonus amount greater than the amount of his annual salary. The remainder of the bonus pool shall be distributed as determined by the Executive and Jay Galin jointly. The bonus plan shall terminate upon consummation by the Company of an initial public offering of its common stock, at which time the Company will consider replacing the bonus plan with a plan more appropriate for public companies. 4. TERMINATION 4.1 EVENTS OF TERMINATION The Employment Period, the Executive's Basic Compensation and Bonus Compensation and any and all other rights of the Executive under this Agreement or otherwise as an employee of the Company shall terminate (except as otherwise provided in this Section 4): (a) upon the death of the Executive; (b) upon the Disability (as defined in Section 4.2) of the Executive), immediately upon notice from either party to the other; (c) upon termination by the Company for Cause (as defined in Section 4.3), on the date specified in Section 4.3; or (d) upon termination by the Executive for Good Reason (as defined in Section 4.4), on the date specified in Section 4.4. 4.2 DEFINITION OF "DISABILITY" (a) For the purposes of this Section 4.2, the Executive shall be deemed to have a Disability if (i) by reason of physical or mental incapacity, the Executive shall not be able to perform his duties hereunder for a consecutive period of six months or more or for a period in the aggregate of six months in any consecutive period of twelve months; or (ii) when the Executive's physician shall have determined that he shall not be able, by reason of physical or mental disability, 5 to devote his time and energy to the business of the Company for a continuous period of six months or for a period in the aggregate of six months in a consecutive period of twelve months. In the event that the Executive or the Company shall dispute any determination of his Disability hereunder, the matter shall be resolved by the determination of three physicians qualified to practice medicine in the State of New York, one to be selected by each of the Company and the Executive and the third to be selected by the designated physicians. During the period in which the determination of the Executive's Disability shall be under such review, the Executive shall continue to be treated for all purposes of this Agreement as an employee of the Company, enjoying the full status with full pay to which he would otherwise be entitled under this Agreement. (b) The Company may, but shall not be obligated to, apply for and pay the premiums upon disability insurance covering the Executive under policies providing for the payment thereunder directly to the Executive. If the Executive shall receive benefits under any of such policies, the Company shall be entitled to deduct the amount equal to the benefits so received from the Salary which it otherwise would be required to pay to the Executive as provided in Section 4.5(c). 4.3 DEFINITION OF FOR "CAUSE" For purposes of Section 4.1, the phrase for "Cause" means: (i) the failure, neglect or refusal by the Executive to perform his duties hereunder (including, without limitation, his inability to perform his duties hereunder as a result of alcohol abuse, chronic alcoholism or drug addiction); (ii) any willful, intentional or grossly negligent act by the Executive having the effect of injuring the reputation or business of the Company; (iii) the Executive's conviction of a felony or a crime involving moral turpitude (including the entry of a nolo contendere plea); and (iv) any other default, nonperformance or violation by the Executive of any of the covenants, provisions or terms of this Agreement. A termination for Cause as defined in clause (i) or (iv) of the preceding sentence shall become effective only if (A) the Company shall have given the Executive notice thereof describing the basis for such termination for Cause, and (B) the Executive fails to cure such Cause within 10 business days after receiving such notice (and the termination for Cause shall be effective upon the expiration of such 10-business-day period if the Executive fails to effect such cure); and a termination for Cause as defined in clause (ii) or (iii) of the preceding sentence shall be effective at the time the Company gives notice thereof to the Executive. 4.4 DEFINITION OF FOR "GOOD REASON" For purposes of Section 4.1, the phrase for "Good Reason" means (i) the Company effects a material reduction in the Executive's position or duties from those set forth in Section 2.3 hereof, the Company fails to provide the Executive with any material compensation or benefits to which he is entitled pursuant to Section 3 hereof, or the Company commits any other material breach of this Agreement; (ii) the Executive gives the Company notice of the event described in clause (i) within 20 business days after its occurrence; and (iii) the Company fails to cure such event within 10 business days after receiving notice thereof (and the termination for Good Reason shall be 6 effective upon the expiration of such 10-business-day period if the Company, as applicable, fails to effect such cure). 4.5 TERMINATION PAY Effective upon the termination of this Agreement, the Company shall be obligated to pay the Executive (or, in the event of his death, his Designated Beneficiary, as defined below) only such compensation as is provided in this Section 4.5, and in lieu of all other amounts and in settlement and complete release of all claims the Executive may have against the Company. For purposes of this Section 4.5, the Executive's "Designated Beneficiary" shall be such individual beneficiary or trust, located at such address, as the Executive may designate by notice to the Company from time to time or, if the Executive fails to give notice to the Company of such a beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the Company shall have no duty, in any circumstances, to attempt to open an estate on behalf of the Executive, to determine whether any beneficiary designated by the Executive is alive or to ascertain the address of any such beneficiary, to determine the existence of any trust, to determine whether any Person purporting to act as the Executive's personal representative (or the trustee of a trust established by the Executive) is duly authorized to act in that capacity or to locate or attempt to locate any beneficiary, personal representative or trustee. (a) Termination by the Executive for Good Reason or by the Company Without Cause. In the event that during the Employment Period, the Executive terminates his employment with the Company for Good Reason, or the Company terminates the Executive's employment without Cause, then the Executive shall receive from the Company (as severance pay and liquidated damages, in lieu of any other rights or remedies which might otherwise be available to him under this Agreement, and to the extent permitted by law, without any obligation on the Executive's part to mitigate damages by seeking other employment or otherwise and without any offset for any compensation earned as a result of any such other employment or performance of other services) amounts equal to (and payable at the same time and in the same manner as) the Salary payable pursuant to Section 3.1(a) above and the bonus compensation described in Section 3.2(a) above and all of the Benefits provided for in Section 3.1(b) above, which the Executive would otherwise have been entitled to receive pursuant to this Agreement, had he remained employed by the Company throughout the remainder of the Employment Period as in effect immediately before such termination. In case of any dispute as to the propriety of the termination of the Executive's employment by the Company, the Company agrees to continue to provide to the Executive all of the cash compensation and benefits that would be payable to the Executive pursuant to the preceding sentence pending final resolution of such dispute; the Executive shall be entitled to such legal or equitable damages or relief as may be available to enforce his rights hereunder; and the Executive shall be obligated to reimburse the Company for all such compensation and benefits if it is finally determined that he was not entitled thereto. If such termination is determined to be improper, the 7 Company agrees to pay to the Executive all of his attorney's fees and expenses arising from such dispute. (b) Termination by the Company for Cause or by the Executive Without Good Reason. If the Company terminates this Agreement for Cause, or if the Executive terminates his employment other than for Good Reason, the Executive shall be entitled to receive his Salary only through the date such termination is effective, and shall not be entitled to any Bonus Compensation for the fiscal year during which such termination occurs or any subsequent fiscal year. (c) Termination upon Disability. The Company shall continue to pay the Executive his Salary pursuant to Section 3.1(a) and continue to provide the Executive with Benefits pursuant to Section 3.1(b) for a period of one year after he shall be deemed to have a Disability. Thereafter, the Executive shall be entitled to receive a salary at an annual rate equal to one-half of the Salary as then in effect and shall continue to receive Benefits, in each case for a further period of six months. Upon the expiration of such further six-month period, the Executive shall not be entitled to receive any further Salary or other compensation or benefits from the Company, until he shall cease to have a Disability and shall have resumed his duties hereunder. In the event the Executive dies as the result of a Disability, payments under this Section 4.5(c) shall cease and payments shall be made to the Executor's estate or otherwise as provided in Section 4.5(d). (d) Termination upon Death. In the event that the Executive shall die during the Employment Period, or as a result of a Disability, the Company shall pay to the Executive's Designated Beneficiary, the Salary and Bonus Compensation otherwise payable to the Executive pursuant to Section 3 above for a period of one year following the date of the Executive's death; provided, that the foregoing obligation shall be contingent on the Company obtaining key man life insurance to fund such obligation at a reasonable cost. (e) Benefits. The Executive's accrual of, or participation in plans providing for, the Benefits shall cease at the effective date of the termination of this Agreement, and the Executive shall be entitled to accrued Benefits pursuant to such plans only as provided in such plans. The Executive shall not receive, as part of his termination pay pursuant to this Section 4, any payment or other compensation for any vacation, holiday, sick leave or other leave unused on the date the notice of termination is given under this Agreement, except as otherwise provided in this Agreement. 5. NON-DISCLOSURE COVENANT 5.1 ACKNOWLEDGMENTS BY THE EXECUTIVE The Executive acknowledges that (a) during the Employment Period and as a part of his employment, the Executive shall be afforded access to Confidential Information; (b) public disclosure of such Confidential Information could have an adverse effect on the Company and its business; (c) the Company has required that the Executive make the covenants in this Section 5 as a condition to its consummation of the transactions contemplated in the Asset Purchase Agreement 8 and the Investors have required that the Executive make the covenants in this Section 5 as a condition to their investment in the Parent Company and their entering into the Stockholders Agreement; and (d) the provisions of this Section 5 are reasonable and necessary to prevent the improper use or disclosure of Confidential Information. 5.2 AGREEMENTS OF THE EXECUTIVE In consideration of the compensation and benefits to be paid or provided to the Executive by the Company under this Agreement, the Executive covenants as follows: (a) During and following the Employment Period, the Executive shall hold in confidence the Confidential Information and shall not disclose it to any Person except with the specific prior written consent of the Company or except as otherwise expressly permitted by the terms of this Agreement or as required by law or a court of competent jurisdiction; provided, that in the event disclosure is required by law or a court of competent jurisdiction, the Executive shall, prior to disclosing any Confidential Information, promptly notify the Company of such disclosure requirement and provide the Company with an opportunity to contest such disclosure requirement. (b) Any trade secrets of the Company shall be entitled to all of the protections and benefits under applicable law. If any information that the Company deems to be a trade secret is found by a court of competent jurisdiction not to be a trade secret for purposes of this Agreement, such information shall, nevertheless, be considered Confidential Information for purposes of this Agreement. The Executive hereby waives any requirement that the Company submit proof of the economic value of any trade secret or post a bond or other security. (c) None of the foregoing obligations and restrictions applies to any part of the Confidential Information that the Executive demonstrates was or became generally available to the public other than as a result of disclosure by the Executive. (d) The Executive shall not remove from the Company's premises (except to the extent such removal is for purposes of the performance of the Executive's duties at home or while traveling, or except as otherwise specifically authorized by the Company), any design, document, record, notebook, plan, model, or computer software, whether embodied in a disk or in any other form (collectively, the "Proprietary Items"). The Executive recognizes that, as between the Company and the Executive, all of the Proprietary Items, whether or not developed by the Executive, are the exclusive property of the Company. Upon termination of this Agreement by either party, or upon the request of the Company during the Employment Period, the Executive shall return to the Company all of the Proprietary Items in the Executive's possession or subject to the Executive's control, and the Executive shall not retain any copies, abstracts, sketches or other physical embodiment of any of the Proprietary Items. 9 5.3 DISPUTES OR CONTROVERSIES The Executive recognizes that should a dispute or controversy arising from or relating to this Agreement be submitted for adjudication to any court, arbitration panel or other third party, the preservation of the secrecy of Confidential Information may be jeopardized. All pleadings, documents, testimony and records relating to any such adjudication shall be maintained in secrecy and shall be available for inspection by the Company, the Executive and their respective attorneys and experts, who shall agree, in advance and in writing, to receive and maintain all such information in secrecy, except as may be limited by them in writing. 6. NON-COMPETITION AND NON-INTERFERENCE 6.1 ACKNOWLEDGMENTS BY THE EXECUTIVE The Executive acknowledges that: (a) the services to be performed by him under this Agreement are of a special, unique, unusual, extraordinary and intellectual character; (b) the Company's business is national in scope and its products are marketed throughout the United States and in other countries, territories and possessions; (c) the Company competes with other businesses that are or could be located in any part of the United States and in other countries, territories and possessions; (d) the Company has required that the Executive make the covenants set forth in this Section 6 as a condition to the Company's consummation of the transactions contemplated by the Asset Purchase Agreement and the Investors have required that the Executive make the covenants in this Section 6 as a condition to their investment in the Parent Company and their entering into the Stockholders Agreement; and (e) the provisions of this Section 6 are reasonable and necessary to protect the Company's business. 6.2 COVENANTS OF THE EXECUTIVE In consideration of the acknowledgments by the Executive, and in consideration of the compensation and benefits to be paid or provided to the Executive by the Company, the Executive covenants that he shall not, directly or indirectly: (a) during the Employment Period, except in the course of his employment hereunder, and during the Post-Employment Period (as defined below), engage or invest in, own, manage, operate, finance, control or participate in the ownership, management, operation, financing or control of, be employed by, associated with or in any manner connected with, lend the Executive's name or any similar name to, lend the Executive's credit to or render services or advice to, (i) any Person (other than the Company and the Parent Company) engaged in any business whose products or activities compete in whole or in material part with, or (ii) any part of any business which competes with, the products or activities of the Company (which, with respect to the Post- Employment Period, shall be deemed to include products and activities of the Company at the time of termination or contemplated by the Company at the time of termination) anywhere within the United States or in any other country, territory or possession in which the Company is then doing 10 business; provided, however, that the Executive may purchase or otherwise acquire up to (but not more than) one percent of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934, as amended; (b) whether for the Executive's own account or for the account of any other Person, at any time during the Employment Period and the Post-Employment Period, solicit business of the same or similar type being carried on by the Company, from any Person known by the Executive to be a customer of the Company, whether or not the Executive had personal contact with such Person during and by reason of the Executive's employment with the Company; (c) whether for the Executive's own account or the account of any other Person at any time during the Employment Period and the Post-Employment Period (i) solicit, employ or otherwise engage as an employee, independent contractor or otherwise, any person who is or was an employee of the Company at any time during the Employment Period, or in any manner induce or attempt to induce any employee of the Company to terminate his employment with the Company; or (ii) interfere with the Company's relationship with any Person, including any Person who, at any time during the Employment Period, was an employee, contractor, supplier or customer of the Company; or (d) at any time during or after the Employment Period, disparage the Company or any of its shareholders, directors, officers, employees or agents. For purposes of this Section 6.2, the term "Post-Employment Period" means the period from the date of termination of this Agreement until the earlier of (i) the date on which the Employment Period would have terminated pursuant to Section 2.2 without earlier termination of this Agreement by the Company or the Executive and (ii) the date which is eighteen months following the date of termination of the Executive's employment with the Company. 6.3 BINDING NATURE AND DURATION OF COVENANTS; DISCLOSURE If any covenant in Section 6.2 is held to be unreasonable, arbitrary or against public policy, such covenant shall be considered to be divisible with respect to scope, time and geographic area, and such lesser scope, time or geographic area, or all of them, as a court of competent jurisdiction may determine to be reasonable, not arbitrary and not against public policy, shall be effective, binding, and enforceable against the Executive. The period of time applicable to any covenant in Section 6.2 shall be extended by the duration of any violation by the Executive of such covenant. The Executive shall, while the covenant under Section 6.2 is in effect, give notice to the Company, within ten days after accepting any other employment, of the identity of the Executive's employer. The Company may notify such employer that the Executive is bound by this Agreement and, at the Company's election, furnish such employer with a copy of this Agreement or relevant portions thereof. 11 7. GENERAL PROVISIONS 7.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY The Executive acknowledges that the injury that would be suffered by the Company as a result of a breach of any of the provisions of this Agreement (including, without limitation, any provision of Section 5 or 6) would be irreparable and that an award of monetary damages to the Company for such a breach would be an inadequate remedy. Consequently, the Company shall have the right, in addition to any other rights it may have, to obtain injunctive relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement, and the Company shall not be obligated to post bond or other security in seeking such relief. Without limiting the Company's rights under this Section 7 or any other remedies of the Company, if the Executive breaches any of the provisions of Section 5 or 6, the Company shall have the right to cease making any payments otherwise due to the Executive under this Agreement. 7.2 COVENANTS OF SECTIONS 5 AND 6 ARE ESSENTIAL AND INDEPENDENT COVENANTS The covenants by the Executive in Sections 5 and 6 are essential elements of this Agreement, and without the Executive's agreement to comply with such covenants, the Company would not have consummated the transactions contemplated by the Asset Purchase Agreement, the Investors would not have purchased interests in the Parent Company or entered into the Stockholders Agreement, and the Company would not have entered into this Agreement or employed or continued the employment of the Executive. The Company and the Executive have independently consulted their respective counsel and have been advised in all respects concerning the reasonableness and propriety of such covenants, with specific regard to the nature of the business conducted by the Company. The Executive's covenants in Sections 5 and 6 are independent covenants, and the existence of any claim by the Executive against the Company under this Agreement or otherwise, or against the Company, the Parent Company or the Investors, shall not excuse the Executive's breach of any covenant in Section 5 and 6. If the Executive's employment hereunder expires or is terminated, this Agreement shall continue in full force and effect as is necessary or appropriate to enforce the covenants and agreements of the Executive in Sections 5 and 6. 7.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE The Executive represents and warrants to the Company that the execution and delivery by the Executive of this Agreement do not, and the performance by the Executive of the Executive's obligations hereunder shall not, with or without the giving of notice or the passage of time, or both (a) violate any judgment, writ, injunction or order of any court, arbitrator or governmental agency applicable to the Executive; or (b) conflict with, result in the breach of any provisions of or the termination of, or constitute a default under, any agreement to which the Executive is a party or by which the Executive is or may be bound. 12 7.4 OBLIGATIONS CONTINGENT ON PERFORMANCE The obligations of the Company hereunder, including its obligation to pay the compensation provided for herein, are contingent upon the Executive's performance of the Executive's obligations hereunder. 7.5 WAIVER The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by either party in exercising any right, power or privilege under this Agreement shall operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege shall preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement may be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party shall be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party shall be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement. 7.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs and legal representatives. This Agreement is personal to the parties hereto and shall not be assignable by either party without the prior written consent of the other. 7.7 NOTICES All notices, consents, waivers and other communications under this Agreement shall be made in writing and shall be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt) or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties): 13 If to the Company: G+G Retail, Inc. 520 Eighth Avenue New York, NY 10018 Attention: Jay Galin Facsimile: (212) 695-4952 with a copy to: Kaye, Scholer, Fierman, Hays & Handler, LLP 425 Park Avenue New York, NY 10022-3598 Attention: Mark S. Selinger, Esq. Facsimile: (212) 836-8689 If to the Executive: Scott Galin 60 Hickory Drive East Hills, NY 11576 Facsimile: (516) 621-4246 with a copy to: Shack & Siegel, P.C. 530 Fifth Avenue, 16th Floor New York, NY 10036 Attention: Donald Shack, Esq. Facsimile: (212) 730-1964 7.8 ENTIRE AGREEMENT; AMENDMENTS This Agreement, the Asset Purchase Agreement, the Stockholders Agreement and the documents executed in connection with the Asset Purchase Agreement and the Stockholders Agreement, contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof. This Agreement may not be amended orally, but only by an agreement in writing signed by the parties hereto. 14 7.9 GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles. 7.10 ARBITRATION Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the City of New York on an expedited basis by a panel of three qualified independent arbitrators selected on an expedited basis, one by the Executive, the second by the Company and the third by the first two selected. If no arbitrator can be agreed upon by the first two arbitrators within three business days of their selection, such arbitrator shall be selected on an expedited basis in accordance with the rules for commercial arbitration of the American Arbitration Association. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent, or to prevent any continuation of, any violation of Sections 5 and 6. The fees and expenses of such arbitration shall be fixed by the arbitrators and paid in accordance with their determination. 7.11 SECTION HEADINGS, CONSTRUCTION The headings of Sections in this Agreement are provided for convenience only and shall not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement unless otherwise specified. All words used in this Agreement shall be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 7.12 SEVERABILITY If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree shall remain in full force and effect to the extent not held invalid or unenforceable. 7.13 COUNTERPARTS This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original copy of this Agreement and all of which, when taken together, shall be deemed to constitute one and the same agreement. 15 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. G+G RETAIL, INC. By: /s/ Jay Galin ------------------------------- Name: Jay Galin Title: Chairman and Chief Executive Officer /s/ Scott Galin ---------------------------------- Scott Galin 16 EX-10.08 19 INDEMNIFICATION AGREEMENT 8/28/98 -- JAY GALIN EXHIBIT 10.08 INDEMNIFICATION AGREEMENT THIS AGREEMENT is made this 28th day of August, 1998 between G+G Retail, Inc., a Delaware corporation (together with its subsidiaries, the "Corporation") and Jay Galin (the "Director"). BACKGROUND: A. The Director is a member of the Board of Directors of the Corporation and in such capacity is performing a valuable service for the Corporation; B. Article EIGHTH of the Restated Certificate of Incorporation of the Corporation (the "Certificate") provides for the indemnification of the officers, directors, agents and employees of the Corporation to the maximum extent authorized by Section 145 and otherwise in the General Corporation Law of the State of Delaware as amended to date (the "State Statute"); C. The Certificate and the State Statute specifically provide that they are not exclusive, and thereby contemplate that contracts may be entered into between the Corporation and the members of its Board of Directors with respect to indemnification of such directors; D. In order to induce the Director to continue to serve as a member of the Board of Directors of the Corporation, the Corporation has agreed to enter into this contract with the Director; NOW, THEREFORE, in consideration of the foregoing, the parties hereby agree as follows: 1. Indemnity. Subject only to the exclusions set forth in Section 2 hereof, and provided that the Director in good faith and in a manner he reasonably believes to be the best interests of and not opposed to the Corporation and, with the respect to any criminal action or proceeding, had no reason to believe such conduct was unlawful, the Corporation hereby agrees to hold harmless and indemnify the Director: Against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the Director in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Corporation) to which the Director is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that the Director is, was or at any time becomes a director of the Corporation, all to the fullest extent as may be provided under Section 145(a) and (b) of the State Statute. 2. Limitations on Additional Indemnity. No indemnity pursuant to Section 1 hereof shall be paid by the Corporation: (a) In respect to remuneration paid to the Director if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; (b) On account of any suit for an accounting of profits made from the purchase or sale by the Director of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; (c) On account of the Director's conduct which is finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct. (d) If a final decision by a Court having jurisdiction in the matter shall determine that such indemnification is not lawful. 3. Continuation of Indemnity. All agreements and obligations of the Corporation contained herein shall continue during the period the Director is or was a director of the Corporation and shall continue thereafter so long as the Director shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Director was a director of the Corporation. 4. Notification and Defense of Claim. Promptly after receipt by the Director of notice of the commencement of any action, suit or proceeding, the Director will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; but the omission so to notify the Corporation will not relieve it from any liability under this Agreement except to the extent such omission in fact prejudices the Corporation or its defense of the matter, or which it may have to the Director otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which the Director notifies the Corporation of the commencement thereof: (a) Except as otherwise provided below, to the extent that it may wish, the Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably satisfactory to the Director. After notice from the Corporation to the Director of its election so to assume the defense thereof, the Corporation will not be liable to the Director under this Agreement for any legal or other expenses subsequently incurred by the Director in connection with the defense thereof other than reasonable costs of investigation incurred at the request of the Corporation or as otherwise provided below. The Director shall have the right to employ its counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Director unless (i) the employment of counsel by the Director has been authorized by the Corporation, (ii) counsel retained by the Corporation concludes that there is a conflict of interest between the Corporation and the Director in the conduct of the defense of such action such that joint representation is 2 inappropriate or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of the Director's counsel shall be at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation as to which the Director shall have made the conclusion provided for in (ii) above. (b) The Corporation shall not be liable to indemnify the Director under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. The Corporation shall not settle any action or claim in any manner which would impose any penalty (other than monetary damages which the Corporation is obligated to pay) or limitation on the Director without the Director's written consent. 5. Advance of Expenses, Judgments, Etc. The expenses (including attorneys' fees) incurred by the Director in defending any action, suit or proceeding shall be promptly advanced by the Corporation upon the written request of the Director. Any judgments, fines or amounts to be paid in settlement shall also be promptly advanced by the Corporation and/or to the Director upon the Director's written request. If it shall ultimately be determined by a court of competent jurisdiction that the Director was not entitled to be indemnified, or was not entitled to be fully indemnified, the Director shall repay to the Corporation all amounts so advanced, or the appropriate portion thereof so advanced. 6. Repayment of Expenses. The Director agrees that the Director will reimburse the Corporation for all reasonable expenses paid by the Corporation in defending any civil or criminal action, suit or proceeding against the Director in the event and only to the extent that it shall be ultimately determined that the Director is not entitled to be indemnified by the Corporation for such expenses under the provisions of the Certificate, the State Statute or this Agreement. 7. Enforcement. In the event either party is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, the unsuccessful party shall reimburse the other for all of the reasonable fees and expenses in bringing and pursuing such action. 8. Separability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be valid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. 9. Other Rights and Remedies. The indemnification and other rights provided by this Agreement shall not be deemed exclusive of any other rights to which the Director may be entitled under any provision of law, the Certificate or the Corporation's By-Laws, or other agreement, and shall continue after the Director has ceased to occupy such position. 3 10. Governing Law; Binding Effect; Amendment and Termination. (a) This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware. (b) This Agreement shall be binding upon and inure to the benefit of the Director, his heirs, personal representatives and assigns and the Corporation and its successors and assigns. (c) No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. 11. Counterparts; Facsimile Transmission. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same document. The signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. If a party executes the signature page hereof and causes same to be sent to the other party by facsimile transmission, such act shall constitute the due execution and delivery of this Agreement by such sending party. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written. G+G RETAIL, INC. By: /s/ Scott Galin ---------------------------- /s/ Jay Galin ------------------------------- Jay Galin Director 4 EX-10.09 20 INDEMNIFICATION AGREEMENT 8/28/98 -- SCOTT GALIN EXHIBIT 10.09 INDEMNIFICATION AGREEMENT THIS AGREEMENT is made this 28 day of August, 1998 between G+G Retail, Inc., a Delaware corporation (together with its subsidiaries, the "Corporation") and Scott Galin (the "Director"). BACKGROUND: A. The Director is a member of the Board of Directors of the Corporation and in such capacity is performing a valuable service for the Corporation; B. Article EIGHTH of the Restated Certificate of Incorporation of the Corporation (the "Certificate") provides for the indemnification of the officers, directors, agents and employees of the Corporation to the maximum extent authorized by Section 145 and otherwise in the General Corporation Law of the State of Delaware as amended to date (the "State Statute"); C. The Certificate and the State Statute specifically provide that they are not exclusive, and thereby contemplate that contracts may be entered into between the Corporation and the members of its Board of Directors with respect to indemnification of such directors; D. In order to induce the Director to continue to serve as a member of the Board of Directors of the Corporation, the Corporation has agreed to enter into this contract with the Director; NOW, THEREFORE, in consideration of the foregoing, the parties hereby agree as follows: 1. Indemnity. Subject only to the exclusions set forth in Section 2 hereof, and provided that the Director in good faith and in a manner he reasonably believes to be the best interests of and not opposed to the Corporation and, with the respect to any criminal action or proceeding, had no reason to believe such conduct was unlawful, the Corporation hereby agrees to hold harmless and indemnify the Director: Against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the Director in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Corporation) to which the Director is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that the Director is, was or at any time becomes a director of the Corporation, all to the fullest extent as may be provided under Section 145(a) and (b) of the State Statute. 2. Limitations on Additional Indemnity. No indemnity pursuant to Section 1 hereof shall be paid by the Corporation: (a) In respect to remuneration paid to the Director if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; (b) On account of any suit for an accounting of profits made from the purchase or sale by the Director of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; (c) On account of the Director's conduct which is finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct. (d) If a final decision by a Court having jurisdiction in the matter shall determine that such indemnification is not lawful. 3. Continuation of Indemnity. All agreements and obligations of the Corporation contained herein shall continue during the period the Director is or was a director of the Corporation and shall continue thereafter so long as the Director shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Director was a director of the Corporation. 4. Notification and Defense of Claim. Promptly after receipt by the Director of notice of the commencement of any action, suit or proceeding, the Director will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; but the omission so to notify the Corporation will not relieve it from any liability under this Agreement except to the extent such omission in fact prejudices the Corporation or its defense of the matter, or which it may have to the Director otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which the Director notifies the Corporation of the commencement thereof: (a) Except as otherwise provided below, to the extent that it may wish, the Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably satisfactory to the Director. After notice from the Corporation to the Director of its election so to assume the defense thereof, the Corporation will not be liable to the Director under this Agreement for any legal or other expenses subsequently incurred by the Director in connection with the defense thereof other than reasonable costs of investigation incurred at the request of the Corporation or as otherwise provided below. The Director shall have the right to employ its counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Director unless (i) the employment of counsel by the Director has been authorized by the Corporation, (ii) counsel retained by the Corporation concludes that there is a conflict of interest between the Corporation and the Director in the conduct of the defense of such action such that joint representation is 2 inappropriate or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of the Director's counsel shall be at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation as to which the Director shall have made the conclusion provided for in (ii) above. (b) The Corporation shall not be liable to indemnify the Director under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. The Corporation shall not settle any action or claim in any manner which would impose any penalty (other than monetary damages which the Corporation is obligated to pay) or limitation on the Director without the Director's written consent. 5. Advance of Expenses, Judgments, Etc. The expenses (including attorneys' fees) incurred by the Director in defending any action, suit or proceeding shall be promptly advanced by the Corporation upon the written request of the Director. Any judgments, fines or amounts to be paid in settlement shall also be promptly advanced by the Corporation and/or to the Director upon the Director's written request. If it shall ultimately be determined by a court of competent jurisdiction that the Director was not entitled to be indemnified, or was not entitled to be fully indemnified, the Director shall repay to the Corporation all amounts so advanced, or the appropriate portion thereof so advanced. 6. Repayment of Expenses. The Director agrees that the Director will reimburse the Corporation for all reasonable expenses paid by the Corporation in defending any civil or criminal action, suit or proceeding against the Director in the event and only to the extent that it shall be ultimately determined that the Director is not entitled to be indemnified by the Corporation for such expenses under the provisions of the Certificate, the State Statute or this Agreement. 7. Enforcement. In the event either party is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, the unsuccessful party shall reimburse the other for all of the reasonable fees and expenses in bringing and pursuing such action. 8. Separability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be valid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. 9. Other Rights and Remedies. The indemnification and other rights provided by this Agreement shall not be deemed exclusive of any other rights to which the Director may be entitled under any provision of law, the Certificate or the Corporation's By-Laws, or other agreement, and shall continue after the Director has ceased to occupy such position. 3 10. Governing Law; Binding Effect; Amendment and Termination. (a) This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware. (b) This Agreement shall be binding upon and inure to the benefit of the Director, his heirs, personal representatives and assigns and the Corporation and its successors and assigns. (c) No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. 11. Counterparts; Facsimile Transmission. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same document. The signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. If a party executes the signature page hereof and causes same to be sent to the other party by facsimile transmission, such act shall constitute the due execution and delivery of this Agreement by such sending party. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written. G+G RETAIL, INC. By: /s/ Jonathan Berger ----------------------------- /s/ Scott Galin -------------------------------- Scott Galin Director 4 EX-10.10 21 INDEMNIFICATION AGREEMENT 8/28/98 -- CRAIG COGUT EXHIBIT 10.10 INDEMNIFICATION AGREEMENT THIS AGREEMENT is made this 28th day of August, 1998 between G+G Retail, Inc., a Delaware corporation (together with its subsidiaries, the "Corporation") and Craig Cogut (the "Director"). BACKGROUND: A. The Director is a member of the Board of Directors of the Corporation and in such capacity is performing a valuable service for the Corporation; B. Article EIGHTH of the Restated Certificate of Incorporation of the Corporation (the "Certificate") provides for the indemnification of the officers, directors, agents and employees of the Corporation to the maximum extent authorized by Section 145 and otherwise in the General Corporation Law of the State of Delaware as amended to date (the "State Statute"); C. The Certificate and the State Statute specifically provide that they are not exclusive, and thereby contemplate that contracts may be entered into between the Corporation and the members of its Board of Directors with respect to indemnification of such directors; D. In order to induce the Director to continue to serve as a member of the Board of Directors of the Corporation, the Corporation has agreed to enter into this contract with the Director; NOW, THEREFORE, in consideration of the foregoing, the parties hereby agree as follows: 1. Indemnity. Subject only to the exclusions set forth in Section 2 hereof, and provided that the Director in good faith and in a manner he reasonably believes to be the best interests of and not opposed to the Corporation and, with the respect to any criminal action or proceeding, had no reason to believe such conduct was unlawful, the Corporation hereby agrees to hold harmless and indemnify the Director: Against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the Director in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Corporation) to which the Director is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that the Director is, was or at any time becomes a director of the Corporation, all to the fullest extent as may be provided under Section 145(a) and (b) of the State Statute. 2. Limitations on Additional Indemnity. No indemnity pursuant to Section 1 hereof shall be paid by the Corporation: (a) In respect to remuneration paid to the Director if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; (b) On account of any suit for an accounting of profits made from the purchase or sale by the Director of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; (c) On account of the Director's conduct which is finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct. (d) If a final decision by a Court having jurisdiction in the matter shall determine that such indemnification is not lawful. 3. Continuation of Indemnity. All agreements and obligations of the Corporation contained herein shall continue during the period the Director is or was a director of the Corporation and shall continue thereafter so long as the Director shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Director was a director of the Corporation. 4. Notification and Defense of Claim. Promptly after receipt by the Director of notice of the commencement of any action, suit or proceeding, the Director will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; but the omission so to notify the Corporation will not relieve it from any liability under this Agreement except to the extent such omission in fact prejudices the Corporation or its defense of the matter, or which it may have to the Director otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which the Director notifies the Corporation of the commencement thereof: (a) Except as otherwise provided below, to the extent that it may wish, the Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably satisfactory to the Director. After notice from the Corporation to the Director of its election so to assume the defense thereof, the Corporation will not be liable to the Director under this Agreement for any legal or other expenses subsequently incurred by the Director in connection with the defense thereof other than reasonable costs of investigation incurred at the request of the Corporation or as otherwise provided below. The Director shall have the right to employ its counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Director unless (i) the employment of counsel by the Director has been authorized by the Corporation, (ii) counsel retained by the Corporation concludes that there is a conflict of interest between the Corporation and the Director in the conduct of the defense of such action such that joint representation is 2 inappropriate or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of the Director's counsel shall be at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation as to which the Director shall have made the conclusion provided for in (ii) above. (b) The Corporation shall not be liable to indemnify the Director under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. The Corporation shall not settle any action or claim in any manner which would impose any penalty (other than monetary damages which the Corporation is obligated to pay) or limitation on the Director without the Director's written consent. 5. Advance of Expenses, Judgments, Etc. The expenses (including attorneys' fees) incurred by the Director in defending any action, suit or proceeding shall be promptly advanced by the Corporation upon the written request of the Director. Any judgments, fines or amounts to be paid in settlement shall also be promptly advanced by the Corporation and/or to the Director upon the Director's written request. If it shall ultimately be determined by a court of competent jurisdiction that the Director was not entitled to be indemnified, or was not entitled to be fully indemnified, the Director shall repay to the Corporation all amounts so advanced, or the appropriate portion thereof so advanced. 6. Repayment of Expenses. The Director agrees that the Director will reimburse the Corporation for all reasonable expenses paid by the Corporation in defending any civil or criminal action, suit or proceeding against the Director in the event and only to the extent that it shall be ultimately determined that the Director is not entitled to be indemnified by the Corporation for such expenses under the provisions of the Certificate, the State Statute or this Agreement. 7. Enforcement. In the event either party is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, the unsuccessful party shall reimburse the other for all of the reasonable fees and expenses in bringing and pursuing such action. 8. Separability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be valid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. 9. Other Rights and Remedies. The indemnification and other rights provided by this Agreement shall not be deemed exclusive of any other rights to which the Director may be entitled under any provision of law, the Certificate or the Corporation's By-Laws, or other agreement, and shall continue after the Director has ceased to occupy such position. 3 10. Governing Law; Binding Effect; Amendment and Termination. (a) This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware. (b) This Agreement shall be binding upon and inure to the benefit of the Director, his heirs, personal representatives and assigns and the Corporation and its successors and assigns. (c) No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. 11. Counterparts; Facsimile Transmission. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same document. The signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. If a party executes the signature page hereof and causes same to be sent to the other party by facsimile transmission, such act shall constitute the due execution and delivery of this Agreement by such sending party. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written. G+G RETAIL, INC. By: /s/ Scott Galin --------------------------------- /s/ Craig Cogut ------------------------------------ Craig Cogut Director 4 EX-10.11 22 INDEMNIFICATION AGREEMENT 8/28/98 -- LENARD TESSLER EXHIBIT 10.11 INDEMNIFICATION AGREEMENT THIS AGREEMENT is made this 28th day of August, 1998 between G+G Retail, Inc., a Delaware corporation (together with its subsidiaries, the "Corporation") and Lenard Tessler (the "Director"). BACKGROUND: A. The Director is a member of the Board of Directors of the Corporation and in such capacity is performing a valuable service for the Corporation; B. Article EIGHTH of the Restated Certificate of Incorporation of the Corporation (the "Certificate") provides for the indemnification of the officers, directors, agents and employees of the Corporation to the maximum extent authorized by Section 145 and otherwise in the General Corporation Law of the State of Delaware as amended to date (the "State Statute"); C. The Certificate and the State Statute specifically provide that they are not exclusive, and thereby contemplate that contracts may be entered into between the Corporation and the members of its Board of Directors with respect to indemnification of such directors; D. In order to induce the Director to continue to serve as a member of the Board of Directors of the Corporation, the Corporation has agreed to enter into this contract with the Director; NOW, THEREFORE, in consideration of the foregoing, the parties hereby agree as follows: 1. Indemnity. Subject only to the exclusions set forth in Section 2 hereof, and provided that the Director in good faith and in a manner he reasonably believes to be the best interests of and not opposed to the Corporation and, with the respect to any criminal action or proceeding, had no reason to believe such conduct was unlawful, the Corporation hereby agrees to hold harmless and indemnify the Director: Against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the Director in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Corporation) to which the Director is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that the Director is, was or at any time becomes a director of the Corporation, all to the fullest extent as may be provided under Section 145(a) and (b) of the State Statute. 2. Limitations on Additional Indemnity. No indemnity pursuant to Section 1 hereof shall be paid by the Corporation: (a) In respect to remuneration paid to the Director if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; (b) On account of any suit for an accounting of profits made from the purchase or sale by the Director of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; (c) On account of the Director's conduct which is finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct. (d) If a final decision by a Court having jurisdiction in the matter shall determine that such indemnification is not lawful. 3. Continuation of Indemnity. All agreements and obligations of the Corporation contained herein shall continue during the period the Director is or was a director of the Corporation and shall continue thereafter so long as the Director shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Director was a director of the Corporation. 4. Notification and Defense of Claim. Promptly after receipt by the Director of notice of the commencement of any action, suit or proceeding, the Director will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; but the omission so to notify the Corporation will not relieve it from any liability under this Agreement except to the extent such omission in fact prejudices the Corporation or its defense of the matter, or which it may have to the Director otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which the Director notifies the Corporation of the commencement thereof: (a) Except as otherwise provided below, to the extent that it may wish, the Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably satisfactory to the Director. After notice from the Corporation to the Director of its election so to assume the defense thereof, the Corporation will not be liable to the Director under this Agreement for any legal or other expenses subsequently incurred by the Director in connection with the defense thereof other than reasonable costs of investigation incurred at the request of the Corporation or as otherwise provided below. The Director shall have the right to employ its counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Director unless (i) the employment of counsel by the Director has been authorized by the Corporation, (ii) counsel retained by the Corporation concludes that there is a conflict of interest between the Corporation and the Director in the conduct of the defense of such action such that joint representation is 2 inappropriate or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of the Director's counsel shall be at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation as to which the Director shall have made the conclusion provided for in (ii) above. (b) The Corporation shall not be liable to indemnify the Director under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. The Corporation shall not settle any action or claim in any manner which would impose any penalty (other than monetary damages which the Corporation is obligated to pay) or limitation on the Director without the Director's written consent. 5. Advance of Expenses, Judgments, Etc. The expenses (including attorneys' fees) incurred by the Director in defending any action, suit or proceeding shall be promptly advanced by the Corporation upon the written request of the Director. Any judgments, fines or amounts to be paid in settlement shall also be promptly advanced by the Corporation and/or to the Director upon the Director's written request. If it shall ultimately be determined by a court of competent jurisdiction that the Director was not entitled to be indemnified, or was not entitled to be fully indemnified, the Director shall repay to the Corporation all amounts so advanced, or the appropriate portion thereof so advanced. 6. Repayment of Expenses. The Director agrees that the Director will reimburse the Corporation for all reasonable expenses paid by the Corporation in defending any civil or criminal action, suit or proceeding against the Director in the event and only to the extent that it shall be ultimately determined that the Director is not entitled to be indemnified by the Corporation for such expenses under the provisions of the Certificate, the State Statute or this Agreement. 7. Enforcement. In the event either party is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, the unsuccessful party shall reimburse the other for all of the reasonable fees and expenses in bringing and pursuing such action. 8. Separability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be valid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. 9. Other Rights and Remedies. The indemnification and other rights provided by this Agreement shall not be deemed exclusive of any other rights to which the Director may be entitled under any provision of law, the Certificate or the Corporation's By-Laws, or other agreement, and shall continue after the Director has ceased to occupy such position. 3 10. Governing Law; Binding Effect; Amendment and Termination. (a) This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware. (b) This Agreement shall be binding upon and inure to the benefit of the Director, his heirs, personal representatives and assigns and the Corporation and its successors and assigns. (c) No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. 11. Counterparts; Facsimile Transmission. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same document. The signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. If a party executes the signature page hereof and causes same to be sent to the other party by facsimile transmission, such act shall constitute the due execution and delivery of this Agreement by such sending party. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written. G+G RETAIL, INC. By: /s/ Scott Galin ------------------------------ /s/ Lenard Tessler ---------------------------------- Lenard Tessler Director 4 EX-10.12 23 INDEMNIFICATION AGREEMENT 8/28/98 -- DONALD D. SHACK EXHIBIT 10.12 INDEMNIFICATION AGREEMENT THIS AGREEMENT is made this 28th day of August, 1998 between G+G Retail, Inc., a Delaware corporation (together with its subsidiaries, the "Corporation") and Donald Shack (the "Director"). BACKGROUND: A. The Director is a member of the Board of Directors of the Corporation and in such capacity is performing a valuable service for the Corporation; B. Article EIGHTH of the Restated Certificate of Incorporation of the Corporation (the "Certificate") provides for the indemnification of the officers, directors, agents and employees of the Corporation to the maximum extent authorized by Section 145 and otherwise in the General Corporation Law of the State of Delaware as amended to date (the "State Statute"); C. The Certificate and the State Statute specifically provide that they are not exclusive, and thereby contemplate that contracts may be entered into between the Corporation and the members of its Board of Directors with respect to indemnification of such directors; D. In order to induce the Director to continue to serve as a member of the Board of Directors of the Corporation, the Corporation has agreed to enter into this contract with the Director; NOW, THEREFORE, in consideration of the foregoing, the parties hereby agree as follows: 1. Indemnity. Subject only to the exclusions set forth in Section 2 hereof, and provided that the Director in good faith and in a manner he reasonably believes to be the best interests of and not opposed to the Corporation and, with the respect to any criminal action or proceeding, had no reason to believe such conduct was unlawful, the Corporation hereby agrees to hold harmless and indemnify the Director: Against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the Director in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Corporation) to which the Director is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that the Director is, was or at any time becomes a director of the Corporation, all to the fullest extent as may be provided under Section 145(a) and (b) of the State Statute. 2. Limitations on Additional Indemnity. No indemnity pursuant to Section 1 hereof shall be paid by the Corporation: (a) In respect to remuneration paid to the Director if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; (b) On account of any suit for an accounting of profits made from the purchase or sale by the Director of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; (c) On account of the Director's conduct which is finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct. (d) If a final decision by a Court having jurisdiction in the matter shall determine that such indemnification is not lawful. 3. Continuation of Indemnity. All agreements and obligations of the Corporation contained herein shall continue during the period the Director is or was a director of the Corporation and shall continue thereafter so long as the Director shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Director was a director of the Corporation. 4. Notification and Defense of Claim. Promptly after receipt by the Director of notice of the commencement of any action, suit or proceeding, the Director will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; but the omission so to notify the Corporation will not relieve it from any liability under this Agreement except to the extent such omission in fact prejudices the Corporation or its defense of the matter, or which it may have to the Director otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which the Director notifies the Corporation of the commencement thereof: (a) Except as otherwise provided below, to the extent that it may wish, the Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably satisfactory to the Director. After notice from the Corporation to the Director of its election so to assume the defense thereof, the Corporation will not be liable to the Director under this Agreement for any legal or other expenses subsequently incurred by the Director in connection with the defense thereof other than reasonable costs of investigation incurred at the request of the Corporation or as otherwise provided below. The Director shall have the right to employ its counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Director unless (i) the employment of counsel by the Director has been authorized by the Corporation, (ii) counsel retained by the Corporation concludes that there is a conflict of interest between the Corporation and the Director in the conduct of the defense of such action such that joint representation is 2 inappropriate or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of the Director's counsel shall be at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation as to which the Director shall have made the conclusion provided for in (ii) above. (b) The Corporation shall not be liable to indemnify the Director under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. The Corporation shall not settle any action or claim in any manner which would impose any penalty (other than monetary damages which the Corporation is obligated to pay) or limitation on the Director without the Director's written consent. 5. Advance of Expenses, Judgments, Etc. The expenses (including attorneys' fees) incurred by the Director in defending any action, suit or proceeding shall be promptly advanced by the Corporation upon the written request of the Director. Any judgments, fines or amounts to be paid in settlement shall also be promptly advanced by the Corporation and/or to the Director upon the Director's written request. If it shall ultimately be determined by a court of competent jurisdiction that the Director was not entitled to be indemnified, or was not entitled to be fully indemnified, the Director shall repay to the Corporation all amounts so advanced, or the appropriate portion thereof so advanced. 6. Repayment of Expenses. The Director agrees that the Director will reimburse the Corporation for all reasonable expenses paid by the Corporation in defending any civil or criminal action, suit or proceeding against the Director in the event and only to the extent that it shall be ultimately determined that the Director is not entitled to be indemnified by the Corporation for such expenses under the provisions of the Certificate, the State Statute or this Agreement. 7. Enforcement. In the event either party is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, the unsuccessful party shall reimburse the other for all of the reasonable fees and expenses in bringing and pursuing such action. 8. Separability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be valid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. 9. Other Rights and Remedies. The indemnification and other rights provided by this Agreement shall not be deemed exclusive of any other rights to which the Director may be entitled under any provision of law, the Certificate or the Corporation's By-Laws, or other agreement, and shall continue after the Director has ceased to occupy such position. 3 10. Governing Law; Binding Effect; Amendment and Termination. (a) This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware. (b) This Agreement shall be binding upon and inure to the benefit of the Director, his heirs, personal representatives and assigns and the Corporation and its successors and assigns. (c) No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. 11. Counterparts; Facsimile Transmission. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same document. The signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. If a party executes the signature page hereof and causes same to be sent to the other party by facsimile transmission, such act shall constitute the due execution and delivery of this Agreement by such sending party. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written. G+G RETAIL, INC. By: /s/ Scott Galin ------------------------------ /s/ Donald Shack ---------------------------------- Donald Shack Director 4 EX-10.13 24 LETTER AGREEMENT 10/12/98 -- MICHAEL KAPLAN EXHIBIT 10.13 October 12, 1998 Mr. Michael Kaplan 29 Marc Drive Englishtown, New Jersey 07726 Dear Mr. Kaplan: We are pleased to confirm our offer of continued employment with G+G Retail, Inc. (the "Company") on the following terms and conditions: 1. You will continue to be employed as the Company's Vice President and Chief Financial Officer reporting to the Company's President and Chief Operating Officer and to its Chairman and Chief Executive Officer. 2. You will be paid a base salary at the rate of $265,000 per year. Such base salary will be reviewed yearly and may be subject to increases, in the Company's discretion, based, among other things, upon your performance and the Company's results of operation. You will also be eligible to participate during the period of your employment in any incentive bonus plans which the Company may adopt for employees of your level. 3. The Company will continue to provide you with use of an automobile and pay your reasonable business related automobile expenses consistent with the Company's automobile and expense policies as in effect from time to time. 4. You will continue to be eligible to participate in the Company's group medical and hospitalization insurance plans and its retirement plans as in effect from time to time during the period of your employment. 5. Your employment by with Company will be "at will" and may be terminated by the Company or by you at any time, with or without "cause", for any reason or for no reason. If your employment is terminated by the Company without cause, then the Company will pay to you as severance (and in lieu of any other benefits, compensation or payments of any kind by reason of the termination of your employment) the following: (a) an amount equal to your base salary at your then current rate payable in installments in accordance with the Company's normal payroll schedule for a period of one year (the "Severance Period"), and (b) provided that you elect to continue your coverage under the Company's medical and hospitalization insurance benefits under the Company's group plans in accordance with your rights under the Consolidated Omnibus Budget and Reconciliation Act of 1985, as amended ("COBRA"), the Company will waive or pay on your behalf the portion of the premiums for such continuation coverage which equals the portion of such premiums which would otherwise have been paid by the Company had you continued in the Company's employ for the Severance Period or until you obtain other employment which offers medical and hospitalization coverage to you (whether or not you accept such coverage.) As used above, the term "cause" means any willful, intentional or negligent act or omission by you which has the effect of injuring the business or reputation of the Company and includes your resignation or other voluntary termination of your employment, your failure or refusal to perform your duties and obligations to the Company or to comply with a reasonable instruction of any of the Company's President or Chairman or your commission of a crime under any state or federal laws. The Company agrees that your principal place of employment shall be located in the New York Metropolitan Area (although you may be required, from time to time, to travel in the performance of your duties) and that, if the Company shall nonetheless require that you relocate your principal place of business outside of the New York Metropolitan Area, unless you shall consent to such relocation, the Company shall be deemed to have terminated your employment hereunder without cause. 6. During the Severance Period you shall not for yourself or on behalf of any other person, partnership, corporation or entity, directly or indirectly, or by action in concert with others (a) solicit, induce, or encourage any person known to you to be an employee of the Company or any affiliate of the Company to terminate his or her employment or other contractual relationship with the Company or any of its affiliates, or (b) solicit, induce or encourage any customer, supplier or other person known by you to have a contractual relationship with the Company to discontinue, terminate, cancel or refrain from entering into any clothing retail or other contractual relationship with the Company or any of its affiliates. 7. During the period of your employment, you will necessarily have access to information, knowledge and data concerning the Company, its operations, business and affairs which is confidential and which is not generally known to the public. You agree that you will not at any time disclose or divulge any such confidential information to any person firm or corporation except as may be required in connection with the Company's business and affairs or otherwise by law. 8. This letter is intended to supersede all prior understandings and agreements regarding your employment by the Company. You acknowledge that the Company has not made and you have not relied upon, any representations, promises or inducements concerning the terms and conditions of your employment except as provided above. 2 If the foregoing is acceptable to you, please indicate your agreement by signing below. Very truly yours, G+G RETAIL, INC. By: /s/ Scott Galin ----------------------- ACCEPTED AND AGREED TO: /s/ Michael Kaplan - ----------------------- Michael Kaplan 3 EX-10.14 25 LETTER AGREEMENT 10/12/98 -- JEFFREY GALIN EXHIBIT 10.14 October 12, 1998 Mr. Jeffrey Galin 10600 Wilshire Blvd. Apt. 309 Los Angeles, California 90024 Dear Jeffrey: We are pleased to confirm our offer of continued employment with G+G Retail, Inc. (the "Company") on the following terms and conditions: 1. You will continue to be employed as a Vice President/Merchandise Manager of the Company reporting to the Company's President and Chief Operating Officer and to its Chairman and Chief Executive Officer. 2. You will be paid a base salary at the rate of $205,000 per year. Such base salary will be reviewed yearly and may be subject to increases, in the Company's discretion, based, among other things, upon your performance and the Company's results of operation. You will also be eligible to participate during the period of your employment in any incentive bonus plans which the Company may adopt for employees of your level. 3. The Company will continue to provide you with use of an automobile and pay your reasonable business related automobile expenses consistent with the Company's automobile and expense policies as in effect from time to time. 4. You will continue to be eligible to participate in the Company's group medical and hospitalization insurance plans and its retirement plans as in effect from time to time during the period of your employment. 5. Your employment by with Company will be "at will" and may be terminated by the Company or by you at any time, with or without "cause", for any reason or for no reason. If your employment is terminated by the Company without cause, then the Company will pay to you as severance (and in lieu of any other benefits, compensation or payments of any kind by reason of the termination of your employment) the following: (a) an amount equal to your base salary at your then current rate payable in installments in accordance with the Company's normal payroll schedule for a period of one year (the "Severance Period"), and (b) provided that you elect to continue your coverage under the Company's medical and hospitalization insurance benefits under the Company's group plans in accordance with your rights under the Consolidated Omnibus Budget and Reconciliation Act of 1985, as amended ("COBRA"), the Company will waive or pay on your behalf the portion of the premiums for such continuation coverage which equals the portion of such premiums which would otherwise have been paid by the Company had you continued in the Company's employ for the Severance Period or until you obtain other employment which offers medical and hospitalization coverage to you (whether or not you accept such coverage.) As used above, the term "cause" means any willful, intentional or negligent act or omission by you which has the effect of injuring the business or reputation of the Company and includes your resignation or other voluntary termination of your employment, your failure or refusal to perform your duties and obligations to the Company or to comply with a reasonable instruction of any of the Company's President or Chairman or your commission of a crime under any state or federal laws. The Company agrees that your principal place of employment shall be located in the Los Angeles Metropolitan Area (although you may be required, from time to time, to travel in the performance of your duties) and that, if the Company shall nonetheless require that you relocate your principal place of business outside of the Los Angeles Metropolitan Area, unless you shall consent to such relocation, the Company shall be deemed to have terminated your employment hereunder without cause. 6. During the Severance Period you shall not for yourself or on behalf of any other person, partnership, corporation or entity, directly or indirectly, or by action in concert with others (a) solicit, induce, or encourage any person known to you to be an employee of the Company or any affiliate of the Company to terminate his or her employment or other contractual relationship with the Company or any of its affiliates, or (b) solicit, induce or encourage any customer, supplier or other person known by you to have a contractual relationship with the Company to discontinue, terminate, cancel or refrain from entering into any clothing retail or other contractual relationship with the Company or any of its affiliates. 7. During the period of your employment, you will necessarily have access to information, knowledge and data concerning the Company, its operations, business and affairs which is confidential and which is not generally known to the public. You agree that you will not at any time disclose or divulge any such confidential information to any person firm or corporation except as may be required in connection with the Company's business and affairs or otherwise by law. 8. This letter is intended to supersede all prior understandings and agreements regarding your employment by the Company. You acknowledge that the Company has not made and you have not relied upon, any representations, promises or inducements concerning the terms and conditions of your employment except as provided above. 2 If the foregoing is acceptable to you, please indicate your agreement by signing below. Very truly yours, G+G RETAIL, INC. By: /s/ Scott Galin ------------------------ ACCEPTED AND AGREED TO: /s/ Jeffrey Galin - --------------------- Jeffrey Galin 3 EX-10.15 26 LOAN AND SECURITY AGREEMENT 10/30/98 EXHIBIT 10.15 LOAN AND SECURITY AGREEMENT by and between CONGRESS FINANCIAL CORPORATION as Lender and G+G RETAIL, INC. and THE ADDITIONAL PARTIES SET FORTH ON SCHEDULE 1 HERETO as Borrowers Dated: October 30, 1998 TABLE OF CONTENTS -----------------
Page ---- SECTION 1. DEFINITIONS........................................................... 1 SECTION 2. CREDIT FACILITIES..................................................... 10 2.1 Loans............................................................ 10 2.2 Letter of Credit Accommodations.................................. 11 2.3 Availability Reserves............................................ 13 SECTION 3. INTEREST AND FEES..................................................... 14 3.1 Interest......................................................... 14 3.2 Closing Fee...................................................... 15 3.3 [Intentionally Omitted].......................................... 15 3.4 Unused Line Fee.................................................. 15 3.5 Changes in Laws and Increased Costs of Loans..................... 15 SECTION 4. CONDITIONS PRECEDENT.................................................. 16 4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations.................................. 16 4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations.................................. 18 SECTION 5. SECURITY INTEREST..................................................... 18 SECTION 6. COLLECTION AND ADMINISTRATION......................................... 20 6.1 Borrowers' Loan Account(s)....................................... 20 6.2 Statements....................................................... 20 6.3 Collection of Accounts........................................... 20 6.4 Payments......................................................... 22 6.5 Authorization to Make Loans...................................... 22 6.6 Use of Proceeds.................................................. 23 6.7 Appointment of G+G as Agent for Borrowers........................ 23 SECTION 7. COLLATERAL REPORTING AND COVENANTS.................................... 23 7.1 Collateral Reporting............................................. 23 7.2 Accounts Covenants............................................... 24 7.3 Inventory Covenants.............................................. 25 7.4 Power of Attorney................................................ 26 7.5 Right to Cure.................................................... 27 7.6 Access to Premises............................................... 27 SECTION 8. REPRESENTATIONS AND WARRANTIES........................................ 28 8.1 Corporate Existence, Power and Authority; Subsidiaries........... 28 8.2 Financial Statements; No Material Adverse Change................. 28 8.3 Chief Executive Office; Collateral Locations..................... 28 8.4 Priority of Liens; Title to Properties........................... 28 8.5 Tax Returns...................................................... 29 8.6 Litigation....................................................... 29 8.7 Compliance with Other Agreements and Applicable Laws............. 29 8.8 Environmental Compliance......................................... 30 8.9 Credit Card Agreements........................................... 31
(i) 8.10 Employee Benefits.................................................. 31 8.11 Bank Accounts...................................................... 32 8.12 Accuracy and Completeness of Information........................... 32 8.13 Survival of Warranties; Cumulative................................. 32 SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS........................................ 33 9.1 Maintenance of Existence........................................... 33 9.2 New Collateral Locations........................................... 33 9.3 Compliance with Laws, Regulations, Etc............................. 33 9.4 Payment of Taxes and Claims........................................ 34 9.5 Insurance.......................................................... 34 9.6 Financial Statements and Other Information......................... 34 9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc............ 36 9.8 Encumbrances....................................................... 37 9.9 Indebtedness....................................................... 38 9.10 Loans, Investments, Guarantees, Etc................................ 40 9.11 Dividends and Redemptions.......................................... 41 9.12 Transactions with Affiliates....................................... 42 9.13 Credit Card Agreements............................................. 42 9.14 Adjusted Tangible Net Worth........................................ 42 9.15 Compliance with ERISA.............................................. 43 9.16 Additional Bank Accounts........................................... 43 9.17 Costs and Expenses................................................. 43 9.18 Further Assurances................................................. 44 SECTION 10. EVENTS OF DEFAULT AND REMEDIES............................................ 44 10.1 Events of Default.................................................. 44 10.2 Remedies........................................................... 46 SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW............................................... 48 11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.................................................. 48 11.2 Waiver of Notices.................................................. 49 11.3 Amendments and Waivers............................................. 49 11.4 Waiver of Counterclaims............................................ 49 11.5 Indemnification.................................................... 49 SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS.......................................... 50 12.1 Term................................................................ 50 12.2 Notices............................................................. 51 12.3 Partial Invalidity.................................................. 52 12.4 Successors.......................................................... 52 12.5 Confidentiality..................................................... 52 12.6 Entire Agreement.................................................... 53
(ii) INDEX TO EXHIBIT AND SCHEDULES --------------------- Exhibit A Information Certificate of G+G Retail, Inc. Schedule 1 Additional Borrowers Schedule 6.3 Bank Accounts Schedule 8.4 Existing Liens Schedule 8.8 Environmental Compliance Schedule 8.9 Credit Card Agreements Schedule 9.9 Existing Indebtedness Schedule 9.10 Loans, Investments, Guarantees Schedule 9.12 Transactions With Affiliates (iii) LOAN AND SECURITY AGREEMENT --------------------------- This Loan and Security Agreement dated October 30, 1998 is entered into by and between CONGRESS FINANCIAL CORPORATION, a Delaware corporation ("Lender") and G+G RETAIL, INC., a Delaware corporation ("G+G") and each of the corporations listed on Schedule 1 hereto (each of the foregoing, individually a "Borrower" and collectively, "Borrowers"). W I T N E S S E T H: ------------------- WHEREAS, Borrowers have requested that Lender enter into certain financing arrangements with Borrowers pursuant to which Lender may make loans and provide other financial accommodations to Borrowers; and WHEREAS, Lender is willing to make such loans and provide such financial accommodations on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS ----------- All terms used herein which are defined in Article 1 or Article 9 of the Uniform Commercial Code shall have the meanings given therein unless otherwise defined in this Agreement. All references to the plural herein shall also mean the singular and to the singular shall also mean the plural unless the context otherwise requires. All references to Borrowers pursuant to the definitions set forth in the recitals hereto, unless the context otherwise requires, shall mean each and all of them and their respective successors and assigns, individually and collectively, jointly and severally. All references to Lender pursuant to the definitions set forth in the recitals hereto, or to any other person herein, shall include their respective successors and assigns. The words "hereof", "herein", "hereunder", "this Agreement" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any particular provision of this Agreement and as this Agreement now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. The word "including" when used in this Agreement shall mean "including, without limitation". An Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 11.3 or cured, if such Event of Default is capable of being cured as determined by Lender. Any accounting term used herein unless otherwise defined in this Agreement shall have the meanings customarily given to such term in accordance with GAAP. For purposes of this Agreement, the following terms shall have the respective meanings given to them below: 1.1 "Accounts" shall mean all present and future rights of each Borrower to payment for goods sold or leased or for services rendered, which are not evidenced by instruments or chattel paper, and whether or not earned by performance, and including, without limitation, credit card Receivables. 1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage equal to: (i) one (1) minus (ii the Reserve Percentage. For purposes hereof, "Reserve Percentage" shall mean the reserve percentage, expressed as a decimal, prescribed by any United States or foreign banking authority for determining the reserve requirement which is or would be applicable to deposits of United States dollars in a non-United States or an international banking office of Reference Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with the proceeds of such deposit, whether or not the Reference Bank actually holds or has made any such deposits or loans. The Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of any change in the Reserve Percentage. 1.3 "Adjusted Tangible Net Worth" shall mean as to any Person, at any time, in accordance with GAAP (except as otherwise specifically set forth below), on a consolidated basis for such Person and its subsidiaries (if any), the amount equal to the difference between: (a) the aggregate net book value of all assets of such Person and its subsidiaries, calculating the book value of inventory for this purpose principally on a first-in-first-out basis, at the lower of cost or market using the retail method of accounting after deducting from such book values all appropriate reserves in accordance with GAAP (including all reserves for doubtful receivables, obsolescence, depreciation and amortization), provided, however, that for G+G such aggregate net book value of -------- ------- all assets shall not be reduced by the amount of any intangible assets written off in whole or in part, and (b) the aggregate amount of the indebtedness and other liabilities of such Person and its subsidiaries (including tax and other proper accruals, but excluding any indebtedness which is subordinated to the Obligations of Lender hereunder and excluding any indebtedness permitted pursuant to Section 9.9(e)(iii) to the extent the proceeds of such indebtedness are used as dividend payments as permitted under Section 9.11(b)), provided -------- further, however, for G+G that the aggregate net book value of assets shall not - ------- ------- reflect any non-cash gains or non-cash losses from unusual, infrequent or extraordinary items or from changes in accounting principles recognized after the date hereof. 1.4 "Availability Reserves" shall mean, as of any date of determination, such amounts as Lender may from time to time establish and revise in good faith reducing the amount of Loans and Letter of Credit Accommodations that would otherwise be available to Borrowers under the lending formula(s) provided for herein: (a) to reflect events, conditions, contingencies or risks that, as determined by Lender in good faith, do or may affect either (i) the Collateral or any other property which is security for the Obligations or its value, (ii the assets, business or prospects of any Borrower or any Obligor or (ii the security interests and other rights of Lender in the Collateral (including the enforceability, perfection and priority thereof) or (b) to reflect Lender's good faith belief that any collateral report or financial information furnished by or on behalf of any Borrower or any Obligor to Lender is or may have been incomplete, inaccurate or misleading in any material respect or (c) in respect of any state of facts which Lender determines in good faith constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default, or (d) to reflect outstanding Letter of Credit Accommodations as provided in Section 2.2 hereof or (e) as otherwise provided in Section 2.3 hereof. In addition to, and not in limitation of the foregoing, if at any time, the Borrowers have Excess Availability of less than 2 $3,000,000 or an Event of Default exists and is continuing, then, with respect to any leased locations where Lender determines the landlord has any rights in and to the Collateral pursuant to applicable law, Lender shall have the right to establish an Availability Reserve in respect of amounts due for unpaid rent to the owner and lessor of such leased location. 1.5 "Blocked Accounts" shall have the meaning set forth in Section 6.3 hereof. 1.6 "Bridge Loan Agreement" shall mean that certain $90,000,000 Loan Agreement dated as of August 28, 1998 among G+G, Parent, the initial lenders named therein and First Union National Bank, as administrative agent. 1.7 "Bridge Notes" shall mean, individually and collectively, all promissory notes executed and delivered by G+G pursuant to the terms of the Bridge Loan Agreement. 1.8 "Business Day" shall mean any day other than a Saturday, Sunday, or other day on which commercial banks are authorized or required to close under the laws of the State of New York or the State of North Carolina and a day on which the Reference Bank and Lender are open for the transaction of business, except that if a determination of a Business Day shall relate to any Eurodollar Rate Loans, the term Business Day shall also exclude any day on which banks are closed for dealings in dollar deposits in the London interbank market or other applicable Eurodollar Rate market. 1.9 "Capital Stock" shall mean any and all shares, interests, participations, or other equivalents (however designated) of corporate stock or partnership interests and any options or warrants with respect to any of the foregoing. 1.10 "Cash Equivalents" means (a) United States dollars (including, without limitation, such dollars as are held as overnight bank deposits and demand deposits with banks, which deposits are insured by the Federal Deposit Insurance Corporation), (b) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (c) certificates of deposit and Eurodollar time deposits with maturities of one year or less from the date of acquisition and bankers' acceptances with maturities not exceeding one year, in each case with any domestic commercial bank having capital and surplus in excess of $500,000,000 and rated "A3" or better by Moody's Investors Service, Inc. and "A-" or better by Standard & Poor's Rating Group, (d) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (b) and (c) above, (e) commercial paper having one of the two highest ratings obtainable from Moody's Investors Service, Inc or Standard & Poor's Ratings Group and in each case maturing within nine months after the date of acquisition, and (f) money market funds, the portfolios of which are limited to investments described in clauses (a) through (e) above. 1.11 "Change Of Control" shall mean the earlier of (a) the first date that the Initial Holders, on a collective basis, cease to be the "beneficial owners" (as such term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities representing 3 at least a majority of the total voting power of the outstanding capital stock of Parent that is entitled to vote in the election of the Board of Directors of Parent, or (b) the first date on which Parent (or its wholly-owned subsidiaries) cease to wholly-own G+G. 1.12 "Code" shall mean the Internal Revenue Code of 1986, as the same now exists or may from time to time hereafter be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto. 1.13 "Collateral" shall have the meaning set forth in Section 5 hereof. 1.14 "Cost" shall mean, as to the Inventory as of any date, the cost of such Inventory as of such date, determined on a first-in-first-out basis under the retail method of accounting in accordance with GAAP. 1.15 "Credit Card Acknowledgments" shall mean, individually and collectively, the agreements by Credit Card Issuers or Credit Card Processors who are parties to Credit Card Agreements in favor of Lender acknowledging Lender's first priority security interest in the monies due and to become due to any Borrower or Obligor (including, without limitation, credits and reserves) under the Credit Card Agreements, and agreeing to transfer all such amounts to the Blocked Accounts, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.16 "Credit Card Agreements" shall mean all agreements now or hereafter entered into by any Borrower or Obligor with any Credit Card Issuer or any Credit Card Processor, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, including, but not limited to, the agreements set forth on Schedule 8.9 hereto. 1.17 "Credit Card Issuer" shall mean any person (other than Borrowers) who issues or whose members issue credit cards, including, without limitation, MasterCard or VISA bank credit or debit cards or other bank credit or debit cards issued through MasterCard International, Inc., Visa, U.S.A., Inc. or Visa International and American Express, Discover, Diners Club, Carte Blanche and other non-bank credit or debit cards, including, without limitation, credit or debit cards issued by or through American Express Travel Related Services Company, Inc. and Novus Services, Inc. 1.18 "Credit Card Processor" shall mean any servicing or processing agent or any factor or financial intermediary who facilitates, services, processes or manages the credit authorization, billing transfer and/or payment procedures with respect to any of Borrowers' or Obligors' sales transactions involving credit card or debit card purchases by customers using credit cards or debit cards issued by any Credit Card Issuer. 1.19 "Credit Card Receivables" shall mean collectively, (a) all present and future rights of Borrowers to payment from any Credit Card Issuer, Credit Card Processor or other third party arising from sales of goods or rendition of services to customers who have purchased such 4 goods or services using a credit or debit card and (b) all present and future rights of Borrowers to payment from any Credit Card Issuer, Credit Card Processor or other third party in connection with the sale or transfer of Accounts arising pursuant to the sale of goods or rendition of services to customers who have purchased such goods or services using a credit card or a debit card, including, but not limited to, all amounts at any time due or to become due from any Credit Card Issuer or Credit Card Processor under the Credit Card Agreements or otherwise. 1.20 "Eligible Inventory" shall mean Inventory consisting of finished goods held for resale in the ordinary course of the business of Borrowers that are acceptable to Lender based on the criteria set forth below. In general, Eligible Inventory shall not include (a) packaging and shipping materials; (b) supplies used or consumed in Borrowers' business; (c) Inventory at premises other than those owned or leased and controlled by Borrowers; (d) Inventory subject to a security interest or lien in favor of any person other than Lender except those permitted in this Agreement; (e) bill and hold goods; (f) unserviceable, obsolete or slow moving Inventory; (g) Inventory which is not subject to the first priority, valid and perfected security interest of Lender; (h) damaged and/or defective Inventory (i) returned Inventory that is not held for resale; (j) Inventory to be returned to vendors; (k) Inventory subject to deposits made by customers for sales of Inventory that has not been delivered; (l) samples; (m) Inventory purchased or sold on consignment; (n) Inventory received by Borrowers earlier then the date six (6) months prior to the date hereof; and (o) Inventory purchased from an affiliate of Borrowers at a purchase price exceeding the fair market value of such Inventory, to the extent of such excess purchase price. General criteria for Eligible Inventory may be established and revised from time to time by Lender in good faith based on an event, condition or other circumstance arising after the date hereof, or existing on the date hereof to the extent Lender has no notice thereof, which adversely affected or could reasonably be expected to adversely affect the Inventory in the good faith determination of Lender. Lender will not establish new criteria for Eligible Inventory if Lender has established an Availability Reserve for the same purpose and Lender will use its best efforts to promptly notify Borrowers of any new criteria established by Lender. Any Inventory which is not Eligible Inventory shall nevertheless be part of the Collateral. 1.21 "Environmental Laws" shall mean all foreign, Federal, State and local laws (including common law), legislation, rules, codes, licenses, permits (including any conditions imposed therein), authorizations, judicial or administrative decisions, injunctions or agreements between Borrowers and any governmental authority, (a) relating to pollution and the protection, preservation or restoration of the environment (including air, water vapor, surface water, ground water, drinking water, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety, (b) relating to the exposure to, or the use, storage, recycling, treatment, generation, manufacture, processing, distribution, transportation, handling, labeling, production, release or disposal, or threatened release, of Hazardous Materials, or (c) relating to all laws with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Materials. The term "Environmental Laws" includes (i) the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Federal Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal Clean Air Act, 5 the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water Act of 1974, (ii applicable state counterparts to such laws, and (ii any common law or equitable doctrine that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Materials. 1.22 "Equipment" shall mean all of Borrowers' now owned and hereafter acquired equipment, machinery, computers and computer hardware and software (whether owned or licensed), vehicles, tools, furniture, fixtures, all attachments, accessions and property now or hereafter affixed thereto or used in connection therewith, and substitutions and replacements thereof, wherever located. 1.23 "ERISA" shall mean the United States Employee Retirement Income Security Act of 1974, as the same now exists or may hereafter from time to time be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto. 1.24 "ERISA Affiliate" shall mean any person required to be aggregated with Borrowers or any of their subsidiaries under Sections 414(b), 414(c), 414(m) or 414(o) of the Code. 1.25 "Eurodollar Rate" shall mean with respect to the Interest Period for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic average of the rates of interest per annum (rounded upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is offered deposits of United States dollars in the London interbank market (or other Eurodollar Rate market selected by Borrowers and approved by Lender) on or about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement of such Interest Period in amounts substantially equal to the principal amount of the Eurodollar Rate Loans requested by and available to Borrowers in accordance with this Agreement, with a maturity of comparable duration to the Interest Period selected by Borrowers. 1.26 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on which interest is payable based on the Adjusted Eurodollar Rate in accordance with the terms hereof. 1.27 "Excess Availability" shall mean the amount, as determined by Lender, calculated at any time, equal to: (a) the lesser of (i) the amount of the Loans available to Borrowers as of such time based on the applicable lending formula multiplied by the Value of Eligible Inventory, as determined by Lender, and subject to the sublimits and Availability Reserves from time to time established by Lender hereunder and (ii the Maximum Credit, minus (b) the sum of: (i) the ----- amount of all then outstanding and unpaid Obligations, plus (ii (A) the aggregate amount of all trade payables of Borrowers which are more than forty- five (45) days past due as of such time less (B) the lesser of (x) the amount of ---- all trade payables which are more than forty-five (45) days past due which the Borrowers are in good faith contesting, to the extent each such payable is so contested and (y) $500,000. 6 1.28 "Event Of Default" shall mean the occurrence or existence of any event or condition described in Section 10.1 hereof. 1.29 "Financing Agreements" shall mean, collectively, this Agreement and all notes, guarantees, security agreements and other agreements, documents and instruments now or at any time hereafter executed and/or delivered by any Borrower or any Obligor in connection with this Agreement, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.30 "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Boards which are applicable to the circumstances as of the date of determination consistently applied, except that, for purposes of Sections 9.14 hereof, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the audited financial statements delivered to Lender prior to the date hereof. 1.31 "Guarantor" shall mean any person other than Borrowers which executes a guarantee in favor of Lender unconditionally guaranteeing Borrowers' Obligations to Lender and has executed in favor of Lender a security agreement and related documents including UCC-1 Financing Statements, and all of which documents then continue in effect. 1.32 "Information Certificate" shall mean the Information Certificate of Borrowers constituting Exhibit A hereto containing material information with respect to Borrowers, their business and assets provided by or on behalf of Borrowers to Lender in connection with the preparation of this Agreement and the other Financing Agreements and the financing arrangements provided for herein. 1.33 Initial Holders" means Pegasus Partners, L.P., Pegasus Related Partners, L.P., Jay Galin, Scott Galin, Jeffrey Galin and their respective affiliates. 1.34 "Interest Period" shall mean for any Eurodollar Rate Loan, a period of approximately one (1), two (2), or three (3) months duration as Borrowers may elect, the exact duration to be determined in accordance with the customary practice in the applicable Eurodollar Rate market; provided, that, Borrowers may -------- ---- not elect an Interest Period which will end after the last day of the then- current term of this Agreement. 1.35 "Interest Rate" shall mean (a) as to Prime Rate Loans, a rate equal to the Prime Rate and (b) as to Eurodollar Rate Loans, a rate of one and three- quarters (1 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate (based on the Eurodollar Rate applicable for the Interest Period selected by Borrowers as in effect three (3) Business Days after the date of receipt by Lender of the request of Borrowers for such Eurodollar Rate Loans in accordance with the terms hereof ("Eurodollar Request Notice"), whether such rate is higher or lower than any rate previously quoted to Borrowers); provided, that: the -------- ---- Interest Rate specified in clause (a) with 7 respect to Prime Rate Loans and in clause (b) with respect to Eurodollar Rate Loans shall be increased, in each case, by two (2%) percent per annum, at Lender's option, without notice, (i) for the period on and after (A) the date of termination or non-renewal hereof and until such time as all Obligations are indefeasibly paid in full (notwithstanding entry of any judgment against Borrowers), or (B) the date of the occurrence of any Event of Default, and for so long as such Event of Default or other event is continuing as determined by Lender, and (ii on the Loans at any time outstanding in excess of the amounts available to Borrowers under Section 2 (whether or not such excess(es), arise or are made with or without Lender's knowledge or consent and whether made before or after an Event of Default). 1.36 "Inventory" shall mean all of Borrowers' now owned and hereafter existing or acquired raw materials, work in process, finished goods and all other inventory of whatsoever kind or nature, wherever located. 1.37 "Landlord Agreement" shall mean an agreement in writing from the owner and lessor of any leased premises in form and substance reasonably satisfactory to Lender acknowledging Lender's first priority security interest in the Collateral, waiving or subordinating in favor of Lender security interests and claims by such person against the Collateral and permitting Lender access to, and the right to remain on, the premises so as to exercise Lender's rights and remedies and otherwise deal with the Collateral. 1.38 "Letter Of Credit Accommodations" shall mean the letters of credit, merchandise purchase or other guaranties which are from time to time either (a) issued or opened by Lender for the account of any Borrower or any Obligor or (b) with respect to which Lender has agreed to indemnify the issuer or guaranteed to the issuer the performance by Borrowers of their obligations to such issuer. 1.39 "Loans" shall mean the loans now or hereafter made by Lender to or for the benefit of Borrowers on a revolving basis (involving advances, repayments and readvances) as set forth in Section 2.1 hereof. 1.40 "Material Adverse Change" shall mean a material adverse change in the condition (financial or otherwise), operations, performance, properties, business or affairs of the Borrowers or any Obligor. 1.41 "Material Adverse Effect" shall mean a material adverse change in, or a material adverse effect upon (a) the condition (financial or otherwise), operations, business or affairs of Borrowers or any Obligor, (b) the ability of Borrowers or any Obligor to repay any Obligations under any of the Financing Agreements, or (c) Lender's rights or interests in its Collateral or of Lender's ability to enforce the Obligations or realize upon its Collateral. 1.42 "Maximum Credit" shall mean $20,000,000. 1.43 "Net Recovery Amount" shall mean at any given time the Value of Eligible Inventory multiplied by the Net Recovery Cost Percentage. 8 1.44 "Net Recovery Cost Percentage" shall mean the fraction, expressed as a percentage, (a) the numerator of which is the amount equal to the recovery on the aggregate amount of the Inventory at such time on a "going out of business sale" basis as set forth in the most recent acceptable appraisal of Inventory received by Lender in accordance with Section 7.3, net of operating expenses, liquidation expenses and commissions, and (b) the denominator of which is the original Cost of the aggregate amount of the Inventory subject to appraisal. 1.45 "Obligations" shall mean any and all Loans, Letter of Credit Accommodations and all other obligations, liabilities and indebtedness of every kind, nature and description owing by Borrowers to Lender and/or its affiliates, including principal, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under this Agreement or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of this Agreement or after the commencement of any case with respect to Borrowers under the United States Bankruptcy Code or any similar statute (including, without limitation, the payment of interest and other amounts which would accrue and become due but for the commencement of such case, whether or not such amounts are allowed or allowable in whole or in part in such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and however acquired by Lender. 1.46 "Obligor" shall mean any guarantor, endorser, acceptor, surety or other person liable on or with respect to the Obligations or who is the owner of any property which is security for the Obligations, other than Borrowers. 1.47 "Parent" shall mean G&G Retail Holdings, Inc., together with its successors and assigns. 1.48 "Payment Account" shall have the meaning set forth in Section 6.3 hereof. 1.49 "Permits" shall have the meaning set forth in Section 8.7 hereof. 1.50 "Person" or "person" shall mean any individual, sole proprietorship, partnership, corporation (including, without limitation, any corporation which elects subchapter S status under the Code), limited liability company, limited liability partnership, business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality or political subdivision thereof. 1.51 "Prime Rate" shall mean the rate from time to time publicly announced by First Union National Bank, or its successors, as its prime rate, whether or not such announced rate is the best rate available at such bank. 1.52 "Prime Rate Loans" shall mean any Loans or portion thereof on which interest is payable based on the Prime Rate in accordance with the terms hereof. 9 1.53 "Real Property" shall mean all now owned and hereafter acquired real property of Borrowers, including leasehold interests, together with all buildings, structures, and other improvements located thereon and all licenses, easements and appurtenances relating thereto, wherever located. 1.54 "Records" shall mean all of Borrowers' present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of Borrowers with respect to the foregoing maintained with or by any other person). 1.55 "Reference Bank" shall mean First Union National Bank or such other bank as Lender may designate from time to time. 1.56 "Renewal Date" shall have the meaning set forth in Section 12.1 hereof. 1.57 "Retail Value" shall mean, as to the Inventory as of any date, the then current retail sales price of such Inventory as of such date, net of markdowns from the original retail sales price or ticketed sales price with respect thereto. 1.58 "Value" shall mean with respect to Inventory, the lower of (a) Cost or (b) market value, as determined in good faith by Lender. SECTION 2. CREDIT FACILITIES ----------------- 2.1 Loans. (a) Subject to, and upon the terms and conditions contained herein, Lender agrees to make Loans to Borrowers from time to time in amounts requested by Borrowers up to the amount equal to: (i) (A) the lesser of (1) the Maximum Credit and (2) eighty (80%) percent of the Net Recovery Amount of the Eligible Inventory; minus (ii any Availability Reserves; except that, so long as ----- ------ ---- no Event of Default exists and is continuing, for the calendar months of July, August, October and November of each year, Lender agrees to make Loans to Borrowers from time to time in amounts requested by Borrowers up to the amount equal to: (i) the lesser of (A) the Maximum Credit and (B) eighty-five (85%) percent of the Net Recovery Amount of the Eligible Inventory; minus (ii) any ----- Availability Reserves. (b) Lender may, in its discretion, from time to time, upon not less than five (5) days prior notice to Borrowers, reduce the lending formula with respect to Eligible Inventory to the extent that Lender determines that: (i) the number of days of the turnover of the Inventory for any period has changed in any respect or (ii the nature, quality or mix of the Inventory has deteriorated or (ii there is a decrease in the Net Recovery Cost Percentage after the date hereof. In determining whether to reduce the lending formula(s), Lender may consider events, conditions, 10 contingencies or risks which are also considered in determining Eligible Inventory or in establishing Availability Reserves. To the extent Lender shall have established an Availability Reserve which is sufficient to address any event, condition or matter in a manner satisfactory to Lender in good faith, Lender shall not exercise its rights under this Section 2.1(b) to reduce the lending formulas to address such event, condition or matter. The amount of any reduction in the lending formula by Lender pursuant to this Section 2.1(b) shall have a reasonable relationship to the matter which is the basis for such a reduction. (c) Except in Lender's discretion, the aggregate amount of the Loans and the Letter of Credit Accommodations outstanding at any time shall not exceed the Maximum Credit. In the event that the outstanding amount of the Loans, or the aggregate amount of the outstanding Loans and Letter of Credit Accommodations, exceed the amounts available under the lending formulas, the sublimits for Letter of Credit Accommodations set forth in Section 2.2(d) or the Maximum Credit, as applicable, such event shall not limit, waive or otherwise affect any rights of Lender in that circumstance or on any future occasions and Borrowers shall, upon demand by Lender, which may be made at any time or from time to time, immediately repay to Lender the entire amount of any such excess(es) for which payment is demanded. 2.2 Letter of Credit Accommodations. (a) Subject to, and upon the terms and conditions contained herein, at the request of Borrowers, Lender agrees to provide or arrange for Letter of Credit Accommodations for the account of Borrowers containing terms and conditions acceptable to Lender and the issuer thereof. Any payments made by Lender to any issuer thereof and/or related parties in connection with the Letter of Credit Accommodations shall constitute additional Loans to Borrowers pursuant to this Section 2. (b) In addition to any charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations, Borrowers shall pay to Lender a letter of credit fee at a rate equal to one and three quarters (1 3/4%) percent per annum on the daily outstanding balance of the Letter of Credit Accommodations for the immediately preceding month (or part thereof), payable in arrears as of the first day of each succeeding month, except that Borrowers shall pay to Lender such letter of credit fee, at Lender's option, without notice, at a rate equal to three and three quarters (3 3/4%) percent per annum for (i) the period from and after the date of termination or non-renewal hereof until Lender has received full and final payment of all Obligations (notwithstanding entry of a judgment against Borrowers) and (ii the period from and after the date of the occurrence of an Event of Default and for so long as such Event of Default is continuing. Such letter of credit fee shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed and the obligation of Borrowers to pay such fee shall survive the termination or non-renewal of this Agreement. (c) No Letter of Credit Accommodations shall be available unless on the date of the proposed issuance of any Letter of Credit Accommodations, the Loans available to 11 Borrowers (subject to the Maximum Credit and any Availability Reserves) are equal to or greater than (i) if the proposed Letter of Credit Accommodation is for the purpose of purchasing Eligible Inventory, the sum of (A) the percentage equal to one hundred (100%) percent minus the then applicable percentage set forth in Section 2.1(a) above multiplied by the Value of such Eligible Inventory, plus (B) freight, taxes, duty and other amounts that Lender estimates must be paid in connection with such Inventory upon arrival and for delivery to one of Borrowers' locations for Eligible Inventory; and (ii if the proposed Letter of Credit Accommodation is for any other purpose an amount equal to one hundred (100%) percent of the face amount thereof and all other commitments and obligations made or incurred by Lender with respect thereto. Effective on the issuance of each Letter of Credit Accommodations, an Availability Reserve shall be established in the applicable amount set forth in Section 2.2(c)(i) or Section 2.2(c)(ii). (d) Except in Lender's discretion, the amount of all outstanding Letter of Credit Accommodations and all other commitments and obligations made or incurred by Lender in connection therewith, shall not at any time exceed $10,000,000. At any time an Event of Default has occurred and is continuing, upon Lender's request, Borrowers will either furnish cash collateral to secure the reimbursement obligations to the issuer in connection with any Letter of Credit Accommodations or furnish cash collateral to Lender for the Letter of Credit Accommodations, and in either case, the Loans otherwise available to Borrowers shall not be reduced as provided in Section to 2.2(c) the extent of such cash collateral. (e) Borrowers shall indemnify and hold Lender harmless from and against any and all losses, claims, damages, liabilities, costs and expenses which Lender may suffer or incur in connection with any Letter of Credit Accommodations and any documents, drafts or acceptances relating thereto, including, but not limited to, any losses, claims, damages, liabilities, costs and expenses due to any action taken by any issuer or correspondent with respect to any Letter of Credit Accommodation, except for any losses, claims, damages, liabilities, costs and expenses as a result of the gross negligence or willful misconduct of Lender as determined pursuant to a final non-appealable order of a court of competent jurisdiction. Borrowers assume all risks with respect to the acts or omissions of the drawer under or beneficiary of any Letter of Credit Accommodation and for such purposes the drawer or beneficiary shall be deemed Borrowers' agent. Borrowers assume all risks for, and agrees to pay, all foreign, Federal, State and local taxes, duties and levies relating to any goods subject to any Letter of Credit Accommodations or any documents, drafts or acceptances thereunder. Borrowers hereby release and hold Lender harmless from and against any acts, waivers, errors, delays or omissions, whether caused by Borrowers, by any issuer or correspondent or otherwise with respect to or relating to any Letter of Credit Accommodation, except for any losses, claims, damages, liabilities, costs and expenses as a result of the gross negligence or willful misconduct of Lender as determined pursuant to a final non-appealable order of a court of competent jurisdiction. The provisions of this Section 2.2(e) shall survive the payment of Obligations and the termination or non- renewal of this Agreement. (f) Nothing contained herein shall be deemed or construed to grant Borrowers any right or authority to pledge the credit of Lender in any manner. Lender shall have no liability of any kind with respect to any Letter of Credit Accommodation provided by an issuer 12 other than Lender unless Lender has duly executed and delivered to such issuer the application or a guarantee or indemnification in writing with respect to such Letter of Credit Accommodation. Borrowers shall be bound by any interpretation made in good faith by Lender, or any other issuer or correspondent under or in connection with any Letter of Credit Accommodation or any documents, drafts or acceptances thereunder, notwithstanding that such interpretation may be inconsistent with any instructions of Borrowers. Lender shall have the sole and exclusive right and authority to, and Borrowers shall not at any time an Event of Default exists or has occurred and is continuing, unless Lender delivers notice to the Borrowers to the contrary, (i) approve or resolve any questions of non-compliance of documents, (ii give any instructions as to acceptance or rejection of any documents or goods, or (ii execute any and all applications for steamship or airway guaranties, indemnities or delivery orders, (iv grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents, and (v) agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letter of Credit Accommodations, or documents, drafts or acceptances thereunder or any letters of credit included in the Collateral. Lender may take such actions either in its own name or in Borrowers' name. (g) Any rights, remedies, duties or obligations granted or undertaken by Borrowers to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been granted or undertaken by Borrowers to Lender. Any duties or obligations undertaken by Lender to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement by Lender in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been undertaken by Borrowers to Lender and to apply in all respects to Borrowers. 2.3 Availability Reserves. All Loans otherwise available to Borrowers pursuant to the lending formulas and subject to the Maximum Credit and other applicable limits hereunder shall be subject to Lender's continuing right to establish and revise Availability Reserves. Without limiting any other rights or remedies of Lender under this Agreement or any of the other Financing Agreements with respect to the establishment of Availability Reserves or otherwise, Lender may establish and revise Availability Reserves to reflect: (a) inventory shrinkage; (b) the aggregate amount of deposits, if any, received by Borrowers from their retail customers in respect of unfilled orders for merchandise; (c) (i) amounts due or to become due in respect of use and/or withholding taxes and (ii) at any time when Excess Availability is less than $3,000,000, amounts due or to become due in respect of sales taxes; or (d) amounts owing by Borrowers to Credit Card Issuers or Credit Card Processors in connection with the Credit Card Agreements. 13 SECTION 3. INTEREST AND FEES ----------------- 3.1 Interest. (a) Borrowers shall pay to Lender interest on the outstanding principal amount of the Loans at the Interest Rate. All interest accruing hereunder on and after the date of any Event of Default or termination or non- renewal hereof shall be payable on demand. (b) Borrowers may from time to time request that Prime Rate Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans continue for an additional Interest Period. Such request from Borrowers shall specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate Loans (subject to the limits set forth below) and the Interest Period to be applicable to such Eurodollar Rate Loans. Subject to the terms and conditions contained herein, three (3) Business Days after receipt by Lender of such a request from Borrowers, such Prime Rate Loans shall be converted to Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be, provided, that, as of such date each of the following conditions is satisfied as - -------- ---- determined by Lender in good faith: (i) no Event of Default, or event which with notice or passage of time or both would constitute an Event of Default exists or has occurred and is continuing, (ii no party hereto shall have sent any notice of termination or non-renewal of this Agreement, (ii Borrowers shall have complied with such customary procedures as are established by Lender and specified by Lender to Borrowers from time to time for requests by Borrowers for Eurodollar Rate Loans, (iv no more than six (6) Interest Periods may be in effect at any one time, (v) the aggregate amount of the Eurodollar Rate Loans must be in an amount not less than $1,000,000 or an integral multiple of $1,000,000 in excess thereof, (vi the maximum amount of the Eurodollar Rate Loans at any time requested by Borrowers shall not exceed the amount equal to ninety (90%) percent of the lowest principal amount of the Loans which it is anticipated will be outstanding during the applicable Interest Period, in each case as determined by Lender (but with no obligation of Lender to make such Loans) and (vi Lender shall have determined that the Interest Period or Adjusted Eurodollar Rate is available to Lender through the Reference Bank and can be readily determined as of the date of the request for such Eurodollar Rate Loan by Borrowers. Any request by Borrowers to convert Prime Rate Loans to Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be irrevocable. Notwithstanding anything to the contrary contained herein, Lender and Reference Bank shall not be required to purchase United States Dollar deposits in the London interbank market or other applicable Eurodollar Rate market to fund any Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if Lender and Reference Bank had purchased such deposits to fund the Eurodollar Rate Loans. (c) Any Eurodollar Rate Loans shall automatically convert to Prime Rate Loans upon the last day of the applicable Interest Period, unless Lender has received and approved a request to continue such Eurodollar Rate Loan at least three (3) Business Days prior to such last day in accordance with the terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon notice by Lender to Borrowers, convert to Prime Rate Loans in the event that (i) an Event of Default shall exist, (ii this Agreement shall terminate or not be renewed, or (ii the aggregate principal amount of the Prime Rate Loans which have previously been converted to Eurodollar 14 Rate Loans or existing Eurodollar Rate Loans continued, as the case may be, at the beginning of an Interest Period shall at any time during such Interest Period exceed either (A) the aggregate principal amount of the Loans then outstanding, or (B) the Loans then available to Borrowers under Section 2 hereof. Borrowers shall pay to Lender, upon demand by Lender (or Lender may, at its option, charge any loan account of Borrowers) any amounts required to compensate Lender, the Reference Bank or any participant with Lender for any loss (including loss of anticipated profits), cost or expense incurred by such person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the foregoing. (d) Interest shall be payable by Borrowers to Lender monthly in arrears not later than the first day of each calendar month and shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. The interest rate on Loans (other than Eurodollar Rate Loans) shall increase or decrease by an amount equal to each increase or decrease in the Prime Rate effective on the first day of the month after any change in such Prime Rate is announced based on the Prime Rate in effect on the last day of the month in which any such change occurs. In no event shall charges constituting interest payable by Borrowers to Lender exceed the maximum amount or the rate permitted under any applicable law or regulation, and if any such part or provision of this Agreement is in contravention of any such law or regulation, such part or provision shall be deemed amended to conform thereto. 3.2 Closing Fee. Borrowers shall pay to Lender as a closing fee the amount of $125,000 which shall be fully earned as of and payable on the date hereof. 3.3 [Intentionally Omitted]. 3.4 Unused Line Fee. Borrowers shall pay to Lender monthly an unused line fee at a rate equal to one-quarter of one (1/4%) percent per annum calculated upon the amount by which the Maximum Credit exceeds the average daily principal balance of the outstanding Loans and Letter of Credit Accommodations during the immediately preceding month (or part thereof) while this Agreement is in effect and for so long thereafter as any of the Obligations are outstanding, which fee shall be payable on the first day of each month in arrears. 3.5 Changes in Laws and Increased Costs of Loans. (a) Notwithstanding anything to the contrary contained herein, all Eurodollar Rate Loans shall, upon notice by Lender to Borrowers, convert to Prime Rate Loans in the event that (i) any change in applicable law or regulation (or the interpretation or administration thereof) shall either (A) make it unlawful for Lender, Reference Bank or any participant to make or maintain Eurodollar Rate Loans or to comply with the terms hereof in connection with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs to Lender, Reference Bank or any participant of making or maintaining any Eurodollar Rate Loans or by an amount deemed by Lender to be material, or (C) reduce the amounts received or receivable by Lender in respect thereof, by an amount deemed by Lender to be material or (ii the cost to Lender, Reference Bank or any participant of making or maintaining any Eurodollar Rate Loans shall otherwise increase by an amount deemed by Lender to be material. Borrowers shall pay to Lender, upon 15 demand by Lender (or Lender may, at its option, charge any loan account of Borrowers) any amounts required to compensate Lender, the Reference Bank or any participant with Lender for any loss (including loss of anticipated profits), cost or expense incurred by such person as a result of the foregoing, including, without limitation, any such loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such person to make or maintain the Eurodollar Rate Loans or any portion thereof. A certificate of Lender setting forth the basis for the determination of such amount necessary to compensate Lender as aforesaid shall be delivered to Borrowers and shall be conclusive, absent manifest error. (b) If any payments or prepayments in respect of the Eurodollar Rate Loans are received by Lender other than on the last day of the applicable Interest Period (whether pursuant to acceleration, upon maturity or otherwise), including any payments pursuant to the application of collections under Section 6.3 or any other payments made with the proceeds of Collateral, Borrowers shall pay to Lender upon demand by Lender (or Lender may, at its option, charge any loan account of Borrowers) any amounts required to compensate Lender, the Reference Bank or any participant with Lender for any additional loss (including loss of anticipated profits), cost or expense incurred by such person as a result of such prepayment or payment, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such person to make or maintain such Eurodollar Rate Loans or any portion thereof. SECTION 4. CONDITIONS PRECEDENT -------------------- 4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations. Each of the following is a condition precedent to Lender making the initial Loans and providing the initial Letter of Credit Accommodations hereunder: (a) Lender shall have received, in form and substance satisfactory to Lender, all releases, terminations and such other documents as Lender may request to evidence and effectuate the termination by Madeleine, L.L.C. of its financing arrangements with Borrowers and the termination and release by it of any interest in and to any assets and properties of Borrowers and each Obligor, duly authorized, executed and delivered by it, including, but not limited to, UCC termination statements for all UCC financing statements previously filed by it or its predecessors, as secured party and Borrowers or any Obligor, as debtor; (b) Lender shall have received evidence, in form and substance satisfactory to Lender, that Lender has valid perfected and first priority security interests in and liens upon the Collateral and any other property which is intended to be security for the Obligations or the liability of any Obligor in respect thereof, subject only to the security interests and liens permitted herein or in the other Financing Agreements; (c) all requisite corporate action and proceedings in connection with this Agreement and the other Financing Agreements shall be satisfactory in form and substance to Lender, and Lender shall have received all information and copies of all documents, including, without limitation, records of requisite corporate action and proceedings which Lender may have 16 requested in connection therewith, such documents where requested by Lender or its counsel to be certified by appropriate corporate officers or governmental authorities; (d) no material adverse change shall have occurred in the assets, business or prospects of Borrowers since the date of Lender's latest field examination and no change or event shall have occurred which would impair the ability of Borrowers or any Obligor to perform its obligations hereunder or under any of the other Financing Agreements to which it is a party or of Lender to enforce the Obligations or realize upon the Collateral; (e) Lender shall have completed a field review of the Records and such other information with respect to the Collateral as Lender may require to determine the amount of Loans available to Borrowers including, without limitation, current perpetual inventory records and/or roll-forwards of Inventory through the date of closing, together with such supporting documentation as may be necessary or appropriate, and other documents and information that will enable Lender to accurately identify and verify the Collateral, the results of which shall be satisfactory to Lender, not more than three (3) Business Days prior to the date hereof; (f) Lender shall have received, in form and substance satisfactory to Lender, all consents, waivers, acknowledgments and other agreements from third persons (other than from landlords of the Borrowers' leased locations) which Lender may deem necessary or desirable in order to permit, protect and perfect its security interests in and liens upon the Collateral or to effectuate the provisions or purposes of this Agreement and the other Financing Agreements, including, without limitation, acknowledgements by lessors, mortgagees and warehousemen of Lender's security interests in the Collateral, waivers by such persons of any security interests, liens or other claims by such persons to the Collateral and agreements permitting Lender access to, and the right to remain on, the premises to exercise its rights and remedies and otherwise deal with the Collateral; (g) Borrowers shall have established the Blocked Accounts and Lender shall have received, in form and substance satisfactory to Lender, all agreements with the depository banks and Borrowers with respect to such Blocked Accounts as Lender may require pursuant to Section 6.3 hereof, duly authorized, executed and delivered by such depository banks and Borrowers; (h) Lender shall have received evidence, in form and substance satisfactory to Lender, that Borrowers have (i) directed the banks at which Borrowers maintains deposit accounts for the initial receipt of cash, checks and other items from Borrowers' retail store locations to transfer all immediately available funds deposited in such bank only to the Blocked Accounts as required pursuant to Section 6.3 hereof or as otherwise consented to by Lender and (ii notified such banks of the security interests of Lender in such funds and the other Collateral; (i) Lender shall have received Credit Card Acknowledgements in each case, duly authorized, executed and delivered by the Credit Card Issuers and Credit Card Processors; 17 (j) the Excess Availability as determined by Lender, as of the date hereof, shall not be less than $3,000,000 after giving effect to the initial Loans made or to be made and Letter of Credit Accommodations issued or to be issued in connection with the initial transactions hereunder; (k) Lender shall have received evidence of insurance and loss payee endorsements required hereunder and under the other Financing Agreements, in form and substance satisfactory to Lender, and certificates of insurance policies and/or endorsements naming Lender as loss payee; (l) Lender shall have received, in form and substance satisfactory to Lender, the opinion letter of counsel to Borrowers with respect to the Financing Agreements and the security interests and liens of Lender with respect to the Collateral and such other matters and Lender may request; and (m) the other Financing Agreements and all instruments and documents hereunder and thereunder shall have been duly executed and delivered to Lender, in form and substance satisfactory to Lender. 4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations. Each of the following is an additional condition precedent to Lender making Loans and/or providing Letter of Credit Accommodations to Borrowers, including the initial Loans and Letter of Credit Accommodations and any future Loans and Letter of Credit Accommodations: (a) all representations and warranties contained herein and in the other Financing Agreements shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of the making of each such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto; and (b) no Event of Default and no event or condition which, with notice or passage of time or both, would constitute an Event of Default, shall exist or have occurred and be continuing on and as of the date of the making of such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto. SECTION 5. SECURITY INTEREST ----------------- To secure payment and performance of all Obligations, each Borrower hereby grants to Lender a continuing security interest in, a lien upon, and a right of set off against, and hereby collaterally assigns to Lender the following property and interests in property, whether now owned or hereafter acquired or existing, and wherever located (collectively, the "Collateral"): 5.1 Accounts; 18 5.2 all present and future contract rights, general intangibles (including, but not limited to, tax and duty refunds, registered and unregistered patents, trademarks, service marks, copyrights, trade names, applications for the foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer lists, licenses, whether as licensor or licensee, choses in action and other claims and existing and future leasehold interests in equipment, real estate and fixtures), chattel paper, documents, instruments, securities and other investment property, credit card sales drafts, credit card sales slips or charge slips or receipts and other forms of store receipts, letters of credit, bankers' acceptances and guaranties; 5.3 all present and future monies, securities, credit balances, deposits, deposit accounts and other property of such Borrower now or hereafter held or received by or in transit to Lender or its affiliates or at any other depository or other institution from or for the account of such Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Accounts and other Collateral, including, without limitation, (i) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (ii rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (ii goods described in invoices, documents, credit card sales drafts, credit card sales slips or charge slips or receipts and other forms of store receipts, contracts or instruments with respect to, or otherwise representing or evidencing, Accounts or other Collateral, including, without limitation, returned, repossessed and reclaimed goods, and (iv deposits by and property of account debtors or other persons securing the obligations of account debtors; 5.4 Inventory; 5.5 Equipment; 5.6 Real Property; 5.7 Records; and 5.8 all products and proceeds of the foregoing, in any form, including, without limitation, insurance proceeds and all claims against third parties for loss or damage to or destruction of any or all of the foregoing. 5.9 Notwithstanding anything to the contrary set forth above, Collateral shall not include any rights or interests in Real Property or Equipment which is, and so long as such Real Property or Equipment remains subject to, a contract or lease which, pursuant to its stated terms, prohibits the granting of a security interest or lien therein to Lender and such prohibition has not been or is not waived or the consent of the other party to such contract or lease has not been or is not otherwise obtained or, under applicable law, such prohibition cannot be waived; provided that the foregoing exclusion shall in no way be construed (a) to apply if any such prohibition is unenforceable under Section 9- 318 of the Uniform Commercial Code or other applicable law, or (b) so as to limit, impair or otherwise affect the Lender's unconditional continuing security 19 interests in and liens upon any rights or interests of Borrowers in or to monies due or to become due under any such contract or lease (including any Accounts), or (c) if the lessor or holder of such purchase money mortgage or security interest in and to such Equipment does not have a valid and perfected security interest in or lien upon such Equipment. SECTION 6. COLLECTION AND ADMINISTRATION 6.1 Borrowers' Loan Account(s). Lender shall maintain one or more loan account(s) on its books in which shall be recorded (a) all Loans, Letter of Credit Accommodations and other Obligations and the Collateral, (b) all payments made by or on behalf of Borrowers and (c) all other appropriate debits and credits as provided in this Agreement, including, without limitation, fees, charges, costs, expenses and interest. All entries in the loan account(s) shall be made in accordance with Lender's customary practices as in effect from time to time. 6.2 Statements. Lender shall render to Borrowers each month a statement setting forth the balance in the Borrowers' loan account(s) maintained by Lender for Borrowers pursuant to the provisions of this Agreement, including principal, interest, fees, costs and expenses. Each such statement shall be subject to subsequent adjustment by Lender but shall, absent manifest errors or omissions, be considered correct and deemed accepted by Borrowers and conclusively binding upon Borrowers as an account stated except to the extent that Lender receives a written notice from Borrowers of any specific exceptions of Borrowers thereto within thirty (30) days after the date such statement has been mailed by Lender. Until such time as Lender shall have rendered to Borrowers a written statement as provided above, the balance in Borrowers' loan account(s) shall be presumptive evidence of the amounts due and owing to Lender by Borrowers. 6.3 Collection of Accounts. (a) Borrowers shall establish and maintain, at their expense, blocked accounts or lockboxes and related blocked accounts (in either case, "Blocked Accounts"), as Lender may specify, with such banks as are reasonably acceptable to Lender into which Borrowers shall promptly deposit and direct their account debtors to directly remit all payments on Accounts and all payments constituting proceeds of Inventory or other Collateral in the identical form in which such payments are made, whether by cash, check, credit card sales drafts, credit card sales or charge slips or other manner. The banks at which the Blocked Accounts are established shall enter into an agreement, in form and substance satisfactory to Lender, providing that all items received or deposited in the Blocked Accounts are the property of Lender, that the depository bank has no lien upon, or right to setoff against, the Blocked Accounts, the items received for deposit therein, or the funds from time to time on deposit therein and that the depository bank will wire, or otherwise transfer, in immediately available funds, on a daily basis, at such time as Lender shall direct, all funds received or deposited into the Blocked Accounts to such bank account of Lender as Lender may from time to time designate for such purpose ("Payment Account"). Lender shall instruct the depository banks at which the Blocked Accounts are maintained to transfer the funds on deposit in the Blocked Accounts to such operating bank account of Borrowers as Borrowers may specify in writing to Lender (the "Operating Account") until such time as Lender shall notify the depository bank otherwise. Lender may instruct the 20 depository banks at which the Blocked Accounts are maintained to transfer all funds received or deposited into the Blocked Accounts to the Payment Account if, at any time: (i) an Event of Default, or event which with notice or passage of time or both would constitute an Event of Default, shall exist, or (ii Borrowers have Excess Availability of less than $5,000,000 for three (3) consecutive days. Borrowers agree that all payments made to such Blocked Accounts or other funds received and collected by Lender, whether on the Accounts or as proceeds of Inventory or other Collateral or otherwise shall be the property of Lender. (b) For purposes of calculating the amount of the Loans available to Borrowers, such payments will be applied (conditional upon final collection) to the Obligations on the Business Day of receipt by Lender of immediately available funds in the Payment Account provided such payments and notice thereof are received in accordance with Lender's usual and customary practices as in effect from time to time and by 12:00 noon New York City time or, at Lender's discretion, otherwise within sufficient time to credit Borrowers' loan account on such day, and if not, then on the next Business Day. Until the date Lender notifies the depository banks at which the Blocked Accounts are maintained to direct payment to the Payment Account in accordance with Section 6.3(a), Lender shall be entitled to charge Borrowers an administrative fee equivalent to the interest Lender would have received for the Collection Period (as defined below) had the funds deposited in the Blocked Account on such day been transferred from the Blocked Account to the Payment Account on such day. If Lender notifies the depository banks at which the Blocked Accounts are maintained to direct payment to the Payment Account in accordance with the terms of Section 6.3(a), then, for purposes of calculating interest on the Obligations, such payments or other funds received in the Payment Account will be applied (conditional upon final collection) to the Obligations one (1) Business Day following the date of receipt of immediately available funds by Lender in the Payment Account (the "Collection Period") provided such payments or other funds and notice thereof are received in accordance with Lender's usual and customary practices as in effect from time to time and by 12:00 noon New York City time, or, at Lender's discretion, otherwise within sufficient time to credit Borrowers' loan account on such day, and if not, then on the next Business Day. Prior to the Lender notifying the depository banks at which the Blocked Accounts are maintained to direct payment to the Payment Account in accordance with Section 6.3(a), for purposes of calculating interest on the Obligations, payments or other funds received in the Payment Account will be applied (conditional upon final collection) to the Obligations on the Business Day of receipt of immediately available funds by Lender in the Payment Account provided such payments or other funds and notice thereof are received in accordance with Lender's usual and customary practices as in effect from time to time and by 12:00 noon New York City time, or, at Lender's discretion, otherwise within sufficient time to credit Borrowers' loan account on such day, and if not, then on the next Business Day. (c) Borrowers and all of their affiliates, subsidiaries, shareholders, directors, employees or agents shall, acting as trustee for Lender, receive, as the property of Lender, any monies, checks, notes, drafts, credit card sales drafts, credit card sales or charge slips or receipts, or any other payment relating to and/or proceeds of Accounts or other Collateral which come into their possession or under their control and immediately upon receipt thereof, shall deposit or cause the same to be deposited in the Blocked Accounts, or remit the same or cause the same to 21 be remitted, in kind, to Lender. In no event shall the same be commingled with Borrowers' own funds. Borrowers agree to reimburse Lender on demand for any amounts owed or paid to any bank at which a Blocked Account is established or any other bank or person involved in the transfer of funds to or from the Blocked Accounts arising out of Lender's payments to or indemnification of such bank or person. The obligation of Borrowers to reimburse Lender, for such amounts pursuant to this Section 6.3 shall survive the termination or non- renewal of this Agreement. 6.4 Payments. All Obligations shall be payable to the Payment Account as provided in Section 6.3 or such other place as Lender may designate in writing from time to time. Lender may apply payments received or collected from Borrowers or for the account of Borrowers (including, without limitation, the monetary proceeds of collections or of realization upon any Collateral) to such of the Obligations, whether or not then due, in such order and manner as Lender determines; except that, so long as no Event of Default exists and is ------ ---- continuing, Lender agrees to apply all payments received or collected from Borrowers first against all outstanding Obligations, other then Eurodollar Rate Loans, and second against all outstanding Eurodollar Rate Loans. At Lender's option, all principal, interest, fees, costs, expenses and other charges provided for in this Agreement or the other Financing Agreements may be charged directly to the loan account(s) of Borrowers. Borrowers shall make all payments to Lender on the Obligations free and clear of, and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholding, restrictions or conditions of any kind. If after receipt of any payment of, or proceeds of Collateral applied to the payment of, any of the Obligations, Lender is required to surrender or return such payment or proceeds to any Person for any reason, then the Obligations intended to be satisfied by such payment or proceeds shall be reinstated and continue and this Agreement shall continue in full force and effect as if such payment or proceeds had not been received by Lender. Borrowers shall be liable to pay to Lender, and does hereby indemnify and hold Lender harmless for the amount of any payments or proceeds surrendered or returned. This Section 6.4 shall remain effective notwithstanding any contrary action which may be taken by Lender in reliance upon such payment or proceeds. This Section 6.4 shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. If, at any time, there are no Loans outstanding, and Lender holds a credit balance, Lender shall remit such credit balance to an account of Borrowers as directed in writing by G+G. 6.5 Authorization to Make Loans. Lender is authorized to make the Loans and provide the Letter of Credit Accommodations based upon telephonic or other instructions received from anyone purporting to be an officer of Borrowers or other authorized person or, at the discretion of Lender, if such Loans are necessary to satisfy any Obligations. All requests for Loans or Letter of Credit Accommodations hereunder shall specify the date on which the requested advance is to be made or Letter of Credit Accommodations established (which day shall be a Business Day) and the amount of the requested Loan. Requests received after 11:00 a.m. New York City time on any day shall be deemed to have been made as of the opening of business on the immediately following Business Day. All Loans and Letter of Credit Accommodations under this Agreement shall be conclusively presumed to have been made to, and at the request of and for the benefit of, Borrowers when deposited to the credit of Borrowers 22 or otherwise disbursed or established in accordance with the instructions of Borrowers or in accordance with the terms and conditions of this Agreement. 6.6 Use of Proceeds. Borrowers shall use the initial proceeds of the Loans provided by Lender to Borrowers hereunder only for: (a) payments to each of the persons listed in the disbursement direction letter furnished by Borrowers to Lender on or about the date hereof and (b) costs, expenses and fees in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Financing Agreements. All other Loans made or Letter of Credit Accommodations provided by Lender to Borrowers pursuant to the provisions hereof shall be used by Borrowers only for general operating, working capital and other proper corporate purposes of Borrowers not otherwise prohibited by the terms hereof. None of the proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or for the purposes of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Loans to be considered a "purpose credit" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended. 6.7 Appointment of G+G as Agent for Borrowers. The Borrowers, other than G+G, hereby irrevocably appoint G+G, and each officer thereof, as their agent and attorney-in-fact to request Loans and Letter of Credit Accommodations on their behalf, at Lender's option, to receive disbursements of Loans on their behalf (which may be made to the same account of G+G to which disbursements of Loans to G+G are made), to receive notices and statements of account from Lender, to take such other actions on their behalf as is provided hereunder or under any of the other Financing Agreements and generally to deal with Lender on their behalf, for all matters pertaining to the financing arrangements under this Agreement and the other Financing Agreements. SECTION 7. COLLATERAL REPORTING AND COVENANTS ---------------------------------- 7.1 Collateral Reporting. Borrowers shall provide Lender with the following documents in a form satisfactory to Lender: (a) on a monthly basis or more frequently as Lender may request, perpetual inventory reports with reports of sales of Inventory by store, and (b) on a weekly basis or more frequently as Lender may request, (i) reports of sales of Inventory, indicating net sales, (ii reports of aggregate Inventory purchases (including all costs related thereto, such as freight, duty and taxes) and identifying items of Inventory in transit to Borrowers related to the applicable documentary letter of credit and/or bill of lading number, (ii) reports of amounts of consigned Inventory held by Borrowers by category and consignor, (iv) reports of the Cost and Retail Value of the Inventory (net of markdowns), (c) upon Lender's request, (i) reports on Accounts, including aggregate outstanding amounts by category, payments, accruals and returns and other credits, (ii) copies of customer statements and credit memos, remittance advices and reports, and copies of deposit slips and bank statements, (iii) copies of bills of lading, (iv copies of purchase orders, invoices and delivery documents for Inventory and Equipment acquired by Borrowers, (v) reports by retail store location of sales and operating profits for each such retail store location; (vi) accounts payable trial balance and (vii) reports on sales and use tax collections, deposits and payments, including monthly sales and use tax accruals; (d) accounts 23 receivable detail as Lender may request; (e) upon Lender's request, the monthly statements received by Borrowers from any Credit Card Issuers or Credit Card Processors, together with such additional information with respect thereto as shall be sufficient to enable Lender to monitor the transactions pursuant to the Credit Card Agreements; and (f) such other reports as to the Collateral as Lender shall request from time to time. If any of Borrowers' records or reports of the Collateral are prepared or maintained by an accounting service, contractor, shipper or other agent, Borrowers hereby irrevocably authorize such service, contractor, shipper or agent to deliver such records, reports, and related documents to Lender. 7.2 Accounts Covenants. (a) Borrowers shall notify Lender promptly of the assertion of any claims, offsets, defenses or counterclaims by any account debtor, Credit Card Issuer or Credit Card Processor or any disputes with any of such persons or any settlement, adjustment or compromise thereof which could reasonably be expected to have a Material Adverse Effect. No credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any account debtor, Credit Card Issuer or Credit Card Processor except in the ordinary course of Borrowers' business in accordance with the then-current practices of Borrowers. So long as no Event of Default has occurred and is continuing, Borrowers shall be entitled to settle, adjust or compromise any claim, offset, counterclaim or dispute with any account debtor, Credit Card Issuer, Credit Card Processor. At any time that an Event of Default has occurred and is continuing, Lender shall, unless it delivers notice to the contrary to Borrowers, have the exclusive right to settle, adjust or compromise any claim, offset, counterclaim or dispute with account debtors, Credit Card Issuers or Credit Card Processors or grant any credits, discounts or allowances. (b) Borrowers shall notify Lender promptly of any of the following which could reasonably be expected to have a Material Adverse Effect: (i) any notice of a material default by Borrowers under any of the Credit Card Agreements or of any default which might result in the Credit Card Issuer or Credit Card Processor ceasing to make payments or suspending payments to Borrowers, (ii) any notice from any Credit Card Issuer or Credit Card Processor that such person is ceasing or suspending, or will cease or suspend, any present or future payments due or to become due to Borrowers from such person, or that such person is terminating or will terminate any of the Credit Card Agreements, and (iii) the failure of Borrowers to comply with any material terms of the Credit Card Agreements or any terms thereof which might result in the Credit Card Issuer or Credit Card Processor ceasing or suspending payments to Borrowers. (c) With respect to each Account: (i) the amounts shown on any report delivered to Lender or schedule thereof delivered to Lender shall be true and complete in all material respects, (ii) except as otherwise provided in Section 6.3 hereof, no payments shall be made thereon except payments delivered to Lender pursuant to the terms of this Agreement, (iii) no credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any Credit Card Issuer or Credit Card Processor, except as reported to Lender in accordance with this Agreement and except for credits, discounts, allowances or extensions made or given in the ordinary course of Borrowers' business in accordance with practices and policies previously 24 disclosed to Lender, and (iv) none of the transactions giving rise thereto will violate any applicable State or Federal Laws or regulations, all documentation relating thereto will be legally sufficient under such laws and regulations and all such documentation will be legally enforceable in accordance with its terms. (d) Lender may, at any time or times that an Event of Default exists and is continuing (i) notify any or all account debtors, Credit Card Issuers and Credit Card Processors that the Accounts have been collaterally assigned to Lender and that Lender has a security interest in the Accounts and Lender may direct any or all account debtors, Credit Card Issuers and Credit Card Processors to make payments of Accounts directly to Lender, (ii) extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or otherwise, and upon any terms or conditions, any and all Accounts or other obligations included in the Collateral and thereby discharge or release the account debtor or any other party or parties in any way liable for payment thereof without affecting any of the Obligations, (iii) demand, collect or enforce payment of any Accounts or such other obligations, but without any duty to do so, and Lender shall not be liable for its failure to collect or enforce the payment thereof not for the negligence of its agents or attorneys with respect thereto and (iv) take whatever other action Lender may deem necessary or desirable for the protection of its interests. At any time that an Event of Default has occurred and is continuing, at Lender's request, all invoices and statements sent to any account debtor, Credit Card Issuer or Credit Card Processor shall state that the Accounts due from such account debtor, Credit Card Issuer or Credit Card Processor and such other obligations have been assigned to Lender and are payable directly and only to Lender and Borrowers shall deliver to Lender such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts as Lender may require. (e) Lender shall have the right at any time or times, in Lender's name or in the name of a nominee of Lender, to verify the validity, amount or any other matter relating to any Account or other Collateral, by mail, telephone, facsimile transmission or otherwise. (f) Upon the request of Lender, Borrowers shall deliver or cause to be delivered to Lender, with appropriate endorsement and assignment, with full recourse to Borrowers, all chattel paper and instruments which Borrowers now own or may at any time acquire. In the event that Borrowers deliver to Lender any instrument or note executed and delivered by any officer, director, employee or shareholder of Borrower in connection with the transactions more particularly described in Section 9.10(e)(iii) below (the "Employee Notes"), Lender agrees, upon the request of Borrowers, to return any such instrument to Borrowers for the purpose of permitting Borrowers to consummate their transactions with such employee, officer, director or shareholder and to provide Borrowers with such additional documents reasonably necessary to release Lender's lien upon such instruments. 7.3 Inventory Covenants. With respect to the Inventory: (a) Borrowers shall at all times maintain inventory records reasonably satisfactory to Lender, keeping correct and accurate records itemizing and describing the kind, type, quality and quantity of Inventory, Borrowers' Cost therefor and daily withdrawals therefrom and additions thereto; (b) Borrowers shall conduct a physical count of the Inventory at least once each year, but at any time or times as Lender may 25 request during the continuance of an Event of Default, and promptly following such physical inventory shall supply Lender with a report in the form and with such specificity as may be reasonably satisfactory to Lender concerning such physical count; (c) Borrowers shall not remove any Inventory from the locations set forth or permitted herein, without the prior written consent of Lender, except for sales of Inventory in the ordinary course of Borrowers' business and except to move Inventory directly from one location set forth or permitted herein to another such location; (d) upon Lender's request, Borrowers shall, at their expense, no more than twice in any twelve (12) month period, but at any time or times as Lender may request at Lender's expense, or at any time or times as Lender may request at Borrowers' expense during the existence and continuance of Event of Default, or in the event that Excess Availability is less than $5,000,000, deliver or cause to be delivered to Lender written reports or appraisals as to the Inventory in form, scope and methodology acceptable to Lender and by an appraiser reasonably acceptable to Lender, addressed to Lender or upon which Lender is expressly permitted to rely; (e) upon Lender's request, Borrowers shall, at their expense, conduct through RGIS Inventory Specialists, Inc. or another inventory counting service reasonably acceptable to Lender, a physical count of the Inventory in form, scope and methodology reasonably acceptable to Lender no more than twice in any twelve (12) month period, but at any time or times as Lender may request during the continuance of an Event of Default, the results of which shall be reported directly by such inventory counting service to Lender and Borrowers shall promptly deliver confirmation in a form satisfactory to Lender that appropriate adjustments have been made to the inventory records of Borrowers to reconcile the inventory count to Borrowers' inventory records; (f) Borrowers shall produce, use, store and maintain the Inventory, with reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with applicable laws (including, but not limited to, the requirements of the Federal Fair Labor Standards Act of 1938, as amended and all rules, regulations and orders related thereto); (g) Borrowers assume all responsibility and liability arising from or relating to the production, use, sale or other disposition of the Inventory; (h) Borrowers shall not sell Inventory to any customer on approval, or any other basis which entitles the customer to return or may obligate Borrowers to repurchase such Inventory except for the right of return given to retail customers of Borrowers in the ordinary course of the business of Borrowers in accordance with the then current return policy of Borrowers; (i) Borrowers shall use their best efforts to keep the Inventory in good and marketable condition; and (j) Borrowers shall not acquire or accept any Inventory on consignment or approval, except to the extent such Inventory is reported to Lender in accordance with the terms hereof. 7.4 Power of Attorney. Each Borrower hereby irrevocably designates and appoints Lender (and all of Lender's employees, agents or affiliates designated by Lender) as such Borrower's true and lawful attorney-in-fact, and authorizes Lender, in Borrowers' or Lender's name, to: (a) at any time an Event of Default exists or has occurred and is continuing (i) demand payment on Accounts or other proceeds of Inventory or other Collateral, (ii) enforce payment of Accounts by legal proceedings or otherwise, (iii) exercise all of Borrowers' rights and remedies to collect any Account or other Collateral, (iv) sell or assign any Account upon such terms, for such amount and at such time or times as the Lender deems advisable, (v) settle, adjust, compromise, extend or renew an Account, (vi) discharge and release any Account, (vii) prepare, file and sign such Borrower's name on any proof of claim in bankruptcy or other similar 26 document against an account debtor, (viii) notify the post office authorities to change the address for delivery of Borrowers' mail to an address designated by Lender, and open and dispose of all mail addressed to Borrowers, and (ix) do all acts and things which are necessary, in Lender's determination, to fulfill Borrowers' obligations under this Agreement and the other Financing Agreements and (b) at any time to (i) take control in any manner of any item of payment or proceeds thereof, (ii) have access to any lockbox or postal box into which Borrowers' mail is deposited, (iii) endorse such Borrower's name upon any items of payment or proceeds thereof and deposit the same in the Lender's account for application to the Obligations, (iv) endorse such Borrower's name upon any chattel paper, document, instrument, invoice, or similar document or agreement relating to any Account or any goods pertaining thereto or any other Collateral, (v) sign such Borrower's name on any verification of Accounts and notices thereof to account debtors and (vi) execute in such Borrower's name and file any UCC financing statements or amendments thereto. Borrowers hereby releases Lender and its officers, employees and designees from any liabilities arising from any act or acts under this power of attorney and in furtherance thereof, whether of omission or commission, except as a result of Lender's own gross negligence or wilful misconduct as determined pursuant to a final non-appealable order of a court of competent jurisdiction. 7.5 Right to Cure. Lender may, at its option, (a) cure any default by Borrowers under any agreement with a third party or pay or bond on appeal any judgment entered against Borrowers, provided that any such default or judgment -------- ---- would constitute an Event of Default hereunder, (b) discharge taxes, liens, security interests or other encumbrances at any time levied on or existing with respect to the Collateral and (c) pay any amount, incur any expense or perform any act which, in Lender's reasonable judgment, is necessary or appropriate to preserve, protect, insure or maintain the Collateral and the rights of Lender with respect thereto. Lender may add any amounts so expended to the Obligations and charge Borrowers' account therefor, such amounts to be repayable by Borrowers on demand. Lender shall be under no obligation to effect such cure, payment or bonding and shall not, by doing so, be deemed to have assumed any obligation or liability of Borrowers. Any payment made or other action taken by Lender under this Section shall be without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly. 7.6 Access to Premises. From time to time as requested by Lender, at the cost and expense of Borrowers, (a) Lender or its designee shall have complete access to all of Borrowers' premises during normal business hours and after reasonable notice to Borrowers, or at any time and without notice to Borrowers if an Event of Default exists or has occurred and is continuing, for the purposes of inspecting, verifying and auditing the Collateral and all of Borrowers' books and records, including, without limitation, the Records, and (b) Borrowers shall promptly furnish to Lender such copies of such books and records or extracts therefrom as Lender may request, and (c) use during normal business hours such of Borrowers' personnel, equipment, supplies and premises as may be reasonably necessary for the foregoing and if an Event of Default exists or has occurred and is continuing for the collection of Accounts and realization of other Collateral. 27 SECTION 8. REPRESENTATIONS AND WARRANTIES ------------------------------ Borrowers hereby, jointly and severally, represent and warrant to Lender the following (which shall survive the execution and delivery of this Agreement), the truth and accuracy of which (except to the extent that such representations and warranties relate solely to an earlier date) are a continuing condition of the making of Loans and providing Letter of Credit Accommodations by Lender to Borrowers: 8.1 Corporate Existence, Power and Authority; Subsidiaries. Each Borrower is a corporation duly organized and in good standing under the laws of its state of incorporation and is duly qualified as a foreign corporation and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not have a material adverse effect on such Borrower's financial condition, results of operation or business or the rights of Lender in or to any of the Collateral. The execution, delivery and performance of this Agreement, the other Financing Agreements and the transactions contemplated hereunder and thereunder are all within such Borrower's corporate powers, have been duly authorized and are not in contravention of law or the terms of such Borrower's certificate of incorporation, by-laws, or other organizational documentation, or any indenture, agreement or undertaking to which such Borrower is a party or by which such Borrower or its property are bound. This Agreement and the other Financing Agreements constitute legal, valid and binding obligations of such Borrower enforceable in accordance with their respective terms. Borrowers do not have any subsidiaries except as set forth on the Information Certificate or otherwise disclosed in writing to Lender. 8.2 Financial Statements; No Material Adverse Change. All financial statements relating to Borrowers which have been or may hereafter be delivered by Borrowers to Lender have been prepared in accordance with GAAP and fairly present the financial condition and the results of operation of Borrowers as at the dates and for the periods set forth therein except that the pro forma ------ ---- --- ----- financial statements and projections delivered to Lender have been, or will be, prepared consistent with the principles used in preparing the audited financial statements required to be delivered under this Agreement. Except as disclosed in any interim financial statements furnished by Borrowers to Lender prior to the date of this Agreement, there has been no material adverse change in the assets, liabilities, properties and condition, financial or otherwise, of Borrowers taken as a whole, since the date of the most recent audited financial statements furnished by Borrowers to Lender prior to the date of this Agreement. 8.3 Chief Executive Office; Collateral Locations. The chief executive office of each Borrower and each Borrower's Records concerning Accounts and Inventory are located only at the address set forth below and its only other places of business and the only other locations of Collateral, if any, are the addresses set forth in the Information Certificate, subject to the right of each Borrower to establish new locations in accordance with Section 9.2 below. 8.4 Priority of Liens; Title to Properties. The security interests and liens granted to Lender under this Agreement and the other Financing Agreements constitute valid and 28 perfected first priority liens and security interests in and upon the Collateral subject only to the liens indicated on Schedule 8.4 hereto and the other liens permitted under Section 9.8 hereof. Each Borrower has good and marketable title to all of its properties and assets subject to no liens, mortgages, pledges, security interests, encumbrances or charges of any kind, except those granted to Lender and such others as are specifically listed on Schedule 8.4 hereto or permitted under Section 9.8 hereof. 8.5 Tax Returns. Each Borrower has filed, or caused to be filed, in a timely manner all tax returns, reports and declarations which are required to be filed by it (without requests for extension except as previously disclosed in writing to Lender). All information in such tax returns, reports and declarations is complete and accurate in all material respects. Each Borrower has paid or caused to be paid all taxes due and payable or claimed due and payable in any assessment received by it, and has collected, deposited and remitted in accordance with all applicable laws all sales and/or use taxes applicable to the conduct of its business, except taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and with respect to which adequate reserves have been set aside on its books. Adequate provision has been made for the payment of all accrued and unpaid material Federal, State, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed. Each Borrower has collected and has remitted or will remit timely to the appropriate tax authority all sales and/or use taxes applicable to its business required to be collected under the laws of the United States and each possession or territory thereof, and each State or political subdivision thereof, including any State in which such Borrower owns any Inventory or owns or leases any other property. 8.6 Litigation. Except as set forth on the Information Certificate or otherwise disclosed in writing by Borrowers to Lender, there is no present investigation by any governmental agency pending, or to the best of Borrowers' knowledge threatened, against or affecting Borrowers, their assets or business and there is no action, suit, proceeding or claim by any Person pending, or to the best of Borrowers' knowledge threatened, against Borrowers or their assets or goodwill, or against or affecting any transactions contemplated by this Agreement, in each case which if adversely determined against Borrowers would result in any material adverse change in the assets, business or prospects of Borrowers taken as a whole or would impair the ability of Borrowers to perform their obligations hereunder or under any of the other Financing Agreements to which it is a party or of Lender to enforce any Obligations or realize upon any Collateral. 8.7 Compliance with Other Agreements and Applicable Laws. (a) Each Borrower is not in default in any respect under, or in violation in any respect of any of the terms of, any material agreement, contract, instrument, lease or other commitment to which it is a party or by which it or any of its assets are bound where such default or violation would have a Material Adverse Effect. Each Borrower is in compliance in all material respects with the requirements of all applicable laws, rules, regulations and orders of any governmental authority relating to its business, including, without limitation, those set forth in or promulgated pursuant to the Occupational Safety and Health Act of 1970, as amended, the 29 Fair Labor Standards Act of 1938, as amended, ERISA, the Code, as amended, and the rules and regulations thereunder, all federal, state and local statutes, regulations, rules and orders relating to consumer credit (including, without limitation, as each has been amended, the Truth-in-Lending Act, the Fair Credit Billing Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act, and regulations, rules and orders promulgated thereunder), all federal, state and local states, regulations, rules and orders pertaining to sales of consumer goods (including, without limitation, the Consumer Products Safety Act of 1972, as amended, and the Federal Trade Commission Act of 1914, as amended, and all regulations, rules and orders promulgated thereunder), where the failure to comply would have a Material Adverse Effect. (b) Each Borrower has obtained all permits, licenses, approvals, consents, certificates, orders or authorizations (the "Permits") of any governmental agency required for the lawful conduct of its business, in each case except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. The Permits constitute all permits, licenses, approvals, consents, certificates, orders or authorizations necessary for Borrowers to own and operate their business as presently conducted or proposed to be conducted where the failure to have such Permits would have a material adverse effect on the business, performance, operations or properties of Borrowers or the legality, validity or enforceability of this Agreement or the other Financing Agreements or the ability of Borrowers to perform their obligations under the Agreement or any of the other Financing Agreements or the rights and remedies of Lender under this Agreement or any of the other Financing Agreements. All of the Permits are valid and subsisting and in full force and effect. There are no actions, claims or proceedings pending or threatened that seek the revocation, cancellation, suspension or modification of any of the Permits. 8.8 Environmental Compliance. (a) Except as set forth on Schedule 8.8 hereto, no Borrower has not generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials, on or off its premises (whether or not owned by it) in any manner which at any time violates any applicable Environmental Law in any material respect or any license, permit, certificate, approval or similar authorization issued to Borrowers thereunder and the operations of Borrowers comply in all material respects with all applicable Environmental Laws and all licenses, permits, certificates, approvals and similar authorizations thereunder. (b) Except as set forth on Schedule 8.8 hereto, there is no investigation, proceeding, complaint, order, directive, claim, citation or notice by any governmental authority or any other person pending or to the best of Borrowers' knowledge threatened, with respect to any non-compliance with or violation of the requirements of any applicable Environmental Law by Borrowers nor has there been any release, spill or discharge, overtly threatened or actual, of any Hazardous Material on any properties of Borrowers, or to the best of Borrowers' knowledge, releases, spills or discharges from any properties at which any Borrower has transported, stored or disposed of any Hazardous Materials, or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials or any other environmental matter which would have a Material Adverse Effect. 30 (c) Except as set forth in Schedule 8.8 hereto, no Borrower has any material liability (contingent or otherwise) in connection with a release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials. (d) Each Borrower has all licenses, permits, certificates, approvals or similar authorizations required to be obtained or filed in connection with the operations of such Borrower under any Environmental Law and all of such licenses, permits, certificates, approvals or similar authorizations are valid and in full force and effect in each case where the failure to obtain or maintain such licenses, permits, certificates, approvals or similar authorizations would have a material adverse effect on the assets or business of such Borrower or would impair the ability of such Borrower to perform its obligations hereunder or under any of the other Financing Agreements to which it is a party or of Agent or any Lender to enforce any Obligations or realize upon any Collateral. 8.9 Credit Card Agreements. Set forth in Schedule 8.9 hereto is a correct and complete list of all of the Credit Card Agreements and all other related agreements, documents and instruments existing as of the date hereof between or among Borrowers, the Credit Card Issuers, the Credit Card Processors and any of their affiliates. The Credit Card Agreements constitute all of such agreements necessary for Borrowers to operate their businesses as presently conducted with respect to credit cards and debit cards and no Accounts of Borrowers arise from purchases by customers of Inventory with credit cards or debit cards, other than those which are issued by Credit Card Issuers with whom Borrowers have entered into one of the Credit Card Agreements set forth on Schedule 8.9 hereto or with whom Borrowers have entered into a Credit Card Agreement in accordance with Section 9.13 hereof. Each of the Credit Card Agreements constitutes the legal, valid and binding obligations of Borrowers and to the best of Borrowers' knowledge, the other parties thereto, enforceable in accordance with their respective terms and are in full force and effect. No default or event of default, or act, condition or event which after notice or passage of time or both, would constitute a default or an event of default under any of the Credit Card Agreements exists or has occurred. Borrowers and the other parties thereto have complied with all of the terms and conditions of the Credit Card Agreements to the extent necessary for Borrowers to be entitled to receive all payments thereunder. Borrowers have delivered, or caused to be delivered to Lender, true, correct and complete copies of all of the Credit Card Agreements. 8.10 Employee Benefits. (a) Borrowers have not engaged in any transaction in connection with which Borrowers or any of their ERISA Affiliates could be subject to either a civil penalty assessed pursuant to ERISA or a tax imposed the Code, including any accumulated funding deficiency described in Section 8.10(c) hereof and any deficiency with respect to vested accrued benefits described in Section 8.10(d) hereof. (b) No liability to the Pension Benefit Guaranty Corporation has been or is expected by Borrowers to be incurred with respect to any employee benefit plan of Borrowers 31 or any of their ERISA Affiliates. There has been no reportable event (within the meaning of ERISA) or any other event or condition with respect to any employee benefit plan of Borrowers or any of their ERISA Affiliates which presents a risk of termination of any such plan by the Pension Benefit Guaranty Corporation. (c) Full payment has been made of all amounts which Borrowers or any of their ERISA Affiliates is required under ERISA and the Code to have paid under the terms of each employee benefit plan as contributions to such plan as of the last day of the most recent fiscal year of such plan ended prior to the date hereof, and no accumulated funding deficiency (as defined in ERISA and the Code), whether or not waived, exists with respect to any employee pension benefit plan, including any penalty or tax described in Section 8.10(a) hereof and any deficiency with respect to vested accrued benefits described in Section 8.10(d) hereof. (d) The current value of all vested accrued benefits under all employee pension benefit plans maintained by Borrowers that are subject to Title IV of ERISA does not exceed the current value of the assets of such plans allocable to such vested accrued benefits, including any penalty or tax described in Section 8.10(a) hereof and any accumulated funding deficiency described in Section 8.10(d) hereof. The terms "current value" and "accrued benefit" have the meanings specified in ERISA. (e) Neither Borrowers nor any of their ERISA Affiliates is or has ever been obligated to contribute to any "multiemployer plan" (as such term is defined in ERISA) that is subject to Title IV of ERISA. 8.11 Bank Accounts. All of the deposit accounts, investment accounts or other accounts in the name of or used by Borrowers maintained at any bank or other financial institution are set forth on Schedule 6.3 hereto, subject to the right of Borrowers to establish new accounts in accordance with Section 9.13 below. 8.12 Accuracy and Completeness of Information. All information furnished by or on behalf of Borrowers in writing to Lender in connection with this Agreement or any of the other Financing Agreements or any transaction contemplated hereby or thereby, including, without limitation, all information on the Information Certificate is true and correct in all material respects on the date as of which such information is dated or certified and does not omit any material fact necessary in order to make such information not misleading. No event or circumstance has occurred which has had or could reasonably be expected to have a material adverse affect on the business, assets or prospects of Borrowers, which has not been fully and accurately disclosed to Lender in writing. 8.13 Survival of Warranties; Cumulative. All representations and warranties contained in this Agreement or any of the other Financing Agreements shall survive the execution and delivery of this Agreement and shall be deemed to have been made again to Lender on the date of each additional borrowing or other credit accommodation hereunder and shall be conclusively presumed to have been relied on by Lender regardless of any investigation made or information possessed by Lender. The representations and warranties set forth herein shall be 32 cumulative and in addition to any other representations or warranties which Borrowers shall now or hereafter give, or cause to be given, to Lender. SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS ---------------------------------- 9.1 Maintenance of Existence. Each Borrower shall at all times preserve, renew and keep in full, force and effect its corporate existence and rights and franchises with respect thereto and maintain in full force and effect all permits, licenses, trademarks, tradenames, approvals, authorizations, leases and contracts necessary to carry on its business as presently or proposed to be conducted in each case except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. Each Borrower shall give Lender at least thirty (30) days prior written notice of any proposed change in its corporate name, which notice shall set forth the new name and such Borrower shall deliver to Lender a copy of the amendment to the Certificate of Incorporation of such Borrower providing for the name change certified by the Secretary of State of the jurisdiction of incorporation of such Borrower as soon as it is available. 9.2 New Collateral Locations. Each Borrower may open any new location within (a) the United States, including the Commonwealth of Puerto Rico and the United States Virgin Islands, (b) Canada, (c) in any other country where Lender has a first priority security interest in such assets and Lender determines that it has rights and remedies to enforce its lien and realize upon its Collateral located in such country, all as determined by Lender in its sole discretion; or (d) any country where the terms of Section 9.2 (c) are not complied with, provided that, in such instance, the aggregate amount of all such net - -------- ---- investments in such countries, including all loans, investments, guaranties or advances made by Borrowers or any Guarantors, shall not exceed, in the aggregate, $1,000,000, and provided that in all such instances Borrowers (i) -------- ---- give Lender at least thirty (30) days prior written notice of the intended opening of any such new location and (ii) execute and deliver, or cause to be executed and delivered, to Lender such agreements, documents, and instruments as Lender may deem reasonably necessary or desirable to protect its interests in the Collateral at such locations, including UCC financing statements. 9.3 Compliance with Laws, Regulations, Etc. Each Borrower shall at all times comply in all material respects with all applicable provisions of laws, rules, regulations, licenses, permits, approvals and orders and duly observe all material requirements, of any foreign, Federal, State or local governmental authority, including, without limitation, the Occupational Safety and Health Act of 1970, as amended, the Code, the Fair Labor Standards Act of 1938, as amended, and the rules and regulations thereunder, all Federal, State and local statutes, regulations, rules and orders relating to consumer credit (including, without limitations, as each has been amended, the Truth-in-Lending Act, the Fair Credit Billing Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act, and regulations, rules and orders promulgated thereunder), all Federal, State and local statutes, regulations, rules and orders pertaining to sales of consumer goods (including, without limitation, the Consumer Products Safety Act of 1972, as amended, and the Federal Trade Commission Act of 1914, as amended, and all regulations, rules and orders promulgated thereunder) and all statutes, rules, regulations, orders, permits and stipulations relating to environmental pollution and employee health and safety, including, without limitation, 33 all Environmental Laws except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. 9.4 Payment of Taxes and Claims. Each Borrower shall duly pay and discharge all taxes, assessments, contributions and governmental charges upon or against it or its properties or assets, except for taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued by such Borrower and with respect to which adequate reserves have been set aside on its books. Borrowers shall be liable for any tax or penalties imposed on Lender as a result of the financing arrangements provided for herein and each Borrower agrees to indemnify and hold Lender harmless with respect to the foregoing, and to repay to Lender on demand the amount thereof, and until paid by Borrowers such amount shall be added and deemed part of the Loans, provided, -------- that, nothing contained herein shall be construed to require Borrowers to pay - ---- any income or franchise taxes, including those attributable to the income of Lender from any amounts charged or paid hereunder to Lender. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. 9.5 Insurance. Each Borrower shall, at all times, maintain with financially sound and reputable insurers insurance with respect to the Collateral against loss or damage and all other insurance of the kinds and in the amounts customarily insured against or carried by corporations of established reputation engaged in the same or similar businesses and similarly situated. Said policies of insurance shall be reasonably satisfactory to Lender as to form, amount and insurer. Borrowers shall furnish certificates, policies or endorsements to Lender as Lender shall require as proof of such insurance, and, if Borrowers fail to do so, Lender is authorized, but not required, to obtain such insurance at the expense of Borrowers. All policies shall provide for at least thirty (30) days prior written notice to Lender of any cancellation or reduction of coverage and that Lender may act as attorney for Borrowers in obtaining, and at any time an Event of Default exists or has occurred and is continuing, adjusting, settling, amending and canceling such insurance. Borrowers shall cause Lender to be named as a loss payee and an additional insured (but without any liability for any premiums) under such insurance policies and Borrowers shall obtain non-contributory lender's loss payable endorsements to all insurance policies in form and substance reasonably satisfactory to Lender. Such lender's loss payable endorsements shall specify that the proceeds of such insurance shall be payable to Lender as its interests may appear and further specify that Lender shall be paid regardless of any act or omission by Borrowers or any of their affiliates. At its option, Lender may apply any insurance proceeds received by Lender at any time to the cost of repairs or replacement of Collateral and/or to payment of the Obligations, whether or not then due, in any order and in such manner as Lender may determine or hold such proceeds as cash collateral for the Obligations; except that, so ------ ---- long as no Event of Default exists and is continuing, to the extent Lender applies such proceeds in respect of the Obligations, Lender shall apply such proceeds first, against all outstanding Obligations, other than Eurodollar Rate Loans, and second, against all outstanding Eurodollar Rate Loans. 9.6 Financial Statements and Other Information. (a) Each Borrower shall keep proper books and records in which true and complete entries shall be made of all dealings or transactions of or in relation to the Collateral 34 and the business of such Borrower and its subsidiaries (if any) in accordance with GAAP and Borrowers shall furnish or cause to be furnished to Lender: (i) within thirty (30) days after the end of each fiscal month, monthly unaudited consolidated financial statements, and, if Borrowers have any subsidiaries, and have prepared such statements, unaudited consolidating financial statements (including in each case balance sheets, statements of income and loss, statements of cash flow and statements of shareholders' equity), all in reasonable detail, fairly presenting the financial position and the results of the operations of Borrowers and their subsidiaries as of the end of and through such fiscal month and (ii) within one hundred five (105) days after the end of each fiscal year, audited consolidated financial statements and, if Borrowers have any subsidiaries and have prepared such statements, audited consolidating financial statements of Borrowers and their subsidiaries (including in each case balance sheets, statements of income and loss, statements of cash flow and statements of shareholders' equity), and the accompanying notes thereto, all in reasonable detail, fairly presenting the financial position and the results of the operations of Borrowers and their subsidiaries as of the end of and for such fiscal year, together with the unqualified opinion of independent certified public accountants, which accountants shall be an independent accounting firm selected by Borrowers and reasonably acceptable to Lender, that such financial statements have been prepared in accordance with GAAP, and present fairly the results of operations and financial condition of Borrowers and their subsidiaries as of the end of and for the fiscal year then ended. (b) Borrowers shall promptly notify Lender in writing of the details of (i) any loss, damage, investigation, action, suit, proceeding or claim in excess of $500,000 or $1,000,000 in the aggregate relating to the Collateral or any other property which is security for the Obligations or which would result in any Material Adverse Change in any Borrower's business, properties, assets, goodwill or condition, financial or otherwise and (ii) the occurrence of any Event of Default or act, condition or event which, with the passage of time or giving of notice or both, would constitute an Event of Default. (c) Borrowers shall promptly after the sending or filing thereof furnish or cause to be furnished to Lender copies of all reports and registration statements which any Borrower files with the Securities and Exchange Commission, any national securities exchange or the National Association of Securities Dealers, Inc. (d) Borrowers shall furnish or cause to be furnished to Lender such budgets, forecasts, projections and other information respecting the Collateral and the business of Borrowers, as Lender may, from time to time, reasonably request. Each Borrower hereby irrevocably authorizes and directs all accountants or auditors to deliver to Lender, at Borrowers' expense, copies of the financial statements of Borrowers and any reports or management letters prepared by such accountants or auditors on behalf of Borrowers. Any documents, schedules, invoices or other papers delivered to Lender may be destroyed or otherwise disposed of by Lender one (1) year after the same are delivered to Lender, except as otherwise designated by Borrowers to Lender in writing. (e) Borrowers shall deliver, or cause to be delivered, to Lender, within five (5) days after receipt by Borrower, a consolidated balance sheet for Parent and G+G dated as of 35 August 29, 1998 certified by the Chief Financial Officer of G+G, to the effect that such balance sheet has been prepared consistent with the principles used to prepare the audited financial statements required to be delivered under this Agreement and presents fairly the financial condition of Parent and G+G as of such date. 9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Each Borrower shall not, directly or indirectly: (a) merge into or with or consolidate with any other Person or permit any other Person to merge into or with or consolidate with it, provided, -------- however, that, so long as no Event of Default exists and is continuing, any - ------- Borrower or Guarantor may merge with or into any other Borrower or Guarantor (i) upon at least thirty (30) days advance written notice to Lender, (ii) provided that such Borrowers or Guarantors execute UCC-1 financing statements and any other agreements, documents, guaranties and instruments reasonably requested by Lender whether to protect or continue Lender's interests in and upon the Collateral or otherwise related to the Collateral or the Financing Agreements and (iii) provided that such Borrowers or Guarantors deliver financial and other information as Lender may reasonably request, or (b) sell, assign, lease, transfer, abandon or otherwise dispose of any stock or indebtedness to any other Person or any of its assets to any other Person, except for: ------ --- (i) sales of Inventory in the ordinary course of business, (ii) the disposition of Collateral so long as (A) if an Event of Default exists or has occurred and is continuing, any proceeds are paid to Lender and (B) such dispositions for all Borrowers do not involve Collateral having an aggregate fair market value in excess of $250,000 for all such Collateral disposed of in any fiscal year of Borrowers, (iii) sales or other dispositions by such Borrower of assets in connection with the closing or sale of a retail store location of such Borrower in the ordinary course of such Borrower's business which consist of leasehold interests in the premises of such store, the Equipment and fixtures located at such premises and the books and records relating exclusively and directly to the operations of such store; provided, that, as to each and all -------- ---- such sales, (A) on the date of, and after giving effect to, any such sale, in any calendar year, such Borrower shall not have closed or sold retail store locations accounting for more than twenty (20)%) of all sales of such Borrower in the immediately preceding twelve (12) month period, (B) Lender shall have received not less than ten (10) Business Days prior written notice of such sale, which notice shall set forth in reasonable detail satisfactory to Lender, the parties to such sale or other disposition, the assets to be sold or otherwise disposed of, the purchase price and the manner of payment thereof and such other information with respect thereto as Lender may request, (C) as of the date of such sale or other disposition and after giving effect thereto, no Event of Default, or act, condition or event which with notice or passage of time would constitute an Event of Default, shall exist, (D) such sale shall be on commercially reasonable prices and terms in a bona fide arm's length ---- ---- transaction, and (E) any and all net proceeds payable or delivered to Borrowers in respect of such sale or other disposition shall be paid or delivered, or caused to be paid or 36 delivered, to Lender in accordance with the terms of this Agreement either, at Lender's option, for application to the Obligations in accordance with the terms hereof (except to the extent such proceeds reflect payment in respect of indebtedness secured by a valid security interest in the assets sold, in which case, such proceeds shall be applied to such indebtedness secured thereby). (iv) the abandonment of any assets no longer deemed necessary to the conduct of such Borrower's business, as determined by such Borrower's board of directors in its business judgment, (v) except as expressly limited in this Agreement, transfer of assets to any other Borrower or Guarantor, or (vi) any sale, assignment, lease, transfer, abandonment or other disposition expressly permitted under Sections 9.9, 9.10, 9.11 or 9.12 hereof, or (c) form or acquire any subsidiaries except that, so long as no ------ ---- Event of Default then exists and is continuing, Borrowers may form or acquire subsidiaries (i) upon at least thirty (30) days advance written notice to Lender, provided, however, that such notice may be contemporaneous with the -------- ------- execution or acquisition of any such subsidiaries which operate or own assets located solely in the United States Virgin Islands or Puerto Rico, (ii) provided that such new subsidiary or subsidiaries and each Borrower in such transaction execute and deliver to Lender all such UCC-1 financing statements and other agreements, documents, guarantees and instruments as Lender may request, whether to protect or continue Lender's interest in the Collateral or otherwise, (iii) provided that such subsidiaries, at Lender's request, (x) execute this Agreement as a "Borrower" or (y) execute as a "Guarantor" an unlimited guarantee in favor of Lender guaranteeing the Obligations and a general security agreement in favor of Lender granting in favor of Lender a first priority security interest in all assets of such subsidiary and (iv provided that Borrowers and any such subsidiaries deliver such financial or other information as Lender may request, or (d) wind up, liquidate or dissolve provided, however, that any -------- ------- Borrower (other than G+G) or any Guarantor may be wound up, liquidated or dissolved so long as such Borrower or Guarantor (i) is no longer actively engaged in any business or activities, (ii) does not own assets with an aggregate fair market or book value in excess of $250,000 and (iii) determines through its board of directors that such action is in the best interests of Borrowers and Guarantors, or (e) in a manner that does not contemplate payment in full of the Obligations upon consummation thereof, agree to do any of the foregoing. 9.8 Encumbrances. Each Borrower shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on any of its assets or properties, including, without limitation, the Collateral, except: (a) liens and security ------ interests of Lender; (b) liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings 37 diligently pursued by such Borrower and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of such Borrower's business to the extent: (i) such liens secure indebtedness which is not overdue or (ii) such liens secure indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued by such Borrower, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business, (e) liens of or resulting from any judgment or award that would not have a Material Adverse Effect and as to which the time for the appeal or petition for rehearing of which has not yet expired, or in respect of which Borrowers are in good faith prosecuting an appeal or proceeding for a review, and in respect of which a stay of execution pending such appeal or proceeding for review has been secured, (f) liens on property of a person existing at the time such person is acquired, merged into or consolidated with any Borrower, so long as such liens were in existence prior to the consummation of such acquisition, merger or consolidation and do not (after consummation thereof) extend to any assets other than the Equipment or Real Property of the person merged into or consolidated with such Borrower, (g) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the business of such Borrower as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (h) purchase money security interests in Equipment (including capital leases) not to exceed $12,000,000 in the aggregate at any time outstanding so long as such security interests and mortgages do not apply to any property of Borrowers other than the Equipment or real estate so acquired, and the indebtedness secured thereby does not exceed the cost of the Equipment or real estate so acquired, as the case may be; (i) liens or rights of setoff or credit balances of Borrowers with banks and other financial institutions at which Borrowers have accounts or other investments permitted hereunder and Credit Card Issuers, but not liens on or rights of setoff against any other property or assets of Borrowers pursuant to the Credit Card Agreements (as in effect on the date hereof) to secure the obligations of Borrowers to the Credit Card Issuers as a result of fees and chargebacks; (j) deposits of cash with the owner or lessor of premises leased and operated by Borrowers in the ordinary course of the business of Borrowers to secure the performance by Borrowers of their obligations under the terms of the lease for such premises; and (k) the liens and security interests set forth on Schedule 8.4 hereto. 9.9 Indebtedness. Each Borrower shall not incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any indebtedness, except: (a) the Obligations; (b) trade obligations and normal accruals in the ordinary course of business; 38 (c) purchase money indebtedness (including capital leases) to the extent not incurred or secured by liens (including capital leases) in violation of any other provision of this Agreement; (d) obligations or indebtedness existing as of the date hereof set forth on Schedule 9.9 hereto, provided, that, (i) Borrowers may only make -------- ---- regularly scheduled payments of principal and interest in respect of such indebtedness in accordance with the terms of the agreement or instrument evidencing or giving rise to such indebtedness, (ii) Borrowers shall not, directly or indirectly amend, modify, alter or change the terms of such indebtedness or any agreement, document or instrument related thereto as in effect on the date hereof in any manner which purports to grant any lien, collateral or other security therefor, provided, however, that nothing in this -------- ------- Section 9.9(d) shall limit Borrower's ability to refinance the indebtedness under the Bridge Notes and Bridge Loan Agreement, (iii) Borrowers shall furnish to Lender all notices or demands in connection with such indebtedness either received by Borrowers or on their behalf, promptly after the receipt thereof, or sent by Borrowers or on their behalf, concurrently with the sending thereof, as the case may be, and (iv notwithstanding anything to the contrary contained in this Section 9.9(d), so long as no Event of Default exists and is continuing, Borrowers shall have the right to make prepayments in respect of any such indebtedness provided that after giving effect thereto, Borrowers have Excess Availability of not less than $5,000,000 in each instance; (e) unsecured indebtedness of Borrowers for borrowed money incurred after the date hereof owing to any person on commercially reasonable rates and terms pursuant to an arm's length transaction; provided, that, (i) -------- ---- Lender shall have received not less than five (5) Business Days prior written notice of the intention to incur such indebtedness, which notice shall set forth in reasonable detail satisfactory to Lender, the amount of such indebtedness, the person to whom such indebtedness will be owed, the interest rate, the schedule of repayments and maturity date with respect thereto, the Borrower or Borrowers incurring such indebtedness and such other information as Lender may reasonably request with respect thereto, (ii) Lender shall have received true, correct and complete copies of all agreements, documents and instruments evidencing or otherwise related to such indebtedness, (iii) the aggregate amount of such indebtedness of all Borrowers at any time outstanding shall not exceed the aggregate amount $140,000,000 less the outstanding obligations due and owing by Borrowers under the Bridge Notes and Bridge Loan Agreement, (iv) on and before the date of incurring such indebtedness and after giving effect thereto, no Event of Default, or event which with the passage of time or both would constitute an Event of Default, shall exist and be continuing, (v) except for a refinancing or cancellation of the indebtedness under the Bridge Notes and Bridge Loan Agreement, Borrowers may only make regularly scheduled payments of principal and interest in respect of such indebtedness in accordance with the terms of the agreement or instrument evidencing or giving rise to such indebtedness as in effect on the date of the execution thereof, (vi) except for a refinancing or cancellation of the indebtedness under the Bridge Notes and Bridge Loan Agreement, Borrowers shall not, directly or indirectly, (A) make any prepayments or other non-mandatory payments in respect of such indebtedness, or (B) amend, modify, alter or change any material terms of such indebtedness or any agreement, document or instrument related thereto in any manner which purports to grant any lien, collateral or other security therefor, or (C) redeem, retire, defease, purchase or otherwise acquire such indebtedness, or set 39 aside or otherwise deposit or invest any sums for such purpose, (vii) Borrowers shall furnish to Lender all notices, demands or other materials in connection with such indebtedness either received by Borrowers or on their behalf, promptly after the receipt thereof, or sent by Borrowers or on their behalf, concurrently with the sending thereof, as the case may be, and (viii) notwithstanding anything to the contrary contained in this Section 9.9(e), so long as no Event of Default exists and is continuing, Borrowers shall have the right to make prepayments in respect of any such indebtedness provided that after giving effect thereto, Borrowers have Excess Availability of not less than $5,000,000 in each instance; (f) intercompany loans and advances among the Borrowers and Guarantors, or any guarantees by any Borrower of the obligations of any other Borrower or Guarantor to any third party; (g) indebtedness secured by liens permitted under Section 9.8, to the extent permitted under such Section; (h) indebtedness of the Borrowers consisting of performance, bid or advance payment bonds, custom bonds, utility bonds and similar obligations arising in the ordinary course of business, provided that the aggregate amount of such bonds shall not exceed $4,000,000, at any time outstanding; and (i) indebtedness permitted under Section 9.10. 9.10 Loans, Investments, Guarantees, Etc. Each Borrower shall not, directly or indirectly, make any loans or advance money (other than sales on credit in the ordinary course of its business) or property to any person, or invest in (by capital contribution, dividend (except as expressly permitted under Section 9.11) or otherwise) or purchase or repurchase the stock or indebtedness or all or a substantial part of the assets or property of any person, or guarantee, assume, endorse, or otherwise become responsible for (directly or indirectly) the indebtedness, performance, obligations or dividends of any Person or agree to do any of the foregoing, except: (a) intercompany ------ loans and advances among the Borrowers and Guarantors or investments by any Borrower in any other Borrower or Guarantor; (b) the endorsement of instruments for collection or deposit in the ordinary course of business; (c) investments in Cash Equivalents; provided, that, unless waived in writing by Lender, so long as -------- ---- any Obligations are outstanding such Borrower shall take such actions as are deemed necessary by Lender to perfect the security interest of Lender in such investments; (d) the existing loans, advances and guarantees by such Borrower outstanding as of the date hereof as set forth on Schedule 9.10 hereto or as permitted under Section 9.9; provided, that, as to such loans, advances and -------- ---- guarantees and except as permitted under Section 9.9, (i) such Borrower shall not, directly or indirectly, (A) amend, modify, alter or change the terms of such loans, advances or guarantees or any agreement, document or instrument related thereto in any manner which purports to grant any lien, collateral or other security therefor, or (B) as to such guarantees, except as otherwise permitted herein with respect to the underlying indebtedness, redeem, retire, defease, purchase or otherwise acquire such guarantee or set aside or otherwise deposit or invest any sums for such purpose and (ii) such Borrower shall furnish to Lender all notices, demands or other materials in connection with such 40 loans, advances or guarantees either received by such Borrower or on its behalf, promptly after the receipt thereof, or sent by such Borrower or on its behalf, concurrently with the sending thereof, as the case may be; (e) loans or advances of money (other than salary) to officers, directors, employees, independent contractors, or stockholders of Borrower consisting of (i) expense advances in the ordinary course of business consistent with past practices, (ii) loans, not to exceed $500,000 outstanding in the aggregate at any time and (iii) loans to Borrowers' employees, officers and directors in connection with the purchase by such employees, officers and directors of common stock of Parent so long as the cash proceeds of such purchase received by Parent are contemporaneously remitted by Parent to G+G as a capital contribution and that such obligations of employees, officers and/or directors are evidenced by promissory notes; (f) Borrowers shall be permitted to form or purchase subsidiaries and, except as expressly limited in Section 9.2, contribute assets or properties to subsidiaries engaged in a like business as G+G; provided that, in each instance -------- ---- each such subsidiary executes and delivers an amendment to this Agreement adding such subsidiary as a "Borrower" hereunder, together with related documents including UCC-1 financing statements or, alternatively, becomes a "Guarantor" and executes and delivers a guarantee of the Obligations hereunder and a security agreement and related documents including UCC-1 financing statements granting Lender a first priority security interest in and lien upon all assets of such subsidiary; (g) make investments in account debtors received in connection with the bankruptcy or reorganization, or in settlement of delinquent obligations, of customers in the ordinary course of business and in accordance with applicable collection and credit policies established by such Borrower; (h) promissory notes and other similar noncash consideration received as proceeds of asset dispositions permitted by Section 9.7; and (i) the guarantee by any Borrower of the obligations of any other Borrower or Guarantor. 9.11 Dividends and Redemptions. (a) G+G shall not, directly or indirectly, declare or pay any dividends on account of any shares of any class of its Capital Stock now or hereafter outstanding, or set aside or otherwise deposit or invest any sums for such purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of any class of Capital Stock (or set aside or otherwise deposit or invest any sums for such purpose) for any consideration other than common stock or apply or set apart any sum, or make any other distribution (by reduction of capital or otherwise) in respect of any such shares or agree to do any of the foregoing. (b) Notwithstanding anything to the contrary contained in Section 9.11(a): (i) G+G may declare and pay cash dividends upon its Capital Stock, provided, that (1) no Event of Default has occurred and is continuing on -------- ---- the proposed dividend payment date ("Dividend Payment Date") set forth in a notice of such proposed dividend to be delivered by Borrowers to Lender at least ten (10) days prior to the Dividend Payment Date, (2) Borrowers' Excess Availability on the Dividend Payment Date, after giving effect to such dividend, is at least $5,000,000 and (3) Borrowers' Adjusted Tangible Net Worth on the Dividend Payment Date, after giving effect to such dividend, is in compliance with Section 9.14, and 41 (ii) G+G may issue stock dividends upon any shares of any class of capital stock so long as the same is in accordance with all applicable laws. 9.12 Transactions with Affiliates. Except for (a) reasonable compensation paid to officers, employees and directors for services rendered in the ordinary course of business including, but not limited to the Employment Agreements set forth as items 1 and 2 on Schedule 9.12, (b) transactions and/or payments pursuant to the agreements described as item 3 on Schedule 9.12, and (c) transactions and/or payments otherwise permitted under, but in all cases, subject to, any other section of this Agreement, at any time that Borrowers have Excess Availability of less than $5,000,000 or any Event of Default has occurred and is continuing, no Borrower shall directly or indirectly purchase, acquire or lease any property from, or sell, transfer or lease any property to, any officer, employee, shareholder, director, agent or any other person affiliated with Borrowers or make any payment of management, consulting or other fees for management or similar services; except that, if Borrowers have Excess ------ ---- Availability of less than $5,000,000 or an Event of Default exists and is continuing, Borrowers may make payments in respect of items 4 and 5 on Schedule 9.12 in an aggregate amount not to exceed $600,000 and in respect of item 6 on Schedule 9.12 in an aggregate amount not to exceed $300,000. 9.13 Credit Card Agreements. Borrowers shall (a) observe and perform all material terms, covenants, conditions and provisions of the Credit Card Agreements to be observed and performed by them at the times set forth therein; (b) not do, permit, suffer or refrain from doing anything, as a result of which there could be a material default under or material breach of any of the terms of any of the Credit Card Agreements; (c) at all times maintain in full force and effect the Credit Card Agreements and not terminate, cancel, surrender, modify, amend (unless such amendment does not adversely affect Lender's rights under the Financing Agreements), waive or release any of the Credit Card Agreements, or consent to or permit to occur any of the foregoing; except, that, Borrowers may terminate or cancel any of the Credit Card Agreements in the ordinary course of the business of Borrowers; provided, that, Borrowers shall -------- ---- give Lender not less than fifteen (15) days prior written notice of their intention to so terminate or cancel any of the Credit Card Agreements; (d) not enter into any new Credit Card Agreements with any new Credit Card Issuer unless (i) Lender shall have received not less than thirty (30) days prior written notice of the intention of Borrowers to enter into such agreement (together with such other information with respect thereto as Lender may request) and (ii) Borrowers deliver, or cause to be delivered to Lender, a Credit Card Acknowledgment in favor of Lender; (e) give Lender written notice of any Credit Card Agreement entered into by Borrowers after the date hereof, together with a true, correct and complete copy thereof and such other information with respect thereto as Lender may request; and (f) furnish to Lender, promptly upon the request of Lender, such information and evidence as Lender may reasonably require from time to time concerning the observance, performance and compliance by Borrowers or the other party or parties thereto with the terms, covenants or provisions of the Credit Card Agreements. 9.14 Adjusted Tangible Net Worth. Borrowers shall, at all times, maintain Adjusted Tangible Net Worth of not less than $39,000,000. 42 9.15 Compliance with ERISA. (a) Each Borrower shall not with respect to any "employee benefit plans" maintained by any Borrower or any of its ERISA Affiliates: (i) terminate any of such employee pension plans so as to incur any liability to the Pension Benefit Guaranty Corporation established pursuant to ERISA, (ii) allow or suffer to exist any prohibited transaction involving any of such employee benefit plans or any trust created thereunder which would subject any Borrower or such ERISA Affiliate to a material tax or penalty or other liability on prohibited transactions imposed under the Code or ERISA, (iii) fail to pay to any such employee benefit plan any contribution which it is obligated to pay under ERISA, the Code or the terms of such plan, (iv) allow or suffer to exist any material accumulated funding deficiency, whether or not waived, with respect to any such employee benefit plan, (v) allow or suffer to exist any occurrence of a reportable event or any other event or condition which presents a material risk of termination by the Pension Benefit Guaranty Corporation of any such employee benefit plan that is a single employer plan, which termination could result in any material liability to the Pension Benefit Guaranty Corporation or (vi) incur any material withdrawal liability with respect to any multiemployer pension plan. (b) As used in this Section 9.15, the term "employee pension benefit plans," "employee benefit plans", "accumulated funding deficiency" and "reportable event" shall have the respective meanings assigned to them in ERISA, and the term "prohibited transaction" shall have the meaning assigned to it in the Code and ERISA. 9.16 Additional Bank Accounts. Borrowers shall not, directly or indirectly, open, establish or maintain any deposit account, investment account or any other account with any bank or other financial institution, other than the Blocked Accounts, accounts holding Cash Equivalents and other investments permitted hereunder, and the accounts set forth in Schedule 6.3 hereto, except: (a) any new or additional Blocked Accounts and other such new or additional accounts which contain any Collateral or proceeds thereof, so long as in the case of any such other accounts the applicable bank or financial institution has executed an agreement as described in Section 6.3(a) hereof or, in the case of depository or concentration accounts, so long as Borrowers have given written notice to such depository or concentration account bank to transfer on a daily basis to a Blocked Account all funds received in such depository or concentration account, and (b) as to any depository or concentration accounts used by Borrowers to make payments of payroll, taxes or other obligations to third parties, after prior written notice to Lender. 9.17 Costs and Expenses. Borrowers shall pay to Lender on demand all costs, expenses, filing fees and taxes paid or payable in connection with the preparation, negotiation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of the Obligations, Lender's rights in the Collateral, this Agreement, the other Financing Agreements and all other documents related hereto or thereto, including any amendments, supplements or consents which may hereafter be contemplated (whether or not executed) or entered into in respect hereof and thereof, including: (a) all costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording taxes and fees, if applicable); (b) 43 all insurance premiums, appraisal fees and search fees; (c) costs and expenses of remitting loan proceeds, collecting checks and other items of payment, and establishing and maintaining the Blocked Accounts, together with Lender's customary charges and fees with respect thereto; (d) charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations; (e) costs and expenses of preserving and protecting the Collateral; (f) costs and expenses paid or incurred in connection with obtaining payment of the Obligations, enforcing the security interests and liens of Lender, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions of this Agreement and the other Financing Agreements or defending any claims made or threatened against Lender arising out of the transactions contemplated hereby and thereby (including preparations for and consultations concerning any such matters); (g) all out-of-pocket expenses and costs heretofore and from time to time hereafter incurred by Lender during the course of periodic field examinations of the Collateral and Borrowers' operations, plus a per diem charge at the rate of $650 per person per day for Lender's examiners in the field and office; and (h) the fees and disbursements of counsel (including legal assistants) to Lender in connection with any of the foregoing. 9.18 Further Assurances. At the request of Lender at any time and from time to time, Borrowers shall, at their expense, duly execute and deliver, or cause to be duly executed and delivered, such further agreements, documents and instruments, and do or cause to be done such further acts as may be necessary or proper to evidence, perfect, maintain and enforce the security interests and the priority thereof in the Collateral and to otherwise effectuate the provisions or purposes of this Agreement or any of the other Financing Agreements. Lender may at any time and from time to time request a certificate from an officer of Borrowers representing that all conditions precedent to the making of Loans and providing Letter of Credit Accommodations contained herein are satisfied. In the event of such request by Lender, Lender may, at its option, cease to make any further Loans or provide any further Letter of Credit Accommodations until Lender has received such certificate and, in addition, Lender has determined that such conditions are satisfied. Where permitted by law, each Borrower hereby authorizes Lender to execute and file one or more UCC financing statements signed only by Lender. SECTION 10. EVENTS OF DEFAULT AND REMEDIES ------------------------------ 10.1 Events of Default. The occurrence or existence of any one or more of the following events are referred to herein individually as an "Event of Default", and collectively as "Events of Default": (a) (i) any Borrower fails to pay any of the Obligations when due; or (ii) any Borrower or any Obligor fails to perform any of the covenants contained in this Agreement or any of the other Financing Agreements other than as described in Section 10.1(a)(i) and such failure shall continue for fifteen (15) days; provided, that, such fifteen (15) day period shall not apply in the -------- ---- case of (A) any failure to observe any such covenant which is not capable of being cured at all or within such fifteen (15) day period or which has been the subject of a prior failure within a six (6) month period or (B) a wilful breach of any Borrower or any Obligor of any such covenant or (C) the failure to observe or perform any of the covenants or provisions contained in Section 9.2, 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13, 9.15, 9.16 or 9.18 of this Agreement or any 44 covenants or agreements covering substantially the same matter as such sections in any of the other Financing Agreements; (b) any representation, warranty or statement of fact made by any Borrower to Lender in this Agreement, the other Financing Agreements or any other agreement, schedule, confirmatory assignment or otherwise shall when made or deemed made be false or misleading in any material respect; (c) any Obligor revokes or terminates any guarantee, endorsement or other agreement of such party in favor of Lender; (d) (i) any judgment for the payment of money is rendered against any Borrower or any Obligor in excess of $2,500,000 in the aggregate (net of amounts covered by insurance) and either (A) shall remain undischarged or unvacated or unstayed for a period in excess of thirty (30) consecutive days or (B) enforcement proceedings shall have been commenced upon such judgment or execution shall at any time not be effectively stayed, or (ii) any judgment other than for the payment of money, or injunction, attachment, garnishment or execution is rendered against any Borrower or any Obligor or any of their assets, unless the same could not reasonably be expected to have a Material Adverse Effect; (e) any Obligor (being a natural person or a general partner of an Obligor which is a partnership) dies, or except as otherwise permitted hereunder, any Borrower or any Obligor, which is a partnership, limited liability company, limited liability partnership or a corporation, dissolves or suspends or discontinues doing business; (f) any Borrower or any Obligor becomes insolvent (as defined under applicable state or federal law), makes an assignment for the benefit of creditors, makes or sends notice of a bulk transfer or calls a meeting of its creditors or principal creditors; (g) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at law or in equity) is filed against any Borrower or any Obligor or all or any part of its properties and such petition or application is not dismissed within sixty (60) days after the date of its filing or any Borrower or any Obligor shall file any answer admitting or not contesting such petition or application or indicates its consent to, acquiescence in or approval of, any such action or proceeding or the relief requested is granted sooner; (h) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at a law or equity) is filed by any Borrower or any Obligor or for all or any part of its property; or 45 (i) any default by any Borrower or any Obligor under any agreement, document or instrument relating to any indebtedness for borrowed money owing to any person other than Lender, or any capitalized lease obligations, contingent indebtedness in connection with any guarantee, letter of credit, indemnity or similar type of instrument in favor of any person other than Lender, in any case in an amount in excess of $2,500,000, which default continues for more than the applicable cure period, if any, with respect thereto; (j) any Change of Control; (k) the indictment or threatened indictment of any Borrower or any Obligor under any criminal statute, or commencement or threatened commencement of criminal or civil proceedings against any Borrower or any Obligor, pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture of any of the property of any Borrower or such Obligor; (l) there shall be a Material Adverse Change in the business or assets of any Borrower or any Obligor after the date hereof; or (m) there shall be an event of default (after giving effect to any applicable grace and/or cure period and/or notice period) under any of the other Financing Agreements. 10.2 Remedies. (a) At any time an Event of Default exists or has occurred and is continuing, Lender shall have all rights and remedies provided in this Agreement, the other Financing Agreements, the Uniform Commercial Code and other applicable law, all of which rights and remedies may be exercised without notice to or consent by any Borrower or any Obligor, except as such notice or consent is expressly provided for hereunder or required by applicable law. All rights, remedies and powers granted to Lender hereunder, under any of the other Financing Agreements, the Uniform Commercial Code or other applicable law, are cumulative, not exclusive and enforceable, in Lender's discretion, alternatively, successively, or concurrently on any one or more occasions, and shall include, without limitation, the right to apply to a court of equity for an injunction to restrain a breach or threatened breach by any Borrower of this Agreement or any of the other Financing Agreements. Lender may, at any time or times, proceed directly against any Borrower or any Obligor to collect the Obligations without prior recourse to the Collateral. (b) Without limiting the foregoing, at any time an Event of Default exists or has occurred and is continuing, Lender may, in its discretion and without limitation, (i) accelerate the payment of all Obligations and demand immediate payment thereof to Lender (provided, that, upon the occurrence of any -------- ---- Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations shall automatically become immediately due and payable), (ii) with or without judicial process or the aid or assistance of others, enter upon any premises on or in which any of the Collateral may be located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, (iii) require Borrowers, at 46 Borrowers' expense, to assemble and make available to Lender any part or all of the Collateral at any place and time designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, (v) remove any or all of the Collateral from any premises on or in which the same may be located for the purpose of effecting the sale, foreclosure or other disposition thereof or for any other purpose, (vi) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including, without limitation, entering into contracts with respect thereto, public or private sales at any exchange, broker's board, at any office of Lender or elsewhere) at such prices or terms as Lender may deem reasonable, for cash, upon credit or for future delivery, with the Lender having the right to purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of Borrowers, which right or equity of redemption is hereby expressly waived and released by Borrowers and/or (vii) terminate this Agreement. If any of the Collateral is sold or leased by Lender upon credit terms or for future delivery, the Obligations shall not be reduced as a result thereof until payment therefor is finally collected by Lender. If notice of disposition of Collateral is required by law, ten (10) days prior notice by Lender to Borrowers designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof and Borrowers waive any other notice. In the event Lender institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, Borrowers waive the posting of any bond which might otherwise be required. (c) Lender may apply the cash proceeds of Collateral actually received by Lender from any sale, lease, foreclosure or other disposition of the Collateral to payment of the Obligations, in whole or in part and in such order as Lender may elect, whether or not then due. Borrowers shall remain liable to Lender for the payment of any deficiency with interest at the highest rate provided for herein and all costs and expenses of collection or enforcement, including attorneys' fees and legal expenses. (d) Without limiting the foregoing, Lender may, at its option, without notice (i) upon the occurrence and during the continuance of an Event of Default or an event which with notice or passage of time or both would constitute an Event of Default cease making Loans or arranging for Letter of Credit Accommodations or reduce the lending formulas or amounts of Loans and Letter of Credit Accommodations available to Borrowers and/or (ii) upon the occurrence and during the continuance of an Event of Default, or an event which would with notice or passage of time or both constitute an Event of Default under Section 10.1(g) or Section 10.1(h), terminate any provision of this Agreement providing for any future Loans or Letter of Credit Accommodations to be made by Lender to Borrowers. 47 SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW -------------------------------- 11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver. (a) The validity, interpretation and enforcement of this Agreement and the other Financing Agreements and any dispute arising out of the relationship between the parties hereto, whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of New York (without giving effect to principles of conflicts of law). (b) Each Borrower and Lender irrevocably consent and submit to the non-exclusive jurisdiction of the Supreme Court of the State of New York, New York County and the United States District Court for the Southern District of New York and waive any objection based on venue or forum non conveniens with ----- --- ---------- respect to any action instituted therein arising under this Agreement or any of the other Financing Agreements or in any way connected with or related or incidental to the dealings of the parties hereto in respect of this Agreement or any of the other Financing Agreements or the transactions related hereto or thereto, in each case whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise, and agree that any dispute with respect to any such matters shall be heard only in the courts described above (except that Lender shall have the right to bring any action or proceeding against any Borrower or its property in the courts of any other jurisdiction which Lender deems necessary or appropriate in order to realize on the Collateral or to otherwise enforce its rights against any Borrower or its property). (c) Each Borrower hereby waives personal service of any and all process upon it and consents that all such service of process may be made by certified mail (return receipt requested) directed to its address set forth on the signature pages hereof and service so made shall be deemed to be completed five (5) days after the same shall have been so deposited in the U.S. mails, or, at Lender's option, by service upon such Borrower in any other manner provided under the rules of any such courts. Within thirty (30) days after such service, such Borrower shall appear in answer to such process, failing which such Borrower shall be deemed in default and judgment may be entered by Lender against such Borrower for the amount of the claim and other relief requested. (d) EACH BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWERS AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWERS 48 OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (e) Lender shall not have any liability to Borrowers (whether in tort, contract, equity or otherwise) for losses suffered by Borrowers in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Agreement, or any act, omission or event occurring in connection herewith, unless it is determined by a final and non- appealable judgment or court order binding on Lender, that the losses were the result of acts or omissions constituting gross negligence or willful misconduct. In any such litigation, Lender shall be entitled to the benefit of the rebuttable presumption that it acted in good faith and with the exercise of ordinary care in the performance by it of the terms of this Agreement. 11.2 Waiver of Notices. Each Borrower hereby expressly waives demand, presentment, protest and notice of protest and notice of dishonor with respect to any and all instruments and commercial paper, included in or evidencing any of the Obligations or the Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to the Obligations, the Collateral and this Agreement, except such as are expressly provided for herein. No notice to or demand on Borrowers which Lender may elect to give shall entitle Borrowers to any other or further notice or demand in the same, similar or other circumstances. 11.3 Amendments and Waivers. Neither this Agreement nor any provision hereof shall be amended, modified, waived or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Lender, and as to amendments, as also signed by an authorized officer of Borrowers. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its rights, powers and/or remedies unless such waiver shall be in writing and signed by an authorized officer of Lender. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Lender of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy which Lender would otherwise have on any future occasion, whether similar in kind or otherwise. 11.4 Waiver of Counterclaims. Each Borrower waives all rights to interpose any claims, deductions, setoffs or counterclaims of any nature (other then compulsory counterclaims) in any action or proceeding with respect to this Agreement, the Obligations, the Collateral or any matter arising therefrom or relating hereto or thereto. 11.5 Indemnification. Each Borrower shall indemnify and hold Lender, and its directors, agents, employees and counsel, harmless from and against any and all losses, claims, damages, liabilities, costs or expenses imposed on, incurred by or asserted against any of them in connection with any litigation, investigation, claim or proceeding commenced or threatened related to the negotiation, preparation, execution, delivery, enforcement, performance or administration of this Agreement, any other Financing Agreements, or any undertaking or proceeding related to any of the transactions contemplated hereby or any act, omission, event or transaction related or attendant thereto, including, without limitation, court costs, and the fees and 49 expenses of counsel, except for any losses, claims, damages, liabilities, costs or expenses which result from the gross negligence or willful misconduct of Lender as determined pursuant to a final non-appealable order of a court of competent jurisdiction. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it violates any law or public policy, Borrowers shall pay the maximum portion which it is permitted to pay under applicable law to Lender in satisfaction of indemnified matters under this Section. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS -------------------------------- 12.1 Term. (a) This Agreement and the other Financing Agreements shall become effective as of the date set forth on the first page hereof and shall continue in full force and effect for a term ending on the date three (3) years from the date hereof (the "Renewal Date"), and from year to year thereafter, unless sooner terminated pursuant to the terms hereof, including, without limitation, pursuant to Section 12.1(c) hereof; provided, that, Lender or -------- ---- Borrowers may terminate this Agreement and the other Financing Agreements effective on the Renewal Date or on the anniversary of the Renewal Date in any year by giving to the other party at least sixty (60) days prior written notice, or, alternatively, effective upon any other date pursuant to Section 12.1(c); provided, that, this Agreement and all other Financing Agreements must be - -------- ---- terminated simultaneously. Upon the effective date of termination or non-renewal of the Financing Agreements, Borrowers shall pay to Lender, in full, all outstanding and unpaid Obligations and shall furnish cash collateral to Lender in such amounts as Lender determines are reasonably necessary to secure Lender from loss, cost, damage or expense, including attorneys' fees and legal expenses, in connection with any contingent Obligations, including issued and outstanding Letter of Credit Accommodations and checks or other payments provisionally credited to the Obligations and/or as to which Lender has not yet received final and indefeasible payment. Such payments in respect of the Obligations and cash collateral shall be remitted by wire transfer in Federal funds to such bank account of Lender, as Lender may, in its discretion, designate in writing to Borrowers for such purpose. Interest shall be due until and including the next business day, if the amounts so paid by Borrowers to the bank account designated by Lender are received in such bank account later than 12:00 noon, New York City time. (b) No termination of this Agreement or the other Financing Agreements shall relieve or discharge Borrowers of their respective duties, obligations and covenants under this Agreement or the other Financing Agreements until all Obligations have been fully and finally discharged and paid, and Lender's continuing security interest in the Collateral and the rights and remedies of Lender hereunder, under the other Financing Agreements and applicable law, shall remain in effect until all such Obligations have been fully and finally discharged and paid. (c) If for any reason this Agreement is terminated prior to the end of the then current term or renewal term of this Agreement, in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a 50 reasonable calculation of Lender's lost profits as a result thereof, Borrowers agree to pay to Lender, upon the effective date of such termination, an early termination fee in the amount set forth below if such termination is effective in the period indicated:
Amount Period ------ ------ (i) .75% of Maximum Credit From the date hereof to and including October 29, 1999 (ii) .5% of Maximum Credit From October 30, 1999 to and including October 29, 2000 (iii) .333% of Maximum Credit From October 30, 2000 to and including October 29, 2001
Such early termination fee shall be presumed to be the amount of damages sustained by Lender as a result of such early termination and Borrowers agree that it is reasonable under the circumstances currently existing. In addition, Lender shall be entitled to such early termination fee upon the occurrence of any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if Lender does not exercise its right to terminate this Agreement, but elects, at its option, to provide financing to Borrowers or permit the use of cash collateral under the United States Bankruptcy Code. The early termination fee provided for in this Section 12.1 shall be deemed included in the Obligations. (d) Notwithstanding anything to the contrary contained in Section 13.1(c), in the event of the termination of this Agreement by Borrowers prior to the end of the then current term and the full and final repayment of all of the Obligations and the receipt by Lender of cash collateral all as provided in Section 13.1(a), Borrowers shall not be required to pay the early termination fee provided for above if each of the following conditions is satisfied: (i) no Event of Default or act, condition or event which with notice or passage of time or both would constitute an Event of Default shall exist or have occurred and be continuing, (ii) Lender shall have received not less than thirty (30) days prior written notice of the intention of Borrowers to so terminate this Agreement, and (iii) the final payment in full of all of the Obligations is received simultaneously with (A) the refinancing of the Credit Facility with proceeds of Loans made by First Union National Bank to Borrowers; (B) the consummation of a public equity offering, after the first anniversary of the date hereof, which equity offering shall be registered under the Securities Act of 1933, as amended, and the net proceeds received by Borrowers shall not be less than the Maximum Credit; or (C) the consummation by Borrowers after the first anniversary of the date hereof of an unsecured bond, debenture or note offering pursuant to which Borrowers shall receive net proceeds of not less than the Maximum Credit. 12.2 Notices. All notices, requests and demands hereunder shall be in writing and (a) made to Lender at its address set forth below and to Borrowers at their chief executive office set forth below, or to such other address as either party may designate by written notice to the other in accordance with this provision, and (b) deemed to have been given or made: if delivered in 51 person, immediately upon delivery; if by facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next Business Day, one (1) Business Day after sending; and if by certified mail, return receipt requested, seven (7) days after mailing. 12.3 Partial Invalidity. If any provision of this Agreement is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Agreement as a whole, but this Agreement shall be construed as though it did not contain the particular provision held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be permitted by applicable law. 12.4 Successors. This Agreement, the other Financing Agreements and any other document referred to herein or therein shall be binding upon and inure to the benefit of and be enforceable by Lender, Borrowers and their respective successors and assigns, except that Borrowers may not assign their rights under this Agreement, the other Financing Agreements and any other document referred to herein or therein without the prior written consent of Lender. Lender may, after notice to Borrowers, assign their rights and delegate their obligations under this Agreement and the other Financing Agreements and further may assign, or sell participations in, all or any part of the Loans, the Letter of Credit Accommodations or any other interest herein to another financial institution or other person, in which event, the assignee or participant shall have, to the extent of such assignment or participation, the same rights and benefits as it would have if it were the Lender hereunder, except as otherwise provided by the terms of such assignment or participation, provided, however, that Lender shall -------- ------- obtain Borrowers' prior written consent, which consent shall not be unreasonably withheld, with respect to any such proposed assignment or participation by Lender, and if the proposed assignee or participant is a lending institution that is not organized and existing under the laws of the United States or a political subdivision thereof, such lending institution must be capable of receiving payments of interest hereunder without deduction or withholding of United States federal income taxes under the provisions of an applicable tax treaty concluded by the United States. 12.5 Confidentiality. (a) Lender shall use all reasonable efforts to keep confidential, in accordance with its customary procedures for handling confidential information and safe and sound lending practices, any non-public information supplied to it by Borrowers pursuant to this Agreement which is clearly and conspicuously marked as confidential at the time such information is furnished by Borrowers to Lender, provided, that, nothing contained herein shall limit the -------- ---- disclosure of any such information: (i) to the extent required by statute, rule, regulation, subpoena or court order, (ii) to bank examiners and other regulators, auditors and/or accountants, (iii) in connection with any litigation to which Lender is a party, (iv) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) shall have first agreed in writing to treat such information as confidential in accordance with this Section 12.5, or (v) to counsel for Lender or any participant or assignee (or prospective participant or assignee). 52 (b) In no event shall this Section 12.5 or any other provision of this Agreement or applicable law be deemed: (i) to apply to or restrict disclosure of information that has been or is made public by Borrowers or any third party without breach of this Section 12.5 or otherwise become generally available to the public other than as a result of a disclosure in violation hereof, (ii) to apply to or restrict disclosure of information that was or becomes available to Lender on a non-confidential basis from a person other than Borrowers, (iii) require Lender to return any materials furnished by Borrowers to Lender or (iv) prevent Lender from responding to routine informational requests in accordance with the Code of Ethics for the Exchange of Credit ----------------------------------------- Information promulgated by The Robert Morris Associates or other applicable - ----------- industry standards relating to the exchange of credit information. The obligations of Lender under this Section 12.5 shall supersede and replace the obligations of Lender under any confidentiality letter signed prior to the date hereof. 12.6 Entire Agreement. This Agreement, the other Financing Agreements, any supplements hereto or thereto, and any instruments or documents delivered or to be delivered in connection herewith or therewith represents the entire agreement and understanding concerning the subject matter hereof and thereof between the parties hereto, and supersede all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written. [Remainder of Page Intentionally Left Blank] 53 IN WITNESS WHEREOF, Lender and Borrowers have caused these presents to be duly executed as of the day and year first above written. LENDER ------ CONGRESS FINANCIAL CORPORATION By: /s/ Philip Emma ------------------------------ Title: Vice President Address: 1133 Avenue of the Americas New York, New York 10036 BORROWER -------- G+G RETAIL, INC. By: /s/ Scott Galin ------------------------------ Title: President and Chief Executive Officer Address: 520 Eighth Avenue New York, New York 10018 54 SCHEDULE 1 ADDITIONAL BORROWERS -------------------- None 55 EX-10.16 27 AMENDMENT NO. 1 TO EMPLOYMENT AGMT 11/30/98 -- JAY GALIN EXHIBIT 10.16 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT Amendment No.1, dated as of November 30, 1998, to the Employment Agreement (the "Employment Agreement"), dated as of August 28, 1998, by and between G+G Retail, Inc., a Delaware corporation (the "Company") and Jay Galin, an individual residing in 167 East 71st Street, New York, NY 10021 ( the "Executive"). The parties hereto desire to amend the Employment Agreement. NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Capitalized terms used but not defined herein shall have the meanings set forth in the Employment Agreement. 2. The first paragraph of Section 3.2 of the Employment Agreement is hereby amended and restated in its entirety to read as follows: "3.2 Bonus Compensation The Company shall implement a bonus plan for the benefit of the senior management of the Company which plan shall provide for annual bonuses to be paid to eligible members of the Company's management based on the Company attaining certain annual EBITDA targets to be agreed upon and specified by the holders of a majority of the outstanding shares of Class A common stock of the Parent Company, par value $.001 per share, and a majority of the outstanding shares of Class B common stock of the Parent Company, par value $.001 per share." 3. Except as specifically amended above, the Employment Agreement is and shall continue to be in full force and effect and is hereby ratified and confirmed in all respects. 4. This Amendment No. 1 shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles. 5. This Amendment No. 1 may be executed in one or more counterparts, each of which shall be deemed to be an original copy of this Amendment No. 1 and all of which, when taken together, shall be deemed to constitute one and the same agreement. IN WITNESS WHEREOF the parties hereto have entered into this Amendment No. 1 on the date first written above. G+G RETAIL, INC. By: /s/ Scott Galin ------------------------------- /s/ Jay Galin ---------------------------------- Jay Galin 2 EX-10.17 28 AMENDMENT NO. 1 TO EMPLOYMENT AGMT 11/30/98 -- SCOTT GALIN EXHIBIT 10.17 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT Amendment No.1, dated as of November 30, 1998, to the Employment Agreement (the "Employment Agreement"), dated as of August 28, 1998, by and between G+G Retail, Inc., a Delaware corporation (the "Company") and Scott Galin, an individual residing in 60 Hickory Drive, East Hills, NY 11576 ( the "Executive"). The parties hereto desire to amend the Employment Agreement. NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Capitalized terms used but not defined herein shall have the meanings set forth in the Employment Agreement. 2. The first paragraph of Section 3.2 of the Employment Agreement is hereby amended and restated in its entirety to read as follows: "3.2 Bonus Compensation The Company shall implement a bonus plan for the benefit of the senior management of the Company which plan shall provide for annual bonuses to be paid to eligible members of the Company's management based on the Company attaining certain annual EBITDA targets to be agreed upon and specified by the holders of a majority of the outstanding shares of Class A common stock of the Parent Company, par value $.001 per share, and a majority of the outstanding shares of Class B common stock of the Parent Company, par value $.001 per share." 3. Except as specifically amended above, the Employment Agreement is and shall continue to be in full force and effect and is hereby ratified and confirmed in all respects. 4. This Amendment No. 1 shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles. 5. This Amendment No. 1 may be executed in one or more counterparts, each of which shall be deemed to be an original copy of this Amendment No. 1 and all of which, when taken together, shall be deemed to constitute one and the same agreement. IN WITNESS WHEREOF the parties hereto have entered into this Amendment No. 1 on the date first written above. G+G RETAIL, INC. By: /s/ Jay Galin ------------------------------- /s/ Scott Galin ----------------------------------- Scott Galin 2 EX-10.18 29 BONUS PLAN FOR SR. MGMT EMPLOYEES OF G+G RETAIL, INC. 2/2/99 EXHIBIT 10.18 Bonus Plan for Senior Management Employees of G+G Retail, Inc. I. Principles of the Plan o The Bonus Plan is intended to recognize the critical importance of senior management to the sustained growth of the Company by assuring participants of an opportunity to achieve exceptional levels of total cash compensation in years in which the Company achieves or exceeds expectations as defined by the Board of Directors. o Incentives are intended to reward growth in the Company's financial performance measured by pre-tax operating income before interest, depreciation and amortization (EBITDA.) o Participants in the Bonus Plan will be selected at the recommendation of the Company's President/Chief Operating Officer and Chairman/Chief Executive Officer (and will include the CEO and COO.) II. Award Opportunities o Award opportunities are established as percentages of each participant's base salary. Each participant will have a threshold, target and maximum level award opportunity under the Bonus Plan as follows: ----------------------------------------------- Performance Level Award Opportunity as Percentage of Base Salary Paid During Year ----------------------------------------------- Below Threshold Level 0% ----------------------------------------------- At Threshold Level 20% (but less than Target) ----------------------------------------------- At Target Level (but 30% less than Maximum) =============================================== At Maximum Level or 40% above =============================================== Above Maximum Bonus Level* *(CEO & COO only) Additional 25% ----------------------------------------------- 1 III. Performance Levels (as Percentages of EBITDA) o Threshold, Target and Maximum Performance Levels are equal to sum of (i) percentages (as set forth below) of projected EBITDA for each fiscal year as established by the Company's Board of Directors, plus (ii) total dollar amount of bonuses payable to all participants at that Performance Level (i.e., total base salaries of all participants in the Plan multiplied by Award Opportunity (percentage) applicable to the given Performance Level.) ------------------------------------------------- Performance Level EBITDA Amount Needed to Pay Out Bonus ================================================= Threshold 95% of Projected EBITDA plus 20% of Total Base Salaries of All Participants ------------------------------------------------- Target 100% of Projected EBITDA plus 30% of Total Base Salaries of All Participants ------------------------------------------------- Maximum 110% of Projected EBITDA plus 40% of Total Base Salaries of All Participants ================================================= Above Maximum* More than 110% of Projected (CEO and COO Only) EBITDA plus 40% of Total Base Salaries of All Participants plus 25% of Total Base Salaries of CEO and COO ------------------------------------------------- IV. Payment of Awards o Awards are payable in cash, subject to applicable withholding and payroll taxes, as soon as practicable after fiscal year end audit is complete. o A participant must be employed through the last day of the fiscal year in order to be eligible for payment of any award under the Bonus Plan, except that participants leaving the Company's employ prior to the last day of the fiscal year due to death, disability or normal retirement with the consent of the Company will be entitled to a bonus award based upon salary earned during the year prior to termination of employment. Participants joining the Company or promoted to eligible positions during the fiscal year will become entitled to a bonus based upon salary earned during the fiscal year from and after date of employment or eligibility. o EBITDA targets may be reduced or adjusted in the Company's discretion to reflect significant or unusual changes in the Company's business. V. Plan Amendment or Termination o The Bonus Plan may be amended or terminated at any time upon the recommendation of the Company's President/Chief Operating Officer and Chairman/Chief Executive Officer. o Upon termination of the Bonus Plan, other than as of the end of a fiscal year, participants will be eligible to receive awards determined in the same manner as awards made at year end, but based upon salary earned by participants during the portion of the fiscal year in which the Bonus Plan remained in effect. o The Bonus Plan will be construed, interpreted and applied in the good faith determination of the Company's Board of Directors. o The Bonus Plan will be effective for fiscal years commencing February 2, 1999. 2 EX-10.21 30 G&G RETAIL HOLDINGS, INC. 1999 STOCK OPTION PLAN 3/15/99 EXHIBIT 10.21 G&G RETAIL HOLDINGS, INC. 1999 STOCK OPTION PLAN ARTICLE I PURPOSE OF THE PLAN The 1999 Stock Option Plan (the "Plan") is intended (a) to encourage Employees of G&G Retail Holdings, Inc. (the "Company") and its Subsidiaries to acquire a proprietary interest in the Company whereby such individuals may realize benefits from an increase in the value of the shares of Class A Common Stock, $0.001 par value per share, of the Company (the "Common Stock"); (b) to provide such Employees with greater incentive and to encourage their continued service to the Company; and (c) generally, to promote the interests of the Company and its stockholders. Under the Plan, options to purchase shares of Common Stock may be granted from time to time prior to March 14, 2009 to such persons as may be selected in the manner provided in the Plan on the terms and subject to the conditions set forth herein. Capitalized terms are defined in Article XV hereof. ARTICLE II ADMINISTRATION OF THE PLAN SECTION 1. The Plan shall be administered by the Company's Board of Directors (the "Board"). The Board is authorized to interpret the Plan and may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best. All determinations by the Board shall be made by the affirmative vote of a majority of its members. Subject to any applicable provisions of the Plan, all determinations by the Board pursuant to the provisions of the Plan, and all related orders or resolutions of the Board, shall be final, conclusive and binding on all Persons, including the Company and its stockholders, employees, directors and optionees. SECTION 2. With respect to Section 16 of the 1934 Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of the Plan or action by the Board fails to so comply, it shall be deemed null and void to the extent permitted by law and deemed advisable by the Board. ARTICLE III STOCK SUBJECT TO THE PLAN SECTION 1. The shares to be issued or delivered upon exercise of options or rights granted under the Plan shall be made available, at the discretion of the Board, either from the authorized but unissued shares of Common Stock or from shares of Common Stock reacquired by the Company, including shares purchased by the Company in the open market or otherwise obtained. SECTION 2. Subject to the provisions of Article X hereof, (a) the aggregate number of shares of Common Stock which may be purchased pursuant to options granted under the Plan shall not exceed 7,000, all of which may be issued by options intended to be Incentive Stock Options and (b) the maximum number of shares of Common Stock which may be purchased by Scott Galin and Jay Galin pursuant to options granted at any time under the Plan shall not exceed, in the aggregate, 5,000. Shares subject to any options which are canceled, lapse or are otherwise terminated shall be immediately available for reissuance under the Plan. ARTICLE IV PURCHASE PRICE SECTION 1. Subject to Section 2 of this Article IV and to Article X hereof, the purchase price per share of Common Stock under options granted to Employees shall be $300. SECTION 2. In the case of Incentive Stock Options, the purchase price per share of Common Stock under each option granted to Employees shall not be less than one hundred percent of the Fair Market Value of the Common Stock at the time such option is granted; provided, however, that in the case of an Incentive Stock Option granted to a Ten Percent Stockholder, such purchase price per share shall be at least one hundred and ten percent of the Fair Market Value. ARTICLE V ELIGIBILITY Options will be granted only to Employees. ARTICLE VI DURATION OF THE PLAN Unless previously terminated by the Board, the Plan will terminate on March 14, 2009. Termination of the Plan will not terminate any option then outstanding. 2 ARTICLE VII GRANT OF OPTIONS SECTION 1. Each option granted under the Plan shall constitute either an Incentive Stock Option or a Non-Qualified Stock Option, as determined in each case by the Board. With respect to Incentive Stock Options, to the extent that the aggregate Fair Market Value (determined at the time an option is granted) of Common Stock with respect to which such Incentive Stock Options are exercisable for the first time by any individual during any calendar year (under the Plan and any other stock option plan of the Company) exceeds $100,000, such Incentive Stock Options shall be treated as Non-Qualified Stock Options to the extent of such excess. The foregoing rule shall be applied by taking Incentive Stock Options into account in the order in which they were granted. In the event outstanding Incentive Stock Options become immediately exercisable under the terms hereof, such Incentive Stock Options will, to the extent the aggregate Fair Market Value thereof exceeds $100,000, be treated as Non-Qualified Stock Options. SECTION 2. The Board shall from time to time determine the Employees to be granted options, it being understood that options may be granted at different times to the same person subject to the limitations set forth in Section 2 of Article III hereof. In addition, the Board shall determine, subject to the terms of the Plan, (a) the number of shares subject to each option, (b) the time or times when the options will be granted, (c) the time or times when each option may be exercised, and (d) any other matters which the Board shall deem appropriate. SECTION 3. All instruments evidencing options granted under the Plan shall be in such form as the Board shall from time to time determine, which form shall be consistent with the Plan and any applicable determinations, orders, resolutions or other actions of the Board. ARTICLE VIII TRANSFERABILITY OF OPTIONS No Incentive Stock Option granted under the Plan shall be transferable by the optionee otherwise than by will or by the laws of descent and distribution, and any such Incentive Stock Option shall be exercisable during the lifetime of the optionee solely by him or her. Any Non-Qualified Stock Option granted under the Plan may be transferable by the optionee to the extent specifically permitted by the Board as specified in the instrument evidencing the option as the same may be amended from time to time. Except to the extent permitted by such instrument, no Non-Qualified Stock Option shall be transferable except by will or by the laws of descent and distribution. 3 ARTICLE IX EXERCISE OF OPTIONS SECTION 1. Subject to Article XII hereof, each option granted under the Plan shall terminate on the date specified by the Board which date shall be not later than the expiration of ten years from the date on which it was granted; provided, however, that in the case of an Incentive Stock Option granted to an Employee who, at the time of the grant is a Ten Percent Stockholder, such period shall not exceed five years from the date of grant. SECTION 2. A person electing to exercise an option then exercisable shall give written notice to the Company of such election and the number of shares of Common Stock such person has elected to purchase. A person exercising an option shall at the time of purchase tender the full purchase price (except that, in the case of an exercise arrangement approved by the Board and described in Section 4 of this Article IX, tender may be made as soon as practicable after the exercise) of such shares, which tender, except as provided in Section 3 of this Article IX, shall be made in cash or cash equivalent (which may be such person's personal check). The Company shall have no obligation to deliver shares of Common Stock pursuant to the exercise of any option, in whole or in part, until such payment in full of the purchase price therefor is received by the Company. SECTION 3. Provided that the Company shall have publicly issued shares of Common Stock pursuant to a Qualified Public Offering, to the extent permitted by applicable law, a person electing to exercise an option then exercisable may tender the full purchase price of such shares in shares of Common Stock already owned by such person (which shares shall be valued for such purpose on the basis of their Fair Market Value on the date of exercise) or in any combination of cash or cash equivalent (which may be such person's personal check) and shares of Common Stock; provided, however, that payment in shares of Common Stock already owned shall not be permitted unless the chief financial officer of the Company determines that such payment will not require the Company to recognize a compensation expense under applicable accounting rules. In the event of payment in shares of Common Stock already owned, such shares shall be appropriately endorsed for transfer to the Company. SECTION 4. Provided that the Company shall have publicly issued shares of Common Stock pursuant to a Qualified Public Offering, the Board may permit a person electing to exercise an option to elect to tender the exercise price of such shares by irrevocably authorizing a third party to sell shares of Common Stock (or of sufficient portion of the shares) acquired upon the exercise of such option and remit to the Company a sufficient portion of the sale proceeds to pay the entire exercise price and any tax withholding (based upon the minimum statutory tax withholding requirements, unless such person elects in writing to withhold a greater amount of tax) resulting from such exercise (a "Cashless Exercise"). SECTION 5. Each option shall be subject to the requirement that if at any time the Board shall in its discretion determine that the listing, registration or qualification of the shares of Common Stock subject to such option upon any securities exchange or under any state or Federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition 4 of or in connection with, the granting of such option or the issuance or purchase of shares thereunder, such option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free from any conditions not reasonably acceptable to the Board. Prior to the exercise of an option and the issuance of Common Stock so purchased, an optionee shall deliver a certification (a) acknowledging that such shares of Common Stock may be "restricted securities" as defined in Rule 144 promulgated under the Act and (b) containing such optionee's agreement that such Common Stock may not be sold or otherwise disposed of except in compliance with applicable provisions of the Act. In the event that the Common Stock is then listed on a national securities exchange, the Company shall use its best efforts to cause the listing of the shares of Common Stock subject to options upon such exchange. SECTION 6. The Company may establish appropriate procedures to provide for payment or withholding of such income or other taxes as may be required by law to be paid or withheld in connection with the exercise of options or any other matters under the Plan, and to ensure that the Company receives prompt advice concerning the occurrence of any event which may create, or affect the timing or amount of, any obligation to pay or withhold any such taxes or which may make available to the Company any tax deduction resulting from the occurrence of such event. ARTICLE X ADJUSTMENTS SECTION 1. New option rights may be substituted for the options granted under the Plan, or the Company's duties as to options outstanding under the Plan may be assumed by a corporation other than the Company, or by a parent or subsidiary of the Company or such corporation, in connection with any merger, consolidation, acquisition, separation, reorganization, liquidation or other similar corporate transaction in which the Company is involved. Notwithstanding the foregoing or the provisions of this Article X, in the event such corporation, or parent or subsidiary of the Company or such corporation, does not substitute new option rights for, and substantially equivalent to, the options granted hereunder, or assume the options granted hereunder, the options granted hereunder shall terminate and thereupon become null and void (a) upon dissolution or liquidation of the Company, or similar occurrence, (b) upon any merger, consolidation, acquisition, separation, reorganization, or similar occurrence, where the Company will not be a surviving entity, or (c) upon a transfer of substantially all of the assets of the Company or more than 80% of the outstanding common stock of the Company in a single transaction other than a Qualified Public Offering; provided, however, that each optionee shall have the right immediately prior to or concurrently with such dissolution, liquidation, merger, consolidation, acquisition, separation, reorganization or other similar corporate transaction to exercise any unexpired option granted hereunder whether or not then exercisable. Notwithstanding the immediately preceding sentence, upon the exchange of all of the common stock of the Company for the common stock of another corporation (i.e., a business combination accounted for as a pooling of interests) the options granted hereunder shall be substituted with options of equivalent value and terms of such other corporation's common stock. 5 SECTION 2. In the event that the Board determines that any dividend or other distribution (whether in the form of cash, shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of shares or other securities of the Company, issuance of warrants or other rights to purchase shares or other securities of the Company, or other corporate transaction or event affects the shares such that an adjustment is determined by the Board to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then, the Board shall, in such manner as it may deem equitable, adjust any or all of (a) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or property) with respect to which options may be granted and any limitations set forth in the Plan, (b) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or property) subject to outstanding options, and (c) the grant or exercise or target price with respect to any option or, if deemed appropriate, make provision for a cash payment to an optionee including, if necessary, the termination of such an option provided, in each case, that with respect to Incentive Stock Options no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422 of the Code. Without limiting the generality of the foregoing, any such adjustment shall be deemed to have prevented any dilution and enlargement of an optionee's rights if such optionee receives in any such adjustment rights which are substantially similar (after taking into account the fact that the optionee has not paid the applicable exercise price) to the rights the optionee would have received had he exercised his outstanding options and become a stockholder of the Company immediately prior to the event giving rise to such adjustment. SECTION 3. Adjustments and elections under this Article X shall be made by the Board whose determination as to what adjustments, if any, shall be made and the extent thereof shall be final, binding and conclusive. Adjustments required under this Article X shall also be deemed to increase by a like number the aggregate number of shares authorized for purchase pursuant to options granted under the Plan as set forth in Section 2 of Article III hereof. ARTICLE XI PRIVILEGES OF STOCK OWNERSHIP No optionee, or legal representative, legatee, distributee or transferee of such optionee shall be or be deemed to be a holder of any shares of Common Stock subject to such option or entitled to any rights of a stockholder of the Company in respect of any shares of Common Stock covered by such option until such shares have been paid for in full and issued or delivered by the Company. 6 ARTICLE XII TERMINATION OF EMPLOYMENT SECTION 1. If (a) an optionee shall terminate his or her Employment voluntarily (i) without Good Reason, and (ii) without the written consent of the Company or a Subsidiary, which written consent expressly sets forth a statement to the effect that options which are exercisable on the date of such termination shall remain exercisable, or (b) the Company or a Subsidiary shall terminate an optionee's Employment for Cause, then, unless otherwise provided in the instrument evidencing such option, the option held by such optionee shall terminate forthwith. SECTION 2. If (a) an optionee shall terminate his or her Employment voluntarily (i) with Good Reason, or (ii) with the written consent of the Company or a Subsidiary, which written consent expressly sets forth a statement to the effect that options which are exercisable on the date of such termination shall remain exercisable, or (b) the Company or a Subsidiary shall terminate an optionee's Employment for reasons other than Cause, then, unless otherwise provided in the instrument evidencing such option, the option held by such optionee shall be terminated, except that any option, to the extent exercisable by the optionee at the time of such termination, may be exercised within three months after such termination or the date of expiration of the option as fixed at the time of grant, whichever shall first occur. Options granted under the Plan shall not be affected by any change in the optionee's position as an Employee so long as the holder thereof continues to be an Employee. SECTION 3. If an optionee shall die or be deemed to have a Disability during his or her Employment, then, unless otherwise provided in the instrument evidencing such option, notwithstanding the foregoing provisions of Sections 1 and 2 of this Article XII, the option held by such optionee shall be terminated, except that any option, to the extent exercisable by the optionee at the time of such death or Disability, may be exercised on or before (i) the date which is one year after the date of such death or Disability or (ii) the date of expiration of the option as fixed at time of grant, whichever shall first occur, by the optionee, or in the case of death, by the optionee's personal representatives or by the person or persons to whom the optionee's rights under the option shall pass by will or by the applicable laws of descent and distribution. ARTICLE XIII AMENDMENTS TO THE PLAN The Board may only terminate or from time to time amend, modify or suspend the Plan with the prior written approval of the holders of a majority of shares of the Class B Common Stock. The amendment or termination of the Plan shall not, without the written consent of an optionee, adversely affect any rights or obligations under any option theretofore granted to such optionee under the Plan. 7 ARTICLE XIV EFFECTIVE DATE OF THE PLAN The Plan shall be effective on March 15, 1999. ARTICLE XV DEFINITIONS For the purposes of this Plan, the following terms shall have the meanings indicated: 1934 Act: The Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder. Act: The Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. Board of Directors: Such term is defined in Section 1 of Article II hereof. Cashless Exercise: Such term is defined in Section 4 of Article IX hereof. Cause: (a) The failure, neglect or refusal by an Employee to perform his or her duties (including, without limitation, such Employee's inability to perform his or her duties as a result of alcohol abuse, chronic alcoholism or drug addiction), (b) any willful, intentional or grossly negligent act by an Employee having the effect of injuring the reputation or business of the Company or a Subsidiary, (c) an Employee's conviction of a felony or a crime involving moral turpitude (including the entry of a nolo contendere plea), and (d) any other default, nonperformance or violation by an Employee of any of the covenants, provisions or terms of such Employee's employment agreement with the Company or any Subsidiary then in effect, if any. A termination for Cause as defined in clause (a) or (d) of the preceding sentence shall become effective only if (i) the Company or a Subsidiary shall have given such Employee notice thereof describing the basis for such termination for Cause, and (ii) such Employee fails to cure such Cause within 10 business days after receiving such notice (and the termination for Cause shall be effective upon the expiration of such 10-business-day period if such Employee fails to effect such cure); and a termination for Cause as defined in clause (b) or (c) of the preceding sentence shall be effective at the time the Company or a Subsidiary gives notice thereof to such Employee. Class B Common Stock: Class B Common Stock, $0.001 par value per share, of the Company. Code: The Internal Revenue Code of 1986, as amended and the regulations promulgated thereunder. 8 Common Stock: Such term is defined in Article I hereof. Company: Such term is defined in Article I hereof. Disability: An Employee shall be deemed to have a Disability if (a) by reason of physical or mental incapacity, the Employee shall not be able to perform his or her duties for a consecutive period of six months or more or for a period in the aggregate of six months or more in any consecutive period of twelve months, or (b) when the Employee's physician shall have determined that he or she shall not be able, by reason of physical or mental disability, to devote his or her time and energy to the business of the Company for a continuous period of six months or more or for a period in the aggregate of six months or more in a consecutive period of twelve months. In the event that the Employee or the Company shall dispute any determination of Disability hereunder, the matter shall be resolved by the determination of three physicians qualified to practice medicine in the State of New York, one to be selected by each of the Company and the Employee and the third to be selected by the designated physicians. During the period in which the determination of the Employee's Disability shall be under such review, the Employee shall continue to be treated for all purposes of the Plan as an Employee. EBITDA: Earnings before interest, taxes, depreciation and amortization as reflected in the consolidated audited financial statements of the Company and its consolidated subsidiaries. Employee: Such term includes any officer as well as any full-time salaried executive, managerial, professional, administrative or other employee of the Company or a Subsidiary. Such term also includes an employee on approved leave of absence provided such employee's right to continue employment with the Company or a Subsidiary upon expiration of such employee's leave of absence is guaranteed either by statute or by contract with or by a policy of the Company or a Subsidiary and any consultant, independent contractor, professional advisor or other person who is paid by the Company or a Subsidiary for rendering services or furnishing materials or goods to the Company or a Subsidiary. Employment: Service to the Company or a Subsidiary as an Employee. Fair Market Value: Such term as of any date shall be determined as follows: (a) If the principal market for the Common Stock is a national securities exchange or the Nasdaq stock market, then the Fair Market Value as of that date shall be the mean between the lowest and highest reported sale prices of Common Stock on that date on the principal exchange on which the Common Stock is then listed or admitted to trading. (b) If sale prices are not available or if the principal stock market for the Common Stock is not a national securities exchange and the Stock is not quoted on the Nasdaq stock market, the average between the highest bid and the lowest asked prices for the Common Stock on such day as reported on the NASDAQ OTC Bulletin Board Service or by the National Quotation Bureau, Incorporated or a comparable service. 9 (c) If the day is not a business day, and as a result, paragraphs (a) and (b) next above are inapplicable, the Fair Market Value of the Common Stock shall be determined as of the last preceding business day. If paragraphs (a) and (b) next above are otherwise inapplicable, then the Fair Market Value of the Common Stock shall be determined in good faith by the Board. Equity Securities: Such term shall have the meaning ascribed to it under Rule 3a11-1 promulgated under the 1934 Act. Good Reason: (a) The Company or a Subsidiary effects a material reduction in an Employee's position or duties, the Company or a Subsidiary fails to provide an Employee with any material compensation or benefits to which he or she is entitled, or the Company or a Subsidiary commits any other material breach of such Employee's employment agreement then in effect, if any, (b) an Employee gives the Company or a Subsidiary notice of the event described in clause (a) within 20 business days after its occurrence, and (c) the Company or a Subsidiary fails to cure such event within 10 business days after receiving notice thereof (and the termination for Good Reason shall be effective upon the expiration of such 10-business-day period if the Company or a Subsidiary, as applicable, fails to effect such cure). Incentive Stock Option: An option intended to qualify under Section 422 of the Code. Non-Qualified Stock Option: An option which does not qualify under Section 422 of the Code. Person: Such term shall have the meaning ascribed to it under the 1934 Act. Plan: Such term is defined in Article I hereof and includes all amendments hereof. Public Offering: A registered offering and sale of Equity Securities of the Company or an institutional private placement or an offering and sale of such Equity Securities pursuant to Rule 144A under the Securities Act with or without registration rights. Qualified Public Offering: A Public Offering of common stock after the consummation of which at least twenty percent of the then-outstanding aggregate amount of shares of all classes of common stock of the Company are publicly held and such common stock is listed or admitted for trading on a national securities exchange or quoted on the Nasdaq Stock Market. Subsidiary: A "Subsidiary Corporation" of the Company as defined in Section 424 of the Code. Ten Percent Stockholder: An Employee who, at the time of the grant of an option, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company. 10 EX-10.22 31 OPTION AGREEMENT 3/15/99 -- JAY GALIN EXHIBIT 10.22 OPTION AGREEMENT March 15, 1999 Mr. Jay Galin G&G Retail Holdings, Inc. 520 Eighth Avenue New York, NY 10018 Dear Jay: We are pleased to inform you that on March 15, 1999 the Board of Directors of G&G Retail Holdings, Inc. (the "Company") granted to you an option (the "Option") to purchase 2,500 shares (the "Shares") of Common Stock at a purchase price of $300.00 per share (the "Option Price"). This Option is subject to all of the terms and conditions of the Company's 1999 Stock Option Plan, as from time to time amended (the "Plan"), a copy of which is attached hereto, provided, however, that no future amendment or termination of the Plan may, without your consent, alter or impair any of your rights or obligations under this Option. Certain provisions of the Plan are summarized in this Option Agreement, but we suggest that you read the Plan for a complete understanding of the terms and conditions governing this Option. Capitalized terms used, but not defined, in this Option Agreement are defined in the Plan. This Option expires on March 14, 2009. This Option is not intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended. This Option becomes exercisable with respect to 25% of the Shares effective immediately as of the date of grant (March 15, 1999) and will become exercisable with respect to an additional 25% of the Shares on each of the three succeeding anniversary dates of the date of grant (March 15, 2000, March 15, 2001 and March 15, 2002). If prior to August 28, 2000 (a) you voluntarily terminate your Employment without Good Reason; or (b) the Company or a Subsidiary terminates your Employment for Cause, then this Option will terminate forthwith with respect to all Shares. If on or after August 28, 2000 but prior to March 15, 2002 (a) you voluntarily terminate your Employment without Good Reason; or (b) the Company or a Subsidiary terminates your Employment for Cause, then, in either such case and notwithstanding anything in this Option Agreement or in Sections 2 and 3 of Article XII of the Plan to the contrary, you (or in the case of death, your personal representative or the person or persons to whom your rights under this Option pass by will or by applicable laws of descent and distribution) may exercise this Option, to the extent that this Option is otherwise exercisable as of the date of the termination of your Employment, at 1 any time prior to March 14, 2009. If prior to March 15, 2002 (a) you voluntarily terminate your Employment with Good Reason; or (b) the Company or a Subsidiary terminates your Employment for reasons other than for Cause; or (c) your Employment terminates by reason of your death or Disability, then, in any such case and notwithstanding anything in this Option Agreement or in Sections 2 and 3 of Article XII of the Plan to the contrary, this Option shall immediately become exercisable with respect to 100% of the Shares and you (or in the case of death, your personal representative or the person or persons to whom your rights under this Option pass by will or by applicable laws of descent and distribution) may exercise this Option at any time prior to March 14, 2009. If on or after March 15, 2002, your Employment terminates for any reason, then, notwithstanding anything in this Option Agreement or in Sections 2 and 3 of Article XII of the Plan to the contrary, you (or in the case of death, your personal representative or the person or persons to whom your rights under this Option pass by will or by applicable laws of descent and distribution) may exercise this Option with respect to 100% of the Shares at any time prior to March 14, 2009. As a condition to the grant of this Option, you covenant, warrant, represent and agree that unless the Shares are covered by an effective registration statement under the Act at the time of exercise, then the Shares will be acquired by you for investment and not for sale or distribution and, if the Company requests, you agree to execute and deliver to the Company a certificate to that effect at the time this Option is exercised. The Company will not be obligated to issue any Shares pursuant to the exercise of this Option if, in the opinion of counsel to the Company, the Shares to be so issued are required to be registered or otherwise qualified under the Act, or under any other state or Federal statute, regulation or ordinance affecting the sale of securities, until such shares have been so registered or otherwise qualified. You understand that under existing law, unless at the time this Option is exercised a registration statement under the Act is in effect as to the Shares, (i) the Shares purchased by you may be required to be held indefinitely unless such Shares are subsequently registered under the Act or an exemption from such registration is available; (ii) any sales of Shares made in reliance upon Rule 144 promulgated under the Act may be made only in accordance with the terms and conditions of that Rule (which, under certain circumstances, restricts the number of Shares which may be sold and the manner in which Shares may be sold); (iii) certificates for the Shares will bear a legend to the effect that such Shares have not been registered under the Act and may not be sold, hypothecated or otherwise transferred in the absence of an effective registration statement under the Act relating thereto or an opinion of counsel satisfactory to the Company that such registration is not required; (iv) the Company will place an appropriate "stop transfer" order with its transfer agent with respect to such Shares; and (v) the Company has undertaken no obligation to include the Shares in any registration statement which may be filed by it. In addition, you understand and acknowledge that the Company has no obligation to you to furnish information necessary to enable you to make sales under Rule 144. This Option may be exercised by delivering to the Company a written notice of election to 2 exercise, in the form attached, together with an amount equal to the Option Price of the Shares to be purchased at that time. The Option Price may be paid as follows: (a) in cash (including check, bank draft or money order); (b) provided that the Company shall have publicly issued shares of Common Stock pursuant to a Qualified Public Offering, (i) by delivering shares of Common Stock already owned by you and having a fair market value on the date of exercise equal to the Option Price or a combination of such shares and cash; or (ii) pursuant to a Cashless Exercise; or (c) by any other proper method specifically approved by the Board of Directors. This Option shall be governed and construed in accordance with the substantive laws of the State of Delaware. Kindly evidence your acceptance of this Option and your agreement to the provisions of this Option Agreement and the Plan by executing below under the words "Accepted and Agreed." Sincerely, G&G RETAIL HOLDINGS, INC. By: /s/ Scott Galin ----------------------- Scott Galin President ACCEPTED AND AGREED: /s/ Jay Galin - -------------------- Jay Galin 3 G&G Retail Holdings, Inc. 520 Eighth Avenue New York, NY 10018 Gentlemen: Notice is hereby given of my election to purchase ____________ shares (the "Stock") of Class A Common Stock of G&G Retail Holdings, Inc. (the "Company"), at a price of $______ per share, pursuant to the provisions of an option granted to me on March 15, 1999 under the Company's 1999 Stock Option Plan (the "Plan"). I am purchasing such shares for investment purposes only and not with a view to the sale or distribution thereof, unless such distribution is registered under the Securities Act of 1933, as amended. Enclosed in payment for the Stock is: /_____/ my check in the amount of $_____________. /_____/ _________ shares of the Company's Class A Common Stock (endorsed for transfer) having a total value of $__________, based on the Fair Market Value (as defined in Article XV of the Plan) of such shares. /_____/ subject to the provisions of the Plan, I have elected to pay for the Stock pursuant to a Cashless Exercise (as defined in Section 4 of Article IX of the Plan). The following information is supplied for use in issuing and registering the Stock: Number of Shares: __________________________ Print Name: __________________________ Address: __________________________ Social Security Number: __________________________ Dated: ____________________ Very truly yours, ____________________________ Jay Galin 4 EX-10.23 32 OPTION AGREEMENT 3/15/99 -- SCOTT GALIN EXHIBIT 10.23 OPTION AGREEMENT March 15, 1999 Mr. Scott Galin G&G Retail Holdings, Inc. 520 Eighth Avenue New York, NY 10018 Dear Scott: We are pleased to inform you that on March 15, 1999 the Board of Directors of G&G Retail Holdings, Inc. (the "Company") granted to you an option (the "Option") to purchase 2,500 shares (the "Shares") of Common Stock at a purchase price of $300.00 per share (the "Option Price"). This Option is subject to all of the terms and conditions of the Company's 1999 Stock Option Plan, as from time to time amended (the "Plan"), a copy of which is attached hereto, provided, however, that no future amendment or termination of the Plan may, without your consent, alter or impair any of your rights or obligations under this Option. Certain provisions of the Plan are summarized in this Option Agreement, but we suggest that you read the Plan for a complete understanding of the terms and conditions governing this Option. Capitalized terms used, but not defined, in this Option Agreement are defined in the Plan. This Option expires on March 14, 2009. This Option is not intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended. This Option becomes exercisable with respect to 25% of the Shares effective immediately as of the date of grant (March 15, 1999) and will become exercisable with respect to an additional 25% of the Shares on each of the three succeeding anniversary dates of the date of grant (March 15, 2000, March 15, 2001 and March 15, 2002). If prior to August 28, 2003 (a) you voluntarily terminate your Employment without Good Reason; or (b) the Company or a Subsidiary terminates your Employment for Cause, then this Option will terminate forthwith with respect to all Shares. If prior to March 15, 2003 (a) you voluntarily terminate your Employment with Good Reason; or (b) the Company or a Subsidiary terminates your Employment for reasons other than for Cause; or (c) your Employment terminates by reason of your death or Disability, then, in any such case and notwithstanding anything in this Option Agreement or in Sections 2 and 3 of Article XII of the Plan to the contrary, this Option shall immediately become exercisable with respect to 100% of the Shares and you (or in the case of death, your personal representative or the person or persons to whom your rights under this Option pass by will or by applicable laws of descent and distribution) 1 may exercise this Option at any time prior to March 14, 2009. If on or after March 15, 2003, your Employment terminates for any reason, then, notwithstanding anything in this Option Agreement or in Sections 2 and 3 of Article XII of the Plan to the contrary, you (or in the case of death, your personal representative or the person or persons to whom your rights under this Option pass by will or by applicable laws of descent and distribution) may exercise this Option with respect to 100% of the Shares at any time prior to March 14, 2009. As a condition to the grant of this Option, you covenant, warrant, represent and agree that unless the Shares are covered by an effective registration statement under the Act at the time of exercise, then the Shares will be acquired by you for investment and not for sale or distribution and, if the Company requests, you agree to execute and deliver to the Company a certificate to that effect at the time this Option is exercised. The Company will not be obligated to issue any Shares pursuant to the exercise of this Option if, in the opinion of counsel to the Company, the Shares to be so issued are required to be registered or otherwise qualified under the Act, or under any other state or Federal statute, regulation or ordinance affecting the sale of securities, until such shares have been so registered or otherwise qualified. You understand that under existing law, unless at the time this Option is exercised a registration statement under the Act is in effect as to the Shares, (i) the Shares purchased by you may be required to be held indefinitely unless such Shares are subsequently registered under the Act or an exemption from such registration is available; (ii) any sales of Shares made in reliance upon Rule 144 promulgated under the Act may be made only in accordance with the terms and conditions of that Rule (which, under certain circumstances, restricts the number of Shares which may be sold and the manner in which Shares may be sold); (iii) certificates for the Shares will bear a legend to the effect that such Shares have not been registered under the Act and may not be sold, hypothecated or otherwise transferred in the absence of an effective registration statement under the Act relating thereto or an opinion of counsel satisfactory to the Company that such registration is not required; (iv) the Company will place an appropriate "stop transfer" order with its transfer agent with respect to such Shares; and (v) the Company has undertaken no obligation to include the Shares in any registration statement which may be filed by it. In addition, you understand and acknowledge that the Company has no obligation to you to furnish information necessary to enable you to make sales under Rule 144. This Option may be exercised by delivering to the Company a written notice of election to exercise, in the form attached, together with an amount equal to the Option Price of the Shares to be purchased at that time. The Option Price may be paid as follows: (a) in cash (including check, bank draft or money order); (b) provided that the Company shall have publicly issued shares of Common Stock pursuant to a Qualified Public Offering, (i) by delivering shares of Common Stock already owned by you and having a fair market value on the date of exercise equal to the Option Price or a combination of such shares and cash; or (ii) pursuant to a Cashless Exercise; or (c) by any other proper method specifically approved by the Board of Directors. This Option shall be governed and construed in accordance with the substantive laws of the 2 State of Delaware. Kindly evidence your acceptance of this Option and your agreement to the provisions of this Option Agreement and the Plan by executing below under the words "Accepted and Agreed." Sincerely, G&G RETAIL HOLDINGS, INC. By: /s/ Jay Galin ----------------------------- Jay Galin Chairman of the Board and Chief Executive Officer ACCEPTED AND AGREED: /s/ Scott Galin - -------------------- Scott Galin 3 G&G Retail Holdings, Inc. 520 Eighth Avenue New York, NY 10018 Gentlemen: Notice is hereby given of my election to purchase ____________ shares (the "Stock") of Class A Common Stock of G&G Retail Holdings, Inc. (the "Company"), at a price of $______ per share, pursuant to the provisions of an option granted to me on March 15, 1999 under the Company's 1999 Stock Option Plan (the "Plan"). I am purchasing such shares for investment purposes only and not with a view to the sale or distribution thereof, unless such distribution is registered under the Securities Act of 1933, as amended. Enclosed in payment for the Stock is: /_____/ my check in the amount of $_____________. /_____/ _________ shares of the Company's Class A Common Stock (endorsed for transfer) having a total value of $__________, based on the Fair Market Value (as defined in Article XV of the Plan) of such shares. /_____/ subject to the provisions of the Plan, I have elected to pay for the Stock pursuant to a Cashless Exercise (as defined in Section 4 of Article IX of the Plan). The following information is supplied for use in issuing and registering the Stock: Number of Shares: __________________________ Print Name: __________________________ Address: __________________________ Social Security Number: __________________________ Dated: ____________________ Very truly yours, ___________________________ Scott Galin 4 EX-10.24 33 SERVICE AGMT 4/1/99 -- G & G RETAIL OF PUERTO RICO, INC. EXHIBIT 10.24 SERVICE AGREEMENT AGREEMENT made this 1st day of April, 1999, by and between G+G Retail, Inc., a Delaware corporation (the "Parent"), and G & G Retail of Puerto Rico, Inc., a Puerto Rico corporation (the "Subsidiary"). W I T N E S S E T H: WHEREAS, the Subsidiary is a wholly-owned subsidiary of the Parent; and WHEREAS, the Parent currently owns and operates 42 retail stores and may hereafter from time to time own and operate additional stores located in Puerto Rico (the "Stores"); and WHEREAS, the Parent desires to engage the Subsidiary to provide personnel and administrative services in connection with the Stores, and the Subsidiary is willing to accept such engagement, on the terms and conditions hereinafter set forth. NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto agree as follows: 1. The Parent hereby engages the Subsidiary to provide store personnel and otherwise administer the Parent's day to day business and the operation of the Parent's Stores, subject at all times to the direction and control of the Parent. In furtherance of its duties and responsibilities hereunder, the Subsidiary, through its officers and employees, shall be authorized: (i) to sell or offer for sale on behalf of the Parent in the Stores goods and merchandise supplied by the Parent for such purpose; (ii) to employ all employees, agents and contractors required to operate the Stores and to pay the salaries, wages or other compensation to such persons; (iii) to collect all payroll taxes and withholdings that may be levied or imposed upon Store employees and to remit such amounts to the proper authorities as required by applicable law; and (iv) to enter into, execute and deliver on behalf of the Parent any and all contracts, agreements or other instruments and to engage in any and all transactions which the Parent may deem necessary or appropriate to carry on the business of the Parent conducted at the Stores. 2. The Subsidiary hereby acknowledges that all of the assets located in or associated with the Stores, including, but not limited to, the inventory, store leases, leasehold improvements, furniture, fixtures and the proceeds from the sale of such inventory, are and shall remain the sole and 1 exclusive property of the Parent, and the Subsidiary shall have no rights therein or thereto. 3. The Subsidiary hereby agrees to collect and promptly deposit all proceeds from the sale of merchandise in the Stores into a bank account or accounts of the Parent or as otherwise directed by the Parent from time to time. 4. The Subsidiary hereby accepts such engagement and throughout the term of this Agreement shall provide the administrative and executive services of its officers as provided herein. 5. This Agreement shall commence as of the date hereof and shall remain in effect until the Parent, in its sole discretion, terminates this Agreement by written notice. 6. As the Subsidiary's sole compensation for the services provided hereunder, the Parent shall pay to the Subsidiary an amount equal to 100% of the actual costs incurred by the Subsidiary in connection with its performance of its obligations pursuant to this Agreement. 7. This Agreement constitutes the entire agreement of the parties hereto and no amendment or modifications hereof shall be valid or binding unless made in writing and signed by the party against whom enforcement thereof is sought. 8. This Agreement shall be governed by the laws of the State of New York. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns. IN WITNESS WHEREOF, this Agreement has been executed by Parent and Subsidiary as of the date first written above. G+G RETAIL, INC. By: /s/ Scott Galin ----------------------------- G & G RETAIL OF PUERTO RICO, INC. By: /s/ Michael Kaplan ----------------------------- 2 EX-10.25 34 MASTER LEASE PURCHASE AGREEMENT 5/4/99 EXHIBIT 10.25 Chase Equipment Leasing, Inc. Reference Number 00655200 -------- THIS MASTER LEASE PURCHASE AGREEMENT dated as of 5/4, 1999 (hereinafter referred to as "Lease") by and between Chase Equipment Leasing, Inc., a New York corporation, with a place of business located at One Chase Square, Rochester, NY 14643 (hereinafter referred to together with its assigns, if any, as "Lessor") and G+G Retail, Inc., a corporation organized and existing under the laws of the State of Delaware, with its mailing address and chief place of business at 520 Eighth Avenue, New York, NY 10018 (hereinafter referred to as "Lessee"). The Parties hereto for good and valuable consideration and intending to be legally bound hereby agree as follows: 1. PROCEDURE FOR LEASING: (a) SCHEDULES. Subject to the terms and conditions set forth herein, Lessor agrees to lease to Lessee and Lessee agrees to lease from Lessor such unit or units of equipment (the "Equipment" and individually sometimes "Item" or "Item of Equipment") described in any Master Lease Schedule (a "Schedule") from time to time executed by the parties pursuant hereto, and any and all such Schedules are deemed a part hereof. Each Schedule incorporates by reference this Lease and shall constitute, subject to Section 9 hereof, a separate lease. Capitalized terms not otherwise defined herein have the meaning provided for in any Schedule. (b) CONDITIONS PRECEDENT. The obligation of Lessor to purchase Equipment from the manufacturer or supplier thereof ("Supplier") and to lease the same to Lessee under any Schedule is subject to receipt by Lessor prior to the Commencement Date with respect to the Schedule of each of the following documents in form and substance satisfactory to Lessor: (i) a Schedule relating to the Equipment then being leased hereunder, (ii) a purchase order assignment, (iii) a Certificate of Acceptance and Closing Certificate, (iv) a certificate of insurance which complies with the requirements of Section 4(f) and the Schedule, and (v) a bill of sale transferring title to each Item to Lessor and such other documents and conditions as Lessor may reasonably require including Lessor's determination that there has been no material adverse change in the financial condition of Lessee or any Guarantor. Lessor hereby appoints Lessee its agent for inspection and acceptance of each Item from the Supplier. Upon execution by Lessee of the Certificate of Acceptance, each Item described therein will be deemed to have been delivered to, and irrevocably accepted by Lessee for lease hereunder. 2. TERM AND RENT: The lease of and rent for Equipment will commence on the day specified in the related Schedule as the Commencement Date, and will continue for the period specified as the "term" therein as the same may be extended pursuant to the terms hereof. Lessee promises to make each payment of rent during the term on the due dates and in the amounts set forth in each Schedule without notice or demand at Lessor's address set forth above or as otherwise directed by Lessor in writing and no payment of rent will be refunded for any cause or reason whatsoever. The parties hereto intend that the rents and other amounts payable by Lessee hereunder will continue to be payable in all events unless the obligation to pay same is terminated pursuant to the terms hereof. If any payment hereunder falls due on a day on which Lessor is not open for business, such payment shall be due and payable on the next preceding day on which Lessor is open for business. To secure all obligations of Lessee under each Schedule, Lessee hereby grants to Lessor a security interest in: (i) any security deposit or advance rent paid by Lessee hereunder, each of which shall be in all cases non-interest bearing; and (ii) all other funds, balances, accounts, proceeds of collateral and/or other property of any kind of Lessee or in which Lessee has an interest now or hereafter in the possession, custody, or control of Lessor or The Chase Manhattan Bank and any of its direct or indirect affiliates and subsidiaries, including without limitation Chase Securities, Inc.. 3. LATE CHARGE: If any rent or any other amount due hereunder from Lessee other than the amounts due under this Section 3 is not paid within five (5) days after the due date, Lessee agrees to pay a late charge equal to five percent (5%) on the amount of such delinquent rent or other payment, but not exceeding the maximum amount permissible under applicable law. The failure of Lessor to collect any late charge will not constitute a waiver of Lessor's right with respect thereto. Late charges will be due and payable on the due date for the next following payment of rent. 4. LESSEE REPRESENTATIONS AND COVENANTS: Lessee represents and warrants, and covenants and agrees, as follows and each such representation, warranty and covenant shall be deemed made and renewed as of the date hereof and as of the Commencement Date under each Schedule without the necessity of any further act or instrument: (a) GENERAL. (i) Lessee is duly organized and validly existing under the laws of the state indicated at the outset; this Lease and each Schedule and all instruments delivered in connection herewith and therewith have been duly authorized by all necessary action, and duly executed and delivered and constitute valid, legal and binding agreements, enforceable in accordance with their terms except to the extent limited by applicable bankruptcy and insolvency laws; and no such document nor Lessee's performance thereunder will conflict with Lessee's organizational documents or with any indenture, contract or agreement by which Lessee is bound or with any statute, judgment, decree, rule or regulation binding upon Lessee; (ii) no consent or approval of any trustee or holder of any indebtedness or obligation of Lessee, and no consent or approval of any governmental authority, is necessary for Lessee's execution or performance of this Lease; (iii) there is no litigation or other proceeding pending, or to the best of the Lessee's knowledge, threatened against or affecting Lessee which, if decided adversely to Lessee would adversely affect or impair the title of Lessor to the Equipment or which, if decided adversely to Lessee would materially adversely affect the business operations or financial condition of Lessee; (iv) all balance sheets, statements of profit and loss and other financial data that have delivered to Lessor with respect to Lessee are complete and correct in all material respects, fairly present the financial condition of the Lessee on the dates for which, and the results of its operations for the periods for which, the same have been furnished and have been prepared in accordance with generally accepted accounting principles consistently applied; (v) there has been no material adverse change in the condition of Lessee, financial or otherwise, since the date of the most recent financial statements delivered to Lessor and, (vi) any reprogramming required to permit the proper functioning in and following the year 2000, of (i) Lessee's computer systems and (ii) equipment containing embedded microchips (including systems and equipment supplied by others or with which Lessee's systems interface) and the testing of all such systems and equipment, as so reprogrammed, has been completed. The cost to Lessee of such reprogramming and testing and of the reasonably foreseeable consequences of year 2000 to Lessee (including, without limitation, reprogramming errors and the failure of others' systems or equipment) will not result in a default or Event of Default hereunder or a material adverse change in the condition of Lessee. Except for such of the reprogramming referred to in the preceding sentence as may be necessary, the computer and management information systems of Lessee and its Subsidiaries are and, with ordinary course upgrading and maintenance, will continue for the term of this Lease to be, sufficient to permit Lessee to conduct its business without any material adverse change in the condition of Lessee. (b) NO ABATEMENT. This is a net Lease and Lessee's promise to pay rent and all other amounts hereunder is irrevocable and independent and not subject to cancellation, termination, modification, repudiation, excuse or substitution without the written consent of Lessor. Lessee agrees to pay all such amounts when due by acceleration or otherwise without abatement, irrespective of any claims, demands, set-offs, actions, suits, or proceedings that it may have or assert against Lessor or any Supplier or manufacturer of Equipment. Lessor will have no liability to Lessee upon the failure of any Supplier, manufacturer or one or more others to perform any obligations at any time due to Lessor, Lessee or any other person and, in all such events, Lessee waives any right in any suit, action or proceeding to any exemplary, punitive or consequential damages whatsoever. 1 (c) LIENS AND ENCUMBRANCES. THE EQUIPMENT IS FREE AND CLEAR FROM ALL CLAIMS, LIENS AND ENCUMBRANCES WHATSOEVER; LESSEE WILL DEFEND THE EQUIPMENT AGAINST ALL LIENS AND WILL NOT SELL, ASSIGN, SUBLET, MORTGAGE, OR ALTER ANY OF THE EQUIPMENT LEASED HEREUNDER OR ANY INTEREST IN THIS LEASE, NOR WILL LESSEE REMOVE ANY OF THE EQUIPMENT FROM THE LOCATION SPECIFIED IN THE SCHEDULE WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, AND ANY ATTEMPT TO SO SELL, ASSIGN, SUBLET, MORTGAGE, HYPOTHECATE, ALTER OR REMOVE WILL CONSTITUTE A DEFAULT HEREUNDER AND SUCH SALE, ASSIGNMENT, SUBLEASE, MORTGAGE, OR HYPOTHECATION WILL BE VOID AND WITHOUT EFFECT. In order to secure all obligations of Lessee hereunder, Lessee assigns and grants to Lessor a security interest in all rights, powers and privileges under any sublease of the Equipment hereafter authorized in writing by Lessor. (d) USE AND OPERATION. Lessee will at all times use the Equipment only in compliance with applicable laws and consistent with the instructions supplied and use intended for such Equipment by the Supplier and manufacturer thereof. Lessee will not use the Equipment to carry, contain or produce directly or indirectly any hazardous substances as defined under applicable federal, state or local law or regulation. Lessee will not without the prior written consent of Lessor affix or install any accessory, equipment or device on any Equipment leased hereunder if such addition will impair the originally intended function or use of such Equipment. All additions, repairs, parts, supplies, accessories, equipment and devices furnished, attached or fixed to any Equipment will thereupon without further act or instrument become the property of Lessor (except such as may be removed without in any way affecting or impairing the originally intended function, condition or use of such Item). Further, Lessee will not, without the prior written consent of Lessor and subject to such conditions as Lessor may impose for its protection, affix to or install any Equipment in any other personal property or in real property. (e) SERVICE AND MAINTENANCE. Lessee will at its sole expense at all times maintain all Equipment in good operating order, repair, condition and appearance and keep all Equipment protected from the elements, except during use in the normally contemplated manner. At Lessor's request, Lessee will at its expense affix in a prominent position on each Item of Equipment plates, tags or other identifying labels showing ownership of the Equipment by Lessor. Lessor will at all reasonable times have the right to inspect the Equipment and Lessee's maintenance records related thereto. Lessee at its sole expense will make all alterations and modifications with respect to the Equipment that may at any time during the term of this Lease or any Schedule hereunder be required to comply with any applicable law or any governmental rule or regulation. (f) INSURANCE. Lessee hereby assumes all risks of damage, loss, theft, or destruction, partial or complete, with respect to each Item of Equipment during the term of the Lease and during any storage period until Lessee has returned or disposed of the Equipment as provided for herein. Lessee will at its own expense keep each Item of Equipment insured for an amount at least equal to the Lessor's Cost of the Equipment as set forth in the Schedule against all risks with extended coverage and insurance companies acceptable to Lessor with Lessor named as loss payee. Lessee agrees to obtain and maintain at its expense with Insurance companies acceptable to Lessor general public liability insurance naming Lessor as an additional insured together with Lessee, as their interests may appear, in no event less than One Million Dollars ($1,000,000) or such greater amount, if any, as specified in the related Schedule against claims for bodily injury, death or property damage arising out of the use, ownership, possession, operation or condition of the Equipment. Each Insurer will agree, by endorsement upon the policy or policies issued by it, or by independent instruments furnished to Lessor, that Lessor will have the power to file claims against the insurer under said policy, that it will give Lessor thirty (30) days written notice before the policy or policies in question will be altered, expired or canceled, and that no act or default of any person other than Lessor, its agents, or those claiming under Lessor, will affect Lessor's right to recover under such policy or policies in case of loss. Although any and all obligations imposed on the insured shall be obligations solely of Lessee, Lessee will deliver to Lessor the policies or evidence of insurance satisfactory to Lessor prior to the Commencement Date and thirty (30) days prior to each expiration date thereof for each Item of Equipment. The failure of Lessee to secure or maintain such Insurance will constitute a default under this Lease. In the event of such breach, Lessor may, but will not be obligated to, obtain such insurance. In the event that Lessor obtains such insurance, an amount equal to the cost of such insurance will be deemed supplemental rent to be paid forthwith by Lessee. In the event that any policies insuring against liability risks described above shall now or hereafter provide coverage on a "claims made" basis, Lessee shall continue to maintain such policies in effect for a period of not less than three years after the expiration of the Lease term of any Schedules. (g) DISPOSITION OF EQUIPMENT: Upon termination of any Schedule under the Lease by expiration of the term hereof, except as provided for in Section 9, Lessor will, upon satisfaction of all Lessee's obligations to Lessor with respect to any particular Item of Equipment and provided Lessee is not otherwise then in default hereunder or under any other Schedule, transfer title to such Item to Lessee. 5. TRANSFER OF WARRANTIES: To the extent permitted by law and contract, Lessor will pass through without representation to Lessee the benefit of all warranties, if any, of the Supplier of the Equipment and, so long as there is no default hereunder, Lessee will have the right to, and will, directly avail itself of all warranties by the Supplier with respect to the Equipment. Lessor will not take any action which prejudices Lessee's right to, or under the terms of, any such warranty. If subsequent to the Commencement Date Lessee shall determine that the Equipment is unsatisfactory for any reason including any failure of the Equipment to conform to the specifications set forth in any purchase order. Lessee shall make any claim on account thereof solely against the Supplier and Lessee will give Lessor notice of any such claim made by Lessee against any Supplier and any cash settlement of any such claim will be payable solely to Lessor. 6. LOSS OR DAMAGE: (a) Lessee hereby assumes and is solely responsible for the entire risk of use and operation of the Equipment and for each and every accident or hazard resulting therefrom and all losses and damages associated therewith howsoever arising. (b) In the event of total loss, destruction, theft, confiscation or damage beyond repair (determined without reference to the remaining term with respect thereto) to the Equipment or any Item (a "Casualty Occurrence"), Lessee will pay to Lessor on the next due date for rent following the Casualty Occurrence or on the last day of the term thereof, whichever first occurs, any unpaid rent due with respect to such Equipment plus an amount determined by application of the liquidated damage provision in the third paragraph of Section 9 hereof. Upon payment of such amounts, and provided no default exists hereunder, Lessee will be entitled to recover possession of such Item and title thereto will vest in Lessee free and clear of the right and interest of Lessor. (c) In the event of damage to any Item of Equipment which does not amount to a Casualty Occurrence, Lessee will give prompt notice of such damage to Lessor and at Lessee's sole cost and expense promptly repair such Item to its previous condition which assumes Lessee has met all of its obligations required for maintenance hereunder. Provided Lessee is not in breach or default of this Lease, any proceeds of insurance received by Lessor with respect to any such loss will be paid over by Lessor to Lessee to the extent necessary to reimburse Lessee for costs incurred and paid by Lessee in repairing such damaged Equipment, but only upon evidence satisfactory to Lessor that such repairs have been accomplished. 7. FIRST PRIORITY LIEN: Lessee represents and warrants to Lessor for each Schedule that upon the filing of the financing statements delivered to Lessor on or prior to the respective Commencement Date in the jurisdiction(s) where the Equipment is located as indicated in the related Schedule, then Lessor shall have a first prior perfected security interest in the Equipment free and clear of all other liens and encumbrances except the interest of Lessee hereunder. 8. INDEMNIFICATION: LESSEE ACKNOWLEDGES THAT IT ALONE SELECTS THE EQUIPMENT AND THE SUPPLIER(S) THEREOF. LESSEE UNDERSTANDS AND AGREES THAT LESSOR MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESSED OR IMPLIED, WITH RESPECT TO THE EQUIPMENT INCLUDING THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR FITNESS FOR ANY 2 PARTICULAR PURPOSE, AND, AS TO LESSOR, LESSEE LEASES THE EQUIPMENT AS IS. NO DEFECT OR UNFITNESS OF THE EQUIPMENT SHALL RELIEVE LESSEE OF THE OBLIGATION TO PAY RENT OR OF ANY OTHER OBLIGATION UNDER THIS LEASE. Accordingly, Lessee agrees to indemnify, save and keep harmless Lessor, its agents, employees, successors and assigns from and against any and all losses, damages, expenses (including legal expenses), penalties, injuries, claims, actions and suits of whatsoever kind and nature, in contract or tort, howsoever arising from any cause whatsoever including, but not limited to, Lessor's strict liability in tort, or otherwise arising out of (i) the selection, manufacture, purchase, financing, acceptance or rejection of Equipment, the ownership of Equipment during the term of the Lease, and the delivery, lease, possession, maintenance, uses, condition, return or operation of Equipment (including without limitation, latent and other defects, whether or not discoverable by Lessor or Lessee and any claim for patent, trademark or copyright infringement); or (ii) the condition of Equipment sold or disposed of after use by Lessee, any sublessee or employee of Lessee. Lessee will, upon request, at its expense, defend any and all actions based on, or arising out of, any of the foregoing. This indemnification shall survive the expiration or cancellation of the Lease. 9. DEFAULT; REMEDIES: Each of the following will constitute a default hereunder; (a) Lessee fails to pay rent within five (5) days from and after the date such payment of rent is due and payable or Lessee fails to pay any other amount when due under any Schedule; (b) Lessee fails to maintain the insurance required hereunder or breaches any other term, provision, obligation or covenant hereof (including without limitation any Schedule) or commits any other act of default specified in this Lease; (c) any representation or warranty of Lessee contained herein or in any other document or instrument delivered in connection herewith or made from time to time hereafter is false or misleading when made; (d) Lessee or any guarantor, surety, endorser or pledgor of property given to secure Lessee's obligations hereunder ("Guarantor") becomes insolvent, ceases to do business as a going concern, or transfers or sells all or substantially all of its assets without the prior written consent of Lessor; (e) the Equipment or any Item is abused, illegally used, or misused; (f) the death, dissolution, merger, consolidation or reorganization of Lessee or any Guarantor; (g) Lessee or any Guarantor makes any assignment for the benefit of creditors, or if a petition in bankruptcy, reorganization, insolvency, receivership or the like is filed with respect to Lessee or any Guarantor or property of Lessee or any Guarantor is attached or a receiver, trustee or liquidator is appointed for Lessee or any Guarantor or any of Lessee's or Guarantor's property or whenever Lessor may deem itself insecure hereunder; (h) the transfer of more than a 25% ownership interest in Lessee or any Guarantor by shareholders, partners, members or proprietors thereof in any year without Lessor's prior written consent, (i) Lessee or any Guarantor (x) incurs any accumulated funding deficiency within the meaning of the Employee Retirement Income Security Act of 1974, as amended from time to time and the regulations thereunder, equal to 5% of Lessee's consolidated tangible net worth (as defined by generally accepted accounting principles), or (y) incurs any liability of comparable size to the pension Benefit Guaranty Corporation, (j) Lessee or any material subsidiary or any Guarantor fails to comply with the provisions of the Fair Labor Standards Act of 1938, as amended, (k) Lessee or any Guarantor fails to pay or perform or observe any term, covenant, agreement or condition contained in, or there shall occur any payment or other default under or as defined in, any other agreement applicable to Lessee or any Guarantor or by which Lessee or any Guarantor is bound (as used herein, an "Other Agreement") involving a liability, indebtedness or performance obligation of Lessee or any Guarantor with potential liability to Lessee or any Guarantor in an amount equal to or in excess of $50,000, which shall not be remedied within the period of time (if any) within which such Other Agreement permits such default to be remedied, regardless of whether such default (i) is waived by any other party to such Other Agreement or (ii) produces or results in the cancellation of such Other Agreement or the acceleration of such liability, indebtedness or other obligation; (l) attachment, distraint, levy, execution or final judgment for the payment of money aggregating in excess of $50,000 will be outstanding against Lessee or its property for more than sixty (60) days from the date of entry and will not have been discharged in full or stayed or fully bonded; (m) Lessee or any Guarantor shall suffer the loss of any material license or franchise when Lessor shall reasonably conclude that such loss fairly impairs Lessee's or such Guarantor's ability to perform its obligations required hereunder or with respect hereto; or (n) Lessee or any Guarantor shall violate any financial covenant contained in any agreement for borrowed money applicable to Lessee or Guarantor as of the Commencement Date of any Schedule and all such financial covenants shall survive the satisfaction of debt applicable thereto and shall be deemed incorporated herein by reference and remain fully applicable to Lessee's obligations hereunder. Upon any such default, Lessor, at its option, may do any one or more of the following: (1) declare this Lease and any or all Schedules in default upon notice to Lessee, whereupon the entire amount of rent and all other amounts remaining to be paid over the balance of the term of all Equipment then leased thereunder, computed from the date of Lessee's default, will become immediately due and payable and be accelerated; (2) proceed by appropriate court action or actions to enforce Lessee's performance of this Lease and/or to recover damages for the breach thereof; (3) cancel this Lease and any or all Schedules upon notice to Lessee; (4) whether or not this Lease or any Schedules be so cancelled, and without notice to Lessee, repossess the Equipment wherever found, with or without legal process, and for this purpose Lessor and/or its agents may enter upon any premises of or under control or jurisdiction of Lessee or any agent of Lessee without liability for suit, action or other proceeding by Lessee (any damages occasioned by such repossession being hereby expressly waived by Lessee except for damages occasioned by gross negligence or willful misconduct) and remove the Equipment therefrom. Lessor's remedies as provided herein are not exclusive but are cumulative and in addition to all other remedies in Lessor's favor at law, in equity or in bankruptcy. The receipt and acceptance by Lessor of any rent or other payment after a default will not be deemed to be a waiver of such default by Lessor. Lessor shall not, by any act, delay, omission, or otherwise, be deemed to have waived any default or any of its rights or remedies hereunder unless such waiver be in writing, signed by the Lessor, and then only to the extent therein set forth. In the event that any court determines that any provision in this Lease is invalid or unenforceable in whole or in part, such determination will not prohibit Lessor from establishing its damages as a result of any breach of this Lease in any action in which Lessor seeks to recover such damages. Any repossession or resale of any Equipment will not bar an action for damages for breach of this Lease, and the bringing of an action or the entry of judgment against Lessee will not bar Lessor's right to repossess any or all Equipment. Upon cancellation of any Schedule upon default, Lessee will, at its sole cost and expense, cease using the Equipment for up to ninety (90) days while maintaining the insurance required above, and promptly return the Equipment to Lessor when directed to do so F.O.B. the destination specified by Lessor, in the same condition as received, reasonable wear and tear and normal depreciation excepted. Lessee shall pay on demand holdover rent equal to a full monthly rent for each month or any day thereof during which Lessee fails to return the Equipment when so directed by Lessor and this obligation is without limitation to any consequential damages for which Lessee may be responsible as a result of such failure to return the Equipment. With respect to any Equipment returned to Lessor, or repossessed by Lessor pursuant to provision (4) above, Lessor may hold or use such Equipment for any purpose whatsoever or either sell same at private or public sale, for cash or credit, or re-lease same for such term and upon such rental as will be solely determined by Lessor. In the event the Lessor is able to sell or re-lease all or any Equipment returned to Lessor then the proceeds of any sale or re-leasing of such Equipment, after first deducting therefrom all costs and expenses of repossession, storage, repairs, reconditioning, sale, re-leasing, attorneys' fees and collection fees with respect to such Equipment, shall be deducted from the damages for which Lessee is obligated hereunder. In the event of the sale or releasing by Lessor of any such Equipment after default hereunder or in the event of a Casualty Occurrence under Section 6 hereof, then Lessee will be liable for, and Lessor may forthwith recover from Lessee as liquidated damages for breach or termination of this Lease, and not as a penalty, an amount equal to the sum of (X) the entire amount of rent which would have accrued for the balance of the term for such Equipment computed from the date of Lessee's default or, in the case of a Casualty Occurrence, computed as of the rent payment date immediately preceding the date of the Casualty Occurrence discounted in each case as provided for hereinafter, plus (Y) any final payment due under the Schedule discounted as provided for hereinafter, less (Z) the proceeds, if any, of any sale or re-leasing of such Equipment, after first deducting therefrom all costs and expenses of repossession, storage, repairs, reconditioning, sale, re-leasing, attorneys' fees and collection fees with respect to such Equipment provided, however, the amount for which Lessee shall be obligated as liquidated damages 3 shall in no event be an amount less than 10% of Lessor's Cost. If Lessee fails to deliver any Equipment to Lessor or Lessor is unable, for any reason, to effect repossession of any Equipment, then with respect to such Equipment, Lessee will be liable for, and Lessor may forthwith recover from Lessee as liquidated damages for breach or termination of this Lease, and not as a penalty, an amount equal to the sum of the amounts specified in items (X) and (Y) above for such Equipment. Whether or not any Equipment is returned to, or repossessed by Lessor, as aforesaid, Lessee will also be liable for, and Lessor may forthwith recover from Lessee, all unpaid rent and other unpaid sums that accrued prior to the date of Lessee's default. In addition to the foregoing, Lessor may also recover from Lessee all costs and expenses, including without limitation fees of collection agencies and reasonable attorneys' fees, including the allocated costs and fees of Lessor's in-house legal counsel, incurred by Lessor in exercising any of its rights or remedies hereunder. Since pursuant to the foregoing Lessor may receive or recover payment of the amounts specified in clause (1) of the preceding paragraph or the amounts specified in items (X) and (Y) above earlier than Lessor would otherwise be entitled to receive or recover same but for Lessee's default, such amounts will be discounted to their then present value at the rate of six percent (6%) per annum, and there will be added to such amounts, after such discount, interest at the rate specified in Section 12 hereof from the date of Lessee's default up to the date of the payment of such amounts to Lessor. Lessee irrevocably consents to the in personam jurisdiction of the federal and/or state courts located in the State of New York over controversies arising from or relating to this Lease or any obligation with respect thereto and waives the right to impose any counterclaim or offset of any nature in any such litigation. Lessee irrevocably appoints each and every owner, partner, member and/or officer of Lessee as its attorney upon whom may be served by certified mail any process, notice or pleading in any action or proceeding against it under this Lease or related thereto. 10. ASSIGNMENTS: LESSOR MAY WITHOUT LESSEE'S CONSENT ASSIGN OR OTHERWISE TRANSFER OR GRANT A SECURITY INTEREST IN ITS RIGHT AND INTEREST IN ANY ITEM OR SCHEDULE AND THE RENT DUE OR TO BECOME DUE THEREUNDER AND WHEN SO ASSIGNED, TRANSFERRED OR ENCUMBERED, EACH SCHEDULE WILL BE FREE OF ANY COUNTERCLAIM, SET-OFF, DEFENSE, OR CROSSCLAIM BY LESSEE AS AGAINST LESSOR OR SUCH ASSIGNEE WHENEVER ARISING, BEFORE OR AFTER SUCH SALE, ASSIGNMENT, TRANSFER OR SECURITY GRANT BUT NO SUCH ACTION WILL INCREASE LESSEE'S OBLIGATIONS HEREUNDER, EXCEPT THAT UPON NOTICE TO LESSEE THEREOF, LESSEE AGREES TO DIRECT ALL PAYMENTS HEREUNDER, IF REQUESTED, TO LESSOR'S ASSIGNEE. Lessor may provide lease information on a confidential basis to any prospective purchaser, assignee or participant. 11. PAYMENT OF TAXES: Lessee agrees to pay promptly when due, and to Indemnify and hold Lessor harmless from, all license, title and registration fees whatsoever, all levies, imposts, duties, charges or withholdings whatsoever, and all sales, use, personal property, franchise (however calculated), and other taxes whatsoever (together with any penalties, fines or interest thereon) whether assessed, levied or imposed by any governmental or taxing authority against or upon Lessor or otherwise, with respect to any Equipment or the purchase, acquisition, ownership, delivery, leasing, possession, use, operation, control, return or other disposition thereof, or the rents, receipts or earnings arising therefrom, or with respect to this Lease, excluding, however, (i) any such taxes or charges to the extent they are included in Lessor's Cost, (ii) any federal taxes levied on Lessor's net income, or (iii) state or local taxes levied on Lessor's net income, as net income is determined under, and at rates which do not exceed those originally imposed by the jurisdiction in which the Equipment is located as specified in the related Schedule. In the event any such fees, levies, imposts, duties, charges or taxes are paid by Lessor, or if Lessor be required to collect or pay any thereof. Lessee will reimburse Lessor therefor (plus any penalties, fines or interest thereon) promptly upon demand. Until Lessor notifies Lessee to the contrary, Lessee will promptly before any penalty attaches, prepare and file in Lessor's name or on Lessor's behalf all personal property tax returns covering the Equipment and Lessee will pay the personal property taxes levied or assessed thereon directly to the levying authority. If Lessor timely notifies Lessee that Lessor will prepare and/or file any such return, Lessee will, promptly upon being invoiced by Lessor, reimburse Lessor for the full amount of such personal property taxes so paid by Lessor. If any capital adequacy requirements are imposed upon Lessor or its parent which require the maintenance of additional capital or impose additional expenses as a result of this Lease, and the effect of such requirements is to reduce Lessor's expected rate of return hereunder, Lessee shall pay to Lessor such amount or amounts as may be necessary to compensate Lessor for such reduction. The indemnification obligations of Lessee under this Section will continue in full force and effect notwithstanding the expiration or other cancellation hereof. Lessee will either provide Lessor a copy of all property and other tax returns filed hereunder by Lessee in Lessor's name or on Lessor's behalf or provide to Lessor an affidavit of a responsible corporate officer certifying that the property taxes so identified therein have been reported and are current. The amount which Lessee shall be required to pay Lessor with respect to any obligation which is subject to indemnification under this Section 11 shall be an amount sufficient to restore Lessor to the same position, after considering the effect of the receipt of such indemnification on its United States federal income taxes and state and city income taxes or franchise taxes based on net income, that it would have been in had such indemnification not been required hereunder. 12. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS: In case of failure of Lessee to comply with any provision of this Lease or any Schedule, Lessor will have the right, but will not be obligated, to effect such compliance in whole or in part, and all money spent by and expenses of Lessor will be paid by Lessee forthwith and will bear interest at the daily equivalent of eighteen percent (18%) per annum from the date said obligation was due. Lessor's action in effecting such compliance will not be a waiver of Lessee's default. All such money spent by and expenses of Lessor and any other obligation assumed or incurred by Lessor in effecting such compliance will constitute additional rent payable to Lessor with the next rent payment. 13. NOTICES: All notices required or permitted to be given hereunder will be in writing and will be deemed given and received three (3) days after first deposit in the United States mail if sent by registered or certified mail to the address of Lessor or Lessee stated herein or in any Schedule or to such other place as either party may in writing direct pursuant to this Section. Notice by hand delivery shall be deemed given and received upon delivery. Notice by overnight courier shall be deemed given and received on the date scheduled for delivery. 14. FINANCIAL INFORMATION AND REPORTING: (a) Lessee shall annually, within ninety (90) days after the close of Lessee's fiscal year, furnish to Lessor an audit report of financial statements of Lessee (including a balance sheet as of the close of such year and statements of income, changes in financial condition and shareholder's equity for such year) prepared in accordance with generally accepted accounting principles and certified by Lessee's independent public accountants. Lessee shall also provide quarterly financial statements of Lessee similarly prepared for each of the first three quarters of each fiscal year, which shall be certified (subject to normal year-end adjustments) by Lessee's chief financial officer and furnished to Lessor within forty-five (45) days following the end of the quarter. (b) Lessee will furnish Lessor with any and all information regarding Lessee's business, condition or operations, financial or otherwise, which Lessee furnishes to any other creditor. This information shall be furnished to Lessor at the same time it is furnished to such other creditor. (c) or Lessee will immediately furnish Lessor with such further information regarding Lessee's business, condition, property, assets or operations, financial otherwise, as Lessor may from time to time reasonably request, all prepared in form and detail reasonably satisfactory to Lessor. (d) Lessee will at all times maintain true and complete records and books of account including, without limiting the generality of the foregoing, appropriate reserves for possible losses and liabilities, all in accordance with generally accepted accounting principles consistently applied. 4 (e) Lessee shall permit, and cause any subsidiary to permit, representatives of Lessor to visit and inspect any of the properties of Lessee or any Subsidiary, to examine its or their corporate or partnership books and records, to make extracts or copies of such books and records, and to discuss its or their affairs, finances and accounts with its or their officers or partners, as applicable. The foregoing may be done at any time within regular business hours. (f) Lessee will promptly notify Lessor in writing of the commencement of any litigation to which Lessee or any of its subsidiaries or affiliates may be a party (except for litigation in which Lessee's (or the affiliate's) contingent liability is fully covered by insurance) which, if decided adversely to Lessee would adversely affect or impair the title of Lessor to the Equipment or which, if decided adversely to Lessee would materially adversely affect the business operations or financial condition of Lessee. In addition, Lessee will immediately notify Lessor, in writing, of any judgment against Lessee if such judgment would have the effect described in the preceding sentence. 15. ADDITIONAL DOCUMENTS: Lessee agrees to execute or obtain and deliver to Lessor at Lessor's request such additional documents as Lessor may reasonably deem necessary to protect Lessor's interest in the Equipment and this Lease including, without limitation, financing statements, and Lessee hereby authorizes Lessor to execute in Lessee's name as Lessee's attorney-in-fact any financing statements and amendments thereto necessary or appropriate to protect Lessor's interest hereunder. Lessee will pay, or reimburse Lessor on demand, for any filing fees or expenses incurred by Lessor in connection with any such additional documents. Lessee will obtain, at Lessee's sole expense, from each owner, landlord, mortgagee or other person having an encumbrance, lien or other interest on or in the premises in which the Equipment is or will be located, all necessary consents to the installation and use of the Equipment therein and the removal thereof in accordance with the terms of this Lease, together with waivers of claim with respect to the Equipment, and record the same when and where necessary. Lessee hereby designates Lessor its attorney-in-fact and authorizes and empowers Lessor to execute, endorse and complete in Lessee's name and on Lessee's behalf all instruments representing the proceeds of any security or insurance for the Lease or Equipment thereunder, all financing statements and other documents including Schedules and Riders and to insert thereon all dates, amounts and serial numbers as necessary or appropriate to provide to Lessor the benefits anticipated by any Schedule. 16. MISCELLANEOUS: The validity, construction and performance of this Lease and each Schedule will in all respects be governed by the laws of the State of New York without reference to conflict of law provisions. The Lease will not be binding on Lessor until executed by an authorized officer of Lessor. LESSOR AND LESSEE WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY LITIGATION ARISING HEREFROM OR RELATED HERETO. Any provision herein contained which may be illegal, unenforceable, or inconsistent with applicable law or any governmental rule or regulation will be deemed modified or altered to conform thereto, or otherwise omitted but shall in no way impair the legality or enforceability of the remaining Lease provisions. Lessee shall promptly pay (or reimburse, as Lessor may elect) all costs and expenses including reasonable attorneys' fees, including the allocated costs and fees of Lessor's in-house legal counsel, which Lessor has or may hereafter incur in connection with the negotiation and preparation of this Lease and any amendment, modification, consent or waiver hereunder. If more than one party executes this Lease as Lessee, each such party shall be jointly and severally bound by the terms and provisions of this Lease. Any person who signs as an officer or agent for a corporation, partnership or other entity warrants that he has authority from such corporation, partnership or other entity to enter into this Lease on its behalf. Each Item of Equipment delivered pursuant to this Lease to a subsidiary of Lessee or to any entity or person designated by Lessee, whether at the request of Lessee or such subsidiary, entity or person shall be Equipment for all purposes of this Lease, and Lessee shall be and remain primarily liable for the obligations under this Lease with respect to such Equipment. Lessor shall not be obligated to purchase and deliver any Item of Equipment unless Lessor has executed a Schedule covering the Equipment. 17. ENTIRE AGREEMENT: The Lease and any instrument referred to herein together with any Schedule(s), Attachment(s) or Rider(s) signed by the parties or delivered in connection herewith constitute the entire agreement of the parties with respect to the subject matter hereof and will collectively constitute the Lease with respect to an Item of Equipment and supersede all negotiations and prior written or oral agreement of the parties with respect thereto. No agent or employee of the Supplier is authorized to bind Lessor to the Lease, to waive or alter any term or condition herein or add any provision hereto. No modification of the Lease or waiver of any of its provisions or conditions will be valid unless in writing and signed by Lessor and Lessee. IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the date set forth above. Chase Equipment Leasing, Inc. (Lessor) G+G Retail, Inc. (Lessee) By: /s/ Janice Schawille By: /s/ Scott Galin ---------------------------- ---------------------------- Contract Administrator President and Chief Operating Officer 5 Master Lease Schedule --------------------- None. 6 EX-10.26 35 ADDENDUM TO MASTER LEASE PURCHASE AGREEMENT 5/4/99 EXHIBIT 10.26 Chase Equipment Leasing, Inc. Addendum To Master Lease Purchase Agreement dated 5/4/99 (as indicated above, hereinafter the "Lease") Chase Equipment Leasing, Inc. One Chase Square Rochester, NY 14643 This Addendum is incorporated by reference into the above referenced Lease as if set forth at length and Lessee and Lessor confirm all the terms and provisions thereof except as specifically set forth herein to the contrary. The Lease shall be amended as follows: 1. Section 2. TERM AND RENT: Delete part (ii) in its entirety. 2. Section 4. LESSEE REPRESENTATIONS AND COVENANTS: Part (c) LIENS AND ENCUMBRANCES, is rewritten in its entirety as follows: THE EQUIPMENT IS FREE AND CLEAR FROM ALL CLAIMS, LIENS AND ENCUMBRANCES WHATSOEVER ON THE PART OF LESSEE (I.E. OTHER THAN AS A RESULT OF LESSOR'S ACTIONS OR IN FAVOR OF LESSOR); LESSEE WILL DEFEND THE EQUIPMENT AGAINST ALL LIENS (OTHER THAT LIENS IMPOSED BY REASON OF LESSOR'S ACTIONS) AND WILL NOT SELL, ASSIGN, SUBLET, MORTGAGE, OR ALTER ANY OF THE EQUIPMENT LEASED HEREUNDER OR ANY INTEREST IN THIS LEASE, AND ANY ATTEMPT TO SO SELL, ASSIGN, SUBLET, MORTGAGE, HYPOTHECATE OR ALTER WILL CONSTITUTE A DEFAULT HEREUNDER AND SUCH SALE, ASSIGNMENT, SUBLEASE, MORTGAGE OR HYPOTHECATION WILL BE VOID AND WITHOUT EFFECT. FURTHERMORE, LESSEE MAY, FROM TIME TO TIME, REMOVE ANY OF THE EQUIPMENT FROM THE LOCATION SPECIFIED IN THE SCHEDULE WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR PROVIDED, HOWEVER, IN NO EVENT SHALL MORE THAT FIFTEEN PERCENT (15%) OF THE AGGREGATE VALUE OF THE EQUIPMENT BE LOCATED IN PUERTO RICO AT ANY ONE TIME. In order to secure all obligations of Lessee hereunder, Lessee assigns and grants to Lessor a security interest in all rights, powers and privileges under any sublease of the Equipment hereafter authorized in writing by Lessor. Part (d) USE AND OPERATION. The last sentence, beginning with "Further, Lessee will not," and ending with "in real property," is deleted in its entirety. 3. Section 6. LOSS OR DAMAGE: Part (c) At the beginning of the first sentence, after "In the event of", insert the word "material". In the same sentence, replace "Item of Equipment" with material Item or Items of Equipment. 4. Section 8. INDEMNIFICATION: At the end of the fourth sentence, insert the word "reasonable" before "losses". In the same sentence, in the parenthesis, insert the word "reasonable" before "legal expenses". 5. Section 9. DEFAULT; REMEDIES: In the first paragraph, part (a), change five (5) days to fifteen (15) days. In part (c), after the word "misleading", insert "in any material respect". In part (e), delete "or any item" and substitute "or any material portion of the Equipment". Part (f) is rewritten in its entirety as follows: Lessee or any Guarantor shall liquidate, dissolve, reorganize, merge into or with, or consolidate with any other person, or purchase or otherwise acquire all or substantially all of the assets of any other person or of any division thereof (each such liquidation, dissolution, merger, consolidation, or acquisition being herein called a " "Transaction") unless:(a) the surviving or acquiring person (the "Surviving Corporation") is the Lessee and, if the Surviving Corporation is not the Lessee, then the Surviving Corporation (x) is a corporation organized and existing under the laws of the United States of America or any state thereof, substantially all of the assets of which are located in the United States of America and (y) expressly assumes, by an instrument in writing satisfactory to the Lessor, in its reasonable determination, the obligations of the Lessee under this Agreement; (b) none of the assets of the Lessee (other than assets, which may not include any of the Equipment, representing the consideration delivered for any person acquired by the Surviving Corporation in such Transaction) are transferred to a person other than the Surviving Corporation; (c) no default has occurred hereunder and is continuing or would result therefrom; and (d) in Lessor's reasonable but exclusive discretion, there has been no material adverse change in financial condition of the Surviving Corporation as compared to the financial condition of the Lessee prior to the Transaction; In part (g), at the end of the sentence, after the word "property", insert "(and in the case where such filing is involuntary, the resulting proceeding shall not have been dismissed within sixty (60) days)" and delete in its entirety the phrase "or whenever Lessor may deem itself insecure hereunder". Part (h) is rewritten in its entirety as follows: the transfer of more than 25% ownership interest in Lessee or any Guarantor by Shareholders, partners, members or proprietors thereof in any year without Lessor's written consent; provided, however, this subsection shall not apply to (x) such a transfer to any existing shareholder, partner, member or proprietor or affiliate thereof or to an immediate family member of such person or (y) a completed distribution in a "public offering" (as that term is defined in the federal and applicable state securities laws) of the securities issued by Lessee or any Guarantor and any public trading of such securities subsequent to such public offering; At the end of part (i), after "as amended" add "and such failure results in a material adverse affect on the condition of Lessee or any material subsidiary or any Guarantor, financial or otherwise" In Part (k), in the second line, after "any other agreement", insert "with respect to indebtedness for borrowed money". Also, in this part, change $50,000 to $500,000. In part (j), change $50,000 to $500,000. Part (n) is rewritten in its entirety as follows: Lessee or any Guarantor shall violate any financial covenant contained in any agreement for borrowed money in excess of $500,000, applicable to Lessee or Guarantor as of the Commencement Date of any Schedule [and such default is not waived by any other party to such agreement:] and all such financial covenants contained in any agreement with The Chase Manhattan Bank shall survive the satisfaction of debt applicable thereto and shall be deemed incorporated herein by reference and remain fully applicable to Lessee's obligations hereunder. In the second paragraph, part (4), after the word "cancelled", replace "and without notice to Lessee" with "provided such claimed default is not remedied within the specified cure period set forth herein, and with 2 prior notice to Lessee". Insert a new paragraph at the end of the second paragraph to read as follows: "Notwithstanding anything to the contrary in the preceding paragraph, in no event shall Lessee be deemed in default under (b), (i), (j), (m), or (n) unless and until it shall have received fifteen days' notice to cure any claimed default as specified, delivered in writing by (i) overnight courier or (ii) confirmed receipt of fax to Lessee. The fifteen day period shall commence from the date of the delivery of the notice of default. In the third paragraph, the second to the last sentence, after the word "counterclaim", insert "(other than any compulsory counterclaim)". The last sentence beginning with "Lessee irrevocably appoints" and ending with "under this Lease or related thereto" is deleted in its entirety. 6. Section 14. FINANCIAL INFORMATION AND REPORTING: Part (b) is rewritten in its entirety as follows: Lessee will furnish Lessor with any and all information regarding Lessee's business, condition or operations, financial or otherwise as Lessor may reasonably request from time to time. Lessee will also furnish to Lessor any public filings Lessor may submit in the process of becoming, or as, a public company. Part (e), in the last sentence, after "at any time", insert "upon reasonable notice". 7. Section 16. MISCELLANEOUS: In the sixth (6th) line, insert "reasonable" between "all" and "costs". At the end of this section, insert a new paragraph as follows: "Notwithstanding anything to the contrary herein, in any litigation involving a dispute hereunder, the successful party shall be entitled to reimbursement of its reasonable costs and attorneys fees incurred in connection with such litigation". Except as expressly modified hereby, all terms and provisions of the Lease shall remain in full force and effect. The parties hereto have caused their duly authorized officers to execute this Rider on the dates set forth below and, unless otherwise specifically provided herein, this Rider shall operate to amend the Lease only as it is incorporated by reference into Schedules executed on or after the dates set forth below and not otherwise. Chase Equipment Leasing, Inc. G+G Retail, Inc. (Lessor) (Lessee) By: /s/ Janice Schawille By: /s/ Scott Galin ---------------------- ------------------ Title: Contract Admin. Title: President and Chief ------------------- Operating Officer -------------------- Dated: 5/6/99 Dated: 5/4/99 --------------------------- -------------------------- 3 EX-12.01 36 STATEMENT RE: RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.01 G+G Retail, Inc. Ratio of Earnings to Fixed Charges
February 1, August 29, Pro Fiscal Year 1998 1998 Forma ------------------------------- To August 28, To January 30, Fiscal 1995 1996 1997 1998 1998 1999 1999 ------------------------------------------------------------------------ Fixed Charges Interest expense - - - - - 7,520 13,919 Rent expense included in fixed charges 6,942 6,849 6,771 7,052 4,279 3,359 7,639 ------------------------------------------------------------------------ Total Fixed Charges 6,942 6,849 6,771 7,052 4,279 10,879 21,558 ------------------------------------------------------------------------ Earnings Income before provision for (benefit from) income taxes (2,691) 1,045 18,516 24,982 4,592 3,594 3,011 Plus: fixed charges 6,942 6,849 6,771 7,052 4,279 10,879 21,558 ------------------------------------------------------------------------ Total Earnings 4,251 7,894 25,287 32,034 8,871 14,473 24,569 ------------------------------------------------------------------------ Ratio of earnings to fixed charges (A) 1.2x 3.7x 4.5x 2.1x 1.3x 1.1x First Quarter ------------------------------- Pro Forma Fiscal Fiscal Fiscal 1999 2000 2000 ------------------------------- Fixed Charges Interest expense - 3,277 3,309 Rent expense included in fixed charges 1,879 2,035 2,035 ------------------------------- Total Fixed Charges 1,879 5,312 5,344 ------------------------------- Earnings Income before provision for (benefit from) income taxes 3,241 (710) (742) Plus: fixed charges 1,879 5,312 5,344 ------------------------------- Total Earnings 5,120 4,602 4,602 ------------------------------- Ratio of earnings to fixed charges 2.7x (A) (A)
(A) Earnings were insufficient to cover fixed charges by approximately $2.7 million, $710,000 and $742,000 respectively in fiscal 1995, the first quarter of fiscal 2000 and pro forma first quarter of fiscal 2000. EX-21.01 37 SUBSIDIARIES OF G+G RETAIL, INC. EXHIBIT 21.01 SUBSIDIARIES OF G+G RETAIL, INC. Subsidiaries Jurisdiction of Incorporation D/B/A Names ------------ ----------------------------- ----------- G & G Retail of Puerto Rico, Inc. Puerto Rico None EX-23.01 38 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.01 Consent of Independent Auditors We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated April 14, 1999, in the Registration Statement on Form S-4 and related Prospectus of G+G Retail, Inc. for the registration of $107 million of 11% Senior Notes due 2006. /s/ Ernst & Young LLP MetroPark, New Jersey June 16, 1999 EX-25.01 39 FORM T-1 (STATEMENT OF ELIGIBILITY OF TRUSTEE) EXHIBIT 25.01 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ---------------------- FORM T - 1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ---------------------- CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305 (b) (2) _________ U.S. BANK TRUST NATIONAL ASSOCIATION (Exact name of trustee as specified in its charter) 13-3781471 (I. R. S. Employer Identification No.) 100 Wall Street, New York, NY 10005 (Address of principal executive offices) (Zip Code) ---------------------- For Information, contact: Dennis Calabrese, President U.S. Bank Trust National Association 100 Wall Street, 16th Floor New York, NY 10005 Telephone: (212) 361-2506 G + G Retail, Inc. (Exact name of obligor as specified in its charter) Delaware 22-3596083 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 520 Eighth Avenue 10018 New York, New York (Address of principal executive offices) (Zip Code) ------------------- DEBT SECURITIES Item 1. General Information. Furnish the following information as to the trustee -- (a) Name and address of each examining or supervising authority to which it is subject. Name Address ---- ------- Comptroller of the Currency Washington, D. C. (b) Whether it is authorized to exercise corporate trust powers. Yes. Item 2. Affiliations with the Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. Item 16. List of Exhibits. Exhibit 1. Articles of Association of U.S. Bank Trust National Association, incorporated herein by reference to Exhibit 1 of Form T-1, Registration No. 333- 51961. Exhibit 2. Certificate of Authority to Commence Business for First Trust of New York, National Association now known as U.S. Bank Trust National Association, incorporated herein by reference to Exhibit 2 of Form T-1, Registration No. 33-83774. Exhibit 3. Authorization to exercise corporate trust powers for U.S. Bank Trust National Association, incorporated herein by reference to Exhibit 3 of Form T-1, Registration No. 333-51961. Exhibit 4. By-Laws of U.S. Bank Trust National Association, incorporated herein by reference to Exhibit 4 of Form T- 1, Registration No. 333-51961. Exhibit 5. Not applicable. Exhibit 6. Consent of First Trust of New York, National Association now known as U.S. Bank Trust National Association, required by Section 321(b) of the Act, incorporated herein by reference to Exhibit 6 of Form T-1, Registration No. 33-83774. 2 Exhibit 7. Report of Condition of U.S. Bank Trust National Association, as of the close of business on March 31, 1999, published pursuant to law or the requirements of its supervising or examining authority. Exhibit 8. Not applicable. Exhibit 9. Not applicable. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, U.S. Bank Trust National Association, a national banking association organized and existing under the laws of the United States, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 22nd day of June, 1999. U.S. BANK TRUST NATIONAL ASSOCIATION By: /s/ Glenn W. Andersen ----------------------------- Glenn W. Andersen Vice President 3 Exhibit 7 --------- U.S. Bank Trust National Association Statement of Financial Condition As of 3/31/99 ($000'S)
3/31/99 ----------- Assets Cash and Due From Depository Institutions $ 44,844 Federal Reserve Stock 3,378 Fixed Assets 481 Intangible Assets 66,457 Other Assets 6,336 ----------- Total Assets $121,496 Liabilities Other Liabilities $ 9,247 ----------- Total Liabilities $ 9,247 Equity Common and Preferred Stock $ 1,000 Surplus 120,932 Undivided Profits (9,683) ----------- Total Equity Capital $112,249 Total Liabilities and Equity Capital $121,496
To the best of the undersigned's determination, as of this date the above financial information is true and correct. U.S. Bank Trust National Association By:/s/ Glenn W. Andersen --------------------- Vice President Date: June 22, 1999 4 EX-27.01 40 FINANCIAL DATA SCHEDULE
5 1,000 5-MOS JAN-30-1999 AUG-29-1998 JAN-30-1999 13,129 0 718 0 12,578 27,864 22,560 0 167,664 25,823 90,000 0 0 0 51,841 167,664 131,567 131,567 79,267 36,170 5,141 0 7,520 3,594 1,581 0 0 0 0 2,013 0 0
EX-27.02 41 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS JAN-29-2000 JAN-31-1999 MAY-01-1999 5,332 0 452 0 21,897 31,579 23,590 0 171,650 30,206 90,000 0 0 0 51,444 171,650 72,733 72,733 46,374 20,728 3,173 0 3,277 (710) (313) 0 0 0 0 (397) 0 0
EX-99.01 42 FORM OF LETTER OF TRANSMITTAL EXHIBIT 99.01 LETTER OF TRANSMITTAL G+G RETAIL, INC. Offer to Exchange All Outstanding 11% Senior Notes due 2006 for 11% Senior Notes due 2006 which have been Registered under the Securities Act of 1933 Pursuant to the Prospectus, dated , 1999 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M. , NEW YORK CITY TIME, ON , 1999 (THE "EXPIRATION DATE") UNLESS EXTENDED. This Letter of Transmittal and any other required documentation may be delivered to the addresses as set forth below, except where facsimile transmission is specifically authorized (e.g., Notices of Guaranteed Delivery). The Exchange Agent is: U.S. Bank Trust National Association By Hand Delivery: By Registered or Certified Mail: U.S. Bank Trust National Association U.S. Bank Trust National Association Fourth Floor--Bond Drop Window P.O. Box 64485 180 East 5th Street St. Paul, Minnesota 55164-9549 St. Paul, Minnesota 55101 Attn: Specialized Finance Attn: Specialized Finance By Overnight Courier: By Facsimile: U.S. Bank Trust National Association U.S. Bank Trust National Association Fourth Floor--Bond Drop Window (651) 244-1537 180 East 5th Street St. Paul, Minnesota 55101 Confirm by Telephone: Attn: Specialized Finance (651) 244-4512 Delivery of this Letter of Transmittal to an address other than as set forth above or transmission via facsimile to a number other than as set forth above will not constitute a valid delivery. The undersigned acknowledges receipt of the Prospectus dated , 1999 (the "Prospectus") of G+G Retail, Inc. (the "Company") and this Letter of Transmittal, which together describe the Company's offer (the "Exchange Offer") to exchange its 11% Senior Notes due 2006, which have been registered under the Securities Act of 1933, as amended (the "Securities Act") (the "Exchange Notes") for each of its outstanding 11% Senior Notes due 2006 (the "Outstanding Notes" and, together with the Exchange Notes, the "Notes") from the holders thereof. The terms of the Exchange Notes are identical in all material respects (including principal amount, interest rate and maturity) to the terms of the Outstanding Notes for which they may be exchanged pursuant to the Exchange Offer, except that the Exchange Notes are freely transferable by holders thereof (except as provided herein or in the Prospectus). Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Prospectus. The Registration Statement on Form S-4 (File No. 333- ) which includes the Prospectus was declared effective by the Securities and Exchange Commission on , 1999. YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT. 1 The undersigned has completed the appropriate boxes below and signed this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY BEFORE COMPLETING ANY BOXES BELOW. List below the Outstanding Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, the certificate numbers and aggregate principal amounts should be listed on a separate signed schedule affixed hereto. DESCRIPTION OF OUTSTANDING NOTES TENDERED
Certificate Aggregate Principal Number(s) Principal Amount of of Outstanding Amount of Outstanding Name(s) and Address(es) of Registered Notes Outstanding Notes Holder(s) (Please fill in) Tendered* Notes* Tendered** - ------------------------------------------------------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- Total
* Need not be completed by book-entry holders. ** Unless otherwise indicated in this column, the holder will be deemed to have tendered the full aggregate principal amount of such holder's Outstanding Notes. See Instruction 2. Holders of Outstanding Notes whose Outstanding Notes are not immediately available or who cannot deliver all other required documents to the Exchange Agent on or prior to the Expiration Date or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Outstanding Notes according to the guaranteed delivery procedures set forth in the Prospectus. 2 Unless the context otherwise requires, the term "holder" for purposes of this Letter of Transmittal means any person in whose name Outstanding Notes are registered or any other person who has obtained a properly completed bond power from the registered holder or any person whose Outstanding Notes are held of record by The Depository Trust Company ("DTC"). [_]CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) ____________________________________________ Name of Eligible Institution that Guaranteed Delivery ______________________ Date of Execution of Notice of Guaranteed Delivery _________________________ If Delivered by Book-Entry Transfer: Name of Tendering Institution ______________________________________________ Account Number _____________________________________________________________ Transaction Code Number ____________________________________________________ [_]CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO A PERSON OTHER THAN THE PERSON SIGNING THIS LETTER OF TRANSMITTAL: Name _______________________________________________________________________ Address ____________________________________________________________________ [_]CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO AN ADDRESS DIFFERENT FROM THAT LISTED ELSEWHERE IN THIS LETTER OF TRANSMITTAL: Name _______________________________________________________________________ Address ____________________________________________________________________ [_]CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED OUTSTANDING NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name _______________________________________________________________________ Address ____________________________________________________________________ You are entitled to as many copies of the Prospectus, and any amendments or supplements thereto, as you may reasonably request. If you need more than 10 copies, please so indicate by a notation on this page. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY 3 Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the principal amount of the Outstanding Notes indicated above. Subject to, and effective upon, the acceptance for exchange of all or any portion of the Outstanding Notes tendered herewith in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby exchanges, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Outstanding Notes. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as its true and lawful agent and attorney-in-fact of the undersigned (such power of attorney being deemed to be an irrevocable power coupled with an interest) (with full knowledge that the Exchange Agent also acts as the agent of the Company, in connection with the Exchange Offer) to cause the Outstanding Notes to be assigned, transferred and exchanged. The undersigned represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Outstanding Notes and to acquire Exchange Notes issuable upon the exchange of such tendered Outstanding Notes, and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title to the tendered Outstanding Notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned also warrants that it will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of the tendered Outstanding Notes or transfer ownership of such Outstanding Notes on the account books maintained by the book-entry transfer facility. The undersigned further agrees that acceptance of any and all validly tendered Outstanding Notes by the Company and the issuance of Exchange Notes in exchange therefor shall constitute performance in full by the Company of its obligations under the A/B Exchange Registration Rights Agreement, dated May 17, 1999, among the Company, U.S. Bancorp Investments, Inc. and CIBC World Markets Corp. (the "Registration Rights Agreement"), and that the Company shall have no further obligations or liabilities thereunder except as provided in Section 4(a) of such agreement. The undersigned will comply with its obligations under the Registration Rights Agreement. The undersigned has read and agrees to all terms of the Exchange Offer. The Exchange Offer is subject to certain conditions as set forth in the Prospectus under the caption "The Exchange Offer--Certain Conditions to the Exchange Offer." The undersigned recognizes that as a result of these conditions (which may be waived, in whole or in part, by the Company), as more particularly set forth in the Prospectus, the Company will not be required to exchange any of the Outstanding Notes tendered hereby and the Company may terminate the Exchange Offer before accepting any Outstanding Notes for exchange. In such event, the Outstanding Notes not exchanged will be returned to the undersigned at the address shown above, promptly following the expiration or termination of the Exchange Offer. In addition, the Company may extend the period of time during which the Exchange Offer is open and may amend the Exchange Offer at any time prior to the Expiration Date if any of the conditions set forth under "The Exchange Offer--Certain Conditions to the Exchange Offer" occur. 4 The undersigned understands that tenders of Outstanding Notes pursuant to any one of the procedures described in the Prospectus and in the instructions attached hereto will, upon the Company's acceptance for exchange of such tendered Outstanding Notes, constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under circumstances set forth in the Prospectus, the Company may not be required to accept for exchange any of the Outstanding Notes. By tendering shares of Outstanding Notes and executing this Letter of Transmittal, the undersigned represents that (i) Exchange Notes acquired in the Exchange Offer will be obtained in the ordinary course of business of the undersigned, (ii) the undersigned has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of such Exchange Notes, (iii) the undersigned is not an "affiliate" of the Company within the meaning of Rule 144 under the Securities Act and (iv) if the undersigned or the person receiving such Exchange Notes, whether or not such person is the undersigned, is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned or the person receiving such Exchange Notes, whether or not such person is the undersigned, is a broker-dealer that will receive Exchange Notes for its own account in exchange for Outstanding Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. A broker-dealer may not participate in the Exchange Offer with respect to Outstanding Notes acquired other than as a result of market-making activities or other trading activities. Any holder of Outstanding Notes using the Exchange Offer to participate in a distribution of the Exchange Notes and any holder of Outstanding Notes who is an "affiliate" of the Company (i) cannot rely on the position of the staff of the Securities and Exchange Commission enunciated in its interpretive letters with respect to Morgan Stanley and Co., Inc., Exxon Capital Holdings Corporation or similar interpretive letters and (ii) must comply with the registration and prospectus requirements of the Securities Act in connection with a secondary resale transaction and such secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Tendered Outstanding Notes may be withdrawn at any time prior to the Expiration Date in accordance with the terms of this Letter of Transmittal. Except as stated in the Prospectus, this tender is irrevocable. Certificates for all Exchange Notes delivered in exchange for tendered Outstanding Notes and any Outstanding Notes delivered herewith but not exchanged, and registered in the name of the undersigned, shall be delivered to the undersigned at the address shown below the signature of the undersigned. 5 The undersigned, by completing the box entitled "Description of Outstanding Notes Tendered" above and signing this letter, will be deemed to have tendered the Outstanding Notes as set forth in such box. TENDERING HOLDER(S) SIGN HERE (Complete accompanying substitute Form W-9 or obtain and complete a Form W-8, as applicable) Must be signed by registered holder(s) exactly as name(s) appear(s) on certificate(s) for Outstanding Notes hereby tendered or in whose name(s) Outstanding Notes are registered on the books of DTC or one of its participants, or by any person(s) authorized to become the registered holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth the full title of such person. See Instruction 3. Signature(s) of Holder(s) ______________________________________________________ Date ___________________________________________________________________________ Name(s) ________________________________________________________________________ (Please Print) Capacity (full title) __________________________________________________________ Address ________________________________________________________________________ ____________________________________________________________________________ (Including Zip Code) Daytime Area Code and Telephone No. ____________________________________________ Taxpayer Identification No. ____________________________________________________ GUARANTEE OF SIGNATURE(S) (If Required -- See Instruction 3) Authorized Signature ___________________________________________________________ Dated __________________________________________________________________________ Name ___________________________________________________________________________ Title __________________________________________________________________________ Name of Firm ___________________________________________________________________ Address ________________________________________________________________________ ________________________________________________________________________________ (Including Zip Code) Area Code and Telephone No. ____________________________________________________ 6 SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (See Instructions 3 and 4) (See Instructions 3 and 4) To be completed ONLY if Exchange To be completed ONLY if Exchange Notes or Outstanding Notes not Notes or Outstanding Notes not tendered are to be issued in the tendered are to be sent to someone name of someone other than the other than the person(s) signing person(s) signing this Letter of this Letter of Transmittal whose Transmittal whose name(s) name(s) appear(s) above, or such appear(s) above. person(s) signing this Letter of Transmittal at an address other than that shown above. Issue [_] Outstanding Notes not tendered to: Mail [_] Exchange Notes to: [_] Outstanding Notes not tendered to: Name(s) ___________________________ [_] Exchange Notes to: (Please Print) Name(s) ___________________________ Address ___________________________ ___________________________________ (Please Print) (Including Zip Code) Address ___________________________ Daytime Area Code and Telephone ___________________________________ No. _______________________________ (Including Zip Code) Taxpayer Identification No. _______ Area Code and Telephone No. _______ 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. Delivery of this Letter of Transmittal and Certificates; Guaranteed Delivery Procedures. A holder of Outstanding Notes may tender the same by (i) properly completing and signing this Letter of Transmittal or a facsimile hereof (all references in the Prospectus to the Letter of Transmittal shall be deemed to include a facsimile thereof) and mailing or delivering the same, together with the certificate or certificates, if applicable, representing the Outstanding Notes being tendered and any required signature guarantees and any other documents required by this Letter of Transmittal, to the Exchange Agent at its address set forth above on or prior to the Expiration Date, or (ii) complying with the procedure for book-entry transfer described below, or (iii) complying with the guaranteed delivery procedures described below. Holders of Outstanding Notes may tender Outstanding Notes by book-entry transfer by crediting the Outstanding Notes to the Exchange Agent's account at DTC in accordance with DTC's Automated Tender Offer Program ("ATOP") and by complying with applicable ATOP procedures with respect to the Exchange Offer. DTC participants that are accepting the Exchange Offer should transmit their acceptance to DTC, which will edit and verify the acceptance and execute a book-entry delivery to the Exchange Agent's account at DTC. DTC will then send a computer-generated message (an "Agent's Message") to the Exchange Agent for its acceptance in which the holder of the Outstanding Notes acknowledges and agrees to be bound by the terms of, and makes the representations and warranties contained in, this Letter of Transmittal, and the DTC participant confirms on behalf of itself and the beneficial owners of such Outstanding Notes all provisions of this Letter of Transmittal (including any representations and warranties) applicable to it and such beneficial owner as fully as if it had completed the information required herein and executed and transmitted this Letter of Transmittal to the Exchange Agent. Delivery of the Agent's Message by DTC will satisfy the terms of the Exchange Offer as to execution and delivery of a Letter of Transmittal by the participant identified in the Agent's Message. DTC participants may also accept the Exchange Offer by submitting a Notice of Guaranteed Delivery through ATOP. The method of delivery of this Letter of Transmittal, the Outstanding Notes and any other required documents to the Exchange Agent is at the holder's election and risk. Rather than mail these items, the Company recommends that holders use an overnight or hand delivery service. In all cases, holders should allow sufficient time to assure delivery to the Exchange Agent before the Expiration Date. Holders should not send this Letter of Transmittal or Outstanding Notes to the Company. Holders may request their respective brokers, dealers, commercial banks, trust companies or other nominees to effect the transactions contemplated in the Exchange Offer. Delivery will be deemed made only when actually received or confirmed by the Exchange Agent. Holders whose Outstanding Notes are not immediately available or who cannot deliver their Outstanding Notes and all other required documents to the Exchange Agent on or prior to the Expiration Date or comply with book-entry transfer procedures on a timely basis must tender their Outstanding Notes pursuant to the guaranteed delivery procedures set forth in the Prospectus. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution (as defined below); (ii) prior to the Expiration Date, the Exchange Agent must have received from such Eligible Institution either a properly completed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) or a properly transmitted Agent's Message and Notice of Guaranteed Delivery setting forth the name and address of the holder, the registered number(s) of such Outstanding Notes and the principal amount of Outstanding Notes tendered, stating that the tender is being made hereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, this Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (iii) within three New York Stock Exchange trading days after the Expiration Date, the Exchange Agent 8 must receive this Letter of Transmittal (or facsimile hereof) properly completed and executed, as well as all tendered Outstanding Notes in proper form for transfer or a book-entry confirmation, and all other documents required by this Letter of Transmittal, all as provided in the Prospectus. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders, by execution of this Letter of Transmittal (or facsimile thereof), shall waive any right to receive notice of the acceptance of the Outstanding Notes for exchange. 2. Partial Tenders; Withdrawals. If less than the entire principal amount of Outstanding Notes evidenced by a submitted certificate is tendered, the tendering holder must fill in the aggregate principal amount of Outstanding Notes tendered in the box entitled "Description of Outstanding Notes Tendered." A newly issued certificate for the Outstanding Notes submitted but not tendered will be sent to such holder as soon as practicable after the Expiration Date. All Outstanding Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise clearly indicated. If not yet accepted, a tender pursuant to the Exchange Offer may be withdrawn prior to the Expiration Date. For a withdrawal to be effective with respect to the tender of Outstanding Notes, either (A) holders of the Outstanding Notes being tendered must comply with the appropriate ATOP procedures or (B) a written notice of withdrawal (which may be by facsimile transmission or letter) must (i) be received by the Exchange Agent at one of the addresses for the Exchange Agent set forth above before the Company notifies the Exchange Agent that it has accepted the tender of Outstanding Notes pursuant to the Exchange Offer; (ii) specify the name of the person who tendered the Outstanding Notes to be withdrawn; (iii) identify the Outstanding Notes to be withdrawn (including the principal amount of such Outstanding Notes); (iv) where certificates for Outstanding Notes have been transmitted, specify the name(s) in which such Outstanding Notes were registered, if different from that of the withdrawing holder; and (v) be signed by the holder in the same manner as the original signature on this Letter of Transmittal (including any required signature guarantee). If certificates for Outstanding Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such holder is an Eligible Institution. The Exchange Agent will return the properly withdrawn Outstanding Notes promptly following receipt of notice of withdrawal. If Outstanding Notes have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the account at the book-entry transfer facility to be credited with the withdrawn Outstanding Notes or otherwise comply with the book-entry transfer facility's procedures. All questions as to the validity of notices of withdrawals, including time of receipt, will be determined by the Company, and such determination will be final and binding on all parties. Any Outstanding Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Outstanding Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Outstanding Notes tendered by book-entry transfer into the Exchange Agent's account at DTC pursuant to the book-entry transfer procedures described above, such Outstanding Notes will be credited to an account maintained with DTC for Outstanding Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Outstanding Notes may be retendered by following one of the procedures described under the caption "The Exchange Offer--Procedures for Tendering" in the Prospectus at any time prior to the Expiration Date. 9 3. Signatures on this Letter of Transmittal; Written Instruments and Endorsements; Guarantee of Signatures. If this Letter of Transmittal is signed by the registered holder(s) of the Outstanding Notes tendered hereby, the signature must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Outstanding Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any Outstanding Notes registered in different names are tendered, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are different registrations of Outstanding Notes. When this Letter of Transmittal is signed by the registered holder or holders (which term, for the purposes described herein, shall include the book-entry transfer facility whose name appears on a security listing as the owner of the Outstanding Notes) of Outstanding Notes listed and tendered hereby, no endorsements of certificates or separate written instruments of transfer or exchange are required. If this Letter of Transmittal is signed by a person other than the registered holder or holders of the Outstanding Notes listed, such Outstanding Notes must be endorsed or accompanied by separate written instruments of transfer or exchange in form satisfactory to the Company and duly executed by the registered holder, in either case signed exactly as the name or names of the registered holder or holders appear(s) on the Outstanding Notes. Endorsements on certificates or signatures on separate written instruments of transfer or exchange required by this Instruction 3 must be guaranteed by an Eligible Institution. If this Letter of Transmittal, any certificates or separate written instruments of transfer or exchange are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority so to act must be submitted. Signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution, unless Outstanding Notes are tendered: (i) by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on this Letter of Transmittal; or (ii) for the account of an Eligible Institution. In the event that the signatures in this Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by an eligible guarantor institution which is a member of a firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or another "eligible institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (an "Eligible Institution"). 10 4. Special Issuance and Delivery Instructions. Tendering holders should indicate, as applicable, the name and address to which the Exchange Notes or certificates for Outstanding Notes not exchanged are to be issued or sent, if different from the name and address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the Tax Identification Number ("TIN") or Social Security Number of the person named must also be indicated. Holders tendering Outstanding Notes by book-entry transfer may request that Outstanding Notes not exchanged be credited to such account maintained at the book-entry transfer facility as such holder may designate. 5. Transfer Taxes. The Company shall pay all transfer taxes, if any, applicable to the transfer and exchange of Outstanding Notes to the Company or its order pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the transfer and exchange of Outstanding Notes to the Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering holder. 6. Waiver of Conditions. The Company reserves the absolute right to amend, waive or modify, in whole or in part, any of the conditions to the Exchange Offer set forth in the Prospectus. 7. Mutilated, Lost, Stolen or Destroyed Securities. Any holder whose Outstanding Notes have been mutilated, lost, stolen or destroyed, should contact the Exchange Agent at the address indicated above for further instructions. 8. Substitute Form W-9 or Form W-8 Each holder of Outstanding Notes whose Outstanding Notes are accepted for exchange (or other payee) is, except as described below with respect to foreign holders, required to provide a correct TIN, generally the holder's social security or federal employer identification number, and certain other information, on Substitute Form W-9, which is provided under "Important Tax Information" below, and to certify that the holder (or other payee) is not subject to backup withholding. Failure to provide the information on the Substitute Form W-9 may subject the holder (or other payee) to a $50 penalty imposed by the Internal Revenue Service and 31% federal income tax backup withholding on payments made in connection with the Outstanding Notes. The box in Part 3 of the Substitute Form W-9 may be checked if the holder (or other payee) has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked and a TIN is not provided by the time any payment is made in connection with the Outstanding Notes, 31% of all such payments will be withheld until a TIN is provided. In the case of a foreign holder of Outstanding Notes, such holder must submit a Form W-8, signed under penalties of perjury, attesting to such holder's exempt status in order to qualify as exempt from backup withholding. A Form W-8 can be obtained from U.S. Bank Trust National Association. 9. Requests for Assistance or Additional Copies. Questions relating to the procedure for tendering or the Exchange Offer , as well as requests for assistance or additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent at the address and telephone number set forth above. IMPORTANT: This Letter of Transmittal or a facsimile or copy thereof (together with certificates of Outstanding Notes or confirmation of book-entry transfer and all other required documents) or a Notice of Guaranteed Delivery must be received by the Exchange Agent on or prior to the Expiration Date. 11 10. Incorporation of Letter of Transmittal This letter of Transmittal shall be deemed to be incorporated in and acknowledged and accepted by any tender through DTC's ATOP procedures by any DTC participant on behalf of itself and the beneficial owners of any book-entry interests representing Outstanding Notes so tendered. IMPORTANT TAX INFORMATION Under U.S. federal income tax law, a holder of Outstanding Notes whose Outstanding Notes are accepted for exchange may be subject to backup withholding unless the holder provides U.S. Bank Trust National Association, as Paying Agent (the "Paying Agent"), through the Exchange Agent, with either (i) such holder's correct TIN on Substitute Form W-9 attached hereto, certifying that the TIN provided on Substitute Form W-9 is correct (or that such holder of Outstanding Notes is awaiting a TIN) and that (A) the holder of Outstanding Notes has not been notified by the Internal Revenue Service that he or she is subject to backup withholding as a result of a failure to report all interest or dividends or (B) the Internal Revenue Service has notified the holder of Outstanding Notes that he or she is no longer subject to backup withholding or (ii) an adequate basis for exemption from backup withholding. If such holder of Outstanding Notes is an individual, the TIN is such holder's Social Security Number. If the Paying Agent is not provided with the correct TIN, the holder of Outstanding Notes may be subject to certain penalties imposed by the Internal Revenue Service. Certain holders of Outstanding Notes (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. However, exempt holders of Outstanding Notes should indicate their exempt status on Substitute Form W-9. For example, a corporation must complete the Substitute Form W-9, providing its TIN and indicating that it is exempt from backup withholding. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. The box in Part 3 of the Substitute Form W-9 may be checked if the surrendering holder of Outstanding Notes has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the holder of Outstanding Notes or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Paying Agent will withhold 31% of all payments made prior to the time a properly certified TIN is provided to the Paying Agent. The holder of Outstanding Notes is required to give the Paying Agent the TIN (e.g., Social Security Number or Employer Identification Number) of the record owner of the Outstanding Notes. If the Outstanding Notes are in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. In order for a foreign holder to qualify as exempt from backup withholding, the holder must submit a Form W-8, signed under penalties of perjury, attesting to that holder's exempt status. A Form W-8 can be obtained from the Paying Agent. If backup withholding applies, the Paying Agent is required to withhold 31% of any such payments made to the holder of Outstanding Notes or other payee. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. 12 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Identification Number for the Payee (You) to Give the Payer.-- Social Security Numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employee Identification Numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. All "Section" references are to the Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue Service. - ----------------------------------- -----------------------------------
Give the SOCIAL SECURITY For this type of account: NUMBER of-- - ---------------------------------------------- 1. Individual The individual 2. Two or more individuals The actual owner (joint account) of the account or, if combined funds, the first individual on the account(1) 3. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 4.a The usual revocable The grantor- savings (grantor is trustee(1) also trustee) b So-called trust account The actual that is not a legal or owner(1) valid trust under State law 5. Sole proprietorship The owner(3) account 6. Sole proprietorship The owner(3) account - ----------------------------------------------
Give the EMPLOYER IDENTIFICATION For this type of account: NUMBER of-- -- 7. A valid trust, estate, The legal or pension trust entity(4) 8. Corporate The corporation 9. Association, club, The organization religious, charitable, educational, or other tax-exempt organization account 10. Partnership The partnership 11. A broker or registered The broker or nominee nominee 12. Account with the The public Department of entity Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments --
(1) List first and circle the name of the person whose number you furnish. If only one person on a joint account has a social security number, that person's number must be furnished. (2) Circle the minor's name and furnish the minor's Social Security Number. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your Social Security Number or your Employer Identification Number (if you have one). (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the Taxpayer Identification Number of the personal representative or trustee unless the legal entity itself is not designated in the account title.) Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 13 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9--Continued Obtaining a Number If you don't have a Taxpayer Identification Number or you don't know your number, obtain Form SS-5. Application for a Social Security Card, at the local Social Administration office, or Form SS-4, Application for Employer Identification Number, by calling 1 (800) TAX-FORM, and apply for a number. Payees Exempt from Backup Withholding Payees specifically exempted from withholding include: . An organization exempt from tax under Section 501(a), an individual retirement account (IRA), or a custodial account under Section 403(b)(7), if the account satisfies the requirements of Section 401(f)(2). . The United States or a state thereof, the District of Columbia, a possession of the United States, or a political subdivision or wholly- owned agency or instrumentality of any one or more of the foregoing. . An international organization or any agency or instrumentality thereof. . A foreign government and any political subdivision, agency or instrumentality thereof. Payees that may be exempt from backup withholding include: . A corporation. . A financial institution. . A dealer in securities or commodities required to register in the United States, the District of Columbia, or a possession of the United States. . A real estate investment trust. . A common trust fund operated by a bank under Section 584(a). . An entity registered at all times during the tax year under the Investment Company Act of 1940. . A middleman known in the investment community as a nominee or who is listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List. . A futures commission merchant registered with the Commodity Futures Trading Commission. . A foreign central bank of issue. Payments of dividends and patronage dividends generally exempt from backup withholding include: . Payments to nonresident aliens subject to withholding under Section 1441. . Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident alien partner. . Payments of patronage dividends not paid in money. . Payments made by certain foreign organizations. . Section 404(k) payments made by an ESOP. Payments of interest generally exempt from backup withholding include: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct Taxpayer Identification Number to the payer. . Payments of tax-exempt interest (including exempt-interest dividends under section 852). . Payments described in Section 6049(b)(5) to nonresident aliens. . Payments on tax-free covenant bonds under Section 1451. . Payments made by certain foreign organizations. . Mortgage interest paid to you. Certain payments, other than payments of interest, dividends, and patronage dividends, that are exempt from information reporting are also exempt from backup withholding. For details, see the regulations under sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A and 6050N. Exempt payees described above must file Form W-9 or a Substitute Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART II OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE OF INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Privacy Act Notice.--Section 6109 requires you to provide your correct Taxpayer Identification Number to payers, who must report the payments to the IRS. The IRS uses the number for identification purposes and may also provide this information to various government agencies for tax enforcement or litigation purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a Taxpayer Identification Number to payer. Certain penalties may also apply. Penalties (1) Failure to Furnish Taxpayer Identification Number.--If you fail to furnish your Taxpayer Identification Number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) Civil Penalty for False Information With Respect To Withholding.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) Criminal Penalty for Falsifying Information.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. 14 PAYER'S NAME: Part 1--PLEASE PROVIDE YOUR ---------------------- TIN IN THE BOX AT RIGHT AND Social Security Number CERTIFY BY SIGNING AND OR DATING BELOW. SUBSTITUTE Form W-9 ---------------------- Employer Identification Number Department of Part 2--Certification--Under the the Treasury penalties of perjury, I certify that: Internal Part 3 -- Revenue -------------------------------------------------------- Service (1) The number shown on this form is Awaiting my correct Taxpayer TIN [_] Identification Number (TIN) (or I am waiting for a number to be issued to me), and Payer's Request for Taxpayer Identification Number (TIN) (2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. -------------------------------------------------------- CERTIFICATE INSTRUCTIONS--You must cross out item (2) in Part 2 above if you have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such item (2). SIGNATURE ________________ DATE _____ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% ON ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me, and either (1) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a Taxpayer Identification Number by the time of payment, 31% of all reportable payments made to me thereafter will be withheld until I provide a number. Signature _______________________________________ Date , 1999 15 EX-99.02 43 FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.02 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF ALL OUTSTANDING 11% SENIOR NOTES DUE 2006 IN EXCHANGE FOR NEW 11% SENIOR NOTES DUE 2006 OF G+G RETAIL, INC. Registered holders of G+G Retail, Inc.'s (the "Company") outstanding 11% Senior Notes due 2006 (the "Outstanding Notes"), who wish to tender their Outstanding Notes in exchange for a like principal amount of new 11% Senior Notes due 2006 of the Company (the "Exchange Notes"), and whose Outstanding Notes are not immediately available or who cannot deliver their Outstanding Notes and Letter of Transmittal (and any other documents required by the Letter of Transmittal) to U.S. Bank Trust National Association (the "Exchange Agent") prior to 5:00 p.m., New York City time, on , 1999, unless extended (the "Expiration Date"), may use this Notice of Guaranteed Delivery or one substantially equivalent hereto. This Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile transmission (receipt confirmed by telephone and an original delivered by guaranteed overnight courier) or mail to the Exchange Agent as set forth below. See "The Exchange Offer--Procedures for Tendering" in the Prospectus dated , 1999 of the Company (the "Prospectus"). Capitalized terms not defined herein shall have the meanings ascribed to them in the Prospectus. THE EXCHANGE OFFER (THE "EXCHANGE OFFER") WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED. THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS: U.S. BANK TRUST NATIONAL ASSOCIATION By Hand Delivery: By Mail: U.S. Bank Trust National U.S. Bank Trust National Association Association. P.O. Box 64485 St. Paul, Minnesota 55164-9549 Fourth Floor--Bond Drop Window Attn: Specialized Finance 180 East 5th Street St. Paul, Minnesota 55101 By Facsimile: Attn: Specialized Finance U.S. Bank Trust National Association By Overnight Courier: (651) 244-1537 U.S. Bank Trust National Association Confirm by Telephone: Fourth Floor--Bond Drop Window 180 East 5th Street (651) 244-4512 St. Paul, Minnesota 55101 Attn: Specialized Finance Delivery of this Notice of Guaranteed Delivery to an address other than as set forth above or transmission via a facsimile transmission to a number other than as set forth above will not constitute a valid delivery. 1 This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an eligible institution (as defined in the Letter of Transmittal), such signature guarantee must appear in the applicable space provided on the Letter of Transmittal for guarantee of signatures. Ladies and Gentlemen: The undersigned hereby tenders the principal amount of Outstanding Notes indicated below, upon the terms and subject to the conditions contained in the Prospectus, receipt of which is hereby acknowledged, and contained in Instruction 1 of the Letter of Transmittal. The undersigned understands that tenders of Outstanding Notes pursuant to the Exchange Offer may not be withdrawn after 5:00 p.m., New York City time, on the Expiration Date. Tenders of Outstanding Notes may be withdrawn if the Exchange Offer is terminated without any such Outstanding Notes being exchanged thereunder or as otherwise provided in the Prospectus. All authority herein conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall survive the death or incapacity of the undersigned and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives of the undersigned. DESCRIPTION OF OUTSTANDING NOTES TENDERED
Certificate Name and Address Number(s) of of Registered Outstanding Notes Principal Name of Holder as they Tendered (or Account Amount of Tendering appear on the Number at Outstanding Holder Outstanding Notes Book-Entry Facility) Notes Tendered - --------- ----------------- -------------------- --------------
PLEASE COMPLETE AND SIGN Name(s) of Registered Holder(s): _______________________________________________ Signature(s)*: _________________________________________________________________ Name(s) (please print): ________________________________________________________ Address: _______________________________________________________________________ ________________________________________________________________________________ Telephone Number:_______________________________________________________________ Date: __________________________________________________________________________ If shares of Outstanding Notes will be tendered by book-entry transfer at The Depository Trust Company ("DTC"), provide the following information: DTC Account Number: ________________________________________________________ Date: ______________________________________________________________________ *See instructions below. 2 This Notice of Guaranteed Delivery must be signed by (i) the holder(s) of Outstanding Notes exactly as its/their name(s) appears on the Certificate(s) for Outstanding Notes being tendered, (ii) the holder(s) of Outstanding Notes exactly as its/their name(s) appear on a security position listing maintained by DTC as the owner of Outstanding Notes or (iii) person(s) authorized to become holder(s) by documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information. Please print name(s) and address(es) Name(s):__________________________________ _______________________________ Capacity:_________________________________ Address(es):______________________________ _______________________________ _______________________________ Note: Do not send Outstanding Notes with this form. Outstanding Notes should be sent to the Exchange Agent together with a properly completed and duly executed Letter of Transmittal. THE FOLLOWING GUARANTEE MUST BE COMPLETED GUARANTEE OF DELIVERY (Not to be used for signature guarantee) The undersigned, a member of a recognized signature guarantee program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees to deliver to the Exchange Agent at one of its addresses set forth above, the certificates representing the Outstanding Notes (or a confirmation of book-entry transfer of such Outstanding Notes into the Exchange Agent's account at the book-entry transfer facility), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, and any other documents required by the Letter of Transmittal within three (3) New York Stock Exchange trading days after the Expiration Date. Name of Firm: __________________________________________________________________ Authorized Signature: __________________________________________________________ Name: __________________________________________________________________________ Title: _________________________________________________________________________ Address: _______________________________________________________________________ ________________________________________________________________________________ Area Code and Telephone Number: ________________________________________________ Date: __________________________________________________________________________ NOTE: DO NOT SEND OUTSTANDING NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. OUTSTANDING NOTES SHOULD BE SENT TO THE EXCHANGE AGENT TOGETHER WITH YOUR LETTER OF TRANSMITTAL. 3 -----END PRIVACY-ENHANCED MESSAGE-----