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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND
AMONG
XXXXX APPAREL GROUP, INC.
("XXXXX")
SAI ACQUISITION CORP.
("NEWCO")
AND
SUN APPAREL, INC.
(THE "COMPANY")
THE SHAREHOLDERS OF THE COMPANY
("SHAREHOLDERS")
DATED
SEPTEMBER 10, 1998
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (together with all Exhibits and Schedules,
this "Agreement") dated as of September 10, 1998, by and among XXXXX APPAREL
GROUP, INC., a Pennsylvania corporation ("Xxxxx"), SAI ACQUISITION CORP., a
wholly-owned subsidiary of Xxxxx organized under the laws of the State of
Delaware ("Newco"), SUN APPAREL, INC., a Texas corporation (the "Company"), and
the holders of all of the Company's issued and outstanding capital stock whose
names are set forth on the signature pages hereto ("Shareholders"). (The Company
and Newco are sometimes referred to herein as the "Constituent Corporations".)
RECITALS
WHEREAS, the Company is a corporation duly organized and validly existing
under the laws of the State of Texas, having an authorized capitalization
consisting of 1,000,000 shares of Common Stock, no par value (the "Company
Common Stock"), of which as of the date hereof, 3,780 shares are issued and
outstanding and 500,000 shares of preferred stock, $1.00 par value per share, of
which as of the date hereof, 215,000 shares are designated Series A Preferred
Stock and are issued and outstanding (the "Series A Preferred Stock"), 201,065
shares are designated Series B Preferred Stock and are issued and outstanding
(the "Series B Preferred Stock"), and 8,935 shares are designated Series C
Preferred Stock and are issued and outstanding (the "Series C Preferred Stock"
and collectively, with the Series A Preferred Stock and the Series B Preferred
Stock, the "Company Preferred Stock");
WHEREAS, Newco is a corporation duly organized and validly existing under
the laws of the State of Delaware, having an authorized capital stock consisting
of 200 shares of Common Stock, no par value (the "Newco Shares"), of which as of
the date hereof, 200 shares are issued and outstanding; and
WHEREAS, Xxxxx, the Boards of Directors of each of the Constituent
Corporations and Shareholders, respectively, deem it advisable for the welfare
and best interests of the Constituent Corporations and for the best interests of
the respective shareholders of said corporations that the Company be merged with
and into Newco (the "Merger") on the terms and subject to the conditions set
forth in this Agreement and in accordance with the provisions of the Delaware
General Corporation Law (the "DGCL") and the Texas Business Corporation Act (the
"TBCA").
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements, and upon the terms and subject to the conditions
hereinafter set forth, the parties do hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(i) The terms "Affiliate" and "Associate" have the meanings prescribed
by Rule 12b-2 of the regulations promulgated pursuant to the Securities
Exchange Act of 1934, as amended.
(ii) "Code" means the Internal Revenue Code of 1986, as amended.
(iii) "Company Shares" means the issued and outstanding shares of the
Company Common Stock and Company Preferred Stock.
(iv) "Disclosure Schedule" means the schedule to be delivered by
Shareholders to Xxxxx containing the information required to be included
therein pursuant to this Agreement. Unless otherwise specified, each
reference in this Agreement to any numbered schedule is a reference to that
numbered section of the Disclosure Schedule.
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(v) "Company Subsidiary" means any corporation, limited liability
company, partnership or other entity, (a) of which the Company directly or
indirectly owns or controls at the time equity interests which have in
ordinary circumstances (not dependent upon the happening of a contingency)
voting power to elect a majority of the governing body of said entity, or
(b) of which an equity interest of the character described in the foregoing
clause (a) shall at the time be owned or controlled directly or indirectly
by the Company and one or more Company Subsidiaries as defined in the
foregoing clause (a) or by one or more such Company Subsidiaries.
(vi) "Xxxxx Common Stock" means the common stock, $.01 par value, of
Xxxxx.
(vii) "Knowledge" when applied to Shareholders assumes due inquiry by
them of those persons disclosed as officers under the captions "Directors
and Executive Officers" and "Senior Officers" in the Registration
Statement.
(viii) "Registration Statement" means the registration statement on
Form S-1 filed by the Company with the Securities and Exchange Commission
on May 26, 1998 -- File No. 333-53597.
(ix) "Sun Accounting Principles" means generally accepted accounting
principles ("GAAP") as applied by the Company consistent with past
practices through June 30, 1998, including a refinement in the method used
by the Company in 1997 for the capitalization of manufacturing overhead
costs into inventory and a refinement in the method used currently by the
Company for the capitalization of Polo retail development costs to make it
consistent with the method used in 1997.
(x) "Sun Division" means the existing businesses of the Company and
the Company Subsidiaries described in the Registration Statement under the
heading "Business" conducted by Xxxxx following the Closing, either as a
separate corporation or as an operating division of Xxxxx, as well as any
business or businesses conducted by Xxxxx, or by any subsidiary or
affiliated corporations of Xxxxx, which represent a succession to and a
continuation of such businesses, as the same may be expanded from time to
time with the prior written consent of Xxxxx.
(xi) "Tax Benefits" means the amount of (i) any tax benefit arising
from an item of loss or deduction for any tax purpose and (ii) the full
amount of any tax credit.
(xii) "Tax Credits Receivable" means the sum of the amount of any Tax
Benefits which arise as a result of (i) the payment of the redemption
premium on the promissory note payable to Vestar/Sun Holding Company L.L.C.
("Vestar") listed on Section 6.4 of the Disclosure Schedule; (ii) the grant
to Xxxxx Xxxxxxxx ("Xxxxxxxx") of a 1% interest in the Common Stock of the
Company immediately prior to the Closing and the payment of any additional
consideration to Xxxxxxxx at the Closing; (iii) the write-off of deferred
financing fees arising out of the payment of the indebtedness listed on
Section 6.4 of the Disclosure Schedule; (iv) the loss on the interest rate
protection contracts which are terminated as of the Closing; (v) the
write-off of expenses in connection with the proposed IPO of the Company;
(vi) the write-off of prepayment penalties relating to the prepayment of
the promissory note issued by the Company to Xxxx Xxxxx Life Insurance
Company (subsequently assigned to SunAmerica Life Insurance Company); and
(vii) expenses incurred by the Company and the Shareholders arising out of
this Agreement and the consummation of the transactions contemplated
hereby.
(xiii) "Total Debt" means all indebtedness of the Company and the
Company Subsidiaries for money borrowed, plus capitalized lease obligations
and accrued interest, minus cash and cash equivalents and Tax Credits
Receivable, in each case as of the Closing Date and excluding trade
accounts payable, letters of credit, preferred stock and accrued
liabilities, but including all premiums, penalties, make whole payments,
fees and any other costs and expenses of every nature necessary to
effectuate payment in full of any such indebtedness.
(xiv) "Working Capital Deficiency" means the amount by which the
Company's Working Capital as of the Closing Date is less than $96 million.
"Working Capital Surplus" means the amount by which the Company's Working
Capital as of the Closing Date is more than $96 million. "Working Capital"
means current assets (excluding cash, cash equivalents, Tax Credits
Receivable and deferred financing
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costs) less current liabilities (other than accrued interest and other
current liabilities included in Total Debt) and less liabilities and
expenses incurred (but not paid) in connection with this Agreement and the
transactions contemplated hereby not otherwise accrued, calculated in
accordance with Sun Accounting Principles.
ARTICLE II
THE MERGER
2.1. THE MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 2.4 hereof), the Company shall be
merged with and into Newco (the "Merger") in accordance with the applicable
provisions of the laws of the States of Delaware and Texas and the separate
corporate existence of the Company shall cease and Newco shall continue as the
surviving corporation under the laws of the State of Delaware (the "Surviving
Corporation"). The name of the Surviving Corporation shall be changed to "Sun
Apparel, Inc."
2.2. EFFECT OF MERGER. At the Effective Time, the identity, existence,
corporate organization, purposes, powers, objects, franchises, privileges,
rights and immunities of Newco shall continue in effect and be unimpaired by the
Merger and the corporate existence of the Company shall cease and Newco will
succeed, without other transfer or further act or deed, to all the rights,
interests and properties, powers, assets and qualifications of the Company and
shall be subject to all the debts, limitations, liabilities and obligations of
the Company in the same manner as if Newco itself had incurred them. All rights
of creditors and all liens upon the property of each of the Constituent
Corporations shall be preserved unimpaired by the Merger.
2.3. FILING. Upon fulfillment or waiver of the conditions specified in
this Agreement, and provided that this Agreement has not been terminated in
accordance with the provisions hereof, on the Closing Date (as defined in
Section 2.11), Xxxxx and the Company will cause (a) a certificate of merger, in
substantially the form of Exhibit B-1 hereto (the "Delaware Certificate of
Merger"), to be executed, attested and filed with the office of the Secretary of
State of the State of Delaware as provided in Section 252 of the DGCL; and (b)
articles of merger, in substantially the form of Exhibit B-2 hereto (the "Texas
Articles of Merger"), to be executed, attested and filed with the office of the
Secretary of State of the State of Texas as provided in Section 5.04 of the
TBCA.
2.4. EFFECTIVE TIME OF THE MERGER. The Merger shall become effective at
such time as both the Delaware Certificate of Merger and the Texas Articles of
Merger have been duly filed or at such subsequent time as Xxxxx and the Company
may agree as specified in the Delaware Certificate of Merger (the date and time
the Merger becomes effective being the "Effective Time").
2.5. CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION. At the
Effective Time, the Certificate of Incorporation of Newco, as in effect
immediately prior to the Effective Time (as amended pursuant to the Delaware
Certificate of Merger), shall be and continue to be the Certificate of
Incorporation of the Surviving Corporation until the same shall be further
amended as provided therein and as provided by applicable law, except that
Article I of the Certificate of Incorporation of the Surviving Corporation shall
be amended to read in its entirety as follows: "The name of the Corporation is
Sun Apparel, Inc." There is hereby reserved to the Surviving Corporation the
right, from and after the Effective Time, to amend, alter or modify its
Certificate of Incorporation, as authorized, and in the manner permitted, by
Newco's Certificate of Incorporation, its By-Laws and applicable law.
2.6. BY-LAWS OF THE SURVIVING CORPORATION. At the Effective Time, the
By-Laws of Newco, as in effect immediately prior to the Effective Time, shall be
the By-Laws of the Surviving Corporation until the same shall be amended or
repealed as provided in the Certificate of Incorporation of Newco, its By-Laws
and applicable law; provided, however, that the Newco shall not amend Section
4.3 of its By-laws for so long as Xxxx X. Xxxxxxxx ("Xxxxxxxx") is employed
under the Xxxxxxxx Employment Agreement.
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2.7. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The following
persons shall be appointed to serve as the directors and officers of the
Surviving Corporation, effective upon the Effective Time:
Directors:
Four designees of Xxxxx, including the Chairman of the Board; Xxxx X.
Xxxxxxxx and Xxxxx Xxxxxxxx.
Chairman of the Board: Xxxxxx Xxxxxx.
Officers:
President and Chief Executive Officer: Xxxx X. Xxxxxxxx.
In addition, immediately after the Closing all of the present officers of
the Company shall continue to serve as officers of the Sun Division until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be. In the event that any person
referred to above is unable or unwilling to serve as a director or officer and
his successor has not yet been appointed and qualified, then the vacancy caused
thereby shall be filled as provided in the By-Laws of the Surviving Corporation
and applicable law. Such persons shall serve as officers and directors until the
earlier of their resignation or removal or otherwise ceasing to serve or until
their respective successors are duly elected and qualified, as the case may be.
Notwithstanding anything in this Section 2.7, Xxxxxxxx and Xxxxxxxx shall be
elected as directors of the Surviving Corporation for so long as they are
employed under the Xxxxxxxx Employment Agreement and the employment agreement
being executed and delivered on the date hereof between Xxxxxxxx and X.X.
Management, Inc., a Delaware corporation ("X.X. Management") (the "Xxxxxxxx
Employment Agreement"), respectively.
2.8. TAX CONSEQUENCES. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368(a)(1)(A) and (a)(2)(D) of the
Code, and that this Agreement shall constitute a "plan of reorganization" for
the purposes of Section 368 of the Code.
2.9. CONVERSION.
(a) The manner and basis of converting the shares of each of the
Constituent Corporations, and the consideration which the holders of such shares
shall receive, are as follows:
(i) Each Newco Share issued and outstanding immediately prior to the
Effective Time, shall continue to remain outstanding and shall be
unaffected by the Merger.
(ii) The aggregate value of cash and shares of Xxxxx Common Stock
which shall be issuable to the holders of the Company Shares at the Closing
pursuant to the Merger (the "Xxxxx Shares") shall be equal to $475 million
(A) less the sum of (I) the Total Debt of the Company (on the Closing Date)
and (II) the Working Capital Deficiency of the Company (on the Closing
Date), if any, and (B) plus the sum of (I) the Working Capital Surplus of
the Company (on the Closing Date), if any, and (II) $27,777.77 for each day
after October 1, 1998 up to and including the date that the Closing
(defined below) occurs ("Aggregate Merger Consideration"), of which 59%
(subject to adjustment as provided in Sections 2.16 and 2.17 below) shall
be paid in cash ("Cash Merger Consideration") and 41% (subject to
adjustment as provided in Sections 2.16 and 2.17 below) shall be paid by
issuance of Xxxxx Common Stock (the "Stock Merger Consideration") valued at
$26.00 (the "Xxxxx Initial Share Value"). Notwithstanding the foregoing,
the proportions of cash and Xxxxx Common Stock comprising the Aggregate
Merger Consideration shall be adjusted to the extent necessary in
accordance with Sections 2.16 and 2.17 hereof. In the event of any stock
dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares of the Xxxxx Common Stock occurring after
the date hereof and prior to the Closing, the Xxxxx Initial Share Value
shall be correspondingly adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares.
(iii) Each share of the Company Preferred Stock issued and outstanding
immediately prior to the Effective Time shall be converted into the right
to receive cash in an aggregate amount equal to the
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quotient of (x) the aggregate liquidation preference of all shares of
Company Preferred Stock plus any accumulated and unpaid dividends thereon
through the Closing Date (the "Aggregate Preferred Stock Value") divided by
(y) the total number of shares of Company Preferred Stock outstanding
immediately prior to the Effective Time (the "Preferred Stock Per Share
Amount"); provided, however, that if as a result of the operation of
Sections 2.16 and 2.17 the Total Cash Consideration is less than the
Aggregate Preferred Stock Value, any such shortfall shall be converted into
the right to receive Xxxxx Common Stock (valued at the Stock Consideration
Value (as defined in Section 2.16 below)).
(iv) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into the right
to receive cash and Xxxxx Common Stock (valued at the Xxxxx Initial Share
Value) in an aggregate amount equal to the quotient of (x) the Aggregate
Merger Consideration minus the Aggregate Preferred Stock Value divided by
(y) the total number of shares of Company Common Stock outstanding
immediately prior to the Effective Time.
(v) The Aggregate Merger Consideration less the Aggregate Preferred
Stock Value shall be payable to the Shareholders in respect of their
Company Common Stock in such proportions of cash and Xxxxx Common Stock as
the Shareholders shall direct in a written communication to Xxxxx delivered
not less than two (2) business days prior to the Closing; provided,
however, that at least 40% of the Aggregate Merger Consideration allocated
to Xxxxxxxx and the Xxxxxxxx Family Trust shall be delivered in Xxxxx
Common Stock, and at least 20% of the Aggregate Merger Consideration
allocated to Xxxxxxxx shall be delivered in Xxxxx Common Stock.
(vi) No fractional shares of Xxxxx Common Stock shall be issued upon
surrender for exchange of certificates for Company Shares. Notwithstanding
any other provision of this Agreement, each holder of Company Shares who
would otherwise have been entitled to receive a fraction of a share of
Xxxxx Common Stock shall receive in lieu thereof cash (without interest) in
an amount equal to the product of such fractional part and the Xxxxx
Initial Share Value of a share of Xxxxx Common Stock.
(b) (i) On the Closing Date, Shareholders shall deliver to Xxxxx the
certificates representing their Company Common Stock or Company Preferred Stock,
as the case may be, for cancellation by the Surviving Corporation, and Xxxxx
shall issue to Shareholders certificates representing the Xxxxx Shares and cash
to which such persons are entitled pursuant to Section 2.9(a).
(ii) Until surrendered in accordance with the provisions of this
Section 2.9(b), the certificate or certificates which immediately prior to
the Effective Time represented issued and outstanding Company Common Stock
or Company Preferred Stock shall represent for all purposes the right to
receive Xxxxx Shares and cash as provided above.
2.10. CONSIDERATION. On September 30, 1998, Shareholders shall deliver to
Xxxxx and Newco an estimated September 30, 1998 balance sheet of the Company,
and Shareholders together with Xxxxx shall discuss in good faith any adjustments
which Xxxxx reasonably believes should be made to such projected balance sheet,
which as finally agreed to between Xxxxx and Shareholders, is referred to as the
"Projected Balance Sheet". Using the Total Debt and Working Capital Deficiency
or Working Capital Surplus, if any, as reflected in the Projected Balance Sheet,
the parties shall agree upon the amount of the Aggregate Merger Consideration
which would be payable based upon the Projected Balance Sheet ("Tentative
Aggregate Merger Consideration"), and Xxxxx shall pay such amount at the Closing
("Closing Merger Consideration"), subject to post closing adjustment as provided
in Section 2.13. Vestar covenants and agrees that it shall retain and, if
applicable, hold record and beneficial ownership of (and not distribute to any
of its officers, directors, employees or partners) a portion of the Xxxxx Common
Stock delivered to it as part of the Closing Merger Consideration (valued at the
Xxxxx Initial Share Value), cash or a combination thereof having a value of or
equal to at least $7.5 million until the "Post-Closing Adjustment" (as defined
in Section 2.13(a)) shall have been determined and agreed to by the parties in
accordance with Section 2.13 below and any amount to be paid to Xxxxx has been
paid.
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2.11. CLOSING.
(a) The closing (the "Closing") of the transactions contemplated by this
Agreement will take place at the offices of Xxxxxxxx Xxxxx Xxxxxxxx Xxxx &
Ballon LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 after the satisfaction or
waiver of the conditions set forth in Articles VIII and IX hereof, but in any
event on or after September 28, 1998, at 4:30 p.m. New York City time (the
"Closing Date").
(b) At the Closing, the Company and Shareholders shall deliver to Xxxxx and
Newco the following:
(i) the payoff letters pursuant to Section 9.4;
(ii) the certificates for the Company Common Stock and the Company
Preferred Stock, as the case may be, pursuant to Section 9.5; and
(iii) documents reasonably satisfactory to Xxxxx terminating
agreements with Affiliates and evidencing the resignations required under
Section 9.6.
(c) At the Closing, Xxxxx and Newco shall deliver to the Company and
Shareholders the certificates representing the Xxxxx Shares and a wire transfer
or intra-bank transfer with respect to the Cash Merger Consideration. Solely for
purposes of facilitating the delivery of the Closing Merger Consideration on the
Closing Date, the parties agree to cooperate with each other after the date
hereof in establishing accounts at a single mutually acceptable banking
institution.
2.12. FURTHER ASSURANCES. After the Closing, Shareholders shall from time
to time, at the request of Xxxxx or the Surviving Corporation and without
further cost or expense to Xxxxx or the Surviving Corporation, execute and
deliver such other instruments of conveyance and transfer and take such other
actions as Xxxxx or the Surviving Corporation may reasonably request, in order
to effectuate the Merger and the transactions contemplated hereby.
2.13. POST-CLOSING ADJUSTMENT.
(a) The Shareholders shall cause Company to prepare, and engage Ernst &
Young LLP ("E&Y") to audit, consolidated financial statements of the Company and
the Company subsidiaries as of and for the period beginning January 1, 1998
through the Closing Date (the "Closing Financial Statements"), including a
balance sheet as of Closing Date (the "Closing Balance Sheet") and to conduct a
physical inventory, in accordance with Sun Accounting Principles. The cost of
the preparation of the Closing Financial Statements (including inventory) and
audit shall be paid by Shareholders; however, Xxxxx and its representatives
shall be permitted to observe and kept informed regarding every aspect of the
preparation of the Closing Financial Statements and audit and to communicate
with the Company and E&Y personnel with respect to the preparation of the
Closing Financial Statements and the conduct of the audit. The Tentative
Aggregate Merger Consideration shall be increased or decreased to the extent
that Total Debt or the Working Capital Deficiency (if any), as calculated by E&Y
based upon the Closing Balance Sheet, is less or greater, as the case may be,
than the Total Debt and Working Capital Deficiency (if any) used to calculate
the amount of the Tentative Aggregate Merger Consideration and shall be
decreased or increased to the extent that the Working Capital Surplus (if any),
as calculated by the Company based upon the Closing Balance Sheet, is less or
greater, as the case may be, than the Working Capital Surplus (if any) used to
calculate the amount of the Tentative Aggregate Merger Consideration ("Post
Closing Adjustment").
(b) No later than 60 days after the Closing, the Shareholders shall cause
E&Y to deliver to Xxxxx and Shareholders (i) the Closing Financial Statements
(including the Closing Balance Sheet), with E&Y's opinion thereon, and (ii) an
Agreed Upon Procedures Report showing the calculation of the Post Closing
Adjustments to be made in accordance with Section 2.13(a) above (collectively,
"Closing Documents"). Unless either Xxxxx or Shareholders, within 10 days after
receipt of the copy of the Closing Documents, notifies the other party of any
disagreement with the Post Closing Adjustments, the Closing Documents shall be
final and shall be accepted by and be binding upon both Xxxxx and Shareholders.
If either party so notifies the other party of any such disagreement within such
10 day period and such disagreement cannot be amicably resolved within an
additional period of 30 days, the disagreement as to the Post Closing
Adjustments shall be submitted for final determination to a big four accounting
firm selected by mutual agreement of Shareholders
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and Xxxxx, or, in the absence of agreement on such firm, to a big four
accounting firm jointly designated by E&Y and BDO Xxxxxxx LLP ("BDO") ("Appeal
Accountants"), whose review of the Post-Closing Adjustments shall be limited to
those items in dispute. During such 30-day period, each party may make a written
settlement proposal to the other or, failing such written proposal, shall be
deemed to have made a written settlement proposal accepting the decision of E&Y.
Any Appeal Accountants selected pursuant to this Section 2.13 must have the
ability to resolve any dispute within 60 days after notice of such dispute is
given. The party whose final written proposal was further from the final
decision shall bear all reasonable costs and expenses of both parties in
resolving such dispute. The Appeal Accountants shall render their final
determination with respect to the resolution of such disputes, which shall be
final and binding on the parties, and shall deliver copies thereof to Xxxxx and
Shareholders.
(c) To the extent the Tentative Aggregate Merger Consideration as adjusted
by this Section 2.13 exceeds the Closing Merger Consideration, the amount of
such excess shall be paid to Shareholders, and to the extent the Tentative
Aggregate Merger Consideration as adjusted by this Section 2.13 is less than the
Closing Merger Consideration, the amount of such excess shall be paid by
Shareholders to Xxxxx, in each case in proportion to the percentage of the
Tentative Aggregate Merger Consideration paid to each Shareholder, and within
five days after such amount is finally determined. Each payment hereunder with
respect to each Shareholder shall be in the forms set forth in Sections
2.9(a)(iii) and 2.9(a)(iv).
(d) The cash portion of each such payment shall bear interest at the prime
rate of the Chase Manhattan Bank from the Closing Date to the date of payment.
The stock portion of any such payment shall be valued at the Xxxxx Initial Share
Value.
2.14. ADDITIONAL PAYMENT TO SHAREHOLDERS. In addition to the Aggregate
Merger Consideration provided for under Section 2.9 hereof, Shareholders shall
be entitled to receive such additional consideration in respect of the Merger as
shall be payable in accordance with this Section 2.14. In each of the calendar
years listed below (each a "Target Year") that EBIT (as defined below) of the
Sun Division exceeds the Threshold Amount listed below (the "Threshold Amount"),
Xxxxx will pay to Shareholders ("Additional Payments"), in such proportions as
the Shareholders shall have directed in a written communication to Xxxxx not
less than two (2) business days prior to the Closing, $2.00 for each $1.00 of
such excess:
TARGET YEAR THRESHOLD AMOUNT
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(MILLIONS)
1998....................................... $57.0
1999....................................... $58.0
2000....................................... $63.0
2001....................................... $85.0
(a) Manner of Payment. The Additional Payments shall be payable 59%
in cash and 41% in Xxxxx Common Stock. The number of shares of Xxxxx Common
Stock deliverable to Shareholders with respect to any Target Year shall be
determined by dividing that portion of the Additional Payment due in Xxxxx
Common Stock by the average daily last sale price of Xxxxx Common Stock on
the New York Stock Exchange ("NYSE") composite transactions tape during the
last 20 days on which Xxxxx Common Stock is traded of the month of March
following the Target Year (the "Calculation Period") (the "Xxxxx Contingent
Stock"). Notwithstanding the foregoing, the proportions of cash and Xxxxx
Contingent Stock comprising the Additional Payments shall be adjusted to
the extent necessary in accordance with Section 2.16 hereof. In the event
of any stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares of Xxxxx Common Stock occurring
during or after the Calculation Period but prior to the issuance of shares
of Xxxxx Contingent Stock with respect to any Target Year, the number of
shares to be issued as Xxxxx Contingent Stock shall be correspondingly
adjusted to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares. To the extent
that any portion of the Additional Payments is deemed to be interest, such
interest shall be deemed to be paid in cash.
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(b) Calculation of EBIT. For the purposes of this Section 2.14, the
"EBIT" of the Sun Division shall mean the net income, before extraordinary
items (as defined in accordance with GAAP) of income, gain, loss and
expense and before all income taxes and other taxes now or hereafter in
effect that are assessed on income (including Texas franchise taxes to the
extent that such taxes are assessed on income) and interest expense and
finance charges (including bank financing costs, the interest portion of
capital leases, bank commitment fees, amortization of loan origination
costs, factoring interest charges and other financing costs and expenses)
of the Sun Division, computed in accordance with Sun Accounting Principles,
except that the following provisions shall govern the computation of the
EBIT of the Sun Division for purposes of this Section 2.14:
(i) Those nonrecurring items of income, gain, loss or expense of
the Sun Division listed on Section 2.14(b) of the Disclosure Schedule
shall be excluded from such computation. The parties hereto agree that,
with respect to the amortization of the costs of moving certain of the
Sun Division's operations to Mexico, the parties shall negotiate in good
faith to determine a reasonable period of time over which to amortize
such costs, taking into account the benefits to be derived from the move
to Mexico and the period of time over which such benefits will accrue,
and adhering to the following general principles: (i) all capital items
will be amortized over their normal useful lives in accordance with Sun
Accounting Principles and (ii) all expense items, including severance
charges, will be amortized over three years.
(ii) Any purchase accounting adjustments arising out of the
transactions contemplated hereby, shall be excluded from the
computation.
(iii) To the extent that the Sun Division incurs losses, charges or
expenses for which the Shareholders (other than the Xxxxxxxx Family
Trust and Xxxxxxxx) make indemnification payments to Xxxxx pursuant to
Section 11.2, the amount of such indemnification payments (to the extent
actually paid and not included in the computation) shall be added back
to EBIT for the period in which such payments were charged.
(c) Treatment of Certain Expenses and Charges.
(i) As used herein:
(A) "Replacement Services" shall mean those business services
which are utilized by the Sun Division following the Closing which
are of the same kind of service used prior to the Closing by the
Company, and which Xxxxx requires be provided to the Sun Division
either by Xxxxx' internal staff (e.g. credit and collection), or by a
third party vendor different from that which provided the services to
the Company prior to the Closing (e.g. insurance); the charges to the
Sun Division by Xxxxx or a third party vendor for such Replacement
Services are referred to herein as "Replacement Services Expenses";
(B) "New Services" shall mean those business services which are
utilized by the Sun Division following the Closing which are of a
kind not used by the Company prior to the Closing, but which are
required by Xxxxx (e.g. review of quarterly financial statements by
independent auditors); the charges to the Sun Division of such New
Services are referred to herein as "New Services Expenses";
(C) "Required Charges/Write-Offs" shall mean those charges to
the Sun Division for severance of employees, asset write-offs and the
like which are incurred by the Sun Division as a result of the
providing of Replacement Services; and
(D) "Sun Division Sales Growth" shall mean the percentage
increase in Sun Division net revenue in the calculation year from the
immediately preceding calendar year (with respect to 1999, the growth
shall be measured by comparison to combined net revenue in 1998 of
the Company and the Sun Division).
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(ii) Xxxxx shall allocate Replacement Services Expenses and New
Services Expenses in the same manner that Xxxxx allocates such expenses
to its other divisions. In no event shall the Sun Division be charged
with a general allocation of Xxxxx' corporate overhead expenses.
(iii) Xxxxx will provide ER reasonable advance notice in writing of
its intent to require Replacement Services and the estimated Replacement
Services Expenses and related Required Charges/Write-Offs to be incurred
by the Sun Division.
(iv) If ER agrees to the providing of specific Replacement Services
("Agreed Replacement Services"), Replacement Services Expenses ("Agreed
Replacement Services Expenses") and related Required Charges/Write-Offs
shall be charged to the Sun Division for such Agreed Replacement
Services. It is understood and agreed by the parties hereto that EBIT
will reflect the savings (if any) which result or accrue from Agreed
Replacement Services.
(v) If ER does not agree to the providing of specific Replacement
Services, Xxxxx may require that the Sun Division accept (and ER shall
accept) such specific Replacement Services as to which ER has objected
("Objected Replacement Services"). Replacement Services Expenses for
such Objected Replacement Services ("Objected Replacement Services
Charges") shall be charged to the Sun Division. It is understood and
agreed that EBIT will not reflect the savings (if any) which result from
Objected Replacement Services.
(vi) EBIT of the Sun Division otherwise calculated pursuant to
Section 2.14(b) shall be adjusted as follows:
(A) If the sum of Objected Replacement Services Charges plus
related Required Charges/Write-Offs exceeds the "Adjusted Prior
Year's Expenses" for Objected Replacement Services, EBIT shall be
increased by such excess;
(B) If the Adjusted Prior Year's Expenses for Objected
Replacement Services exceeds the sum of Objected Replacement Services
Charges plus related Required Charges/Write-Offs, EBIT shall be
decreased by such excess, and
(C) If the sum of Agreed Replacement Services Expenses plus
related Required Charges/ Write-Offs plus total New Services
Expenses, exceeds the Adjusted Prior Year's Expenses for Agreed
Replacement Services, EBIT shall be increased by such excess, but
only up to the amount of total New Services Expenses.
(D) As used herein, the Adjusted Prior Year's Expenses for
Replacement Services shall mean, with respect to a specific
Replacement Service:
Costs of such service in the prior year x (1+ (.75 x Sun
Division Sales Growth)).
(vii) It is also the intention of Xxxxx to add to the Sun Division
two executives reasonably acceptable to Xxxxxxxx who shall report
directly to Xxxxxxxx. Notwithstanding the foregoing, each of the members
of the Sun Division's Board of Directors shall have complete access at
all times to such executives. Fifty percent (50%) of up to $1,000,000 of
the aggregate compensation payable to such executives per Target Year
will be considered a direct expense of the Sun Division.
(d) Post-Closing Conduct of Business by Xxxxx. Following the Closing
Xxxxx shall:
(i) through December 31, 1999, provide the Sun Division with
adequate capital to support its capital expenditure plan as approved by
Xxxxx prior to the date hereof and set forth in Schedule 2.14(d) hereto;
provided that budgeted capital expenses which are not spent during the
Target Year may be carried over to the following Target Year's budget
for use as previously approved without further approval by Xxxxx
(thereby increasing such subsequent Target Year's capital expense
budget);
(ii) with respect to each of Target Year 2000 and Target Year 2001,
provide the Sun Division with adequate capital to support its capital
expenditure plan in the amount approved by Xxxxx prior
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to the date hereof and set forth in Schedule 2.14(d) hereto (the
specific items within such capital expenditure plan being subject to
approval by Xxxxx upon delivery by the Sun Division of data similar in
level of detail to that provided for the Target Year 1998 and Target
Year 1999 as set forth in Section 2.14(d) of the Disclosure Schedule);
provided that if EBIT of the Sun Division for the immediately preceding
fiscal year (the "Prior Year") did not equal or exceed the Threshold
Amount for such Prior Year, then the amount of capital that Xxxxx is
obligated to provide the Sun Division for the Target Year shall
correspondingly be reduced by the percentage that EBIT was below the
Threshold Amount for such Prior Year; provided that budgeted capital
expenses which are not spent during the Target Year may be carried over
to the following Target Year's budget for use as previously approved
without further approval by Xxxxx (thereby increasing such subsequent
Target Year's capital expense budget);
(iii) not cause the Sun Division to terminate or reduce any
existing business or line of business of the Sun Division so long as
such business or line of business has positive EBIT during the period
consisting of the four fiscal quarters ending at least 45 days prior to
such termination or reduction, or cause the Sun Division to enter into
any new business or line of business, in each case, so long as Xxxxxxxx
is employed by the Sun Division, without Xxxxxxxx'x prior approval.
Notwithstanding the foregoing, the Sun Division shall be permitted to
continue the Xxxx Xxxxxx division through December 31, 2001 so long as
losses for the Xxxx Xxxxxx division do not exceed such division's losses
for 1998;
(iv) so long as Xxxxxxxx is employed by the Sun Division, consult
with Xxxxxxxx prior to expanding its business or entering into a
jeanswear business that is comparable to or competitive with the Polo
Jeans Company business conducted by the Sun Division, it being
understood that the ultimate decision for the actions set forth in this
clause (iv) is to be made by Xxxxx, and it being further understood that
Xxxxx will not conduct any business under the Polo Jeans Company name
other than through the Sun Division without Xxxxxxxx'x prior written
approval; and
(v) provide the Sun Division with adequate letters of credit and
working capital as are reasonably necessary to operate the Sun Division
consistent with the manner in which the business has been conducted
prior to the date hereof.
Following the Closing, the Sun Division may manufacture jeanswear or
other products for Xxxxx at mutually agreed prices. If Xxxxx and the Sun
Division cannot agree on a mutually acceptable price, the Sun Division will
manufacture such jeanswear and other products at the lowest price for its
most recent orders accepted for new styles not previously manufactured of
like products, taking into account all relevant factors, terms and
conditions including, without limitation, fabric quality and pricing, trim
quality and pricing, garment construction, washing and finishing quality
and pricing, unit volume and consistency, ancillary services necessary to
manufacturing and distribution, factory capacity or availability, delivery
and timing requirements and prior commitments.
(e) Further Assurances. In the event that Xxxxxxxx is not employed by
the Sun Division, Xxxxx shall, through December 31, 2001, cause the Sun
Division to be operated reasonably consistent with past practice so long as
(A) the Sun Division's EBIT continues to be equal to or greater than the
Threshold Amounts and (B) no event has occurred that would give rise to
Xxxxx' right to terminate or limit Xxxxxxxx'x authority pursuant to Section
7.10 below. Notwithstanding the foregoing, through December 31, 2001, Xxxxx
shall not (A) change the manner in which it allocates expenses or charges
for services provided to the Sun Division or (B) contribute to the Sun
Division a business that, during the twelve-month period prior to the date
of such contribution, had a negative EBIT.
(f) Information to Vestar, Xxxxxxxx and the Xxxxxxxx Family Trust. In
the event that Xxxxxxxx is not employed by Xxxxx or the Sun Division, Xxxxx
shall, through December 31, 2001, provide each of Vestar and Xxxxxxxx (or
if Xxxxxxxx is then deceased, the Xxxxxxxx Family Trust) with monthly
financial reports and grant Vestar and Xxxxxxxx (or the Xxxxxxxx Family
Trust, as the case may be) the opportunity to visit with and reasonably ask
questions of a senior financial officer of Xxxxx at Xxxxx' offices, and
such officer shall be instructed by the Company to provide answers within a
reasonable period
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of time, regarding such financial reports and the Company's general
performance; provided, however, that such visits shall (i) be no more
frequent than once each fiscal quarter, (ii) take place during Xxxxx'
normal business hours upon reasonable prior notice thereof and (iii) not
interfere with Xxxxx' business and affairs.
(g) Board Approval. Each Additional Payment shall be payable within
the time provided in Section 2.15(a) below. On or prior to payment, any
Additional Payment shall be approved by either (i) the Board of Directors
of Xxxxx or (ii) a committee comprised solely of two or more non-employee
directors of Xxxxx.
(h) Survival After Closing. The obligations of Xxxxx under Section
2.14 shall survive the Closing and any termination of Xxxxxxxx'x employment
under the Xxxxxxxx Employment Agreement.
(i) Opportunity to Earn Additional Payments. The Shareholders'
opportunity to earn the Additional Payments under Section 2.14 is one of
the inducements for the Shareholders to enter into the Merger Agreement,
and Shareholders believe that Xxxxxxxx'x continued employment by Xxxxx or
Newco will enable them to earn greater Additional Payments than if he were
not so employed. In the event that Newco terminates Xxxxxxxx'x employment
without "Cause" or Xxxxxxxx terminates his employment by Newco for "Good
Reason" (as each such term is defined in the Xxxxxxxx Employment
Agreement), Shareholders shall not be precluded from seeking damages
measured by the loss of the opportunity to earn the Additional Payments.
The Shareholders shall bear the burden of proving whether and to what
extent the lost opportunity of achieving Additional Payments resulted from
the Company's termination of Xxxxxxxx'x employment without Cause or
Xxxxxxxx'x termination of his employment for Good Reason.
2.15. TIMING OF ADDITIONAL PAYMENTS. (a) On the third business day after
the end of the Calculation Period, Xxxxx will deliver to Shareholders a
statement setting forth in reasonable detail its calculation of the EBIT of the
Sun Division during the Target Year and the amount of any Additional Payments to
be paid to Shareholders pursuant to Section 2.14, which statement shall be
accompanied by payment to Shareholders, by delivery of the Xxxxx Contingent
Stock and by wire transfer of immediately available funds to one or more
accounts designated by Shareholders, representing the Additional Payments as
shown thereon. If within 30 days after delivery of such statement Shareholders
have not given notice to Xxxxx disputing such statement, Xxxxx shall thereafter
have no further liability to Shareholders for the Additional Payment with
respect to such Target Year under Sections 2.14.
(b) In the event Shareholders give Xxxxx such notice of dispute within such
30-day period, Shareholders and Xxxxx will use their good faith, best efforts to
settle the dispute within 30 days after the giving of such notice. In connection
with such dispute, Xxxxx shall provide Shareholders such access to the financial
books and records of the Sun Division with respect to the Target Year as is
reasonably necessary to determine the amount of EBIT for the Sun Division for
the Target Year. Any dispute unresolved after such 30-day period shall be
submitted to a big four accounting firm selected by mutual agreement of
Shareholders and Xxxxx, or, in the absence of agreement on such firm, to a big
four accounting firm jointly designated by E&Y and BDO. During such 30-day
period, each party may make a written settlement proposal to the other or,
failing such written proposal, shall be deemed to have made a written settlement
proposal accepting the calculation proposed by Xxxxx. Any public accounting firm
selected pursuant to this Section 2.15 must have the ability to resolve any such
dispute within 60 days after notice of such dispute is given. Such accounting
firm shall render its final decision with respect to the resolution of such
dispute, which shall be final and binding on the parties hereto, and shall
deliver copies thereof to Xxxxx and Shareholders. Xxxxx shall issue any further
Xxxxx Contingent Stock and/or make further payments to Shareholders required in
order to comply with such decision within five days after such decision is
rendered. The party whose last written settlement proposal to the other party is
further from the final decision shall bear all reasonable costs and expenses of
both parties in resolving such dispute.
2.16. CASH LIMITATION. Notwithstanding anything in this Agreement to the
contrary, the aggregate amount of cash consideration (the "Total Cash
Consideration") to be paid to the Shareholders pursuant to this Agreement
(including the Cash Merger Consideration payable pursuant to Section 2.9(a), the
cash portion of any Additional Payments payable pursuant to Section 2.14(a)
(excluding the amount of any
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interest deemed attributable thereto) and any cash paid in lieu of fractional
shares of Xxxxx Common Stock) shall not exceed 59% of the total of the Aggregate
Merger Consideration plus any Additional Payments (excluding the amount of any
interest deemed attributable thereto)(the "Cash Limitation"). Solely for
purposes of determining the Cash Limitation in calculating the Aggregate Merger
Consideration plus any Additional Payments (excluding the amount of any interest
deemed attributable thereto), the value of each share of Xxxxx Common Stock and
Xxxxx Contingent Stock issued pursuant to this Agreement shall equal the average
of the high and low trading prices of shares of Xxxxx Common Stock on the NYSE
composite transactions tape on (i) the Closing Date, in respect of each payment
of Xxxxx Common Stock on the Closing Date (the "Stock Consideration Value") and
(ii) the issuance date, in respect of the payment of Xxxxx Contingent Stock (the
"Contingent Stock Consideration Value"). If the Total Cash Consideration payable
to the Shareholders pursuant to this Agreement would exceed the Cash Limitation,
but for this Section 2.16, Xxxxx shall be required to issue additional shares of
Xxxxx Common Stock or Xxxxx Contingent Stock, as the case may be, to the
Shareholders in lieu of cash in an amount necessary to ensure that the Total
Cash Consideration does not exceed the Cash Limitation. If additional shares of
Xxxxx Common Stock or Xxxxx Contingent Stock are issued pursuant to the
preceding sentence, the amount of cash payable to the Shareholders shall be
reduced by an amount equal to the number of such additional shares issued
multiplied by the Stock Consideration Value or the applicable Contingent Stock
Consideration Value, as the case may be.
2.17. ADJUSTMENT FOR PREPAYMENT OF VESTAR NOTES. Notwithstanding anything
in this Agreement to the contrary, after making the adjustment (if any) required
under Section 2.16, the Cash Merger Consideration shall be reduced by an amount
equal to 41% of the Vestar Prepayment Amount as defined below (the "Prepayment
Adjustment Amount") and simultaneously, the Stock Merger Consideration shall be
increased by a number of shares of Xxxxx Common Stock (the "Vestar Adjustment
Shares") equal to (x) the Prepayment Adjustment Amount divided by (y) the Stock
Consideration Value. For purposes hereof:
(a) "Vestar Notes" shall mean, collectively, (i) the promissory note
dated September 26, 1997 issued by the Company in the initial aggregate
principal amount of $9,355,250 and payable to Vestar; and (ii) the
promissory note dated September 26, 1997 issued by the Company in the
initial aggregate principal amount of $20,644,750 and payable to Vestar.
(b) "Vestar Prepayment Amount" shall mean all amounts (including
interest, premiums, penalties, make whole payments, fees and any other
costs of every nature whatsoever) necessary to effectuate the payment in
full of the indebtedness evidenced by the Vestar Notes on the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each Shareholder (other than Xxxxxxxx) represents, covenants and warrants,
jointly and severally, to Xxxxx and Newco as follows:
3.1. CORPORATE ORGANIZATION; ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and has full corporate power and authority to carry on its business as it
is now being conducted and to own the properties and assets it now owns; is duly
qualified or licensed to do business as a foreign corporation in good standing
in the jurisdictions listed in Section 3.1 of the Disclosure Schedule which are
all the jurisdictions in which such qualification is required except
jurisdictions in which the Company's failure to qualify to do business will have
no material adverse effect on the business, operations, properties, assets or
financial condition of the Company. The copies of the articles of incorporation
and by-laws and all amendments thereto of the Company heretofore delivered to
Xxxxx are complete and correct copies of such instruments as presently in
effect.
3.2. CAPITALIZATION OF THE COMPANY. As of the date of this Agreement, the
authorized capital stock of the Company consists of the Company Common Stock, of
which 3,780 shares are issued and outstanding, and the Company Preferred Stock,
of which 425,000 shares are issued and outstanding. All issued and outstanding
shares of capital stock of the Company are validly issued, fully paid and
nonassessable. Except as set forth in
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Section 3.2 of the Disclosure Schedule, there are no outstanding (a) securities
convertible into or exchangeable for the Company's capital stock; (b) options,
warrants or other rights to purchase or subscribe to capital stock of the
Company or securities convertible into or exchangeable for capital stock of the
Company; or (c) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance of any capital stock of the
Company, any such convertible or exchangeable securities or any such options,
warrants or rights.
3.3. SUBSIDIARIES. Section 3.3 of the Disclosure Schedule sets forth the
name, jurisdiction of organization and capitalization of each Company Subsidiary
and the jurisdictions in which each Company Subsidiary is qualified to do
business. Except as disclosed in Section 3.3 of the Disclosure Schedule, the
Company does not own, directly or indirectly, any capital stock or other equity
securities of any corporation, limited liability company, partnership or any
other entity or have any direct or indirect equity or ownership interest in any
business. Except as and to the extent set forth in Section 3.3 of the Disclosure
Schedule, all the outstanding equity securities of each Company Subsidiary
(except for directors' qualifying shares) are owned directly or indirectly by
the Company free and clear of all liens, options or encumbrances of any kind and
all claims or charges of any kind, and is validly issued, fully paid and
nonassessable, and there are no outstanding options, rights or agreements of any
kind relating to the issuance, sale or transfer of any capital stock or other
equity securities of any such Company Subsidiary to any person except the
Company. Each Company Subsidiary (i) is an entity duly organized, validly
existing and in good standing under the laws of its state of organization; and
(ii) has full power and authority to carry on its business as it is now being
conducted and to own the properties and assets it now owns. Each Company
Subsidiary is duly qualified to do business and is in good standing as a foreign
entity in each jurisdiction listed opposite the name of such Company Subsidiary
in Section 3.3 of the Disclosure Schedule which are the only jurisdictions in
which the properties owned or leased or the nature of the business conducted by
it makes such qualification necessary. The copies of the certificate of
incorporation and by-laws or other organizational certificate and all amendments
thereto of each Company Subsidiary heretofore delivered to Xxxxx are complete
and correct copies of such instruments as presently in effect.
3.4. AUTHORIZATION; NO VIOLATION.
(a) The Company has full corporate power and authority necessary to enter
into this Agreement and to carry out the transactions contemplated hereby. The
Board of Directors of the Company and Shareholders have taken all action
required by law, the Company's articles of incorporation, its by-laws or
otherwise to be taken by them to authorize the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and is a legal,
valid and binding obligation of the Company enforceable against it in accordance
with its terms except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and (ii) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefore may be brought.
(b) Except as set forth in Section 3.4(b) of the Disclosure Schedule (and
other than (i) leases entered into in the ordinary course of business which
individually either require annual payments of less than $100,000 or have terms
of less than 3 years or (ii) other commitments requiring payments not exceeding
$250,000 in the aggregate), neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will violate any
provision of the articles or certificate of incorporation or by-laws or other
organizational documents of the Company or any Company Subsidiary, or to the
knowledge of Shareholders, be in conflict with, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under or result in the termination of, or accelerate the performance required
by, or cause the acceleration of the maturity of any debt or obligation pursuant
to, or result in the creation or imposition of any security interest, lien or
other encumbrance upon any property or assets of the Company, any Company
Subsidiary or any Shareholder under, any agreement or commitment to which the
Company, any Company Subsidiary or any Shareholder is a party or by which the
Company, any Company Subsidiary or any Shareholder is bound, or to which the
property of the Company, any Company Subsidiary or any Shareholder
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is subject, or violate any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental authority applicable to the
Company or any Company Subsidiary.
3.5. FINANCIAL STATEMENTS. The Company has heretofore delivered to Xxxxx
and Newco: (i) a consolidated balance sheet of the Company and the Company
Subsidiaries as at December 31, in each of the years 1996 and 1997; and
consolidated statements of income, changes in shareholders' equity (deficit) and
cash flows for each of the years then ended, all audited and certified by E&Y,
whose reports thereon are included therein; and (ii) an unaudited consolidated
balance sheet of the Company and the Company Subsidiaries as at June 30, 1998
(the "Balance Sheet"), and unaudited consolidated statements of income,
shareholders' equity (deficit) and cash flows for the three month period then
ended. Such consolidated balance sheets and the notes thereto fairly present the
consolidated assets, liabilities and financial condition of the Company and the
Company Subsidiaries as at the respective dates thereof, and such consolidated
statements of income, changes in shareholders' equity (deficit) and cash flows
and the notes thereto fairly present the results of operations for the periods
therein referred to; all in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except, in the
case of unaudited statements, for normally recurring year-end adjustments, which
adjustments will not be material either individually or in the aggregate. The
operating data set forth in Section 3.5 of the Disclosure Schedule with respect
to the Company's divisions is complete and accurate in all material respects.
3.6. NO UNDISCLOSED LIABILITIES; ETC. Except as set forth in Section 3.6
of the Disclosure Schedule, as of June 30, 1998, neither the Company nor any
Company Subsidiary had liabilities or obligations of any nature (absolute,
accrued, contingent or otherwise) not otherwise disclosed herein which are not
reflected or reserved against in the Balance Sheet, which, in accordance with
generally accepted accounting principles, should have been shown or reflected in
the Balance Sheet.
3.7. ACCOUNTS RECEIVABLE. All accounts receivable of the Company and each
Company Subsidiary (including factored accounts), whether reflected in the
Balance Sheet or otherwise, arose in the ordinary course of business in a manner
consistent with past practices for goods or services delivered or rendered, and
to the knowledge of Shareholders, are not subject to counterclaims or set offs,
and have been, or to the knowledge of Shareholders, will be, collected, less the
applicable reserves set forth in the Balance Sheet.
3.8 INVENTORY. Except as set forth in Section 3.8 of the Disclosure
Schedule (i) all of the inventories of the Company and each Company Subsidiary
whether reflected on the Balance Sheet or otherwise consist of a quality and
quantity usable and salable in the ordinary and usual course of business, except
for items of obsolete materials and materials of below-standard quality and
shrinkage, all of which have been written off or written down to fair market
value: (ii) all inventories not written off have been properly priced at the
lower of cost or market in accordance with generally accepted accounting
principles consistently applied; (iii) the quantities of each type of inventory
(whether raw materials, work-in-process, or finished goods) are not excessive or
slow moving, but are reasonable and warranted in the present circumstances of
the Company and each Company Subsidiary; and (iv) to the knowledge of
Shareholders, all work in process and finished goods inventory are free of any
material defect or other material deficiency in design, material and workmanship
and is usable and suitable for its intended purpose, except for non
first-quality work in progress and finished goods inventory arising in the
ordinary course of business.
3.9. ABSENCE OF CERTAIN CHANGES. Except as and to the extent set forth in
Section 3.9 of the Disclosure Schedule since the date of the Balance Sheet,
neither the Company nor any Company Subsidiary has:
(a) Suffered any material adverse change in its working capital,
financial condition, assets, liabilities, business or operations;
(b) Incurred any liabilities or commitments or obligations including
commitments to make capital expenditures, except for items which were:
(i) incurred in the ordinary course of business, none of which in
the singular or aggregate exceeds $100,000 (counting all periodic
installments or payments under any lease or other agreement providing
for periodic installments or payments, as a single obligation or
liability);
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(ii) consistent with the Company's budget as set forth in Section
3.9 of the Disclosure Schedule; or
(iii) consistent with the capital expenditure plan set forth in
Section 2.14(d) of the Disclosure Schedule;
or increased, or experienced any change in any assumptions underlying or
methods of calculating, any bad debt, contingency or other reserves;
(c) (i) Entered into, extended, materially modified, terminated or
renewed any contract, lease, license, permit or commitment, except in the
ordinary course of business, or
(ii) Made purchases of raw materials or supplies, or sold or
purchased any assets except for:
(A) contracts or commitments for the purchase of, and purchases of,
raw material or supplies, made in the ordinary course of business and
consistent with past practice,
(B) normal contracts or commitments for the sale of, and normal
sales of, inventory in the ordinary course of business and consistent
with past practice,
(C) capital expenditures consistent with the capital expenditure
plan set forth in Section 2.14(d) of the Disclosure Schedule, and
(D) other contracts, commitments, purchases or sales (other than of
inventory) in the ordinary course of business and consistent with past
practice the value of which does not exceed $100,000;
(d) Paid, discharged or satisfied any claim, liabilities or
obligations other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of
liabilities and obligations reflected or reserved against in the Balance
Sheet or incurred in the ordinary course of business since the date of the
Balance Sheet;
(e) Failed to pay or satisfy its uncontested accounts payable, debts,
obligations and other liabilities for a period of 30 days after due;
(f) Permitted or allowed any of its property or assets (real, personal
or mixed, tangible or intangible) to be subjected to any mortgage, pledge,
lien, security interest, encumbrance, restriction or charge of any kind,
except for Permitted Liens (as defined in Section 3.10);
(g) Written down or up the value of any inventory (including
write-downs by reason of shrinkage or xxxx-down) or written off as
uncollectible any notes or accounts receivable, except for immaterial
write-downs and write-offs in the ordinary course of business and
consistent with past practice;
(h) Canceled any debts in excess of $10,000 individually or in the
aggregate or waived any claims or rights of substantial value;
(i) Disposed of or permitted to lapse any rights to the use of any of
the Intellectual Property (as defined in Section 3.12), or disposed of or
disclosed (except as necessary in the conduct of its business) to any
person other than representatives of Xxxxx any trade secret, formula,
process or know-how not theretofore a matter of public knowledge;
(j) Granted or otherwise committed to make any increase in the
compensation of those individuals identified as executive officers or
senior officers under the caption "Management" in the Registration
Statement (including any such increase pursuant to any bonus, pension,
profit sharing or other plan or commitment) or make any bonus, severance,
or termination or similar payments to, or establish, adopt or amend any
employee retirement or benefit plan or program; or entered into any
collective bargaining agreement, service or termination agreement,
excluding increases which may have been granted on an occasional basis and
not as part of a plan or program for hourly paid employees;
(k) Declared any dividends (other than regularly scheduled dividends
in respect of the Company Preferred Stock) or made any other form of
capital distribution affecting its equity, or paid or incurred directors'
fees;
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(l) Made any change in any method of accounting or accounting
practice;
(m) Paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets (real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any of
its officers or directors or any affiliate or associate of any of its
officers or directors except for compensation to directors and officers at
rates not exceeding the rates of compensation paid during the fiscal year
of the Company ended December 31, 1997;
(n) To the knowledge of Shareholders, failed to comply in all material
respects with all laws applicable to the conduct of business; or
(o) Agreed, whether in writing or otherwise, to take any action
prohibited by this Section.
3.10. TITLE TO PROPERTIES: ENCUMBRANCES.
(a) Except as shown in Section 3.10(a) of the Disclosure Schedule each of
the Company and the Company Subsidiaries has good title to all properties and
assets which it purports to own (real, personal and mixed, tangible and
intangible), including, without limitation, all the properties and assets
reflected in the Balance Sheet (except for inventory and obsolete equipment sold
since the date of the Balance Sheet in the ordinary course of business and
consistent with past practice), and all the properties and assets purchased by
the Company and Company Subsidiaries since the date of the Balance Sheet, which
subsequently acquired properties and assets (other than inventory) are reflected
in Section 3.10(b) of the Disclosure Schedule (other than immaterial properties
and assets acquired in the ordinary course of business or as contemplated by the
capital expenditure plan as set forth on Section 2.14(d) of the Disclosure
Schedule), except in each case for (i) liens for taxes which are not yet due and
payable or which are being contested in good faith, (ii) statutory, common law,
builder, mechanic, warehouseman, materialmen, contractor, workmen, repairmen,
carrier or other liens which do not interfere with the use by the Company and
the Company Subsidiaries of the assets relating to the business of the Company
and the Company Subsidiaries or (iii) other restrictions on the use of property
which do not materially interfere with the conduct of the ordinary course of
business of the Company and the Company Subsidiaries or materially impair the
use or value of property (collectively, "Permitted Liens"). Except as set forth
in Section 3.10(c) of the Disclosure Schedule, all such properties and assets
are free and clear of all title defects or objections, liens, claims, charges,
pledges, options, security interests or other encumbrances of any kind or nature
whatsoever including, without limitation, leases, chattel mortgages, deed of
trusts, conditional sales contracts, collateral security arrangements and other
title or interest retention arrangements (collectively, "Liens"), and are not,
in the case of real property, except as set forth in Section 3.10(d) of the
Disclosure Schedule subject to any rights of way, encroachments, building use
restrictions, exceptions, variances, reservations or limitations of any nature
whatsoever or other right of third parties, whether voluntarily incurred or
arising by operation of law, including, without limitation, any agreement to
give any of the foregoing in the future and any contingent sale or other title
retention agreement except in each case (i) with respect to all such properties
and assets, liens as securing specified liabilities or obligations shown on the
Balance Sheet and (ii) for Permitted Liens. The rights, properties and other
assets presently owned, leased or licensed by the Company and the Company
Subsidiaries and described elsewhere in this Agreement include all rights,
properties and other assets necessary to permit each of the Company and the
Company Subsidiaries to conduct its business in all material respects in the
same manner as its business has been conducted prior to the Closing Date. All of
the properties and assets of the Company and the Company Subsidiaries are
maintained and operated in conformity with all applicable laws, ordinances, and
regulations relating thereto currently in effect, except where such
nonconformity would not have a material adverse effect on the business
operations of Company.
(b) All of the assets of Sun Torreon, S.A. de C.V. have been duly and
properly transferred to CNC West de Mexico, S.A. de C.V., and CNC West de
Mexico, S.A. de C.V. has good title thereto free and clear of all Liens (other
than Permitted Liens).
(c) Maquilas Pami, S.A. de C.V. has good title to and is the named
registered holder of the deeds to all of the real property in Mexico previously
disclosed by the Company to Xxxxx as being owned by the Company
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or a Company Subsidiary, and owns such real property free and clear of all Liens
(other than Permitted Liens).
3.11. PLANTS, STRUCTURES AND EQUIPMENT. To the knowledge of Shareholders,
(i) the plants, structures and equipment of the Company and each Company
Subsidiary are structurally sound with no defects and are in good operating
condition and repair and are adequate for the uses to which they are being put;
and (ii) none of such plants, structures or equipment are in need of maintenance
or repairs except for ordinary, routine maintenance and repairs which are not
material in nature or cost. Except as set forth in Section 3.11 of the
Disclosure Schedule, neither the Company nor any Company Subsidiary has received
notification that it is in violation of any applicable building, zoning,
anti-pollution, health or other law, ordinance or regulation in respect of its
plants or structures or their operations and to the knowledge of Shareholders,
no such violation exists.
3.12. PATENTS, TRADEMARKS, TRADE NAMES, ETC. The Company and each Company
Subsidiary owns, or is licensed or otherwise has the right to use, all patents,
trademarks, trade names, copyrights, technology, know-how and processes used in
or necessary for the conduct of the business as heretofore conducted by it (the
"Intellectual Property"). Section 3.12(a) of the Disclosure Schedule lists (a)
all patents and all registrations and applications for registration of
trademarks, trade names and copyrights used or proposed to be used by the
Company or any Company Subsidiary, including, with respect to each such
trademark, a list of each jurisdiction in which such trademark is registered or
in which applications for registration have been filed, any opposition filed and
pending, the status of such registrations, oppositions and expirations dates,
and a listing of all written licenses and other agreements relating thereto and
(b) a listing of all written agreements relating to technology, know-how or
processes which the Company or any Company Subsidiary is licensed or authorized
to use by others. Except as set forth in Section 3.12(b) of the Disclosure
Schedule, the Company and each Company Subsidiary has the sole and exclusive
right to use the Intellectual Property, and the consummation of the transactions
contemplated hereby will not alter or impair any such rights; to the knowledge
of Shareholders, no claims have been asserted by any person to the use of any
such Intellectual Property or challenging or questioning the validity or
effectiveness of any such license or agreement relating to the use of the
Intellectual Property, and Shareholders do not know of any valid basis for any
such claim; and to the knowledge of Shareholders, the use of the Intellectual
Property by the Company or any Company Subsidiary does not infringe on the
rights of any person.
3.13. LEASES. Section 3.13(a) of the Disclosure Schedule lists all leases
(other than leases entered into in the ordinary course of business which
individually either require annual payments of less than $100,000 or have terms
of less than 3 years) pursuant to which the Company or any Company Subsidiary
leases real or personal property, copies of which have previously been delivered
to Xxxxx. Except as set forth in Schedule 3.13(b) of the Disclosure Schedule, to
the knowledge of Shareholders, all such leases are in full force and effect;
there are no existing defaults by the Company or any Company Subsidiary and to
the knowledge of Shareholders no event has occurred which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute a default thereunder.
3.14. TAXES. Each of the Company and the Company Subsidiaries has duly
filed all tax reports and returns required to be filed by it and have duly paid
all taxes and other charges due by it (whether or not shown on any tax return)
or claimed to be due from it by federal, state, local or foreign taxing
authorities (including, without limitation, those due in respect of the
properties, income, franchises, licenses, sales or payrolls of any of them); the
reserves for taxes reflected in the Balance Sheet are adequate; and there are no
tax liens upon any property or assets of the Company or any Company Subsidiary
except liens for current taxes not yet due or which are being contested in good
faith with the appropriate taxing authorities as disclosed in Section 3.14 of
the Disclosure Schedule. Except to the extent set forth in Section 3.14 of the
Disclosure Schedule, there are no outstanding agreements or waivers extending
the statutory period of limitation applicable to any tax return for any period.
Since January 1, 1991, no claim has been received in writing by the Company, and
after due inquiry of the Company's executive officers, the Shareholders are not
aware that there has been, during the past twelve months, any oral notice, from
an authority in a jurisdiction where any of the Company or Company Subsidiaries
does not file tax returns that the Company or any of the Company Subsidiaries is
or may be subject to taxation by that jurisdiction.
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3.15. MATERIAL CONTRACTS.
(a) The Company has provided or made available to Xxxxx (i) true and
complete copies of all material contracts and agreements ("Material Contracts")
relating to the business of the Company and the Company Subsidiaries, each of
which is included on Section 3.15 of the Disclosure Schedule, or (ii) with
respect to such Material Contracts that have not been reduced to writing, a
written description thereof, each of which is listed on Section 3.15 of the
Disclosure Schedule. Neither the Company nor any Company Subsidiary is, or has
received any notice or has any knowledge that any other party is, in default in
any respect under any such Material Contract; and to the knowledge of
Shareholders, there has not occurred any event that, with the lapse of time or
the giving of notice or both, would constitute a default under the Material
Contracts.
(b) In addition, except as set forth on Section 3.15 of the Disclosure
Schedule:
(i) Neither the Company nor any Company Subsidiary has any outstanding
contracts with officers, employees, agents, consultants, advisors,
salesmen, sales representatives, distributors or dealers that are not
cancelable by it on notice of not longer than 30 days without liability,
penalty or premium or any agreement or arrangement providing for the
payment of any bonus or commission based on sales or earnings;
(ii) Neither the Company nor any Company Subsidiary has any employment
agreements, or any other agreements, understandings or commitments that
contain any severance liabilities or obligations;
(iii) Neither the Company nor any Company Subsidiary has any
collective bargaining or union contracts or agreements;
(iv) Neither the Company nor any Company Subsidiary is restricted by
agreement from carrying on its business anywhere it is presently conducting
business;
(v) To the knowledge of Shareholders, neither the Company nor any
Company Subsidiary is under any liability or obligation with respect to the
return of inventory or merchandise in the possession of wholesalers,
distributors, retailers or its customers other than in the ordinary course
of business consistent with past practice and as reflected in the Projected
Balance Sheet (adjusted, as needed, in the Closing Balance Sheet) in
accordance with GAAP;
(vi) To the knowledge of Shareholders, neither the Company nor any
Company Subsidiary has guaranteed the obligations of others, other than
guarantees of the Company of obligations of the Company Subsidiaries and
guarantees of the Company Subsidiaries of obligations of each other or of
the Company; and
(vii) To the knowledge of Shareholders, neither the Company nor any
Company Subsidiary has any power of attorney outstanding or any obligations
or liabilities (whether absolute, accrued, contingent or otherwise), as
guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise
in respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity, other than guarantees
of the Company of obligations of the Company Subsidiaries and guarantees of
the Company Subsidiaries of obligations of each other or of the Company.
3.16. CUSTOMERS AND SUPPLIERS. Sections 3.16 (a) and (b) of the
Disclosure Schedule, respectively, sets forth: (a) a complete and accurate list
of the names of the twenty largest customers of the Company, including the
Company Subsidiaries (on a consolidated basis), for each of the Polo and Sun
divisions and five largest customers for each of the Xxxx Xxxxxx and Xxxxxx
Xxxxx lines in terms of sales during fiscal 1996 and 1997 and the six-month
periods ended June 30, 1997 and 1998, showing the approximate total sales by the
Company to each such customer during the period; and (b) a complete and accurate
list of the twenty largest suppliers of the Company and the Company Subsidiaries
(on a consolidated basis) in terms of purchases by the Company during fiscal
1996 and 1997 and the six-month periods ended June 30, 1997 and 1998 showing the
approximate total purchases by the Company, including the Company Subsidiaries,
from each such supplier during the period. Except to the extent set forth in
Section 3.16(c) of the Disclosure Schedule, there has not been to the knowledge
of Shareholders any material adverse change in the business relationship of the
Company or any Company Subsidiary with any customer or supplier named in
Sections 3.16(a) and 3.16(b).
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Except for customers and suppliers named in Schedules 3.16(a) and 3.16(b) of the
Disclosure Schedule, neither the Company nor any Company Subsidiary had any
customer who accounted for more than 5% of the Company's sales (on a
consolidated basis) during fiscal 1997 or the six-month period ended June 30,
1998 or any supplier from whom it purchased more than 5% of the goods or
services which it purchased during fiscal 1997 or the six-month period ended
June 30, 1998.
3.17. ORDERS, COMMITMENTS AND RETURNS.
(a) Accepted and Unfulfilled Orders. Section 3.17(a) of the Disclosure
Schedule sets forth the aggregate amounts of all accepted and unfulfilled orders
for the sale of merchandise entered into by the Company or any Company
Subsidiary as of July 31, 1998 and July 31, 1997.
(b) Open Purchase Orders. Section 3.17(b) of the Disclosure Schedule sets
forth the aggregate amount to be paid by the Company or any Company Subsidiary
pursuant to all contracts or commitments for the purchase of supplies involving
(in each case) payments in excess of $250,000 by it as of July 31, 1998, all of
which orders, contracts and commitments have been made in the ordinary course of
business.
(c) Returns. Section 3.17(c) of the Disclosure Schedule sets forth, as of
July 31, 1998, each known claim against the Company or any Company Subsidiary to
return merchandise in excess of $5,000 by reason of alleged overshipments,
defective merchandise or otherwise, or of merchandise in the hands of customers
under an understanding that such merchandise would be returnable or would give
rise to a discount on future purchases or other allowance of any type.
(d) Chargebacks and Allowances. Section 3.17(d) of the Disclosure Schedule
sets forth the aggregate chargebacks and allowances (whether claimed or allowed)
for fiscal 1997 and through August 31, 1998.
3.18. AGREEMENTS IN FULL FORCE AND EFFECT. Except as set forth in Section
3.18 of the Disclosure Schedule, to the knowledge of Shareholders, neither the
Company nor any Company Subsidiary is in breach or in violation or default, nor
has any other party thereto repudiated, any provisions of the contracts,
agreements, plans, leases, policies, and licenses referred to in Section 3.15 of
the Disclosure Schedule. All contracts, agreements, plans, leases, policies and
licenses referred to in Section 3.15 of the Disclosure Schedule are valid and in
full force and effect. True and complete copies thereof, with all amendments and
supplements thereto, have been heretofore delivered by the Company to Xxxxx.
3.19. INSURANCE. Section 3.19(a) of the Disclosure Schedule contains an
accurate and complete list of all policies and binders of fire, liability,
workmen's compensation, products liability and all other forms of insurance
maintained by the Company and each Company Subsidiary (except for insurance
maintained for employees, which is set forth in Section 3.21(a) of the
Disclosure Schedule), and other forms of insurance owned or held by the Company
and each Company Subsidiary. All such policies are in full force and effect, all
premiums due and payable with respect thereto covering all periods up to and
including the Closing Date have been or will be paid, and no notice of
cancellation or termination has been received with respect to any such policy.
To the knowledge of Shareholders, such policies are sufficient for compliance
with all requirements of law and of all agreements to which the Company and each
Company Subsidiary is a party; are valid, outstanding and enforceable; provide
adequate insurance coverage for the assets and operations of the Company and
each Company Subsidiary; and will remain in full force and effect until the
Closing. Section 3.19(b) of the Disclosure Schedule identifies all risks which
the Company and each Company Subsidiary has designated as being self insured. To
the knowledge of Shareholders, neither the Company nor any Company Subsidiary
has been refused any insurance with respect to its assets or operations, nor has
its coverage been limited, by any insurance carrier to which it has applied for
any such insurance or with which it has carried insurance during the last three
years.
3.20. LABOR, CUSTOMS, HEALTH AND SAFETY LAW MATTERS.
(a) Employment Law Matters. Except to the extent set forth in Section 3.20
of the Disclosure Schedule, (a) to the knowledge of Shareholders, the Company,
all Company Subsidiaries and their respective subcontractors are in compliance
in all material respects with (i) all applicable laws respecting employment
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and employment practices, terms and conditions of employment and wages
(including overtime wages) and hours and (ii) all child and other labor laws and
regulations of the United States and other countries in which the Company's
products are manufactured or assembled; (b) to the knowledge of Shareholders,
the Company and the Company Subsidiaries are not engaged in any unfair labor
practice; (c) there is no unfair labor practice complaint against the Company or
any Company Subsidiary pending before the National Labor Relations Board; (d)
there is no labor strike, slowdown or work stoppage actually pending or, to the
knowledge of Shareholders, threatened against the Company or any Company
Subsidiary; (e) to the knowledge of Shareholders, no representation question
exists respecting the employees of the Company or any Company Subsidiary; (f) no
grievance which would have a material adverse effect on the Company or any
Company Subsidiary or the conduct of its business nor any arbitration proceeding
arising out of or under collective bargaining agreements is pending and, to the
knowledge of Shareholders, no such grievance or arbitration proceeding is
threatened; (g) there is no collective bargaining agreement binding on the
Company or any Company Subsidiary; and (h) neither the Company nor any Company
Subsidiary has experienced any work stoppage or other labor strike or, to the
knowledge of Shareholders, attempts to organize employees of the Company or any
Company Subsidiary by organized labor in the past five years.
(b) Customs, Health and Safety Law Matters. To the knowledge of
Shareholders, all of the Company's and the Company Subsidiaries' products are
manufactured, offered for sale, sold, labeled, packaged and distributed, and
advertised, marketed, promoted, publicized and otherwise exploited in accordance
with all applicable customs requirements and country of origin regulations and
all applicable laws and regulations relating to health and safety, such as
flammability-related laws and regulations, and those laws and regulations
relating to the disclosure of information to the consumer, such as
truth-in-advertising and fiber content labeling laws and regulations.
(c) Compliance Monitoring. Attached as Section 3.20 of the Disclosure
Schedule is a copy of the guidelines pursuant to which the Company and Company
Subsidiaries monitor the performance of their respective subcontractors to
assure compliance with the laws and regulations described in the foregoing
paragraphs.
3.21. EMPLOYEE BENEFIT PLANS.
(a) Definitions. The following terms, when used in this Section 3.21,
shall have the following meanings. Any of these terms may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference.
(i) Benefit Arrangement. "Benefit Arrangement" shall mean any
employment, consulting, severance or other similar contract, arrangement or
policy, practice and procedure, and each plan, arrangement (written or
oral), program, agreement or commitment providing for insurance coverage
(including without limitation any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, life, health, disability or
accident benefits (including without limitation any "voluntary employees'
beneficiary association" as defined in Section 501(c)(9) of the Code
providing for the same or other benefits) or for deferred compensation,
profit-sharing bonuses, stock options, stock appreciation rights, stock
purchases or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (A) is not a Welfare Plan,
Pension Plan, or Multiemployer Plan, (B) is entered into, maintained,
contributed to or required to be contributed to, as the case may be, by the
Company or any ERISA Affiliate or under which the Company or any ERISA
Affiliate may incur any liability, and (C) covers any employee or former
employee of the Company or any ERISA Affiliate (with respect to their
relationship with such entities).
(ii) Employee Plans. "Employee Plans" shall mean all Benefit
Arrangements, Multiemployer Plans, Pension Plans and Welfare Plans.
(iii) ERISA. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
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(iv) Multiemployer Plan. "Multiemployer Plan" shall mean any
"Multiemployer Plan," as defined in Section 4001(a)(3) of ERISA, (A) which
the Company or any ERISA Affiliate maintains, administers, contributes to
or is required to contribute to, or, after September 25, 1980, maintained,
administered, contributed to or was required to contribute to, or under
which the Company or any ERISA Affiliate may incur any liability and (B)
which covers any employee or former employee of the Company or any ERISA
Affiliate (with respect to their relationship with such entities).
(v) PBGC. "PBGC" shall mean the Pension Benefit Guaranty Corporation.
(vi) ERISA Affiliate. "ERISA Affiliate" shall mean any entity which
is (or at any relevant time was) a member of a "controlled group of
corporations" with or under "common control" with the Company as defined in
Section 414(b) or (c) of the Code.
(vii) Pension Plan. "Pension Plan" shall mean any "employee pension
benefit plan" as defined in Section 3(2) of ERISA (other than a
Multiemployer Plan) (A) which the Company or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to, or, within the
five years to the Closing Date, maintained, administered, contributed to or
was required to contribute to, or under which the Company or any ERISA
Affiliate may incur any liability and (B) which covers any employee or
former employee of the Company or any ERISA Affiliate (with respect to
their relationship with such entities).
(viii) Welfare Plan. "Welfare Plan" shall mean any "employee welfare
benefit plan" as defined in Section 3(1) of ERISA, (A) which the Company or
any ERISA Affiliate maintains, administers, contributes to or is required
to contribute to, or under which the Company or any ERISA Affiliate may
incur any liability and (B) which covers any employee or former employee of
the Company or any ERISA Affiliate (with respect to their relationship with
such entities).
(b) Disclosure: Delivery of Copies of Relevant Documents and Other
Information. Section 3.21(a) of the Disclosure Schedule contains a complete
list of the Company's Employee Plans. True and complete copies of each of the
following documents have been previously delivered by Shareholders to Xxxxx and
Newco: (i) each Welfare Plan, Pension Plan and Multiemployer Plan (and, if
applicable, related trust agreements) and all amendments thereto, the most
recent summary plan description thereof (if required by ERISA) and all annuity
contracts or other funding instruments, (ii) each Benefit Arrangement, including
written interpretations thereof and written descriptions thereof which have been
distributed to the Company's employees (including descriptions of the number and
level of employees covered thereby) and a complete description of any Benefit
Arrangement which is not in writing, (iii) the most recent determination or
opinion letter issued by the Internal Revenue Service with respect to each
Pension Plan and each Welfare Plan (other than a "multiemployer plan," as
defined in Section 3(37) of ERISA), (iv) for the three most recent plan years,
Annual Reports on Form 5500 Series required to be filed with any governmental
agency for each Pension Plan and (v) a description setting forth the amount of
any liability of the Company as of the Closing Date for payments more than
thirty (30) calendar days past due with respect to each Welfare Plan.
(c) Representations. Except as set forth in Section 3.21(b) of the
Disclosure Schedule, Shareholders represent and warrant as follows:
(I) PENSION PLANS.
(A) Neither the Company nor any ERISA Affiliate maintains or
contributes to or has maintained or contributed to a Pension Plan which is
subject to the minimum funding requirements of Section 412 of the Code or
Part 3 of Title I of ERISA. Neither the Company nor any ERISA Affiliate has
any liability for any unpaid contributions due with respect to any Pension
Plan.
(B) Each Pension Plan and each related trust agreement, annuity
contract or other funding instrument which covers or has covered employees
or former employees of the Company (with respect to their relationship with
such entities) has been determined by the Internal Revenue Service to be
qualified and tax-exempt under the provisions of Sections 401(a) (or
403(a), as appropriate) and 501(a) of the Code and Shareholders are not
aware of any circumstances that could reasonably be expected to result in
revocation of such determination.
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(C) No Pension Plan, related trust agreement, annuity contract or
other funding instrument which covers or has covered employees or former
employees of the Company (with respect to their relationship with such
entities), has been maintained, both as to form and in operation in such a
manner that could reasonably be expected to cause Xxxxx or its tax
qualified plans to incur any liability under any and all statutes, orders,
rules and regulations which are applicable to such plans, including,
without limitation, ERISA and the Code.
(D) Neither the Company nor any ERISA Affiliate maintains or
contributes to or has maintained or contributed to a Pension Plan subject
to Title IV of ERISA.
(E) Any terminated Pension Plan received a favorable determination
letter from the Internal Revenue Service with respect to its termination.
(ii) MULTIEMPLOYER PLANS. Neither the Company nor any ERISA Affiliate
contributes to, or within the past six years has been obligated to contribute
to, a Multiemployer Plan.
(iii) WELFARE PLANS.
(A) None of the Company's Welfare Plans has any present or future
obligation to make any payment to, or with respect to any present or former
employee of the Company, or such employee's dependents or spouse, pursuant
to, any retiree medical benefit plan, or other retiree Welfare Plan.
(B) No Welfare Plan which is a "group health plan," as defined in
Section 607(1) of ERISA, has been operated in such a manner that could
reasonably be expected to cause the Company to incur any liability under
the provisions of Part 6 of Title I, Subtitle B of ERISA and Section 4980B
of the Code at all time.
(iv) LITIGATION. There is no action, order, writ, injunction, judgment or
decree outstanding or claim, suit, litigation, proceeding, arbitral action,
governmental audit or investigation relating to or seeking benefits (other than
a routine claim for benefits pursuant to the terms of the plan) under any
Pension Plan that is pending or, to Shareholders' knowledge, threatened or
anticipated against the Company, any ERISA Affiliate or any Pension Plan.
(v) NO AMENDMENTS. Neither the Company nor any ERISA Affiliate has any
announced plan or legally binding commitment to create any additional Employee
Plans which are intended to cover employees or former employees of the Company
(with respect to their relationship with such entities) or to amend or modify
any existing Employee Plan.
(vi) INSURANCE CONTRACTS. Neither the Company nor any Pension Plan (other
than a "multiemployer plan," as defined in Section 3(37) of ERISA) holds as an
asset of any Pension Plan any interest in any annuity contract, guaranteed
investment contract or any other investment or insurance contact issued by an
insurance company that is the subject of bankruptcy, conservatorship or
rehabilitation proceedings.
(vii) NO ACCELERATION OR CREATION OF RIGHTS. Except as set forth in
Section 3.21(vii) of the Disclosure Schedule, neither the execution and delivery
of this Agreement or other related agreements by the Company nor the
consummation of the transactions contemplated hereby or the related transactions
will result in (i) the acceleration or creation of any rights of any person to
benefits under any Employee Plan (including, without limitation, the
acceleration of the vesting or exercisability of any stock options, the
acceleration of the vesting of any restricted stock (or the acceleration or
creation of any rights under any severance, parachute or change in control
agreement) or (ii) require the Company to make a larger contribution to, or pay
greater benefits or provide other rights under, any Employee Plan than it
otherwise would, whether or not some other subsequent action or event would be
required to cause such payment or provision to be triggered or (iii) create or
give use to any additional vested rights or service credits under any Employee
Plan whether or not some other subsequent action or event would be required to
cause such creation or acceleration to be triggered.
3.22. LITIGATION. Except as set forth in Section 3.22 of the Disclosure
Schedule, there is no action, order, writ, injunction, judgment or decree, or
any claim, suit, litigation, labor dispute, arbitrational action, inquiry,
proceeding or investigation by or before any court or governmental or other
regulatory or administra-
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tive agency or commission pending, or to the knowledge of Shareholders,
threatened against or involving the Company or any Company Subsidiary, or which
questions or challenges the validity of this Agreement or any action taken or to
be taken by Shareholders pursuant to this Agreement or in connection with the
transactions contemplated hereby. Except as set forth in Section 3.22 of the
Disclosure Schedule to the knowledge of Shareholders, neither the Company nor
any Company Subsidiary is in default under or in violation of, nor has the
Company or any Company Subsidiary received any notice for any claim or default
under or violation of, any contract or commitment to which it is a party or by
which it is bound. Neither the Company nor any Company Subsidiary is subject to
any judgment, order or decree entered in any lawsuit or proceeding which would
have a material adverse effect on its business practices or on its ability to
conduct its business in the manner as it is conducted as of the Closing Date or
in any manner.
3.23. NO CONDEMNATION OR EXPROPRIATION. Neither the whole nor any portion
of the leaseholds or any other real property of the Company or any Company
Subsidiary is subject to any governmental decree or order to be sold or is being
condemned, expropriated or otherwise taken by any public authority with or
without payment of compensation therefor, nor, to the knowledge of Shareholders,
has any such condemnation, expropriation or taking been proposed.
3.24. PERMITS, CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. Each
of the Company and the Company Subsidiaries has all permits, licenses,
franchises, approvals, registrations, authorizations, consents or orders of, or
filings (collectively the "Permits") with any governmental authority, whether
foreign, federal, state or local, that are required and necessary to conduct its
business in substantially the manner in which it is currently being conducted,
except where the failure to have any such Permits would not individually or in
the aggregate (a) have a material adverse effect on the ability of the Company
or any Company Subsidiary to conduct its business in the normal course or (ii)
subject the Company to any material cost or expense. To the knowledge of
Shareholders, all such Permits are valid and in full force and effect. Other
than filings under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the filing of the Texas Articles of Merger and the
Delaware Certificate of Merger, no consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority is required in connection with the execution, delivery and performance
of this Agreement or the consummation of the transactions contemplated hereby by
the Company and Shareholders.
3.25. CONSENTS. Section 3.25 of the Disclosure Schedule sets forth and
identifies, including the name of the party and the address, all consents,
assignments, releases, waivers and approvals required of any person necessary to
consummate the transactions contemplated hereby by the Company and Shareholders.
3.26. COMPLIANCE WITH LAW. Except as set forth in Section 3.26 of the
Disclosure Schedule, the business of the Company and the Company Subsidiaries
is, and since January 1, 1995 has been, conducted in accordance with and in
compliance with, or in conformity with, all applicable laws, statutes, rules,
orders, ordinances, judgments, decrees, or regulations and other requirements of
all national governmental authorities, and of all states, municipalities and
other political subdivisions, courts, departments, authorities, and agencies
thereof, having jurisdiction over the Company and the Company Subsidiaries,
except where any violations would not individually or in the aggregate (i) have
a material adverse effect on the ability of the Company or any Company
Subsidiary to conduct its business in the ordinary course or (ii) to the
knowledge of Shareholders, subject the Company or any Company Subsidiary to any
cost or expense. Except as set forth in Section 3.26 of the Disclosure Schedule,
within the past three years neither the Company nor any Company Subsidiary has
received notice to the effect that it is not in compliance with such laws,
statutes, rules, ordinances, judgments, decrees, regulations or other
requirements.
3.27. COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) Definitions. The following terms, when used in this Section 3.27,
shall have the following meanings. Any of these terms may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference.
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(i) "Release" shall mean and include any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping or disposing on, in or into the environment of any Hazardous
Substance.
(ii) "Hazardous Substance" shall mean any quantity of asbestos in any
form, formaldehyde, PCB's, radon gas, crude oil or any fraction thereof,
solvents, cutting oils, degreasers, machine tool oils, all forms of natural
gas, petroleum products, by-products or wastes, any radioactive substance,
any solid waste, any toxic, infectious, reactive, corrosive, ignitable or
flammable chemical or chemical compound and any other hazardous substance,
material or waste (as defined in or for purposes of any Environmental Law)
whether solid, semi-solid, liquid or gas, and any other substance which is
now subject to regulation or control under any Environmental Law.
(iii) "Environmental Laws" shall mean all applicable federal, state,
local or foreign laws, statutes, ordinances, regulations, rules, judgments,
orders and licenses which (i) regulate or relate to the protection or
remediation of the environment, the use, treatment, storage,
transportation, handling or disposal of Hazardous Substances, the
preservation or protection of waterways, groundwater, drinking water, air,
wildlife, plants or other natural resources, or the health and safety of
persons or property (but not including protection of the health and safety
of employees) or (ii) impose liability with respect to any of the
foregoing, including, without limitation, the Federal Water Pollution
Control Act (33 U.S.C. sec. 1251 et seq.), Resource Conservation & Recovery
Act (42 U.S.C. sec. 6901 et seq.) ("RCRA"), Safe Drinking Water Act (21
U.S.C. sec. 349, 42 U.S.C. sec.sec. 201, 300), Toxic Substances Control Act
(15 U.S.C. sec. 2601 et seq.), Clean Air Act (42 U.S.C. sec. 7401 et seq.),
Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. sec. 9601 et seq.) ("CERCLA"), or any other similar federal, state
or local law or foreign law of similar effect, each as amended.
(iv) "Facilities" shall mean plants, offices, manufacturing
facilities, stores, warehouses, improvement administration buildings and
real property.
(b) Facilities. Except as set forth on Section 3.27 of the Disclosure
Schedule, the current and former Facilities of the Company and the Company
Subsidiaries are, and at all times have been, owned, leased and operated by the
Company and the Company Subsidiaries in compliance with all Environmental Laws.
(c) Permits. Except as set forth on Section 3.27 of the Disclosure
Schedule, the Company and the Company Subsidiaries currently have all Permits
required under any Environmental Law with respect to their activities and their
Facilities, and the Company and the Company Subsidiaries are in compliance with
all such Permits.
(d) Permits Required. Except as set forth on Section 3.27 of the
Disclosure Schedule, the consummation of any of the transactions contemplated by
this Agreement will not require an application for issuance, renewal, transfer
or extension of, or any other administrative action regarding, any Permit
required or any requirement under any Environmental Law.
(e) Information Request and Notice of Violation. Except as set forth in
Section 3.27 of the Disclosure Schedule or those matters which were fully
resolved prior to January 1, 1993, neither the Company nor any Company
Subsidiary has received any written notice with respect to any current or former
Facility alleging that the Company or any Company Subsidiary is in violation of
or in non-compliance with the conditions, requirements, standards or limits of
any Permit required under any Environmental Law or the provisions of any
Environmental Law, nor has the Company or any Company Subsidiary received a
written information request with respect to such alleged or potential
violations.
(f) Pending Actions. Except as set forth on Section 3.27 of the Disclosure
Schedule, there is not now pending or, to the knowledge of Shareholders,
threatened, any action against the Company or any Company Subsidiary with
respect to any of its past or current activities at any time under any
Environmental Law or otherwise with respect to any Release or mishandling of any
Hazardous Substance.
(g) Judgments. Except as set forth on Section 3.27 of the Disclosure
Schedule, there are no consent decrees, judgments, judicial or administrative
orders, or similar decrees, judgments or orders under foreign
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law, or agreements with, or liens by, any governmental authority,
quasi-governmental entity or any other person or entity relating to any
Environmental Law which currently regulates, obligates, binds or in any way
affects the Company or any Company Subsidiary with respect to past or current
activities, the business or any current or former Facility.
(h) Hazardous Substances. Except as set forth on Section 3.27 of the
Disclosure Schedule, there is not and has not been any Hazardous Substance used,
generated, treated, stored, transported, disposed of, handled or otherwise
currently or formerly existing on, under, about or from the Facilities, except
for quantities of any such Hazardous Substances stored or otherwise held on,
under or about the Facilities in full compliance with all Environmental Laws.
(i) Handling of Hazardous Substances. Except as set forth on Section 3.27
of the Disclosure Schedule, the Company has at all times, with respect to its
business, used, generated, treated, stored, transported, disposed of or
otherwise handled its Hazardous Substances in compliance with all Environmental
Laws.
(j) CERCLA or RCRA. Except as set forth on Section 3.27 of the Disclosure
Schedule, no current or past use, generation, treatment, transportation,
storage, disposal or handling practice of the Company or any Company Subsidiary
with respect to any Hazardous Substance has resulted in any liability at the
Facilities or at any other site under the CERCLA or RCRA or any applicable
state, local or foreign law of similar effect.
(k) Storage Tank or Pipeline. Except as set forth in Section 3.27 of the
Disclosure Schedule, and except for connections with public utilities and
discharges to, and intakes from, sewer lines, there are no underground or above
ground storage tanks or pipelines at any of the current Facilities of the
Company or any Company Subsidiary, and there have been no Releases of Hazardous
Substances from any such current underground or above ground storage tanks or
pipelines, or from previously removed or closed underground or above ground
storage tanks or pipelines, including, without limitation, any Release from or
in connection with the filling or emptying of any such tank.
(l) Environmental Audits or Assessments. True, complete and correct copies
of the written reports, and all parts thereof, including any drafts of such
reports if such drafts are in possession or control of or, if not in the
possession or control of, after reasonable inquiry of consultants retained by
the Company or any Company Subsidiary, are known to and may reasonably be
obtained by the Company or any Company Subsidiary, of all environmental audits
or assessments which have been conducted at the Facilities since January 1,
1993, either by seller or any attorney, environmental consultant or engineer
engaged for such purpose or by any governmental agency, have been previously
delivered to Xxxxx and a list of all such reports, audits and assessments and
any other similar report, audit or assessment of which Shareholders have
knowledge is included in Section 3.27 of the Disclosure Schedule.
(m) Indemnification Agreements. Except as set forth in Section 3.27 of the
Disclosure Schedule, neither the Company nor any Company Subsidiary is a party,
whether as a direct signatory or as successor, assign or third party
beneficiary, or otherwise bound, to any Material Contract (excluding insurance
policies disclosed on the Disclosure Schedule or leases or other agreements
entered into in the ordinary course of business (such as agreements with vendors
or vendees)) under which the Company or any Company Subsidiary is obligated by
or entitled to the benefits of, directly or indirectly, any representation,
warranty, indemnification, covenant, restriction or other undertaking concerning
environmental conditions.
(n) Releases or Waivers. Since January 1, 1993, neither the Company nor
any Company Subsidiary has released in writing any other person or entity from
any claim under any Environmental Law or waived in writing any rights concerning
liability in connection with any Hazardous Substance.
(o) Notices, Warnings and Records. Except as set forth on Section 3.27 of
the Disclosure Schedule, each of the Company and the Company Subsidiaries has
given all notices and warnings, made all reports, and has kept and maintained
all records required by and in compliance with all Environmental Laws.
(p) Exclusivity of Representations and Warranties. The representations and
warranties set forth in this Section 3.27 are the sole and exclusive
representations and warranties being made by the Company and Shareholders in
this Agreement with respect to environmental matters.
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3.28. NO OTHER AGREEMENTS. Except as set forth in Section 3.28 of the
Disclosure Schedule, neither the Company nor any Shareholder has any commitment
or legal obligation, absolute or contingent, to any other person or firm to sell
or effect a sale of all or substantially all of the assets of the Company or any
Company Subsidiary, to sell or effect a sale of any equity interests of the
Company or any Company Subsidiary, to effect any merger, consolidation or the
reorganization of the Company or any Company Subsidiary, or to enter into any
agreement or cause the entering into of an agreement with respect thereto.
3.29. BROKERS AND FINDERS. Neither the Company, Shareholders, nor, to the
knowledge of Shareholders, any officers, directors or employees of the Company
has employed any broker or finder or incurred any liability for any brokerage
fees, commissions or finders' fees in connection with the transactions
contemplated by this Agreement other than Bear, Xxxxxxx & Co. Inc., whose fee is
to be paid by the Company prior to the Closing or accrued as a liability on the
Closing Balance Sheet.
3.30. PERSONNEL. Section 3.30 of the Disclosure Schedule sets forth a
true and complete list of:
(a) the names and current salaries of all directors and elected and
appointed officers of the Company and the Company Subsidiaries;
(b) the salaries for all salaried employees of the Company and the
Company Subsidiaries by classification, and the date of the last increase
in compensation through July 31, 1998.
3.31. INSIDER INTERESTS. Except as set forth in Section 3.31 of the
Disclosure Schedule, no Shareholder and, to the knowledge of Shareholders, no
officer or director of the Company is presently a party to any transaction with
the Company or any Company Subsidiary including, without limitation, any
contract, agreement or arrangement (i) providing for the furnishing of services,
(ii) providing for rental of real or personal property, or (iii) otherwise
requiring payments to any such person or any trust, corporation or entity in
which such person has any interest including in any property, real or personal,
tangible or intangible, including, without limitation, inventions, patents,
trademarks or trade names, used in or pertaining to the business of the Company.
3.32. BANK ACCOUNTS. Sections 3.32 of the Disclosure Schedule sets forth
the names of all banks, trust companies, savings and loan associations and other
financial institutions at which the Company or any Company Subsidiary maintains
safe deposit boxes or accounts of any nature.
3.33. REGISTRATION STATEMENT. The Registration Statement was, as to form,
in all material respects in compliance with the requirements of Form S-1 when
filed. The Registration Statement, when filed, contained no untrue statement of
a material fact nor omitted to state a material fact required to be included
therein or necessary in light of the circumstances under which it was made in
order to make the statements made therein not misleading.
ARTICLE IV
ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Shareholder represents, warrants and agrees with Xxxxx and Newco,
individually and not jointly, as follows:
4.1. DUE EXECUTION. This Agreement has been duly executed and delivered
by such Shareholder, and is a legal, valid and binding obligation of
Shareholder, enforceable against each Shareholder, in accordance with its terms
except as (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
4.2. NO DISTRIBUTION. The Xxxxx Shares being acquired by Shareholder
hereunder are being acquired for his/its own account, for investment and not
with a view to or for resale in connection with any "distribution" thereof as
such term is used in connection with the registration provisions of the
Securities Act of 1933, as amended (the "Securities Act").
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4.3. LEGEND. The following legend shall be affixed to the certificates
for Xxxxx Shares issued pursuant to this Agreement:
The securities represented by this Certificate have not been registered
under the Securities Act of 1933, as amended, nor the laws of any state.
Accordingly, these securities may not be offered, sold, transferred,
pledged or hypothecated in the absence of registration, or the
availability, in the opinion of counsel for the issuer, of an exemption
from registration under the Securities Act of 1933, as amended, or the laws
of any state. Therefore, the stock transfer agent will effect transfer of
this Certificate only in accordance with the above instructions.
4.4. REVIEW OF APPLICABLE LAWS. Shareholder acknowledges that Xxxxx has
informed it that the shares of Xxxxx Common Stock to be received pursuant hereto
have not been registered under the Securities Act and may not be sold until they
have been registered or an exemption from such registration is available.
4.5. KNOWLEDGE AND EXPERIENCE. Shareholder has the knowledge and
experience in the financial and business matters necessary for making an
informed decision on the merits and risk of the investment in the Xxxxx Shares
pursuant hereto.
4.6. AVAILABILITY OF INFORMATION. Shareholder has had an opportunity to
meet personally or by telephone conference with officers or representatives of
Xxxxx and has been provided with a full opportunity to ask questions of and
receive answers from such person concerning the business and affairs of Xxxxx,
its past and current operations and financial condition, and the transactions
provided for in this Agreement.
4.7. RESTRICTIONS ON TRANSFERS. Xxxxxxxx, the Xxxxxxxx Family Trust and
Xxxxxxxx (collectively, the "Restricted Shareholders") shall not sell, assign or
transfer ("Transfer") their "Restricted Xxxxx Stock" (defined in paragraph (e)
below), except in accordance with the following:
(a) Notwithstanding any provision herein to the contrary, Xxxxxxxx and
the Xxxxxxxx Family Trust may at any time Transfer Restricted Xxxxx Stock
to their affiliates or to any member of Xxxxxxxx'x family or to any trust
or other entity for the benefit of any member of Xxxxxxxx'x family for
estate planning purposes.
(b) The Restricted Shareholders shall not Transfer any Restricted
Xxxxx Stock during the period of six months following the date of issuance
of such Restricted Xxxxx Stock.
(c) At the expiration of the period of six months following the
Closing, the restrictions with respect to the Transfer of the Restricted
Xxxxx Stock shall lapse in the incremental percentages indicated in the
following table:
Period Following the
Closing Incremental Percentage
of Restricted Xxxxx Stock
as to which Restrictions Lapse
After 6 months.............................................. 20%
After 12 months............................................. 40%
After 18 months............................................. 60%
After 24 months............................................. 80%
After 30 months............................................. 100%
(d) The restrictions on transfer set forth in paragraphs (b) and (c)
of this Section 4.7 shall terminate with respect to a Restricted
Shareholder in the event that:
(i) such Restricted Shareholder dies;
(ii) such Restricted Shareholder becomes disabled to the extent
that he or she is incapable of performing the essential functions of the
duties required by the Xxxxxxxx Employment Agreement or the Xxxxxxxx
Employment Agreement, as the case may be, for one hundred twenty (120)
or more consecutive days, even with reasonable accommodation;
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(iii) an arbitration tribunal or court of competent jurisdiction
renders a final and non-appealable decision finding that Xxxxxxxx'x xx
Xxxxxxxx'x employment, as the case may be, was terminated without
"Cause" (as such term is defined in the Xxxxxxxx Employment Agreement or
the Xxxxxxxx Employment Agreement, as the case may be) or that Xxxxxxxx
xx Xxxxxxxx, as the case may be, terminated his or her employment for
"Good Reason" (as such term is defined in the Xxxxxxxx Employment
Agreement or the Xxxxxxxx Employment Agreement, as the case may be); or
(iv) Xxxxx agrees in writing that Xxxxxxxx'x xx Xxxxxxxx'x
employment, as the case may be, has been terminated without Cause or
that Xxxxxxxx xx Xxxxxxxx terminated his or her employment, as the case
may be, for Good Reason.
(e) "Restricted Xxxxx Stock" shall mean the Xxxxx Shares acquired by
the Restricted Shareholders at the Closing, as adjusted for stock splits,
stock dividends, reclassifications and the like; provided, however, that
with respect to the Xxxxx Shares acquired by Xxxxxxxx and the Xxxxxxxx
Family Trust, the Restricted Xxxxx Stock shall constitute no more than 40%
of the Aggregate Merger Consideration allocated to Xxxxxxxx and the
Xxxxxxxx Family Trust and delivered in Xxxxx Common Stock (valuing such
shares at the Xxxxx Initial Share Value).
4.8. OWNERSHIP OF STOCK.
(a) Each Shareholder is the lawful owner of the number of Company Shares
listed opposite the name of such Shareholder in Section 4.8 of the Disclosure
Schedule free and clear of all liens, restrictions, encumbrances and claims of
any kind other than as described in Section 4.8 of the Disclosure Schedule.
(b) Upon consummation of the Merger, Xxxxx will acquire good title to all
of the Company Shares, free and clear of any liens, restrictions, encumbrances
and claims of any kind whatsoever.
4.9. RESTRICTIVE COVENANTS OF XXXXXXXX. In consideration of Xxxxxxxx'x
receipt of his portion of the Aggregate Merger Consideration at the Closing, and
as a material inducement for Xxxxx and Newco (the Sun Division) to enter into
and consummate the transactions contemplated by this Agreement including,
without limitation, Xxxxx' agreement to elect Xxxxxxxx as a director of Xxxxx as
of the Closing and to include Xxxxxxxx on management's slate of nominees for the
Xxxxx Board of Directors as provided under Section 7.10, Xxxxxxxx hereby agrees
as follows:
(a) During the Non-Compete Period (as such term is defined in the
Xxxxxxxx Employment Agreement), Xxxxxxxx shall not, whether as an officer,
director, owner, employee, partner, investor, agent, shareholder,
consultant who receives remuneration of any kind, or advisor who receives
remuneration of any kind, directly or indirectly, engage in any of the
Businesses then actually conducted by the Sun Division or its affiliates.
As used herein, the term "Businesses" shall mean (I) the manufacture or
finishing in the United States or Mexico of jeans, jeanswear and casual
tops and bottoms, or (II) the sale, at wholesale, in the United States or
Canada of jeans, jeanswear, casual tops and bottoms and sportswear, or
(III) the sale or blending for sale of detergents, chemicals and enzymes of
all kinds for use by the garment finishing industry in the United States or
Mexico, or (IV) any other business then actually carried on by the Sun
Division or its affiliates.
(b) During the Non-Interference Period (as such term is defined in the
Xxxxxxxx Employment Agreement), Xxxxxxxx shall not, directly or indirectly,
(A) solicit the employment of, interfere or negotiate with or endeavor to
entice away from the Sun Division or its affiliates or hire any persons who
are then employees or have been employees during the prior six months of
the Sun Division or its affiliates, or (B) recommend or support a decision
by any person, firm, corporation, association or other entity to solicit
(except by means of advertisement in newspapers of general circulation) the
employment of, interfere or negotiate with or endeavor to entice away from
the Sun Division or its affiliates or hire any persons who are then
employees of the Sun Division or its affiliates.
(c) Xxxxxxxx acknowledges and agrees that the Sun Division and its
affiliates, including Xxxxx and its divisions and subsidiaries
(collectively, the "Entities"), conduct business on a national and
international
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scale and, as a director of Xxxxx, Xxxxxxxx will be privy to material
proprietary and confidential information of and pertaining to all of the
Entities, and will participate in the formulation of long-term strategic
planning for the Entities. Therefore, Xxxxxxxx agrees that the restrictions
contained in this Section 4.9 are reasonable and necessary to protect the
legitimate interests of Xxxxx, the Sun Division and their affiliates,
including the goodwill and knowledge of the Company being acquired by Newco
hereunder.
(d) Xxxxxxxx acknowledges and agrees that if he should breach a
covenant contained herein, Xxxxx' and the Sun Division's remedy at law will
be inadequate. Therefore, in addition to any remedy otherwise available to
Xxxxx and the Sun Division, Xxxxxxxx agrees that Xxxxx and the Sun Division
may be entitled to an injunction restraining him from any such violation.
Moreover, if it shall be determined by any arbitration panel or court of
competent jurisdiction that any covenant herein is not enforceable due to
its geographic area or duration, then it is the intention of the parties
that such covenant shall be enforceable to the greatest extent possible,
and will be deemed amended so as to reduce the geographic area or duration,
as the case may be, to the extent necessary to secure enforceability.
(e) Xxxxxxxx agrees that the benefits of the provisions of this
restrictive covenant shall be assignable to, and enforceable by, any
person, firm, corporation or other entity which purchases or acquires all
or substantially all of the assets of Xxxxx or the Sun Division and which
assumes the liabilities, obligations and duties of Xxxxx or the Sun
Division, as the case may be, as contained in this Agreement and the
Xxxxxxxx Employment Agreement, either contractually or as a matter of law,
unless all or a part of such liabilities, obligations and duties are
retained by Xxxxx, provided that Xxxxx has the financial wherewithal to
assume and make payments under such agreements.
(f) Anything herein to the contrary notwithstanding, nothing contained
herein shall prohibit Xxxxxxxx from holding, as a passive owner, less than
5% of the outstanding shares of, or any other equity interest in, an entity
engaged in a business which is the same as the Businesses or any segment
thereof.
4.10. RESTRICTIVE COVENANTS OF XXXXXXXX. In consideration of Xxxxxxxx'x
receipt of her portion of the Aggregate Merger Consideration at the Closing, and
as a material inducement for Xxxxx and Newco (the Sun Division) to enter into
and consummate the transactions contemplated by this Agreement, Xxxxxxxx hereby
agrees as follows:
(a) During the Non-Compete Period (as such term is defined in the
Xxxxxxxx Employment Agreement), Xxxxxxxx shall not, whether as an officer,
director, owner, employee, partner, investor, agent, shareholder,
consultant who receives remuneration of any kind, or advisor who receives
remuneration of any kind, directly or indirectly, engage in any of the
Businesses then actually conducted by the Sun Division or its affiliates.
(b) During the Non-Interference Period (as such term is defined in the
Xxxxxxxx Employment Agreement), Xxxxxxxx shall not, directly or indirectly,
(A) solicit the employment of, interfere or negotiate with or endeavor to
entice away from the Sun Division or its affiliates or hire any persons who
are then employees or have been employees during the prior six months of
the Sun Division or its affiliates, or (B) recommend or support a decision
by any person, firm, corporation, association or other entity to solicit
(except by means of advertisement in newspapers of general circulation) the
employment of, interfere or negotiate with or endeavor to entice away from
the Sun Division or its affiliates or hire any persons who are then
employees of the Sun Division or its affiliates.
(c) Xxxxxxxx acknowledges and agrees that the Entities conduct
business on a national and international scale and, as a Director and
executive officer of a major subsidiary of Xxxxx, Xxxxxxxx will be privy to
material proprietary and confidential information of and pertaining to all
of the Entities. Therefore, Xxxxxxxx agrees that the restrictions contained
in this Section 4.10 are reasonable and necessary to protect the legitimate
interests of Xxxxx, the Sun Division and their affiliates, including the
goodwill and knowledge of the Company being acquired by Newco hereunder.
(d) Xxxxxxxx acknowledges and agrees that if she should breach a
covenant contained herein, Xxxxx' and the Sun Division's remedy at law will
be inadequate. Therefore, in addition to any remedy
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otherwise available to Xxxxx and the Sun Division, Xxxxxxxx agrees that
Xxxxx and the Sun Division may be entitled to an injunction restraining her
from any such violation. Moreover, if it shall be determined by any
arbitration panel or court of competent jurisdiction that any covenant
herein is not enforceable due to its geographic area or duration, then it
is the intention of the parties that such covenant shall be enforceable to
the greatest extent possible, and will be deemed amended so as to reduce
the geographic area or duration, as the case may be, to the extent
necessary to secure enforceability.
(e) Xxxxxxxx agrees that the benefits of the provisions of this
restrictive covenant shall be assignable to, and enforceable by, any
person, firm, corporation or other entity which purchases or acquires all
or substantially all of the assets of Xxxxx or the Sun Division and which
assumes the liabilities, obligations and duties of Xxxxx or the Sun
Division, as the case may be, as contained in this Agreement and the
Xxxxxxxx Employment Agreement, either contractually or as a matter of law,
unless all or a part of such liabilities, obligations and duties are
retained by Xxxxx, provided that Xxxxx has the financial wherewithal to
assume and make payments under such agreements.
(f) Anything herein to the contrary notwithstanding, nothing contained
herein shall prohibit Xxxxxxxx from holding, as a passive owner, less than
5% of the outstanding shares of, or any other equity interest in, an entity
engaged in a business which is the same as the Businesses or any segment
thereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF XXXXX AND NEWCO
Xxxxx and Newco jointly represent, warrant, and covenant to Shareholders as
follows:
5.1. CORPORATE ORGANIZATION; ETC. Each of Xxxxx and Newco is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation and has full corporate power and authority to
carry on its business as it is now being conducted and to own the properties and
assets it now owns; is duly qualified or licensed to do business as a foreign
corporation in good standing in the jurisdictions in which such qualification is
required except jurisdictions in which failure to qualify to do business will
have no material adverse effect on the business, operations, properties, assets
or financial condition of Xxxxx. The copies of the certificate of incorporation
and by-laws and all amendments thereto of Xxxxx heretofore delivered to the
Company and are complete and correct copies of such instruments as presently in
effect.
5.2. FINANCIAL STATEMENTS.
(a) Xxxxx has heretofore delivered to the Company and Shareholders (i) a
copy of Xxxxx' Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (the "Form 10-K"), which contains audited financial statements of Xxxxx
consisting of balance sheets as of December 31, 1997 and 1996 and statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997, and (ii) a copy of the Xxxxx' Quarterly
Report on Form 10-Q for the six-month period ended June 28, 1998 (the "Form
10-Q"), which contains an unaudited balance sheet of Xxxxx as of June 28, 1998
(the "Xxxxx Balance Sheet") and statements of operations and cash flows for the
six-month period ended June 28, 1998.
(b) The Xxxxx Balance Sheet and all other financial statements described
above or contained in the Form 10-K and Form 10-Q, including the notes and
schedules thereto, have been prepared in accordance with generally accepted
accounting principles, applied on a consistent basis and present fairly the
consolidated financial position and results of the operations and cash flows of
Xxxxx at such date and for such periods, subject, in the case of the unaudited
interim financial statements, to normal year-end adjustments.
5.3. CAPITALIZATION. As of the date of this Agreement, (i) the authorized
capital stock of Xxxxx is set forth in the Form 10-K, of which 101,075,448
shares are issued and outstanding and 10,057,942 shares are subject to options,
warrants or other rights to purchase or subscribe for capital stock of Xxxxx,
and (ii) the authorized capital stock of Newco is 200 shares of Common Stock, of
which 200 shares are issued and outstanding. All issued and outstanding shares
of capital stock of Xxxxx are validly issued, fully paid and nonassessable and
the shares of Xxxxx Common Stock to be issued in connection with the Merger
will, when issued, be validly issued, fully paid and non-assessable. Except as
set forth in the Form 10-K, there are no
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outstanding (a) securities convertible into or exchangeable for capital stock of
either Xxxxx or Newco; (b) options, warrants or other rights to purchase or
subscribe for capital stock of either Xxxxx or Newco other than employee stock
options granted by Xxxxx; or (c) contracts, commitments, agreements,
understandings or arrangements of any kind relating to the issuance of any
capital stock of either Xxxxx or Newco, any such convertible or exchangeable
securities or any such options, warrants or rights.
5.4. XXXXX COMMON STOCK. The Xxxxx Shares to be delivered to Shareholders
at the Closing and the shares of Xxxxx Contingent Stock (i) have been duly
authorized and will be, when issued to Shareholders in accordance with the terms
hereof, validly issued, fully paid and nonassessable and (ii) on the Closing
Date shall be approved for trading on the NYSE subject to official notice of
issuance.
5.5. AUTHORIZATION; ETC. Each of Xxxxx and Newco has full corporate power
and authority to enter into this Agreement and to carry out the transactions
contemplated hereby. The Board of Directors of each of Xxxxx and Newco and
Xxxxx, as the sole shareholder of Newco, have taken all action required by law,
its certificate of incorporation and by-laws or otherwise to be taken by them to
authorize the execution and delivery of this Agreement and the transactions
contemplated hereby, and this Agreement has been duly executed and delivered and
is a valid and binding agreement of Xxxxx and Newco enforceable in accordance
with its terms except as (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and (ii) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
5.6. NO VIOLATION. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will violate any
provisions of the respective certificate of incorporation, by-laws or other
organizational documents of Xxxxx or Newco or, to the knowledge of Xxxxx and
Newco, be in conflict with, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or cause the
acceleration of the maturity of any debt or obligation pursuant to, or result in
the creation or imposition of any security interest, lien or other encumbrance
upon any property or assets of Xxxxx or Newco, under any agreement or commitment
to which Xxxxx or Newco is a party or by which Xxxxx or Newco is bound, or
violate any applicable statute or law or any judgment, decree, order, regulation
or rule of any court or governmental authority.
5.7. SEC REPORTS. The Form 10-K and Form 10-Q, and all other reports and
proxy statements required to be filed by Xxxxx under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") since January 1, 1995, have been duly
and timely filed by Xxxxx, were in compliance with the requirements of their
respective forms and were complete and correct in all material respects, as of
the dates at which the information was furnished, and contained no untrue
statement of a material fact nor omitted to state a material fact required to be
included therein or necessary in light of the circumstances under which it was
made in order to make the statements made therein not misleading.
5.8. LITIGATION. Except as set forth in Section 5.8 of the Disclosure
Schedule, there is no action, order, writ, injunction, judgment or decree, or
any claim, suit, litigation, labor dispute, arbitrational action, inquiry,
proceeding or investigation by or before any court or governmental or other
regulatory or administrative agency or commission pending or, to the knowledge
of Xxxxx or Newco, threatened against or involving Xxxxx or Newco, or which
questions or challenges the validity of this Agreement or any action taken or to
be taken by Xxxxx or Newco pursuant to this Agreement or in connection with the
transactions contemplated hereby. To the knowledge of Xxxxx and Newco, neither
Xxxxx nor Newco nor any of their subsidiaries is in default under or in
violation of, nor has Xxxxx nor Newco nor any of their subsidiaries received any
notice for any claim or default under or violation of, any contract or
commitment to which it is a party or by which it is bound. Neither Xxxxx nor
Newco nor any of their subsidiaries is subject to any judgment, order or decree
entered in any lawsuit or proceeding which would have a material adverse effect
on its business practices or on its ability to conduct its business in the
manner as it is conducted as of the Closing Date.
5.9. CONSENTS. No approvals are required of any person necessary to the
consummation of the transactions contemplated hereby by Xxxxx and Newco except
for Xxxxx' license with Xxxx Xxxxx Lauren.
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5.10. SECTION 368(a)(2)(D) REPRESENTATIONS.
(a) Prior to the Merger, Xxxxx will be in control of Newco within the
meaning of Section 368(c) of the Code, and Newco has no plan or intention to
issue additional shares of its stock that would result in Xxxxx losing control
of Newco within the meaning of Section 368(c) of the Code.
(b) Xxxxx presently has no plan or intention to take any of the following
actions after consummation of the Merger: (i) to liquidate Newco, (ii) to merge
Newco with and into another corporation, (iii) to sell or otherwise dispose of
the stock of Newco or (iv) to cause Newco to sell or otherwise dispose of any of
the assets of the Company acquired in the Merger, except for dispositions made
in the ordinary course of business or transfers described in Section
368(a)(2)(C) of the Code.
(c) Following the Merger, Newco will continue the historic business of the
Company or use a significant portion of the Company's business assets in a
business in accordance with the requirements of Treasury Regulation Section
1.368-1(d).
(d) Neither Xxxxx nor any person related to Xxxxx within the meaning of
Treasury Regulation Section 1.368-1(e)(3) has any plan or intention to purchase,
redeem or otherwise acquire any of the Xxxxx Common Stock (including Xxxxx
Contingent Stock) that will be issued in the Merger except for acquisitions made
in the ordinary course pursuant to Xxxxx' existing share repurchase program.
Following the Merger, any acquisitions of Xxxxx Common Stock or Xxxxx Contingent
Stock will not be directed specifically to Shareholders who receive Xxxxx Common
Stock pursuant to the Merger.
5.11. FINANCING. Xxxxx will have, at or prior to the consummation of the
Merger and at or prior to each Additional Payment, as the case may be,
sufficient funds available to pay (i) the Cash Merger Consideration and the
Total Debt of the Company and (ii) each Additional Payment pursuant to this
Agreement, respectively.
ARTICLE VI
COVENANTS OF SHAREHOLDERS AND XXXXX
Shareholders, Xxxxx and Newco hereby covenant and agree, as follows:
6.1. ACCESS TO THE COMPANY. Until the Closing, Shareholders shall cause
the Company to afford to Xxxxx, its counsel, accountants and other
representatives, reasonable access during normal business hours to the plants,
offices, warehouses, properties, books and records of the Company and the
Company Subsidiaries in order that Xxxxx may have full opportunity to make such
investigations as it shall desire to make of the affairs of the Company; and
Shareholders will cause the Company to cause its officers and accountants to
furnish such additional financial and operating data and other information as
Xxxxx shall from time to time reasonably request; provided, however, that any
such investigation shall be conducted in such a manner as not to interfere with
the operation of the business of the Company.
6.2. ACCESS TO XXXXX. Until the Closing, Xxxxx shall afford to
Shareholders, their counsel, accountants and other representatives, reasonable
access during normal business hours to the plants, offices, warehouses,
properties, books and records of Xxxxx and their subsidiaries in order that
Shareholders may have full opportunity to make such investigations as they shall
desire to make of the affairs of Xxxxx; and Xxxxx will cause its officers and
accountants to furnish such additional financial and operating data and other
information as Shareholders shall from time to time reasonably request;
provided, however, that any such investigation shall be conducted in such a
manner as not to interfere with the operation of the business of Xxxxx.
6.3. AMENDMENT OF DISCLOSURE SCHEDULE. Until the Closing, Xxxxx shall
promptly inform Shareholders in writing of any variances discovered by Xxxxx or
its representatives in the representations and warranties, or any Disclosure
Schedule, of Shareholders contained in this Agreement. In the event (i) Xxxxx
fraudulently fails to inform Shareholders in writing of any such variances or
(ii) Shareholders are notified of or discover an inaccuracy in any
representation or warranty contained herein or in the Disclosure Schedule or any
non-performance of or non-compliance with any covenant or agreement contained
herein required to be performed
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or complied with by Shareholders at or before the Closing, Shareholders may, in
the case of clause (ii) above, amend the Disclosure Schedule to reflect such
inaccuracy and, in either case, if Xxxxx nevertheless consummates the Merger,
notwithstanding the foregoing, Xxxxx shall be deemed to have waived (x) such
inaccuracy, non-performance or non-compliance as a condition to its obligation
to close hereunder and (y) any indemnity pursuant to this Agreement in respect
of such inaccuracy, non-performance or non-compliance, it being understood and
agreed that any amendment to the Disclosure Schedule shall not prejudice the
right of Xxxxx to terminate this Agreement pursuant to Section 12.1(b).
6.4. REPAYMENT OF INDEBTEDNESS. At the Closing, Xxxxx will take all
action necessary to repay, discharge and obtain releases in respect of those
items of the Total Debt which are listed in Section 6.4 of the Disclosure
Schedule.
ARTICLE VII
ADDITIONAL COVENANTS OF THE PARTIES
7.1. EMPLOYMENT AGREEMENTS. Concurrently with the execution of this
Agreement, Newco or X.X. Management, as the case may be, will enter into the
Xxxxxxxx Employment Agreement with Xxxxxxxx and the Xxxxxxxx Employment
Agreement with Xxxxxxxx, in the forms annexed hereto as Exhibit C-1 and C-2,
each of which will become effective at the Closing.
7.2. REGISTRATION RIGHTS AGREEMENTS. Concurrently with the execution of
this Agreement, Xxxxx will enter into an agreement (the "Registration Rights
Agreement") with each Shareholder, in the form annexed hereto as Exhibit D,
which will become effective at the Closing. Pursuant to the Registration Rights
Agreement, Shareholders shall have the right to require Xxxxx to register the
Xxxxx Shares and the shares of Xxxxx Contingent Stock on the terms set forth
therein.
7.3. POLO LICENSE. On or before the execution of this Agreement, the
parties shall have obtained any necessary or appropriate consents of Xxxx Xxxxx
Xxxxxx to the transactions contemplated hereby.
7.4. LEGAL OPINIONS. Concurrently with the execution of this Agreement,
counsel to Xxxxx and Newco shall deliver a legal opinion or legal opinions
addressed to the Company and Shareholders satisfactory in form and substance to
the Company and Shareholders.
7.5. LEGAL OPINIONS. Concurrently with the execution of this Agreement:
(a) counsel to the Company and Shareholders shall deliver a legal
opinion or legal opinions addressed to Xxxxx and Newco satisfactory in form
and substance to Xxxxx and Newco;
(b) Mexican counsel to the Company shall deliver legal opinions
addressed to Xxxxx and Newco as to the corporate status and related matters
regarding the Company Subsidiaries that are Mexican entities.
7.6. CONFIDENTIALITY. The parties agree that the confidentiality
agreement dated June 4, 1998 shall survive the execution of this Agreement and
shall continue in effect in accordance with its terms or, if sooner, until the
Effective Time.
7.7. ANTITRUST LAWS. Within two business days from the date of this
Agreement, Shareholders and Xxxxx shall make any and all filings which are
required under the HSR Act. Shareholders will cause the Company to furnish to
Xxxxx such necessary information and reasonable assistance as Xxxxx may request
in connection with its preparation of necessary filings or submissions to any
governmental agency, including, without limitation, any filings necessary under
the provisions of the HSR Act.
7.8. CONSENTS. Each party hereto shall use its reasonable efforts to
obtain, prior to the Closing, all consents (including each consent set forth in
Section 3.25 of the Disclosure Schedule, other than those which are being
delivered as of the date hereof), assignments, releases, waivers, approvals,
permits, registrations and conveyances necessary and appropriate to effect the
consummation of the transactions contemplated hereby by such party and will use
its reasonable best efforts to cause all conditions precedent to its obligations
to
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consummate the transactions contemplated by this Agreement to be expeditiously
satisfied, including requesting early termination of the waiting period under
the HSR Act.
7.9. TAX TREATMENT. Each of Shareholders, the Company, Xxxxx and Newco
shall use their reasonable best efforts to cause the Merger to qualify as a
reorganization under the provisions of Section 368 of the Code, shall not take
any action that would cause the Merger to fail to qualify as such, shall provide
to Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP the representations contained in the
certificates to which Sections 8.7 and 9.8 hereof refer and shall not take any
action that would cause them to fail to be able to provide such representations.
7.10. MANAGEMENT OF THE COMPANY AFTER THE MERGER.
(a) Xxxxx agrees that from the Closing Date until December 31, 2001, it
shall operate the Sun Division as an identifiable division for operational and
financial accounting purposes and that so long as Xxxxxxxx is employed by the
Sun Division or Xxxxx, Xxxxxxxx shall be President and Chief Executive Officer
of the Sun Division.
(b) Concurrently with the Closing, Xxxxxxxx shall be elected a director of
Xxxxx and, for so long as Xxxxxxxx is employed by the Sun Division or Xxxxx
under the Xxxxxxxx Employment Agreement, Xxxxxxxx shall be included on
management's slate of nominees for the Xxxxx Board of Directors to the extent
permitted by law and regulatory agencies.
(c) Subject to the Xxxxxxxx Employment Agreement, Xxxxxxxx shall (i)
provide such reports regarding the Sun Division as Xxxxx currently receives from
its other operating divisions (including a budget substantially similar in form
and level of detail as the budget set forth in Section 7.10 of the Disclosure
Schedule, along with the supporting information relating thereto), provided,
that so long as Xxxxx provides or controls the services used to prepare such
reports, the Sun Division shall not be responsible for any failure to provide
such reports and (ii) have the authority to oversee the day-to-day operations of
the business of the Sun Division and shall direct the formulation and execution
of both short-term and long-term plans for the Sun Division, subject to approval
by the Board of Directors of the Sun Division; provided, however, that he shall
be required to obtain the approval of Xxxxx before making any Major Decision (as
defined in the Xxxxxxxx Employment Agreement). Notwithstanding anything to the
contrary contained herein, Xxxxx shall have the right, upon written notice to
Xxxxxxxx, to terminate or limit the authority granted to him pursuant to this
Section 7.10 at any time after there has been a greater than 10% decrease in the
EBIT of the Sun Division for any two consecutive calendar quarters on a latest
twelve-month basis as compared to the EBIT for the comparable periods of the
immediately preceding fiscal year of the Sun Division, except where such
decreases are caused by a Force Majeure Event.
(d) A "Force Majeure Event" shall mean any of the following events which
has a material adverse effect on the Sun Division's business: (i) strikes or
work stoppages by the Sun Division's, or any of its ten largest customers',
suppliers' or distributors', employees, (ii) disruptions to the Sun Division's
business caused by a natural disaster or other "Act of God" or disruption in any
method of transportation by which the Sun Division or any of its ten largest
customers, suppliers or distributors who transport materials or products to or
from the Sun Division, (iii) war, declared or undeclared, or civil insurrection
in the United States or in Mexico or any other country in which the Sun Division
produces or sells at least 20% of its products or (iv) adverse changes in the
relationship between the United States and Mexico (including material adverse
modifications to the North American Free Trade Agreement) or any other country
in which the Sun Division produces or sells at least 20% of its products.
7.11. COLLECTIVE BARGAINING AGREEMENTS. The parties agree that effective
as of the Closing Date, Newco shall assume and continue in full force and effect
the Company's collective bargaining agreement with Local 000, Xxxx Xxxxxx
Xxxxxxxx Joint Board, Union of Needletrades, Industrial and Textile Employees,
AFL-CIO dated April 7, 1998, which by its terms extended and modified the
Company's collective bargaining agreement with Local 360, International Ladies'
Garment Workers' Union dated January 28, 1995 -- December 31, 1997. Such
assumption by Newco shall not be deemed to limit in any way Shareholders'
obligations arising out of their representations and warranties set forth in
Section 3.20(a).
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7.12 ISSUANCE OF COMPANY COMMON STOCK. Prior to the Closing, Xxxxxxxx
shall have been issued (and shall own as of the Closing) a number of shares of
the Company Common Stock equal to 1% of the shares of the Company's Common Stock
then outstanding, after giving effect to such issuance.
7.13. DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE
(a) For a period of six (6) years after the Effective Time, Newco shall
indemnify all present and former directors, officers, employees and agents of
the Company for acts or omissions occurring prior to the Effective Time to the
fullest extent now provided in Newco's certificate of incorporation and by-laws
consistent with applicable law, to the extent such acts or omissions are
uninsured, and shall, in connection with defending against any action for which
indemnification is available hereunder, reimburse and advance expenses to such
officers, directors, employees and agents, from time to time upon receipt of
supporting documentation, for any reasonable costs and expenses reasonably
incurred by such officers, directors, employees and agents in connection with
such defense.
(b) The indemnification referred to in the foregoing paragraph shall in no
way limit or abrogate the obligation of the Shareholders (other than the
Xxxxxxxx Family Trust and Xxxxxxxx) to indemnify Xxxxx and Newco pursuant to
Article XI hereof.
7.14. BANK ACCOUNTS. From the date hereof until the Closing, Shareholders
shall use their reasonable best efforts to deliver to Xxxxx true, correct and
complete lists of (i) the locations of all banks, trust companies, savings and
loan associations and other financial institutions at which the Company or any
Company Subsidiary maintains safe deposit boxes or accounts of any nature and
(ii) all persons authorized to draw thereon, make withdrawals therefrom or have
access thereto.
ARTICLE VIII
CONDITIONS TO SHAREHOLDERS' AND THE COMPANY'S OBLIGATIONS
Each and every obligation of Shareholders and the Company to consummate the
transactions contemplated by this Agreement shall be subject to satisfaction, on
or before Closing, of each of the following conditions, unless waived in writing
by Shareholders:
8.1. REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Xxxxx and Newco contained herein shall be in all material respects
true and accurate as of the date hereof, except for changes expressly permitted
or contemplated by the terms of this Agreement.
8.2. PERFORMANCE. Xxxxx and Newco shall have performed and complied in
all material respects with all agreements, obligations and conditions required
by this Agreement to be performed or complied respectively with by Xxxxx or
Newco on or prior to the Closing.
8.3. NO INJUNCTION OR RESTRAINT. No statute, rule, regulation, executive
order, decree, temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other
governmental entity preventing the consummation of the Merger shall be in
effect; provided, however, that each of the parties shall have used its
reasonable best efforts to prevent the entry of any such temporary restraining
order, injunction or other order and to appeal as promptly as possible any
injunction or other order that may be entered.
8.4. PAYMENT OF THE MERGER CONSIDERATION. At the Closing, Xxxxx shall
have delivered to Shareholders the Tentative Aggregate Merger Consideration.
8.5. HSR ACT. The waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
expired.
8.6. LISTING OF SHARES. The NYSE shall have approved for listing the
Xxxxx Shares, subject to official notice of issuance.
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8.7. TAX OPINION. The Company shall have received an opinion of Skadden,
Arps, Slate, Xxxxxxx & Xxxx LLP substantially in the form set forth in Exhibit E
hereto, dated the Closing Date, substantially to the effect that, on the basis
of facts, representations and assumptions set forth in such opinion the merger
will qualify as a reorganization described in Section 368(a) of the Code. In
rendering such opinion, Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP may receive and
rely upon representations contained in certificates of officers of the Company
and Xxxxx substantially in the form set forth in Exhibit E-1 hereto.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF XXXXX AND NEWCO
Each and every obligation of Xxxxx or Newco to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Closing, of each of the following conditions, unless waived in
writing by Xxxxx or Newco, as the case may be:
9.1. REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties contained in Article III and Article IV hereof and the Disclosure
Schedule shall be in all material respects true, complete and accurate as of the
date hereof, except for changes expressly permitted or contemplated by the terms
of this Agreement; provided, however, that such changes shall not include any
Shareholder amendment made to the Disclosure Schedules as provided for in
Section 6.3 herein.
9.2. PERFORMANCE. Shareholders shall have performed and complied in all
material respects with all agreements, obligations, conditions and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Closing.
9.3. NO INJUNCTION OR RESTRAINT. No statute, rule, regulation, executive
order, decree, temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other
governmental entity preventing the consummation of the Merger shall be in
effect; provided, however, that each of the parties shall have used its
reasonable best efforts to prevent the entry of any such temporary restraining
order, injunction or other order and to appeal as promptly as possible any
injunction or other order that may be entered.
9.4. PAYOFF LETTERS. Xxxxx shall have received from each holder of any
part of the Total Debt to be paid at Closing a letter reasonably satisfactory to
Xxxxx stating the amount necessary as of the Closing Date to pay and discharge
in full the Total Debt held by each such holder.
9.5. DELIVERY OF STOCK CERTIFICATES. At or prior to the Closing,
Shareholders shall have delivered to Xxxxx the certificates representing their
Company Common Stock or Company Preferred Stock, as the case may be, for
cancellation by the Surviving Corporation.
9.6. TERMINATION OF AFFILIATE AGREEMENTS AND CERTAIN RESIGNATIONS. Xxxxx
shall have received documents reasonably satisfactory to Xxxxx terminating the
following agreements with Affiliates of the Company or evidencing certain
resignations:
(a) Employment Agreements between the Company and Xxxxxxxx and X.X.
Management and Xxxxxxxx;
(b) Stockholders Agreement, dated as of September 26, 1997;
(c) Vestar Management Agreement, dated as of September 26, 1997;
(d) Resignations of Company directors and Company Subsidiary officers
and directors.
9.7. HSR ACT. The waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
expired.
9.8. TAX OPINION. Xxxxx and Newco shall have received an opinion from
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP substantially in the form set forth in
Exhibit E hereto, dated the Closing Date, substantially to the effect that, on
the basis of facts, representations and assumptions set forth in such opinion
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the Merger will qualify as a reorganization described in Section 368(a) of the
Code. In rendering such opinion, Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP may
receive and rely upon representations contained in certificates of officers of
the Company and Xxxxx substantially in the form set forth in Exhibit E-1 hereto.
ARTICLE X
CONDUCT OF THE COMPANY'S BUSINESS PENDING CLOSING AND RISK OF LOSS
From the date hereof to the Closing Date, and except as otherwise expressly
consented to or approved by Xxxxx or Newco in writing:
10.1. REGULAR COURSE OF BUSINESS. Shareholders shall use their reasonable
best efforts to cause the Company and each Company Subsidiary (i) to carry on
its business in the ordinary course consistent with past practice and to use
reasonable efforts to preserve intact its business organization and assets and
maintain its rights, franchises and existing relations with customers,
suppliers, employees and business associates and (ii) not to engage in any
transaction or activity, or enter into any agreement or make any commitment or
take any action, inconsistent with, or which would adversely affect its ability
to perform any of its material obligations under, this Agreement.
10.2. ORGANIZATION. Shareholders shall cause the Company to use its
reasonable best efforts to preserve its corporate existence and business
organization intact, to keep available to Xxxxx its officers and key employees,
and to preserve for Xxxxx its relationships with key licensors, suppliers,
distributors, customers and others having business relations with it.
10.3. CERTAIN CHANGES. Shareholders shall cause the Company not to take
any of the following actions without the written consent of Xxxxx which consent
shall not be unreasonably withheld:
(a) Borrow or agree to borrow any funds or incur, or assume or become
subject to, whether directly or by way of guarantee or otherwise, any
obligation or liability (absolute or contingent), except current
obligations and liabilities incurred in the ordinary course of business;
(b) Permit or allow any of its property or assets (real, personal or
mixed, tangible or intangible) to be subjected to any mortgage, pledge,
lien or encumbrance, except for Permitted Liens;
(c) Dispose of or permit to lapse any rights, contract, licenses,
permits or any other rights to the use of any Intellectual Property, or
dispose of or disclose to any person, other than an employee in the
ordinary course of business and consistent with past practices, any trade
secret, formula, process or know-how not theretofore a matter of public
knowledge;
(d) Take any action with respect to the grant of any increase in the
compensation of officers or directors, grant any bonus, severance or
termination pay (including such benefits pursuant to any pension, profit
sharing or other plan or commitment) or any increase in the compensation or
fringe benefits payable or to become payable to any officer or employee
committee to, or implement or otherwise modify or amend any Benefit
Arrangement, collective bargaining agreement, employment policy or practice
except as permitted by this Agreement;
(e) Other than as set forth on the capital expenditure plan previously
approved by Xxxxx and set forth on Section 2.14(d) of the Disclosure
Schedule, make in the aggregate capital expenditures and commitments in
excess of $25,000 for additions to property, plant or equipment without the
prior written approval of Xxxxx;
(f) Hire any employee, consultant or independent contractor for
compensation, on an annualized basis, exceeding $250,000.00 per annum
(provided, however, that Xxxxx shall not, solely on the basis of the amount
of compensation, disapprove of an employee, consultant or independent
contractor who is proposed to be hired as a replacement for a terminated or
departed employee, consultant or independent contractor at a comparable
compensation level); or enter into or become bound by any employment or
consulting contract or legally binding understanding or arrangement
regarding such employment.
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(g) Make, declare or pay any dividend or other distribution (other
than regularly scheduled dividends in respect to the Company Preferred
Stock) with respect to the Company Common Stock or Company Preferred Stock.
(h) Dispose of or discontinue any portion of its business which is
material to the Company and the Company Subsidiaries taken as a whole or
acquire all or any portion of the business of any other entity; provided,
however, that the Company shall have the right to acquire 100% of the
equity interest in Sun Manufacturing, Inc.
10.4. CONTRACTS. No contract, lease, license, permit or commitment will
be entered into, extended, materially modified, terminated or renewed except in
the ordinary course of business and no purchase of raw material or supplies and
no sale of assets will be made, by or on behalf of the Company, except (i)
normal contracts or commitments for the purchase of, and normal purchases of,
raw materials or supplies, made in the ordinary course of business and
consistent with past practice, (ii) normal contracts or commitments for the sale
of, and normal sales of, inventory in the ordinary course of business and
consistent with past practice, and (iii) other contracts, commitments, purchases
or sales in the ordinary course of business and consistent with past practice
not in excess of $100,000.
10.5. INSURANCE OF PROPERTY. The Company shall adequately insure all
property, real, personal and mixed, owned or leased by the Company, against all
ordinary and insurable risks; and all such property shall be used, operated,
maintained and repaired in a manner consistent with past practices. The Company
shall not allow or permit to be done any act by which insurance policies may be
impaired, terminated or canceled.
10.6 NO DEFAULT. The Company shall do no act or omit to do any act, or
permit any act or omission to act, which will cause a breach of any Material
Contract of the Company or which would cause the breach in any material respect
of any representation, warranty, or covenant made hereunder.
10.7. TAX RETURNS. The Company shall prepare and file all federal, state,
local and foreign tax returns and amendments thereto required to be filed by it
and shall pay all applicable federal, state and local taxes when due.
10.8. RISK OF LOSS. If any portion of the Company's property is destroyed
or damaged by fire or any other cause on or prior to the Closing Date, other
than use, wear or loss in the ordinary course of business, the Company shall
give written notice to Xxxxx as soon as practicable (but in no event later than
five (5) calendar days) after discovery of such damage or destruction, the
amount of insurance, if any, covering such property and the amount, if any,
which the Company is otherwise entitled to receive as a consequence.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
11.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements
contained in the Disclosure Schedules delivered by or on behalf of the parties
pursuant to this Agreement shall be deemed to be representations and warranties
by the parties hereunder. The representations, warranties, covenants and
agreements of Shareholders, Xxxxx and Newco contained herein shall survive the
consummation of the transactions contemplated hereby and the Closing Date. All
such representations and warranties and all claims and causes of action with
respect thereto shall terminate on April 30, 2000; provided, however, that (i)
the representations and warranties made pursuant to Sections 3.4(a), 4.1, 4.8,
5.4 and 5.5 shall survive without time limitation, (ii) the representations and
warranties made pursuant to Section 3.27 shall survive for a period of 4 years,
(iii) the representations and warranties made pursuant to Section 3.14 shall
survive until the expiration of the applicable statute of limitations and the
representations and warranties made pursuant to Section 5.10 shall survive until
the expiration of the applicable statute of limitations. The termination of the
representations and warranties provided herein shall not affect the rights of a
party in respect of any Claim (defined in Section 11.2(d) below) made by such
party in a writing received by the other party prior to the expiration of the
applicable survival period provided herein. Notwithstanding the foregoing all
Claims for
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Damages (defined in Section 11.2(a) below) based on fraudulent actions shall
survive without time limitation.
11.2. INDEMNIFICATION.
(a) By Shareholders. Shareholders, other than the Xxxxxxxx Family Trust
and Xxxxxxxx, jointly and severally, shall indemnify, save and hold harmless
Xxxxx, the Surviving Corporation, their respective affiliates and subsidiaries,
and their respective representatives, from and against any and all costs, losses
(including without limitation diminution in value), taxes, liabilities,
obligations, damages (excluding in each case, consequential damages and lost
profits), lawsuits, deficiencies, claims, demands, and expenses (whether or not
arising out of third-party claims), including without limitation interest,
penalties, costs of mitigation, and other losses resulting from attorney's fees
and all amounts paid in investigation, defense or settlement of any of the
foregoing less the amount of any related net tax benefits and net insurance
benefits actually received by Xxxxx or the Surviving Corporation (herein
"Damages"), incurred in connection with, arising out of, resulting from or
incident to (i) any breach of any representation or warranty or the inaccuracy
of any representation, made by the Company or Shareholders in or pursuant to
this Agreement; (ii) any breach of any covenant or agreement made by the Company
or Shareholders in or pursuant to this Agreement; (iii) the denial by the
Internal Revenue Service of any Tax Benefits, or portion thereof, that were
taken into account in computing the amount of Tax Credits Receivable, which
denial is confirmed pursuant to a Final Determination (as defined below); and
(iv) those items set forth in Section 3.22 of the Disclosure Schedule, but only
to the extent that the Damages relating to such items exceed the accrual and
reserves for such items reflected on the Closing Balance Sheet, notwithstanding
that such items are set forth in and made part of the Disclosure Schedule;
provided, however, that the indemnity under this item (iv) shall exclude the
costs and expenses of defending or prosecuting any such item. For purposes of
the foregoing sentence, a "Final Determination" means (i) the entry of a
decision of a court of competent jurisdiction from which an appeal may no longer
be taken or (ii) the execution of a closing agreement or its equivalent between
the taxpayer and the Internal Revenue Service. The indemnification made pursuant
to item (iii) in the immediately preceding sentence shall survive until the
expiration of the applicable statutes of limitations.
(b) By Xxxxx and the Surviving Corporation. Xxxxx shall indemnify and save
and hold harmless Shareholders from and against any and all Damages incurred in
connection with, arising out of, resulting from or incident to (i) any breach of
any representation or warranty or the inaccuracy of any representation, made by
Xxxxx or Newco in or pursuant to this Agreement; and (ii) any breach of any
covenant or agreement made by Xxxxx or Newco in or pursuant to this Agreement.
(c) Cooperation. The indemnified party shall cooperate in all reasonable
respects with the indemnifying party and such attorneys in the response to,
investigation, trial, defense or other resolution of any actual or threatened
lawsuit action, or directive relating to any Claim or potential Claim and any
appeal arising therefrom; provided, however, that the indemnified party may, at
its own cost, participate in the response to, investigation, trial, defense or
other such resolution of such Claim or potential Claim and any appeal arising
therefrom. The parties shall cooperate with each other in any notifications to
insurers.
(d) Defense of Claims. If a claim for Damages (a "Claim") is to be made by
a party entitled to indemnification hereunder against the indemnifying party,
the party claiming such indemnification shall, subject to Section 11.2 give
written notice (a "Claim Notice") to the indemnifying party as soon as
practicable after the party entitled to indemnification becomes aware of any
fact, condition or event which may give rise to Damages for which
indemnification may be sought under this Section 11.2. If any party is entitled
to the benefit of indemnity hereunder, written notice thereof shall be given to
the indemnifying party as promptly as practicable (and in any event within
thirty (30) calendar days after the service or the citation or summons) or other
notice. The failure of any indemnified party to give timely notice hereunder
shall not affect rights to indemnification hereunder, except to the extent that
the indemnifying party demonstrates actual damage caused by such failure. After
such notice, the indemnifying party shall be entitled, if it so elects, (i) to
take control of the response to, defense, investigation or other resolution of
such Claim, (ii) to employ and engage attorneys of its own choice to handle and
defend the same, at the indemnifying party's cost, risk, and expense, and (iii)
to compromise or settle such Claim; provided, however, that the
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indemnifying party shall not settle any claim without the consent of the
indemnified party if the remedy sought against the indemnified party is other
than solely for money damages; provided, further, that so long as the limitation
set forth in the first sentence of subsection (e) of this Section 11.2 is
applicable to Damages incurred by an indemnified party, the indemnifying party
will (i) consult with the indemnified party before settling any Claim and (ii)
consider in good faith the indemnified party's views with respect to any
potential settlement. If the indemnifying party fails to assume the defense of
such Claim within fifteen (15) calendar days after receipt of the Claim Notice,
the indemnified party against which such Claim has been asserted will (upon
delivering notice to such effect to the indemnifying party) have the right to
undertake, at the indemnifying party's cost and expense, the defense,
compromise, settlement or other resolution of such Claim on behalf of and for
the account and risk of the indemnifying party; provided, however, that such
Claim shall not be compromised, settled or otherwise resolved without the
written consent of the indemnifying party, which consent shall not be
unreasonably withheld. In the event the indemnified party assumes the defense of
the Claim, the indemnified party will keep the indemnifying party reasonably
informed of the progress of any such defense, compromise, settlement or other
resolution. The indemnifying party shall be liable for any settlement of any
Claim effected pursuant to and in accordance with this Section 11.2 for any
final judgment (subject to any right of appeal), and the indemnifying party
agrees to indemnify and hold harmless an indemnified party from and against any
Damages by reason of such settlement, judgment or other resolutions.
(e) Limitations on Liability for Breach of Representations and Warranties.
(i) "Basket". Neither Xxxxx, Newco, the Company or Shareholders shall
be liable to the other under this Section 11.2 for any Damages with respect
to any representation or warranty, the inaccuracy of any representation
made pursuant to this Agreement or the assertion of any claims subject to
indemnification pursuant to this Agreement until the aggregate amount
otherwise due the party being indemnified equals or exceeds an accumulated
total of $2,250,000 and, with respect to claims for taxes pursuant to
Section 11.2(a), only to the extent such claim exceeds the accrual for
taxes reflected on the Closing Financial Statements. Once such claims equal
or exceed the $2,250,000 threshold, the indemnified party will be entitled
to the full amount of all indemnified claims in excess of such $2,250,000;
provided, however, that such $2,250,000 threshold shall not apply with
respect to (A) fraudulent misrepresentations at the time of Closing but not
reflected in this Agreement or the Disclosure Schedule or (B) the
indemnification made pursuant to item (iii) of Section 11.2(a).
(ii) Special Allocation as to Liability for Breach of Section
3.27. After Shareholders have paid a total of $5.0 million to Xxxxx in
respect of Damages with respect to a breach of Section 3.27, thereafter all
remaining Damages with respect to a breach of Section 3.27 shall be paid
75% by Shareholders and 25% by Xxxxx.
(iii) Maximum Liability. The maximum liability of Shareholders for
all indemnifiable events asserted by Xxxxx pursuant to this Article XI
(other than matters asserted under Section 11.2(a)(iii)) shall not exceed
$50 million in the aggregate; provided, however, with respect to fraudulent
misrepresentations in this Agreement or the Disclosure Schedule the maximum
liability of Shareholders shall be the Aggregate Merger Consideration; and
provided further, however, that the maximum liability for matters asserted
under item (iii) of Section 11.2(a) shall be the sum of the value of all
Tax Benefits denied plus all penalties, interest, fees and costs and
expenses (including reasonable fees and expenses of counsel) of every
nature arising out of or related to such matters.
11.3. ARBITRATION.
(a) Any dispute, controversy or claim arising out of or relating to this
Agreement, including, without limitation, the indemnities provided in Article
XI, or the breach, termination or validity of this Agreement, shall be finally
settled by arbitration in accordance with the Expedited Procedures of the
then-prevailing Commercial Arbitration Rules of the American Arbitration
Association, as modified herein (the "Rules"). The place of arbitration shall be
New York, New York. There shall be three arbitrators, of whom Xxxxx shall
appoint one and Shareholders shall collectively appoint one. The two arbitrators
so appointed shall select the chairman of the tribunal within fifteen days of
the appointment of the second arbitrator. If any arbitrator is not
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appointed within the time limits provided herein or in the Rules, such
arbitrator shall be appointed by the American Arbitration Association. By
agreeing to arbitration, the parties do not intend to deprive any court of its
jurisdiction to issue a pre-arbitral injunction, pre-arbitral attachment or
other order in aid of arbitration proceedings. Judgment upon the award of the
arbitrators may be entered in any court of competent jurisdiction. The parties
agree that, except as otherwise provided herein, arbitration in accordance with
this Section 11.3 is the exclusive dispute resolution mechanism for any matter
arising out of or in connection with this Agreement or for the breach,
termination or validity hereof.
(b) For the purposes of an action to enforce an arbitration award under
Section 11.3(a), Xxxxx, Newco, the Company and each Shareholder agrees to
consent to the jurisdiction of the Supreme Court of the State of New York and
the service of process therein.
11.4. EXCLUSIVE REMEDY. Xxxxx, Newco, Shareholders, and the Company
hereby agree that their sole and exclusive remedies with respect to this
Agreement or any matters related to the Company are (with the exception of a
remedy in the case of fraud) the remedies set forth in this Article XI. Except
with respect to the remedies referred to in the preceding sentence, Xxxxx,
Newco, Shareholders and the Company hereby waive, to the fullest extent
permitted under applicable law, and forever release each other, for any claims
related to this Agreement and/or the Company.
ARTICLE XII
TERMINATION AND ABANDONMENT
12.1. METHODS OF TERMINATION. The transactions contemplated herein may be
terminated and/or abandoned at any time but not later than the Closing:
(a) By mutual written consent of Xxxxx, Newco, the Company and
Shareholders; or
(b) By Xxxxx or Newco:
(i) on November 2, 1998, if (x) all of the conditions to closing
provided for in Articles VIII and IX of this Agreement shall have been
met or waived in writing prior to such date and (y) Xxxxx and Newco
shall be ready, willing and able to close and the Company or
Shareholders shall refuse to close, or
(ii) on or after December 31, 1998, if any of the conditions to
closing provided for in Article IX of this Agreement shall not have been
met or waived in writing by Xxxxx or Newco prior to such date;
provided, however, that no such termination shall result in Xxxxx or
Newco waiving any rights they may have pursuant to the proviso to
Section 12.3(c) hereof; or
(c) By the Company or Shareholders:
(i) on November 2, 1998, if (x) all of the conditions to closing
provided for in Articles VIII and IX of this Agreement shall have been
met or waived in writing prior to such date and (y) the Company and
Shareholders shall be ready, willing and able to close and Xxxxx or
Newco shall refuse to close, or
(ii) on or after December 31, 1998, if any of the conditions to
closing provided for in Article VIII of this Agreement shall not have
been met or waived in writing by the Company or Shareholders prior to
such date;
provided, however, that no such termination shall result in the Company
or Shareholders waiving any rights they may have pursuant to the proviso
to Section 12.3(c) hereof.
12.2. TERMINATION UNDER CERTAIN CIRCUMSTANCES. Shareholders and Xxxxx
agree to use their reasonable best efforts to cure the breach of any
representation or warranty and the nonperformance of any covenant or agreement
made by them in this Agreement, and termination pursuant to clauses (b) and (c)
of
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Section 12.1 shall not be available to any party if the Closing shall have been
delayed by any action or failure of such party or by any breach of any provision
of this Agreement by such party.
12.3. PROCEDURE UPON TERMINATION. In the event of termination and
abandonment by Xxxxx, Newco, the Company or Shareholders, or all, pursuant to
Section 12.1 hereof, written notice thereof shall forthwith be given to the
other party and the transactions contemplated by this Agreement shall be
terminated and/or abandoned, without further action by Xxxxx, Newco, the Company
or Shareholders. If the transactions contemplated by this Agreement are
terminated and/or abandoned as provided herein:
(a) Each party will redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the
party furnishing the same;
(b) All confidential information received by any party hereto with
respect to the business of any other party or its subsidiaries shall be
treated in the manner confidential information is treated in the
confidentiality agreement referred to in Section 7.6; and
(c) In consideration for the time and expense that each party has
expended in the due diligence and negotiation of this transaction, no party
hereto shall have any liability or further obligation to any other party to
this Agreement except as stated in subparagraphs (a) and (b) of this
Section 12.3, and neither party shall make any claim, including any action
for equitable relief or specific performance, against the other party nor
be liable for the costs, expenses, or damages that may result to the other
in the event of the other's withdrawal prior to Closing of the transactions
contemplated by this Agreement, provided, however, that termination will
not relieve a breaching party from liability for any willful breach of this
Agreement giving rise to such termination.
(d) Section 13.7 shall survive any termination of this Agreement.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1. AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified and supplemented only by written agreement of
the respective Boards of Directors of Xxxxx, Newco and the Company or by their
respective officers authorized by such Shareholders any time prior to the
Closing with respect to any terms contained herein.
13.2. WAIVER OF COMPLIANCE. Any failure of the Company or Shareholders on
the one hand, or Xxxxx or Newco, on the other, to comply with any obligation,
covenant, agreement or condition herein may be expressly waived in writing by
the Chairman, President or Chief Financial Officer of Xxxxx or Newco or the
Company, and by Shareholders, respectively, but such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.
13.3. EXPENSES, ETC. All of the fees and expenses incurred by Xxxxx and
Newco in connection with the transactions contemplated by this Agreement shall
be borne by them and all of the fees and expenses incurred by the Company and
Shareholders in connection with the transactions contemplated by this Agreement
shall be borne by the Company, in each case, including, without limitation, all
fees of counsel, advisors, investment bankers, experts, actuaries and
accountants of such parties, which fees and expenses shall be either paid prior
to the Closing or, to the extent not paid, accrued as liabilities on the Closing
Balance Sheet.
13.4. INTEREST ON LATE PAYMENTS. "Undisputed Late Obligations" shall bear
interest beginning on the Due Date (defined below) until paid in full at annual
rate of one percent (1.0%) plus the prime rate as declared from time to time by
the Chase Manhattan Bank. For purposes hereof, "Undisputed Late Obligations"
shall mean any obligation for monies under this Agreement owing from one party
to another which remains unpaid 5 days after written notice thereof is delivered
to the other party in accordance with
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Section 13.5 below (the "Due Date"), which obligation (i) is not subject to any
bona fide dispute or (ii) has been adjudicated by an arbitration panel or court
of competent jurisdiction to be due and payable.
13.5. NOTICES. All notices or other communications required or permitted
to be given pursuant to this Agreement shall be in writing and shall be
considered as duly given on (a) the date of delivery, if delivered in person, if
sent by Federal Express or other similar overnight delivery service or
transmitted by facsimile subsequently confirmed or (b) three days after mailing,
if mailed from within the continental United Stated by registered or certified
mail, return receipt requested, to the party entitled to receive the same, at
the address provided in this Section.
Any party hereto may change its address by giving notice to the other
stating its new address, all in the manner provided herein. Such newly
designated address shall thereafter be such party's address for the purpose of
all notices or other communications required or permitted to be given pursuant
to this Agreement.
(a) If to the Company, to:
Sun Apparel, Inc.
000 Xxxx 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxxx
Fax: (000) 000-0000
with a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
(b) If to Xxxxx, to:
Xxxxx Apparel Group, Inc.
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx X. Xxxxxxxxxx, Esq. and
Attn: Xxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
with a copy to:
Xxxxxxxx Xxxxx Xxxxxxxx Xxxx & Ballon LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx X. Xxxxxxx, Esq.
Fax: (000) 000-0000
(c) If to Shareholders, as follows:
If to Rothfeld or the Xxxxxxxx Family Trust:
Xxxx X. Xxxxxxxx
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
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and
c/o Sun Apparel, Inc.
000 Xxxx 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxxx
Fax: (000) 000-0000
with a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
If to Xxxxxxxx:
Xxxxx Xxxxxxxx
000 X. 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
with a copy to:
Xxxxx and Xxxxxxxx
00 Xxxxxxxx Xxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Attn: Xxxxxx Xxxxxxxx, Esq.
Fax: (000) 000-0000
If to Vestar:
Vestar/Sun Holding Company L.L.C.
000 Xxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Sander X. Xxxx
Fax: (000) 000-0000
with a copy to:
Xxxxxxx Xxxxxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
Fax: (000) 000-0000
13.6. ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties.
13.7. PUBLICITY. Prior to the Closing Date, none of the parties hereto
shall make or issue, or cause to be made or issued, any announcement or written
statement concerning this Agreement or the transactions contemplated hereby for
dissemination to the general public without the prior consent of the other
parties (and in the case of press releases made by Xxxxx or Newco, they shall
obtain the prior consent of each Shareholder). This provision shall not apply,
however, to any announcement or written statement required to be made by law or
the regulations of any federal or state governmental agency or the NYSE, except
that the
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party required to make such announcement shall, to the fullest extent possible,
consult with the other parties concerning the timing and content of such
announcement and obtain such other parties' consent before such announcement is
made.
13.8. GOVERNING LAW. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with the laws of
the State of New York, without regard to its conflicts of law doctrine.
13.9. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
13.10. HEADINGS. The headings of the Sections and Articles of this
Agreement are inserted for convenience only and shall not constitute a part
hereof or affect in any way the meaning or interpretation of this Agreement.
13.11. ENTIRE AGREEMENT. This Agreement, including the Exhibits and
Schedules hereto, and all documents required to be delivered thereto and the
other documents and certificates delivered pursuant to the terms hereof, set
forth the entire agreement and understanding of the parties hereto in respect of
the subject matter contained herein, and supersede all prior negotiations,
understandings, discussions, agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto whether written or oral.
13.12. THIRD PARTIES. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person or corporation other than the parties hereto
and their successors or assigns, any rights or remedies under or by reason of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be affixed hereto, all as
of the day and year first above written.
XXXXX APPAREL GROUP, INC.
By:
------------------------------------
Title:
SAI ACQUISITION CORP.
By:
------------------------------------
Title:
SUN APPAREL, INC.
By:
------------------------------------
Title:
--------------------------------------
XXXX X. XXXXXXXX
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XXXXXXXX FAMILY TRUST
--------------------------------------
By:
--------------------------------------, Trustee
--------------------------------------
XXXXX XXXXXXXX
(as Prospective Shareholder pursuant
to section 7.12)
VESTAR/SUN HOLDING COMPANY
L.L.C.
By:
------------------------------------
Title:
--------------------------------------
46
