EXHIBIT 10(G)
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated effective
March 25, 1999, is among PremiumWear, Inc., a Delaware corporation
("PremiumWear"), KLI Acquisition Corp., a Minnesota corporation and a
wholly-owned subsidiary of PremiumWear ("Acquisition Corp."), Xxxxxx- Xxxx,
Inc., a Minnesota corporation ("KLI"), and Xxxxxxx X. Xxxxxx and Xxxxxx X. Xxxx,
the shareholders of KLI (individually, the "Shareholder" and collectively, the
"Shareholders").
BACKGROUND:
KLI has been and continues to act as PremiumWear's independent sales
representative organization. PremiumWear desires to acquire KLI by means of a
merger (the "Merger") of KLI into Acquisition Corp. with Acquisition Corp. as
the surviving corporation ("Surviving Corporation") and the separate corporate
existence of KLI shall cease, on the terms and conditions set forth in this
Agreement and in the Plan of Merger attached as Exhibit A.
NOW, THEREFORE, it is agreed:
1. Merger.
1.1 Closing. The closing (the "Closing") of the Merger will take
place at such time and place as may be mutually agreeable to
the parties as soon as practicable after satisfaction of the
conditions stated in Sections 4.1 and 4.2 (the "Closing
Date"), and no later than April 5, 1999, unless a later date
is subsequently agreed to by the parties hereto in writing.
1.2 The Merger. As soon as practicable after satisfaction, or, to
the extent permitted under this Agreement, the written waiver,
of all conditions to the Merger set forth in Sections 4.1 and
4.2, the parties must cause the Merger to be consummated by
filing articles of merger (the "Articles of Merger") with the
Minnesota Secretary of State, in such form as required by, and
executed in accordance with, the relevant provisions of the
Minnesota Business Corporation Act ("MBCA"), and the parties
must make all other filings or recordings required by the MBCA
in connection with the Merger and the transactions
contemplated by this Agreement. The Merger shall be effective
when the Articles of Merger are duly filed with the Minnesota
Secretary of State or such later date as may be set forth in
the Articles of Merger (the "Effective Time"), but in no event
later than the date of Closing unless a later date is
subsequently agreed to by the parties in writing.
1.3 Merger Consideration; Exchange of Shares. Each share of common
stock, no par value per share, of KLI ("KLI Common Stock")
outstanding immediately prior to the Effective Time will, by
virtue of the Merger and without any action on the part of the
holder thereof, be converted into
(A) 0.241892 of shares of newly authorized $.01 par value
Common Stock of PremiumWear ("PremiumWear Common
Stock"), as a result of which the
aggregate number of shares of PremiumWear Common
Stock to be received by each of the two Shareholders
shall be 120,946; and
(B) $1.510634 in cash, as a result of which the aggregate
cash to be received by each of the two Shareholders
shall be $755,317.
1.4 Additional Effects of the Merger.
(A) Rights and Obligations. All the properties, rights,
privileges, powers and franchises of KLI and
Acquisition Corp. shall vest in the Surviving
Corporation, and all debts, liabilities and duties of
KLI and Acquisition Corp. shall become the debts,
liabilities and duties of the Surviving Corporation.
(B) Articles of Incorporation and Bylaws. The articles of
incorporation of Acquisition Corp. in effect at the
Effective Time shall be the articles of incorporation
of the Surviving Corporation until amended in
accordance with applicable law. The bylaws of
Acquisition Corp. in effect at the Effective Time
shall be the bylaws of the Surviving Corporation
until amended in accordance with applicable law.
(C) Directors. The directors of Acquisition Corp. at the
Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in
accordance with the articles of incorporation and
bylaws of the Surviving Corporation until each such
director's successor is duly elected or appointed.
(D) Officers. The officers of Acquisition Corp. at the
Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in
accordance with the articles of incorporation and
bylaws of the Surviving Corporation until each such
officer's successor is duly elected or appointed.
1.5 Facilitation of Closing. Between the date of this Agreement
and the Closing Date, the parties to this Agreement must take
all actions reasonably necessary to promptly facilitate the
Closing, including, but not limited to working toward
satisfying the conditions to Closing set forth in Sections 4.1
and 4.2 over which such party has control. In particular:
(A) Conduct of Business. KLI will conduct its business
only in the ordinary course and use its reasonable
efforts to preserve intact its business organization
and goodwill, keep available the services of its
officers and employees and maintain satisfactory
relations with suppliers, customers and others having
a business relationship with KLI.
(B) Negative Covenants. KLI will not (i) make any changes
with respect to its management or supervisory
personnel or its employment arrangements; (ii)
create, incur or assume any debt without the written
consent of PremiumWear; (iii) directly or indirectly
encourage, solicit or initiate discussions or
negotiations with any corporation, partnership,
person or any other entity or group (other than
PremiumWear) concerning any sale, merger or other
transaction related to the sale of its business prior
to April 5, 1999 and will not permit its officers,
directors or
2
agents to do any of the foregoing; or (iv) take any
action which would cause a breach of any of the
representations in Section 2.
(C) Director and Shareholder Vote. The Shareholders, as
the only two shareholders and directors KLI, will
vote their shares in favor of approval of the Merger
and all transactions related to the completion of the
Merger.
(D) State Merger Filings. Upon approval of the Boards of
Directors and the shareholders of KLI and Acquisition
Corp., the officers of each corporation must file all
appropriate documents with the Secretary of State of
Minnesota necessary to consummate the Merger.
(E) Due Diligence. KLI shall grant PremiumWear full
access to the employees, properties, books,
accounting and financial records, corporate records
and other business files of KLI for purposes of
examining the same in connection with the Merger.
(F) Target Closing Date. The parties to this Agreement
shall utilize their best faith efforts to complete
the Merger prior to April 5, 1999.
2. Representations and Warranties of KLI and the Shareholders. KLI and the
Shareholders, jointly and severally, make the following representations
and warranties to PremiumWear and Acquisition Corp.:
2.1 Organization and Qualifications of KLI. KLI is a corporation
lawfully existing and in good standing under the laws of
Minnesota with full corporate power and authority to own and
lease its properties and to conduct its business in the manner
and in the places where such properties are owned or leased or
such business is conducted by it. Except its ownership of
100,000 shares in Future Products, Inc., a Minnesota
corporation (which will be divested by KLI prior to Closing),
KLI does not have any subsidiaries or own any securities
issued by any other entity, except for securities held for
investment in publicly held companies representing less than
one percent of the outstanding Common Stock of each such
publicly held company. KLI is not a partner or joint venturer
in any partnership or joint venture.
2.2 Capitalization of KLI. The authorized capital stock of KLI
consists of 1,000,000 shares of common stock, no par value per
share, of which 1,000,000 shares are issued and outstanding,
fully paid and non-assessable. Schedule 2.2 attached hereto
sets forth a complete and correct list of the shareholders of
KLI and the number of shares of KLI's capital stock owned by
each shareholder. None of the KLI Common Stock has been issued
in violation of any federal or state securities laws or other
applicable laws. There are no outstanding warrants, options,
preemptive rights, or other rights to purchase or acquire
shares of KLI Common Stock or any other KLI capital stock. No
securities or other instruments of KLI are either directly or
indirectly convertible into or exchangeable for shares of
capital stock of KLI and there are no stock appreciation,
phantom or similar rights based on the book value or any other
attribute of any capital stock of KLI. No restrictions exist
on the transfer of shares of KLI Common Stock.
3
2.3 Authority of KLI and the Shareholders. This Agreement is the
valid and binding obligation of KLI and each of the
Shareholders in accordance with its terms. The execution,
delivery and performance by KLI of this Agreement and the
consummation by KLI of the transactions contemplated hereby
have been duly and validly authorized by all necessary action
on the part of KLI and no other corporate proceedings on the
part of KLI are necessary to authorize the execution and
delivery of this Agreement and to consummate the transactions
so contemplated. The execution, delivery and performance of
this Agreement by KLI and the Shareholders and the
consummation of the transactions contemplated by this
Agreement will not violate or result in a default under
(A) any provision of the articles of incorporation or
bylaws of KLI;
(B) any provision of any agreement or obligation to which
KLI or either Shareholder is party or by which any of
KLI's property is bound; or
(C) any laws, rules or regulations to which KLI, either
Shareholder or any of their respective properties may
be subject.
2.4 Title to Properties; Condition of Properties. Except as listed
on Schedule 2.4, KLI has good and marketable title to all of
the assets owned or used in its business, including, without
limitation, all assets listed on the KLI Financial Statements
(as defined in Section 2.6), free and clear of any lien,
security interest, mortgage, pledge or other encumbrance of
any kind (collectively, "Encumbrances"). All assets owned or
used by KLI are in good working order, normal wear and tear
excepted. All assets necessary for the continued operation of
KLI's business as it is currently being conducted are owned by
KLI.
2.5 Real Property. KLI owns no real property.
2.6 Financial Statements. KLI has delivered to PremiumWear the
unaudited income statement and balance sheet of KLI for each
of the preceding three years with the last one ended December
31, 1998 (the "KLI Financial Statements"). Except as disclosed
on Schedule 2.6, all of the KLI Financial Statements referred
to in this Section have been prepared in accordance with
generally accepted accounting principles applied on a basis
consistent with KLI's past practices, are complete and correct
and present fairly the financial condition of KLI as of the
dates of said statements and the results of its operations for
the periods covered.
2.7 Taxes. KLI filed an election to be treated as an S Corporation
effective November 1, 1986, and from that date through the
Closing has been and will be fully qualified as an S
Corporation under the Internal Revenue Code (the "Code"). In
the event that KLI's Subchapter S Corporation election and
status under the Code is held invalid with respect to any
period of time prior to the Closing Date and, as a result,
Acquisition Corp. as a successor to KLI, or PremiumWear, is
required to pay corporate Taxes with respect to any period of
time prior to the Closing Date, the Shareholders shall
promptly reimburse PremiumWear for any and all such Tax
payments. Subject to the foregoing, KLI and the Shareholders
have timely filed and will timely file all federal, state,
county, local and foreign income, excise, property, franchise,
and other tax returns which are required to be filed by it and
them (in connection with income from KLI), respectively, with
respect to any period of time ending
4
on or before the Closing Date and, subject to the foregoing,
have paid or will pay all Taxes, if any, with respect to such
periods which have or may hereafter become due so that
Acquisition Corp. as a successor to KLI, or PremiumWear, will
not have any tax deficiencies, including penalties and
interest, assessed against them arising from any audit by any
tax authority with respect to any period ending on or prior to
the Closing Date. Such returns are true, complete and correct
in all material respects. Neither KLI nor any Shareholder has
received notice of any tax deficiency proposed or assessed
against it or him which has not been paid through settlement
or otherwise, and has not executed any waiver of any statute
of limitations on the assessment or collection of any tax.
None of KLI's or any Shareholder's tax returns has been
audited by governmental authorities in or during the three
most recent full fiscal years of KLI. Neither KLI nor any
Shareholder has received any notice of any impending audit by
any taxing authority. None of KLI or its Affiliates are
subject to or bound by any agreement which imposes an actual
or potential tax indemnification obligation on KLI. The terms
"Tax" or "Taxes" shall mean any kind of tax imposed by a
local, state, federal or foreign tax authority.
2.8 Absence of Undisclosed Liabilities. Except as reflected or
reserved against on the KLI Financial Statements and except
for liabilities (none of which individually or in the
aggregate are material) incurred in the ordinary course of
business since the date of the KLI Financial Statements, KLI
has no liabilities of any nature, whether accrued, absolute or
contingent. There are no agreements, judgments, decrees,
orders or, to the best of KLI's and the Shareholders'
knowledge, any facts which materially affect, or may in the
future (so far as can now be reasonably foreseen) materially
affect, the business, properties, operations or condition of
KLI which have not been specifically disclosed in this
Agreement.
2.9 Accounts Receivable. To the best of KLI's and the
Shareholders' knowledge, all of the accounts receivable of KLI
reflected on the KLI Financial Statements or thereafter
acquired (including KLI Receivables) are valid and enforceable
claims, fully collectible and subject to no setoff or
counterclaim in the recorded amounts, subject only to the
allowance for doubtful accounts maintained in accordance with
KLI's past practices and reflected on the KLI Financial
Statements.
2.10 Inventories. To the best of KLI's and the Shareholders'
knowledge, the inventory of KLI consists of items of a
quantity consistent with normal inventory levels of KLI and of
a quality and condition that is usable and saleable in the
ordinary course of business for the purposes for which the
inventory is intended, reasonable wear and tear excepted. Such
inventory is carried on KLI's books of account in accordance
with generally accepted accounting principles consistently
applied.
2.11 Conduct of Business in the Ordinary Course. KLI has conducted
its business since December 31, 1998, only in the usual and
ordinary course consistent with past practice and since such
date, KLI has not
(A) sold or transferred any of its assets, except
inventory in the ordinary course of business;
(B) changed any method of accounting or accounting
practice;
5
(C) increased or promised to increase the compensation
payable to any employee or independent contractor,
other than in the ordinary course of business
consistent with past practice;
(D) except as otherwise expressly contemplated by this
Agreement, made any direct or indirect payments,
dividends, distributions, sales or transfers of
assets, other than normal compensation consistent
with past practices, to any officer, director,
shareholder or employee of KLI or any of their
affiliates;
(E) changed its outstanding shares of capital stock or
repurchased, redeemed or acquired any outstanding
shares of capital stock or other ownership interest
in securities of KLI; or
(F) to the best of KLI's and the Shareholders' knowledge,
suffered any damage or casualty to its assets.
2.12 Intellectual Property. KLI does not own any patents,
copyrights, trademarks or tradenames, nor, to the best of
KLI's and the Shareholders' knowledge, has it infringed upon
any intellectual property rights owned, held or used by any
person or entity. KLI has the right to use, free and clear of
any claims or rights of any person or entity, all trademarks,
service marks, tradenames, trade secrets and customer lists
which KLI is using, to the best of KLI's and the Shareholders'
knowledge.
2.13 Contracts and Loans.
(A) Except for contracts, commitments, plans, agreements
and licenses described on Schedule 2.13
("Commitments"), KLI is not a party to or subject to
any agreement:
(1) creating any obligation of KLI to pay more
than $1,000;
(2) providing for the purchase of all or
substantially all of KLI's requirements of a
particular product or service from a
supplier, or for periodic minimum purchases
of a particular product or service from a
supplier;
(3) not terminable on 30 days notice without
penalty to or additional consideration from
KLI, other than sales and purchase
commitments entered into in the ordinary
course of business for less than $1,000
each;
(4) with any sales agent or distributor;
(5) other than as otherwise expressly provided
in this Agreement, containing covenants
limiting KLI's freedom to compete in any
line of business, or with any person or
entity, in any location;
(6) for the licensure of any property (either as
licensor or licensee); or
6
(7) with any present or former officer,
director, employee, agent or shareholder of
KLI or with any person or entity controlled
by or affiliated with any of them.
(B) True, correct and complete copies of the Commitments
have been provided to PremiumWear prior to the
execution of this Agreement. All Commitments are in
full force and effect and have not been amended,
extended or otherwise modified. Other than as
disclosed on Schedule 2.13, neither KLI nor, to the
best knowledge of KLI and each Shareholder, any other
person or entity is in default under any Commitments.
(C) Notwithstanding the foregoing, except with respect to
the $100,000 line of credit with First Minnetonka
City Bank ("Line of Credit"), KLI is not a party to,
and none of the Commitments constitutes, a loan
agreement, a promissory note or indebtedness for
borrowed money which KLI has an obligation to repay
whether in the form of bank borrowings, guarantee of
indebtedness of a third party or otherwise. There is
no outstanding balance or any other amounts due under
the Line of Credit, except as may have been incurred
in the ordinary course of business consistent with
past practice. The Shareholders agree to pay any and
all outstanding balance or other amounts due under
the Line of Credit as of the Closing Date without
regard to the indemnification limitation contained in
Section 5.4(D), except as may have been incurred in
the ordinary course of business consistent with past
practice.
2.14 Litigation. There is no legal, administrative, arbitration or
other proceeding or governmental investigation pending or, to
the best knowledge of KLI or any Shareholder, threatened
against KLI, or against any Shareholder relating to the
business of KLI or the KLI Common Stock.
2.15 Compliance with Laws. Neither KLI, nor any Shareholder with
respect to the business of KLI, has violated, and neither are
violating, any statutes, regulations, ordinances or other
laws. There has never been any citation, fine or penalty
imposed or asserted against KLI, or any Shareholder relating
to the business of KLI or the KLI Common Stock, under any
foreign, federal, state or local law or regulation.
2.16 Insurance. Schedule 2.16 lists each insurance policy
maintained by KLI with respect to its properties, assets and
business and a brief description of their respective
coverages, including coverage dates, deductibles, premiums and
policy limits.
2.17 Permits. KLI holds all licenses, permits and franchises which
are required to permit it to conduct its business, and all
such licenses, permits and franchises are listed on Schedule
2.17.
2.18 Consents and Approvals. No consent, authorization, order, or
approval of or filing with any governmental authority, person
or entity, including, without limitation, consents from
parties to the Commitments, is required for the execution and
delivery of this Agreement or the consummation by KLI and the
Shareholders of the transactions contemplated by this
Agreement.
7
2.19 Warranty or Other Claims. To the best of KLI's and the
Shareholders' knowledge, there are no existing claims against
KLI for goods or services sold, transferred or marketed which
are defective or fail to meet any product warranties or
contract or industry standards and, to the best knowledge of
KLI or each Shareholder, there are no threatened claims, or
any facts upon which a claim could be based, against KLI for
goods or services which are defective or fail to meet any
product warranties or contract or industry standards.
2.20 Finder's Fee. Neither Shareholder nor KLI has incurred
liability or will become liable for any broker's commission or
finder's fee relating to or in connection with the transaction
contemplated by this Agreement.
2.21 Employee Benefit Plans and Compensation.
(A) All employee benefit plans (as that term is defined
in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA")), as amended, which
are maintained or contributed to by KLI for the
benefit of its employees or former employees are
described in Schedule 2.21, and KLI is in full
compliance with the Code and ERISA with respect to
all such employee benefit plans.
(B) Other than claims for benefits by employees,
beneficiaries or dependents arising in the normal
course of the operation of such plans, no claim is
currently pending or, to the best knowledge of KLI or
any Shareholder, threatened against any such employee
benefit plan. There are no unfunded obligations of
KLI under any of its retirement, pension,
profit-sharing and deferred compensation plans and
programs. Except as disclosed in Schedule 2.21, each
such plan or program can be terminated at any time by
PremiumWear without penalty or material expense. The
Shareholders agree to pay any and all required
funding to KLI's pension plan for all periods before
and after the Closing Date without regard to the
indemnification limitations contained in Section
5.4(D).
(C) KLI has filed all returns required under the Code
with respect to its employee benefit plans, including
returns required by the Department of Labor.
(D) Schedule 2.21 sets forth the current compensation of
each employee of KLI.
2.22 Bank Accounts. All of the bank accounts of KLI, and the
individuals with signature authority, are listed on Schedule
2.22.
2.23 No Default. Neither KLI nor any Shareholder is in default or
violation (and no event has occurred which with notice or the
lapse of time or both would constitute a default or violation)
of any term, condition or provision of (i) KLI's articles of
incorporation or bylaws (or similar governing documents), (ii)
any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which KLI, or a
Shareholder with respect to the business of KLI, is now a
party or by which either of them or any of their respective
properties or assets may be bound or (iii) any order, writ,
injunction, decree, law, statute, rule or regulation
applicable to KLI, or to a Shareholder with respect to the
business of KLI or any of their respective properties or
assets.
8
2.24 Investment Intent of Shareholder and Two-Year Holding Period.
Each Shareholder agrees, represents and warrants to
PremiumWear with respect to the shares of PremiumWear Common
Stock to be received in the Merger as follows:
(A) Each Shareholder is acquiring beneficial ownership in
the PremiumWear Common Stock for investment for his
own account and not with a view to, or for resale in
connection with, any distribution thereof. Each
Shareholder understands that the shares of
PremiumWear Common Stock to be acquired have not been
registered under the Securities Act of 1933, as
amended, (the "Act") by reason of a specific
exemption from the registration provisions of the Act
which depends upon, among other things, the bona fide
nature of the investment intent as expressed herein;
(B) Each Shareholder acknowledges that the shares of
PremiumWear Common Stock must be held indefinitely
unless subsequently registered under the Act or an
exemption from such registration is available. More
specifically, each Shareholder agrees to hold the
shares of PremiumWear Common Stock received by the
Shareholder in the Merger for a minimum holding
period of two (2) years from the date of Closing.
Nothing contained in this subsection (B) shall
prevent the Shareholders from participating in a
tender offer, merger or a similar transaction for the
purchase of all outstanding shares of PremiumWear;
(C) Each Shareholder has such knowledge and experience in
financial and business matters that he is able to
evaluate the merits and risks of an investment in the
PremiumWear Common Stock and has determined to bear
and can well afford to bear the economic risks of
such investment;
(D) Each Shareholder has had access to all material
information concerning PremiumWear and its
businesses, financial condition, and prospects for
the future, and to all additional information each
has deemed necessary to verify the accuracy of such
information;
(E) Each Shareholder has had the ongoing opportunity to
ask questions of and receive answers from the
officers of PremiumWear regarding the businesses,
financial condition and future prospects of
PremiumWear; and
(F) Each Shareholder agrees that each certificate
representing shares of PremiumWear Common Stock
issued in the Merger shall be endorsed with
substantially the following legend: "THE SHARES
REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO
SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933." Each Shareholder further
agrees that such certificates shall also be endorsed
9
with a legend with respect to the two-year holding
period set forth in Section 2.24(B) above, which
legend shall automatically expire at the end of such
two-year period.
2.25 No Tax Advice. Each Shareholder has received his own
independent advice with respect to the tax treatment of the
transactions contemplated hereby under federal, state and
local tax laws, and neither Shareholder has received or relied
upon any tax advice from PremiumWear, Acquisition Corp. or
their counsel in connection with such transactions.
2.26 Customer Relationships. To the best of KLI's and the
Shareholders' knowledge, there has not occurred any material
or significant change in KLI's customer or vendor
relationships.
3. Representations and Warranties of PremiumWear and Acquisition Corp.
PremiumWear and Acquisition Corp., jointly and severally, make the
following representations and warranties to KLI and each Shareholder:
3.1 Organization and Qualifications of Acquisition Corp.
Acquisition Corp. and PremiumWear are corporations lawfully
existing and in good standing under the laws of the states of
Minnesota and Delaware, respectively, with full corporate
power and authority to own or lease their respective
properties and to conduct their respective businesses in the
manner and in the places where such properties are owned or
leased or such businesses are conducted by them.
3.2 Authority of PremiumWear and Acquisition Corp. This Agreement
is a valid and binding obligation of PremiumWear and
Acquisition Corp. in accordance with its terms. The execution,
delivery and performance by PremiumWear and Acquisition Corp.
of this Agreement and the consummation by such parties of the
transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of PremiumWear and
Acquisition Corp., and no other corporate proceedings on the
part of any of them are necessary to authorize the execution
and delivery of this Agreement or to consummate the
transactions so contemplated. The execution, delivery and
performance of this Agreement by Acquisition Corp. and
PremiumWear and the consummation of the transactions
contemplated by this Agreement will not violate or result in a
default under
(A) any provision of the articles or certificate of
incorporation or bylaws of Acquisition Corp. or
PremiumWear;
(B) any provision of any agreement or obligation to which
Acquisition Corp. or PremiumWear is a party or by
which any of their respective properties is bound; or
(C) any laws, rules or regulations to which Acquisition
Corp. or PremiumWear or any of their respective
properties may be subject.
3.3 PremiumWear Common Stock. The shares of PremiumWear Common
Stock to be issued and delivered to the Shareholders by
PremiumWear pursuant to this Agreement will, on delivery of
the certificates therefor in accordance with the terms hereof,
be validly issued, fully paid, and nonassessable.
10
3.4 SEC Filings. PremiumWear has filed all reports required to be
filed by it under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), including pursuant to Section
13(a) or 15(d) thereof, for the two years preceding the date
hereof (the foregoing materials being collectively referred to
herein as the "SEC Documents") on a timely basis, or has
received a valid extension of such time of filing and has
filed any such SEC Documents prior to the expiration of any
such extension. As of their respective dates, the SEC
Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations
of the Securities and Exchange Commission (the "Commission")
promulgated thereunder. All material agreements to which
PremiumWear is a party or by which the property or assets of
PremiumWear is subject have been filed as exhibits to the SEC
Documents in accordance with applicable law to the extent such
documents were required to have been filed. The financial
statements of PremiumWear included in the SEC Documents,
including the notes thereto, (i) are true, complete and
correct in all material respects, (ii) comply in all material
respects with applicable accounting requirements and the
published rules and regulations of the Commission with respect
thereto, (iii) have been prepared in accordance with GAAP
consistently maintained and applied throughout the periods
indicated and consistent with past practices, except as may be
otherwise indicated in such financial statements or the notes
thereto, and (iv) present fairly and accurately in all
material respects the financial position of PremiumWear and
its wholly-owned subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods
then ended, subject, in the case of unaudited statements, to
normal year-end audit adjustments, (v) are in accordance with
the books and records of PremiumWear and its wholly-owned
subsidiaries for the respective periods indicated, and (vi) do
not omit to state or reflect any material fact concerning
PremiumWear and its wholly-owned subsidiaries required by GAAP
to be stated or reflected therein.
4. Conditions to Closing.
4.1 Conditions to Obligations of KLI and the Shareholders. The
obligations of KLI and the Shareholders to consummate the
transactions contemplated by this Agreement are subject to the
fulfillment, prior to or at the Closing, of all of the
following conditions:
(A) Each of the representations and warranties of
PremiumWear and Acquisition Corp. contained in
Section 3 must be true and correct in all material
respects as though made on and as of the Closing Date
and PremiumWear and Acquisition Corp. must, on or
before the Closing, have each performed all of their
respective obligations under this Agreement which are
to be performed on or before the Closing;
(B) At the Closing, KLI shall have received a certificate
of the Secretary of Acquisition Corp. certifying as
to:
(1) a copy of the resolutions of Acquisition
Corp.'s board of directors which authorize
the execution, delivery and performance of
this Agreement as having been duly adopted
and as being in full force and effect on the
Closing Date; and
11
(2) a copy of the articles of incorporation and
bylaws of Acquisition Corp. as in effect on
the Closing Date;
(C) At the Closing, KLI shall have received a certificate
of the Secretary of PremiumWear certifying as to a
copy of the resolutions of PremiumWear's Board of
Directors which authorize the execution, delivery and
performance of this Agreement as having been duly
adopted and as being in full force and effect on the
Closing Date;
(D) At the Closing, the Shareholders shall have received
the cash portion of the Merger consideration set
forth in Section 1.3 and a copy of instructions to
PremiumWear's transfer agent to promptly issue the
stock portion of the Merger consideration set forth
in Section 1.3;
(E) The Articles of Merger shall have been filed in
accordance with the MBCA;
(F) There shall not have occurred any material adverse
change in the business of PremiumWear subsequent to
the date of this Agreement;
(G) Each of the Shareholders and PremiumWear shall have
executed an employment agreement in the form attached
hereto as Exhibit B;
(H) All agreements, documents and other instruments to be
executed by the parties shall have been approved by
KLI's legal counsel which approval shall not be
unreasonably withheld;
(I) KLI shall have completed its due diligence review of
PremiumWear to its reasonable satisfaction; and
(J) All material consents and approvals of third parties
required under any contract to which KLI, any
Shareholder or PremiumWear is a party shall have been
received.
4.2 Conditions to Obligations of PremiumWear and Acquisition
Corp.. The obligations of PremiumWear and Acquisition Corp. to
consummate the transactions contemplated by this Agreement are
subject to the fulfillment, prior to or at the Closing, of all
of the following conditions:
(A) Each of the representations and warranties of KLI and
each Shareholder contained in Section 2 must be true
and correct in all material respects as though made
on and as of the Closing Date and KLI and each
Shareholder must, on or before the Closing, have
performed all of their respective obligations which
are to be performed on or before the Closing;
(B) At the Closing, PremiumWear shall have received a
certificate of the Secretary of KLI certifying as to:
12
(1) a copy of the resolutions of KLI's board of
directors and shareholders authorizing the
execution, delivery and performance of this
Agreement as having been duly adopted and as
being in full force and effect on the
Closing Date; and
(2) a copy of the articles of incorporation and
bylaws of KLI as in effect on the Closing
Date;
(C) At the Closing, PremiumWear shall have received all
certificates and other instruments or documents
representing shares of KLI Common Stock;
(D) The Articles of Merger shall have been filed in
accordance with MBCA;
(E) There shall not have occurred any material adverse
change in the business of KLI subsequent to the date
of this Agreement;
(F) Each of the Shareholders and PremiumWear shall have
executed an employment agreement in the form attached
hereto as Exhibit B;
(G) KLI and each Shareholder shall have executed and
delivered to PremiumWear such certificates as may be
reasonably requested by PremiumWear;
(H) All agreements, documents and other instruments to be
executed by the parties shall have been approved by
PremiumWear' legal counsel which approval shall not
be unreasonably withheld;
(I) PremiumWear shall have completed its due diligence
investigation of KLI to its reasonable satisfaction;
(J) All material consents and approvals of third parties
required under any contract to which KLI, any
Shareholder or PremiumWear is a party shall have been
received;
(K) The Shareholders shall have provided to PremiumWear
assurances, in each case satisfactory to PremiumWear
in its sole discretion, that the following current
vendors of KLI will remain vendors of KLI follow the
Merger: California Manufacturing; Nucom, Ltd./Xxxxx'
Bay; American Dry Goods; and Winona Knitting Xxxxx;
and
(L) KLI shall have delivered PremiumWear with evidence
satisfactory to PremiumWear that KLI shall have
divested its ownership in Future Products, Inc.
(identified as 100,000 shares of Common Stock of
Future Products, Inc.) and, shall have transferred
from KLI all accounts receivable and payable with
respect to which Future Products, Inc. has the right
to receive payment or has an obligation to make a
payment and shall have transferred from KLI all of
its employee receivables (identified to be $32,000 as
of 12/31/1998), such that in each case, KLI shall
have no further right or obligation with respect
thereto.
13
5. Indemnification.
5.1 Indemnification of PremiumWear. Subject to the provisions of
this Section 5, PremiumWear shall be indemnified by the
Shareholders, jointly and severally, against any damages,
claims, liabilities, losses and expenses, of any kind or
nature whatsoever which may be sustained or suffered by
PremiumWear as a result of any breach of any agreement,
representation, warranty or covenant made by KLI or any
Shareholder in this Agreement (each a "Loss" and collectively
"Losses").
5.2 Indemnification of the Shareholders. Subject to the provisions
of this Section 5, the Shareholders shall be indemnified by
PremiumWear, against any damages, claims, liabilities, losses
and expenses, of any kind or nature whatsoever which may be
sustained or suffered by the Shareholders as a result of any
breach of any agreement, representation, warranty or covenant
made by PremiumWear in this Agreement (each a "Loss" and
collectively "Losses").
5.3 Notice of Indemnification Claims. Promptly after the receipt
by an indemnified party of notice of any Loss as to which such
party may seek indemnification under this Agreement, the party
receiving such notice shall notify the party or parties from
whom it is seeking indemnification (the "Indemnifying Party").
In the case of a claim asserted by a third party, such
Indemnifying Party shall have the right to defend at its own
expense by its own counsel such matter to the extent of the
potential indemnification liability of the Indemnifying Party.
If the Indemnifying Party shall undertake to defend the
matter, it shall promptly notify the other party or parties of
such determination.
5.4 Limitations on Indemnification Claims. The right to
indemnification under this Agreement shall be limited as
follows:
(A) No claims for indemnification shall be made more than
two years after the Closing Date, and any such claims
which have been made and remain outstanding two years
after the Closing Date shall be processed to a
conclusion.
(B) Any proceeds from insurance paid to the party seeking
indemnification as a result of the Loss shall
constitute a reduction of the amount of the Loss for
purposes of indemnification.
(C) The calculation of the Loss shall take into account
any tax liabilities and/or tax benefits attributable
to the Loss.
(D) No claim for indemnification shall be made unless the
amount of the Loss for which the claim is made, after
any reductions as provided in (B) and (C) above,
exceeds a threshold of $5,000 and the claim shall be
only for the amount of the Loss in excess of such
$5,000 threshold, provided, however, that
indemnification pursuant to Section 2.7 (taxes) of
this Agreement shall not be subject to the threshold
set forth above.
14
6. Termination.
6.1 Notwithstanding any provision in this Agreement to the
contrary, this Agreement may be terminated, and the
transactions contemplated by this Agreement abandoned, at any
time on or prior to the Closing Date:
(A) by mutual written consent of PremiumWear and KLI;
(B) by PremiumWear if any of the conditions set forth in
Section 4.2 have not been satisfied, or waived in
writing by PremiumWear, on the Closing Date;
(C) by KLI if any of the conditions set forth in Section
4.1 have not been satisfied, or waived in writing by
KLI, on the Closing Date; or
(D) by either PremiumWear or KLI in writing if the
Closing does not occur by April 5, 1999.
7. Miscellaneous; Other Agreements.
7.1 Survival. All representations, warranties, agreements,
covenants and obligations herein shall survive the execution
and delivery of this Agreement and the Closing and the
consummation of the transactions contemplated hereby and shall
not be affected by any examination made for or on behalf of
PremiumWear, Acquisition Corp. or KLI. Notwithstanding
anything contained herein to the contrary, the representations
and warranties of the parties shall survive the Closing for a
period of two years after the Closing Date, except for the
representations and warranties of KLI and Shareholder under
Sections 2.7, 2.15 and 2.21, which shall survive for the
period of the applicable statute of limitations.
7.2 Cash Distributions to Shareholders. There shall have been no
cash distributions to the Shareholders since December 31, 1998
except for salaries and normal travel expense reimbursements.
7.3 Restrictions on Transactions in PremiumWear Common Stock.
PremiumWear, KLI and each Shareholder agree not to effect any
purchases or sales of PremiumWear Common Stock during the 10
trading days immediately prior to Closing and agree to use
their best efforts to restrict such purchases and sales by
their respective directors and officers during such 10-day
period.
7.4 Directorship. After Closing, PremiumWear shall nominate and
recommend that Xx. Xxxxxx become a member of the Board of
Directors of PremiumWear at the 1999 Annual Meeting of
Shareholders; provided, however, if the Closing does not occur
prior to the mailing of PremiumWear's proxy materials to its
shareholders, the Board of Directors of PremiumWear shall
appoint Xx. Xxxxxx to the Board following the 1999 Annual
Meeting of Shareholders and shall include him in management's
slate of nominees to the Board at the 2000 Annual Meeting of
Shareholders.
15
7.5 Shareholder and Shareholder Spouse Car Leases.
(A) The Shareholders represent and warrant that as of the
Closing, the following vehicle leases are the only
vehicle leases to which KLI is a party: (1) Motor
Vehicle Lease Agreement dated 9/6/1997 with respect
to a 1997 Infiniti QX4 Truck; (2) Closed End Motor
Vehicle Lease Agreement, as extended by the Matured
Lease Extension Agreement dated 10/23/1998 with
respect to a 1995 Toyota Sport Van; and (3) Closed
End Motor Vehicle Lease Agreement dated 7/13/1998
with respect to a 1999 Lexus RX300.
(B) Xx. Xxxxxx agrees that Xx. Xxxxxx, individually,
shall be solely responsible for payments under and
for complying with the terms and conditions of the
vehicle leases set forth in section 7.5(A)(1) and
7.5(A)(3) above. Xx. Xxxx agrees that Xx. Xxxx,
individually, shall be solely responsible for
payments under and for complying with the terms and
conditions of the vehicle lease set forth in section
7.5(A)(2) above. In addition, the responsible party
for each lease shall be obligated to pay any and all
amounts that are now due or may hereafter become due
under the leases, adequate insurance for the
operation of such vehicles, annual registration fees
and any other fees and taxes that may be imposed by
the vehicle lease or by the State of Minnesota for
the operation of such vehicles. The obligations set
forth above shall apply regardless of who operates or
uses the vehicle. It is understood between the
parties that the only payment or other obligation of
PremiumWear or KLI with respect to the vehicles set
forth above shall be those which arise from under the
Employment Agreements between PremiumWear and each of
Messrs. Xxxxxx and Xxxx.
(C) Messrs. Xxxxxx and Xxxx shall indemnify and hold
harmless PremiumWear and KLI (with respect to the
vehicle lease with respect to which such party is
responsible) against (i) any damages, claims,
liabilities, losses and expenses, of any kind or
nature whatsoever which may be sustained or suffered
by PremiumWear or KLI as a result of any breach of
any agreement, representation, warranty or covenant
made by Messrs. Xxxxxx and Xxxx in this Section 7.5
and (ii) any cost, tax, expense, liability or
obligation which may arise out of the lease
agreements set forth in Section 7.5(A) above or arise
out of the operation or use of the vehicle subject to
the lease, including as a result of accidents, other
moving violations or parking tickets.
(D) Messrs. Xxxxxx and Xxxx further agree that they will
not renew or extend the vehicle leases listed in
Section 7.5(A) above in the name of KLI and shall not
enter into new vehicle leases of any kind in the name
of KLI.
7.6 Publicity and Confidentiality. KLI and PremiumWear shall
consult each other prior to issuing any press release or
otherwise making any public statements with respect to the
transactions contemplated hereby, and neither shall issue any
such press release or make any such public statement without
the prior consent of the other, except as may be required by
applicable law.
16
The parties have signed a Confidentiality Agreement dated
January 18, 1999. Such Confidentiality Agreement shall
continue in effect notwithstanding a termination of this
Agreement.
7.7 Fees and Expenses. Each party will bear all of its own
expenses in connection with the negotiation and the
consummation of the transactions contemplated by this
Agreement. Notwithstanding the foregoing, all such expenses
incurred by KLI and the Shareholders subsequent to December
31, 1998 shall be paid by the Shareholders. Furthermore, if
either PremiumWear on one hand, or KLI and the Shareholders,
on the other hand, terminate this Agreement and fail to
consummate the transactions contemplated hereby, and the other
party is not then in material breach or default under this
Agreement, the party terminating this Agreement and failing to
consummate the transaction shall reimburse the other party for
its out-of-pocket costs and expenses (including reasonable
attorneys' fees) incurred in the preparation, negotiation and
due diligence performed in connection with this Agreement and
the transactions contemplated hereby. This Section shall
survive the Termination of this Agreement.
7.8 Governing Law. This Agreement, and all ancillary documents
related to this Agreement, is governed by the internal laws of
the state of Minnesota, without regard to the conflict of laws
provisions of any jurisdiction. KLI, THE SHAREHOLDERS,
PREMIUMWEAR AND ACQUISITION CORP. HEREBY IRREVOCABLY SUBMIT TO
THE JURISDICTION OF THE MINNESOTA STATE COURTS AND FEDERAL
COURTS SITTING IN OR ENCOMPASSING HENNEPIN COUNTY, MINNESOTA,
OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OF THE OTHER ANCILLARY DOCUMENTS RELATED
TO THIS AGREEMENT AND AGREE THAT ALL CLAIMS IN RESPECT OF SUCH
ACTION OR PROCEEDING MAY ONLY BE HEARD AND DETERMINED IN ANY
SUCH COURT.
7.9 Notices. All notices required or permitted to be given under
this Agreement must be in writing and are deemed given when
delivered in person (or three business days after being
deposited in the United States mail, postage prepaid,
registered or certified mail, addressed as set forth below, or
on the next business day after being deposited with a
nationally-recognized overnight courier service, addressed as
set forth below, or upon dispatch if sent by facsimile with
telephonic confirmation of receipt from the intended recipient
to the facsimile number set forth below):
To PremiumWear, PremiumWear, Inc.
Acquisition Corp., 0000 Xxxxx Xxxx
or the Surviving Xxxxxxxxxx, XX 00000
Corporation: Attention: Xxxxx X. Xxxx
Fax No.: (000) 000-0000
17
With a copy to: Xxxxxxxxx & Xxxxxx P.L.L.P.
0000 XXX Xxxxxx
00 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxxx, Esq.
Fax No.: (000) 000-0000
To either Shareholder: Xxxxxxx X. Xxxxxx
Xxxxxx X. Xxxx
0000 Xxxxx Xxxx
Xxxxxxxxxx, XX 00000
Fax No.: (000) 000-0000
With a copy to: Xxxxxxx, Xxxxxx & Xxxxxxxxxx, Ltd.
00000 Xxxxxxx Xx. 0
Xxxxxxxxxx, XX 00000
Attn: X. Xxxxxx Page, Esq.
Fax No.: (000) 000-0000
7.10 Entire Agreement. This Agreement, including the Schedules and
Exhibits, constitute the entire agreement between the parties
with respect to its subject matter of this Agreement.
7.11 Assignability. This Agreement is enforceable by, and will
inure to the benefit of, the parties to this Agreement and
their successors and assigns, provided no party may assign its
rights or obligations under this Agreement without the prior
written consent of the other parties.
7.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which, once delivered, shall be deemed
an original and all of which, once delivered, shall constitute
one agreement.
7.13 Headings. The descriptive headings in this Agreement are
inserted for convenience only and do not constitute a part of
this Agreement.
7.14 Non-exclusivity. The rights, remedies, powers and privileges
provided in this Agreement are cumulative and not exclusive
and shall be in addition to any and all rights, remedies,
powers and privileges granted by law, rule, regulation or
instrument.
7.15 Amendments; Waivers. Any provision of this Agreement may be
amended or waived prior to the Effective Time, only if such
amendment or waiver is in writing and signed, in the case of
an amendment, by both parties, or in the case of a waiver, by
the parties against whom the waiver is to be effective.
18
IN WITNESS WHEREOF, this Agreement is executed effective as of the date
first above written.
KLI ACQUISITION CORP.
By /s/ Xxxxxx X. Xxxxxxx
-----------------------------------
Its Chairman
PREMIUMWEAR, INC.
By /s/ Xxxxxx X. Xxxxxxx
-----------------------------------
Its Chairman and CEO
-------------------------------
XXXXXX-XXXX, INC.
By /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Its CEO
-------------------------------
SHAREHOLDERS:
/s/ Xxxxxxx X. Xxxxxx
--------------------------------------
Xxxxxxx X. Xxxxxx
/s/ Xxxxxx X. Xxxx
--------------------------------------
Xxxxxx X. Xxxx
19
